Thursday, October 17, 2013

Shutdown: Since When Does Losing Give One A Mandate?

In a republic such as ours, while the interests of the minority are supposed to be protected from extreme trampling, the minority is not supposed to rule outright. The Republican Party holds a minority position. They have dominance over but one chamber of Congress. They lost the Presidential election. Although they officially retained the House majority, they got fewer total votes in the elections for the House than Democrats did (which hints at their having retained that technical majority only by way of gerrymandering).

As such, nobody should expect the GOP to be getting their fondest desires in a big way, re-writing standing law to eliminate major legal accomplishments of the other party. The GOP lost in 2012! They LOST! One does not lose an election season and come out of that loss with a mandate for one's platform ... the platform that lost ... the platform that the electorate by and large rejected.

Yet despite that loss, they've managed to push significant reductions in spending, overwhelming the voices of economists pointing out that reduced government spending is the last thing our economy needs right now. And the Democrats, whether just seeking to get something done or perhaps also not listening to economists, have compromised quite frequently. Much to the displeasure of the Democrat's base. Those who're writing apologetics for the Republican Party today had to work very hard to spin this one as anything other than the GOP overreach that it was.

Tuesday, October 15, 2013

"Getting Close to the Debt Ceiling is Bad Enough"

Monday, September 16, 2013

Turns Out They Weren't All That Concerned With Academic Support

From Jonathan Chait's, "The Arguments of the Great Recession Are Over. Hooray.":
"Academic support for that position has almost entirely collapsed. I don’t even see many conservative intellectuals defending it in columns. And yet the Republican Party marches on, opposing any effort to lift short-term austerity policies that economists almost all believe are holding back the recovery. It’s as if the head of the austerity monster has been sliced off, but the body lurches forward regardless."
Why should this come as any surprise? We're talking about the party that has set itself forward as opposed to the "reality-based community". What use have they for we who "believe that solutions emerge from ... judicious study of discernible reality" when our reality conflicts with their ideology?

Wednesday, August 28, 2013

Education Cost and Benefit: Why Ed Loans Should Not Be Seen As a "Distortion" From a Perfect Market

Some see low interest education loans as distorting the market for education and therefore bad, supposedly making the market less perfect, less efficient, less well-tuned.

Why focus on the narrow education loan segment alone as if it weren't entirely and necessarily interconnected with the needs it serves. What about business needs? The larger market ecosystem -- the economics of business and education -- involves a requirement for a supply of educated workers. Limiting the supply to only those who can pay their own way into education impedes business, a practical flaw in the greater job market. How would it be perfecting the greater job market to reduce the supply of educated workers to business when it is already insufficient?

This opposition to "distortion" on a narrow, inextricable segment of the greater system fails to qualify as an objective "good". It's an artificial and aesthetic goal rather than a practical, objective improvement of the greater economic system. The greater economic system for workforce education can relatively objectively be seen as functioning more perfectly when it yields a supply of qualified labor that's sufficient to foster business profits and yet not so excessive as to detract from employee prosperity. The current system falls short in supply of educated workforce.

Seeing loans as a distortion here is rather like seeing the spokes in a gear as a distortion from a perfect circle. Yes, those teeth on a gear distort its form from a perfect circle. But cut the teeth off the gear that drives the propulsion and a machine won't get very far. Education loans serve as teeth for the workforce capability gear. Remove the "distortion" from education loans and the wheels of modern business will slow towards a halt.

Sometimes getting rid of distortion would rob us of what we need most.

Tuesday, August 27, 2013

The Lesson That Ought To Be Learned

From Mark Thoma's The Great Lesson For The Great Recession for the Fiscal Times,
"Fiscal policymakers in Congress deserve more blame and scorn than they have received for their poor response to the recession. Congress failed to implement a fiscal stabilization package that was large enough to address the big problems the economy was facing, and due to Republican opposition it refused to implement additional measures when it became clear the initial package was too small in both size and duration. Congress could have, for example, followed up by putting people to work on infrastructure projects that would have more than paid for themselves just in terms of their value to society, never mind the additional benefits from helping the unemployed. 
That failure was bad enough. But even worse is that fiscal policymakers actually began moving in the wrong direction – toward austerity – at a time when just the opposite policy was needed. The result has been a much slower recovery than we might have seen otherwise."


The trend continues. No real surprise, except perhaps that efforts to obstruct any real progress by avoiding jobs bills and by other general deficit hawkery haven't quite managed to interrupt the all-too-gradual recovery ... at least so far.

gradually declining unemployment rate

It's not for lack of trying.

declining Real Government Consumption Expenditures and Gross Investment

That there's more or less a picture of our current fiscal contraction. The reduction in Real Government Consumption Expenditures and Gross Investment drains the life out of our recovery, making it tepid at best. And if our recovery halts before we make a dent in our output gap, that's the obvious main culprit right there.

