Wednesday, June 15, 2011

Pawlenty vs FDR

Sustained five percent growth? One might ask when we could possibly find an example of that sort of growth in American history.

From "Pawlenty’s 5 Percent Growth Solution Makes Historical Sense"
"So, yes, the U.S. economy has indeed shown an ability to grow at an average of five percent over a 10-year period. The problem for Pawlenty, and for many other modern-day politicos who believe they know the secret to rapid growth, is that all this growth came under Franklin Delano Roosevelt.

In the 1930s, as Roosevelt and his allies saved American-style capitalism from its own gaudy excesses and pathetic failings, Republican opponents, business interests and trade groups stomped their feet. They accused FDR of being a Socialist, of burdening the economy with regulations, of scaring investors by fomenting uncertainty, of hampering investment by instituting a new safety net, of placing restrictions on a bankrupt Wall Street and banking system. These crazy Keynesian schemes would never work. Why, they would turn the U.S. into a weak clone of the U.S.S.R., unable to compete in global markets, lead, or stand up to external enemies. (Plus ca change. . .)

Of course, the exact opposite happened. In the 1930s and 1940s, the U.S. economy (and its stock market) got back on its feet, rediscovered its capacity to grow, expanded and then led the world to victory over Fascism."
Sadly, Pawlenty is no FDR. Despite all the Republican grumbling about President Obama, sadly, President Obama is no FDR either. But who knows? Maybe there's a chance we voters will get our act together in 2012 and elect a Congress full of FDRs in response to what the Republicans have been trying to do. That's the only way we'd be likely to see that sort of sustained growth any time soon.

Saturday, June 11, 2011

Gross Govt Impact

The idea that we should make huge govt budget cuts is premised on the notion that our economy would be better off that way, wouldn't be hurt by it, or at least would soldier on about the same. Sometimes the best insight into that notion comes from people who weren' even discussing budget cuts directly. Daniel Gross's recent article about whether to buy bonds or not didn't touch on the idea of budget cuts at all. It's one and only focus was on whether US govt bonds are still a safe-haven investment compared to stocks. To explain that, he covers the impact on stocks if the US runs up against the debt ceiling and stops spending to not default on bonds.
"The U.S. government occupies a pretty large footprint in the economy. It employs 2.85 million people directly. Next, think of all the businesses, many of them publicly held, that rely on the government  for a big chunk of their business. For-profit education companies, defense contractors, the entire health care industry, Wal-Mart and other retailers that cater to people who depend on federal benefits to help pay their grocery bills. Every large consulting firm, every large tech firm (from Microsoft to IBM) has a large unit that provides services and products to the federal government.

Should the U.S. bump up against the debt limit without resolution, it's possible the Pentagon would delay indefinitely the signing of new contracts for fighter jets. Or agencies would cancel or slowdown payment on IT projects. Or Congressmen and their staffers would see their wages reduced. Or fewer people would get food stamps. The cumulative impact would be less demand, less economic activity, more uncertainty."
In pointing this out, Mr. Gross was ostensibly more concerned with explaining why bonds seem a relatively safe investment at this point. He says, "government reliance on debt to fund of operations and investments is so great that they'd rather alienate workers and citizens and taxpayers than anger the bond market." So all the explanation of what they'd have to do to avoid angering the bond market just explains why stocks are the more risky bet despite debt ceiling fears.

Yet there's a far more important take away than Mr. Gross's surface question of whether it makes more sense to invest in bonds versus stocks. Those payments we'd have to avoid making? They're a lot like the cuts the GOP wants to make. If the Republicans got their way -- the whole thing for which they're playing chicken with the debt ceiling -- we'd see most of those cuts. No wonder they don't care about the debt ceiling, if what they figure we'd avoid paying to avoid default are the things they don't want to fund anyway. And "Of course, all these moves would be contractionary — they'd help slow economic growth."

Contraction, by the way, is more or less a general term for things like recessions and depressions. Mr. Gross didn't speculate on whether those non-payments (or cuts, if de-funded in a relatively orderly manner) would cause a mere recession or a full-fledged depression. But that's really the remaining question for anyone who might be paying attention to where the Republicans goals would shove us. If the Republicans get their massive budget cuts, the question isn't whether it'll hammer the economy, the question is only how hard ... and whether we've ever seen it hammered that hard before.

Friday, June 10, 2011

Why Business Hires, and the Deficit Isn't It

Why would you hire a new employee for your business assuming you had one? All of the answers generally come down to one root: to make the company better.

Better could be a lot of things: producing more products/services, reducing vulnerability to some risk, producing better products/services, improving public image, broadening supply resources, strengthening relationships with vendors/clients/customers, etc. They all more or less seek the same goal. You want your company to bring in more income and do so more reliably.

What's this have to do with the deficit? Nothing.

Seriously, how many businesses can you name that consider the deficit when making a hiring decision? A few financial companies may occasionally see some impact from really big deficit changes on the need to create or eliminate positions related to bond trading. That's most of the jobs that are impacted by the deficit in any real way. Ordinary businesses hire because they need more employees to cover their production or to pitch their products, with absolutely no factoring in the size of the deficit.

