Tuesday, November 20, 2012

Robert Reich, The Budget Deficit, and Government Spending

"Public investments that spur future job-growth and productivity shouldn’t even be included in measures of government spending to begin with. They’re justifiable as long as the return on those investments – a more educated and productive workforce, and a more efficient infrastructure, both generating more and better goods and services with fewer scarce resources – is higher than the cost of those investments. 
In fact, we’d be nuts not to make these investments under these circumstances. No sane family equates spending on vacations with investing in their kids’ education. Yet that’s what we do in our federal budget."
I'm not sure about "shouldn't be included in measure of government spending," but they certainly go to show that anyone who wants to rank among rational, informed people should not look at government spending as somehow necessarily bad. Government spending can be good, and more often than not is. Private spending decisions can also be either good or bad ... at least outside the fantasy world of laissez-faire dogma.

Monday, November 12, 2012

Fiscal Conservatism And Necessity

We're in a depression. To many, that's stating the obvious. But it seems not quite everyone realizes just yet.

chart of the output gap, real GDP versus potential GDP
GDP depressed below normal levels from 2008 through this writing
Our commerce has been significantly below capacity for several years. By the end of 2008 the quarterly output gap exceeded even the previous record (from 1982) for output gaps since 1949. We've seen the main characteristic factors of depression beyond just the raw output gap: increased unemployment, tight credit for consumers and small business, and bank failures (though many of the potential failures were averted). And as anyone familiar with Irving Fisher's work should know, we'd surely have had significant deflation from the paying down of private debts were it not for a series of Fed actions to mitigate deflationary forces.

Deficit hawks ignore the reasons for our deficits in recent years. Depressions increase short-term costs. People out of work utilize the safety net when they wouldn't otherwise. We have a severe short-term increase in costs. At the same time, depressions also reduce revenue. We bring in less tax money because fewer people are getting paid, and often smaller real wages.

There's one clear answer to get rid of deficits: get people back to work. Rev up the economy back to potential. Close the output gap. Until we do that, we'll continue to have increased costs and reduced revenues.

In our attempts to close that output gap, today's fiscal conservatives hamstring us with massive state budget cuts to avoid the temporary tax increases and/or bond issuance needed for dealing with the downturn. Their unwillingness to raise revenue means lots of layoffs, slowing down our economy while hurting the quality of services that we the people want. Many of us would willingly pay more in taxes to keep quality of service through an economic downturn. Many of us would be more than willing to pay more in taxes to keep investing in the sort of growth-spurring government measures that can get us back to expansion. But fiscal conservatives will brook no such sensibility. So instead we get slower growth and less prosperity. Like our slow recovery? Thank a fiscal conservative. Like our rising tuition costs for students? Thank a fiscal conservative. Like our broken roads increasing business costs? Thank a fiscal conservative. Like fewer research patents being licensed to domestic businesses than we'd otherwise have over the coming years? Thank a conservative.

This impact is nothing new. We had deficit hawks and credit growth hawks to thank for the recession of 1937-38 when attempts to balance the budget and tighten monetary policy put a crimp in recovery from the Great Depression. We had sharp cuts in the name of balanced budget zeal to thank for the recessions and increased unemployment under Eisenhower. Time and again, we keep having to re-learn the lesson that sharp cuts hurt even when they're earnestly meant to help.

We're long overdue to stop letting fiscal conservatives shape the narrative. We need to stop worrying about balancing the budget when we're in the midst of a downturn. When the economy's roaring at full steam, then we can afford to mess about with budget balancing. Until then, we can't afford their cuts.

One needs to already be in good shape to recover from a deep, large, sharp cut. Until we've eliminated the output gap, we need more recovery efforts ... not more cuts.

Friday, November 9, 2012

In the Wake of the Election, Can the GOP Face Reality?

David Frum, former economic speechwriter for President George W. Bush, says that the GOP has, "been fleeced, exploited, and lied to by a conservative entertainment complex".

Tuesday, November 6, 2012

The Real Threat to Capitalism

Mark Thoma on the real threat to capitalism:
"Free-market advocates fear creeping socialism, but too much inequality is presently a much bigger threat to the capitalist system."
Maintaining a balance is much easier when one recognizes that it's possible to veer off the road on either side rather than in just one way.

Monday, November 5, 2012

Echo Chambers and Ideologues

Among the things that have been made clear to many this election season: quite a few folks out there are listening to an array of sources that echo each other without any solid grounds for what they say. And many of those folks are taking the seeing of that echo reflected on the many sites as if it were proof that what's echoing around those sites were true. Meanwhile, many have begun to wrongly dismiss as "biased" even the most reputable sources that would disagree with their preferred beliefs ... merely because those reputable sources challenge certain preconceptions.

For instance, challenge a climate change denier and one is likely only to encourage them to even more thoroughly embrace others who are likewise making similar claims in denial. Perhaps that's the true secret of success behind the growth of the right-wing sources.

In "Chart of the Day: The Power of the Right-Wing Echo Chamber", Kevin Drum explores a chart that demonstrates the effect of this tendency regarding job numbers. It begs the question: among those who are listening to this "echo chamber", what could possibly shake them from those among their beliefs that can be dis-proven? When proof just leads to ever more vociferous rejection, what can bring re-evaluation of those preconceptions?

While the truth tends to rest somewhere in the middle, that can only be so when the sides are balanced. Once one side abandons its extreme for that middle where the truth lies, the truth doesn't shift to the new middle between the side that held fast and the side that moved to the truth. But how can we shake loose a side that persistently rejects the true middle?

Sunday, November 4, 2012

And The Economist Endorsement Goes To ...

The Economist may not be especially cheerful about the election:
"FOUR years ago, The Economist endorsed Barack Obama for the White House with enthusiasm. So did millions of voters. Next week Americans will trudge to the polls far less hopefully. So (in spirit at least) will this London-based newspaper. Having endured a miserably negative campaign, the world’s most powerful country now has a much more difficult decision to make than it faced four years ago."
Of course, some would say we shouldn't expect cheerful enthusiasm to be the norm from a publication named for "the dismal science".

But nonetheless The Economist has issued an endorsement for President Obama, even if mainly because "Mr Romney has an economic plan that works only if you don’t believe most of what he says".