Monday, March 18, 2013

Senator Warren On Productivity Growth Returns And The Minimum Wage: It Sure Didn't Go To The Worker

From "Elizabeth Warren: Minimum Wage Would Be $22 An Hour If It Had Kept Up With Productivity":

"'If we started in 1960 and we said that as productivity goes up, that is as workers are producing more, then the minimum wage is going to go up the same. And if that were the case then the minimum wage today would be about $22 an hour,' she said, speaking to Dr. Arindrajit Dube, a University of Massachusetts Amherst professor who has studied the economic impacts of minimum wage. 'So my question is Mr. Dube, with a minimum wage of $7.25 an hour, what happened to the other $14.75? It sure didn't go to the worker.' 
Dube went on to note that if minimum wage incomes had grown over that period at the same pace as it had for the top 1 percent of income earners, the minimum wage would actually be closer to $33 an hour than the current $7.25."

Senator Warren apparently wasn't actually arguing for a $22 / hour minimum wage but rather only something over $10 / hour. Still, it's quite an observation.

Saturday, March 16, 2013

Reminders From The 1970s and 1980s: Financial Crises Happen; The Latest Wasn't Unique Or Even Rare; It Was Just A Big One

To hear some talk, one would think our Financial Crisis of 2007-08 was a bizarre event that must have been caused by exceptional circumstances. In size, it may have been somewhat unusual. It came with quite a large market bubble from private institutions going hog-wild for leveraged investments. But we don't even have to go back nearly as far as the Great Depression to find similar -- if smaller -- troubles. The market does this sort of thing quite a bit. Really, we rarely go long without such crises.

Hyman Minsky describes several in "Stabilizing an Unstable Economy", such as:

"The sharp drop in output and the explosive rise in unemployment in the third quarter of 1974 and the first quarter of 1975 were accompanied by the failure of Franklin National Bank, the troubles of the REITs, and a spate of business bankruptcies. It looked as if the economy was on the verge of a great depression; as if the sky were about to fall. But the disaster failed to occur. The combination of a massive government deficit (augmented by a tax rebate) and the lender-of-last-resort interventions contained the recession and reversed the course of the economy. 
Aside from the details of who failed and the nature of the organizations involved, the 1981-82 recession conforms quite remarkably to that of 1974-75. Once again there was a sharp decline in income and output and a dramatic rise in unemployment; once again there was a massive increase in deficits (the extreme Keynesian side of Reaganomics), once again there were both quiet trauma and spectacular declines, and once again there was a spate of lender-of-last-resort interventions by the Federal Reserve. Once again, as the unemployment and bankruptcies situations were getting worse, some six months after a major lender-of-last-resort intervention there was a sharp turnaround in income and employment. Once again the sky did not fall."
The tools of deficit spending and lender-of-last-resort intervention aren't new, radical approaches. They're tried and true; they're traditional methods of kicking the economy back into gear. They've repeatedly shown success.

Unfortunately, our efforts this time were trimmed down by deficit-hawk opposition and not sufficiently scaled to achieve a serious kick start rather than just propping up the sky a bit. And now, with budget cuts, we're on track to the usual means by which recoveries have been sabotaged by fiscal conservatism.

Thursday, March 7, 2013

Government As The Homeowner, Revisited: To Scrap Or To Invest?

Consider a homeowner who owes a typical mortgage on a house and makes just enough to keep up with the bills and maybe every once in a while treat the family to something nice like a dinner out or a trip to the zoo.

Does it make sense for that homeowner to sell the car he uses to get to work in order to pay down the mortgage faster?

How about if he skips paying for the annual licensing for his field of employment (required for his career) to pay down the mortgage faster?

In order to pay down that mortgage faster, does it make sense for that homeowner to stop buying food for the kids, getting reasonable check-ups and other medical attention as needed, and keeping the house warm enough that the pipes won't freeze?

Should the homeowner cut out all trips to the library for books for the kids so as to save on gas and send bigger mortgage payments? How about toys? Should the homeowner never buy a toy again until the mortgage is payed off, even if it's a just started 30 year mortgage and he has a newborn with no toys beyond a single teething ring?

Does any of that really, truly make sense?

How about investments? Should the homeowner stop contributing a modest sum to his retirement plan and an education savings plan for his kid? Even if both of those investments are expected to have a return higher than the interest on the mortgage?