None the less, Republicans want us to focus on cutting the deficit despite that many of them campaigned on the idea that they would improve the job situation. So now they're trying to make people think there's a connection between what they promised and what they're trying to do.
"Cutting the federal deficit will create jobs" -- Rep. Cantor (R-VA)
That's completely and utterly divorced from any sort of reality on where we get jobs. The GOP have begun spinning elaborate stories to try to pretend there's a connection. Why is Rep. Cantor making that claim? Voters are concerned about jobs. The Republicans know that right now there's no better pitch for anything than jobs. And they wants to eliminate any govt program they can get their hands on. There's no way to get more support for their plans to ransack govt than to convince voters that it'll help what voters really care about: jobs. Unfortunately, the truth is quite the opposite. The truth is that -- during a troubled economy -- the sort of cuts the Republicans are pushing are worse than doing nothing at all.

Cutting the deficit won't give businesses more customers. Cutting govt spending takes customers away from businesses that provide goods and services to the govt. That's most businesses. Indirectly, that's all businesses. During good times, when the economy is humming along at a fast pace, a govt cutback wouldn't necessarily be a big problem. With the economy struggling to recover from the massive credit crunch and layoffs that were the finale of the Bush II administration, we can't afford so many businesses losing demand from govt purchases. The most obvious reason to hire is to handle greater demand. The most obvious reason for layoffs is because of a drop in demand. There's no more surefire way to drive ourselves back into recession -- or worse -- than massive budget cuts. That's a recipe for even higher unemployment.

On a related note, for a decent catalog of the Republican record as far as jobs, see ""Where Are The Jobs?":The GOP's Two-Year Campaign Against Job Creation and Economic Growth"

Thursday, June 9, 2011

The Sprint Towards Insanity

Wow. And we thought things were getting a bit nutty in the 2010 elections. One has to wonder, since the Democrats have adopted so many of the Republican ideas (e.g., cap-n-trade, etc.) years after the Republicans brought them up: For 2016 will the Democrats also embrace something like what's going on in the Republican party today?

Michael Tomasky said it well, in "The Lies and Lunacy in Tim Pawlenty's Economic Plan", "The Republicans have lost any connection to earth, and the Democrats are afraid (with a few noble exceptions) to tell the American public the truth."

It is in this context, that perhaps we shouldn't be entirely surprised that among the notable celebrated likely serious contenders for the GOP Presidential nomination are Santorum, Romney, and Gingrich. Santorum is so far right-wing that he's been known to make other conservatives nervous. Romney is best known for a plan from which he's desperately trying to disassociate himself and claim it wouldn't be good for the country. And Gingrich has that remarkable contradiction of championing the "Defense of Marriage" while himself going through wives like tissue during cold-n-flu season.

In a nutshell, the GOP is running a bowl of mixed nuts.

Ah, but there's Pawlenty, right? For quite some time, most of what we heard about Pawlenty was that he might be a bit boring ... that he lacked charisma. Perhaps he's not so boring after all. He's put forward a "plan" that's more or less total fiscal insanity. That's some exciting stuff. You can't be entirely boring when you put forward a plan that ridiculous. Then again, it does rather come across as the natural extension of the direction in which Republican policy has been heading.

As Tomasky put it,
"The lie, which one hears from Republicans on cable television on a daily basis, is that “we spent our way into this crisis.” Yes, federal spending has gone up significantly in the last decade. But increased spending wasn’t as decisive as decreased revenue. The truth can’t be said often enough: We did not spend our way into this crisis; we de-taxed our way into it."
If folks take that lie and base their world around it -- around the madness that cutting taxes would always be good and couldn't possibly be the real cause of deficits -- then they're going to come up with some really absurd plans.

Monday, June 6, 2011

How's that Austerity Going?

Time for an update on how austerity efforts are going.

In Greece, a movement of protesters called Indignados has spread from Spain where signs had taunted, "Quiet, we mustn't waken the Greeks". The effect has reportedly been to transform the previously violent protests into more peaceful protests featuring waving of the Greek flag, much discussion of their situation, and a broad variety of Greeks coming together to reject the Euro plan to shove economy-crushing cuts down their collective throats. In addition to the general protesters, Yannis Palaiologos writes that "more than a dozen of the governing party's deputies are openly expressing their reservations about the new measures, while the main opposition party adamantly refuses to lend its support".

In the U.K., a long list of economics/business profs and other notables wrote a collective letter in the Observer saying, "As economists and academics, we know the breakneck deficit-reduction plan, based largely on spending cuts, is self-defeating even on its own terms. It will probably not manage to close the deficit in the planned time frame and the government's strategy is likely to result in a lot more pain and a lot less gain." They also offered up a rough start of a plan B, though the chances of the Cameron govt accepting their plan B seem low.

In Portugal, Bloomburg reports that "Portugal may have followed Greece into recession even before implementing austerity measures demanded for its European Union bailout that are set to further choke the economic growth needed to tame the country’s debt."

In Ireland, Eamon Quinn reports that, "unemployment has soared from 4.4% in 2007 to 14.8% in May." Their main hope for recovery seems to be an exports boom, although that seems unlikely to overcome the impact of severe austerity measures.

As for Spain, per Sylvia Poggoli, "Under international pressure to cut its deficit, the government imposed sharp austerity measures — cutting public service workers' salaries, freezing pensions and drastically reducing public expenditures. The immediate results: a 20 percent drop in consumption and Europe's highest jobless rate, 21 percent." No wonder they have Indignados.