And if the homeowner can reasonably expect to get significantly higher pay from investing in his career, what then? Let's imagine this homeowner could put $1,000 on his low interest home equity line and get training and certification that on average increases a certified individual's pay by $1,000 a year. Would it be more sensible, rational, and responsible for the homeowner to get this certification or to avoid taking on a little bit more debt?

Our government is this homeowner. Our debt is this manageable mortgage.

When we're at full employment -- unlike now -- there would be no certification we could expect to be a safe bet to increase our income steadily. But we're not there. Not even close.

When we're well below full employment on account of a consumer demand shortfall -- like now -- just about any additional spending we have the government do can typically be expected to add to commerce and help push us that little bit closer to full employment. That means higher revenues. And that's without even focusing it into the most useful spending, which we can and should do to get the most bang for the buck by spending on adding to infrastructure, R&D, and other investments known to build the most revenue.

It should already be an obvious choice. But unlike the homeowner, the government gets an additional win by investing that spending in increasing revenue. Since additional employment means less unemployment, medicaid, and other liabilities, the government reduces its costs by increasing its revenue. That's not just a win-win ... it's a no-brainer. It's stunningly obvious. We should be investing in raising our revenue by engaging some short term spending (preferably including long term investments in that short term spending).

Now if only the budget cutters in Congress could see that.

Tuesday, March 5, 2013

What Does The Sequester Mean? Unemployment.

What does the sequester mean? In a word, unemployment.

By most estimates, the sequester will reduce 2013 GDP growth from what would be somewhere around 3% to somewhere around 2%. That might not sound so bad. After all, it's still growth, right? One might think that if one is not familiar with Okun's Law. We need some growth in the economy to deal with growth in population, productivity, and other factors.

How much growth do we need to break even? Around 2.7%.* That's roughly the rate of economic growth we need just to keep a steady rate of unemployment. When we're not already at full employment -- and we certainly aren't likely to see full employment in 2013 -- any growth rate higher than what's needed to break even will translate to a reduction in unemployment. And should we drop to a growth rate below that break even point, then expect bad things to happen to the unemployment rate.

Remember what the common estimates were for GDP growth without the sequester? 3%. That would mean that if it weren't for the sequester, then we could expect a slight drop in the unemployment rate over 2013 due to just enough jobs being added to see some improvement.

And then there's the sequester. With estimates of the sequester slashing growth down to 2%, that means for 2013 we're likely to be below the break even point in growth. Rising unemployment looms on the horizon.

* Estimates vary, among other reasons because the current steady-state figure can vary a bit with various conditions, but 2.7% is in the rough ballpark.

Monday, March 4, 2013

Looking Forward To Recession? Thank A Deficit Hawk.

Budget cuts during a depression? Expect a recession. And for that recession, thank the obsession with deficits. Because apparently the recession of 1937-38 has been largely forgotten, at least among most Republicans and a few Democrats who join them in worrying about the deficit at what's clearly the wrong time. Trying to balance the budget during a depression is not just an error ... it's a classic error.
"The 1937 episode provides a cautionary tale. The urge to declare victory and get back to normal policy after an economic crisis is strong. That urge needs to be resisted until the economy is again approaching full employment. Financial crises, in particular, tend to leave scars that make financial institutions, households and firms behave differently. If the government withdraws support too early, a return to economic decline or even panic could follow." 
- Christina Romer in "The lessons of 1937" writing for The Economist
This infatuation with deficits and debt steered us wrong before. It looks like we're doomed to repeat the lessons of history that deficit hawks have failed to learn.

Friday, February 22, 2013

Ed Asner And Towers of Money

With a flaw or two, Ed Asner tells it (mostly) like it is with a little help from animators:

It contains an oversimplification or two. It overly blames "rich people" without mentioning ignorant and misinformed people. And the video fails to mention that there are a number of "rich people" who weren't complicit -- at least not actively -- in that problem. And it seems there are some "rich people" who actually want to do the right thing. The core flaw with this video is that it paints rich people as a monolithic block of villainy, an impression that isn't generally correct.

However, such flaws aside, it does do a fairly good job of generally describing the breakdown in the economy. In a consumer society, one does not create prosperity by shoveling more and more via tax breaks to those who already consume all that they care to consume. In a consumer society, one creates prosperity by strengthening those classes of consumer that do not already have the income to consume all that they care to consume.

Wednesday, February 6, 2013

Jobs Versus Budget Cuts: It's One Or The Other

So many still seem to be missing this basic point:
"Right now the central challenge is to reignite the economy — getting jobs back, improving wages, and restoring growth.  
Deficit reduction moves us in the opposite direction. That’s because most consumers (whose spending is 70 percent of economic activity) are still losing ground, and businesses won’t expand and hire without more consumers." 
- Robert Reich in "The Economic Challenge Ahead: More Jobs and Growth, Not Deficit Reduction"
At least, so many among the Republican movers and shakers and apparently in the Oval Office too. Why? One can only presume that they're still taking it on faith that reducing the deficit is the most important thing ever, despite all the mountains of reason to believe otherwise.

One data point in that mountain, as Reich puts it,
"Likewise, cuts in government spending, such as occurred in the fourth quarter of 2012, cause the economy to contract — as it did in the fourth quarter."
In order to move the country in the right direction, policy needs to get the basic problem correct. So long as they figure deficit reduction via budget cutting is the order of the day, they'll continue to hurt. Everything. Including the deficit.
"For 60 years (!) the pattern has held. When unemployment drops, the deficit as a percentage of GDP drops. When unemployment rises, the deficit rises." 
- Joe Weisenthal in "There's Only One Way To Fix The Deficit — And Actually It's Totally Painless"
Sure, we could possibly have jobs despite their budget cutting. After all, we've had some recovery so far, if a rather anemic one. But that's despite their budget cutting. The whole economy -- including the debt/deficit picture -- would be better off if deficit hawks weren't hamstringing us with their fixation on budget cutting.

Monday, February 4, 2013

Still A Huge Surplus Of Savings

Still a huge surplus of savings:

Gross Private Savings minus Gross Private Domestic Investment

We're still very firmly in the situation where we could add lots and lots of deficit spending into jobs programs as well as more QE without a snowball's chance of spurring inflation.

Sunday, February 3, 2013

Why Getting Back To Progressive Would Be A Win For The Wealthy Too

"Not even the very wealthy can continue to succeed without a broader-based prosperity. That’s because 70 percent of economic activity in America is consumer spending. If the bottom 90 percent of Americans are becoming poorer, they’re less able to spend. Without their spending, the economy can’t get out of first gear. ... Get it? It’s not a zero-sum game. Wealthy Americans would do better with smaller shares of a rapidly-growing economy than with the large shares they now possess of an economy that’s barely moving."

- Robert Reich in "The Non-Zero Sum Society"

Saturday, January 12, 2013

Why The Focus On The Debt? Why Now?

A question that needs to be asked anytime anyone rants about debt/deficit: why the focus on the debt? Why now?

Or as Krugman put it in an interview with Bill Moyers while answering who the Very Serious People are,
"People for whom this, it's axiomatic that the budget deficit is the most important problem. And that what we really, really need to do right now at a time of mass unemployment is worry about the debt to GDP ratio ten years from now. And it's a very hard thing to crack, partly because it's not actually a rational argument. You very rarely, very rarely see on the Sunday talk shows, people asking, "Why exactly are you so concerned about the deficit right now?" That's sort of a given. That's a starting point. Everybody serious understands that, except that if you ask them why exactly, they can't give you a very good answer."
We as a society need to stop accepting without question that the debt/deficit is somehow an urgent matter. Just because it's a numeric value outside of our usual realm of day-to-day household numbers does not make it a crisis.

So what about the converse? Why shouldn't we focus on the debt instead of jobs? Well, rather than duplicating what's already been said well enough by others, here's an excerpt from the Moyers-Krugman interview that answers that question:

"BILL MOYERS: We keep hearing from the right that we're here on the path to becoming Greece, and you say that that's impossible? 
PAUL KRUGMAN: Yeah. We, even if, suppose that people decided, investors decided they don't like U.S. government debt, it can't cause a funding crisis because the U.S. government prints money. It’s even hard to see how it can drive up interest rates because the Fed sets interest rates at the short end, and why exactly would the long run rates go up if you don't expect the Fed to raise rates? It could lead to a weakening of the U.S. dollar against other currencies. 
But that's actually a good thing. That would make U.S. exports more competitive. That would actually boost our economy. So it's, actually impossible to tell that story, as far as I can tell. And yet, it's not, again we're mostly not in the realm of rational discourse here. It's one of those things where people say it, they hear other people saying it. And they don't actually try to work it through. 
And it plays a big role, I'm sorry, in influencing our public discussion. Interestingly, people who actually have money on the line, that is people who are buying bonds, just keep on driving U.S. interest rates ever lower. So actual investors don't care about this stuff. But our political class does. 
BILL MOYERS: Why don't they care? 
PAUL KRUGMAN: Because first of all, because I think at some level investors understand what I'm saying. That it's very difficult to see any reason why the Fed would raise short term rates, which it controls for years to come. And in that case, long term debt even at a pretty low interest rate is a reasonable investment. Hard to see how a financial crisis actually develops against the United States, U.S. government, which is in this you know, has all the luxury of printing its own currency. 
And investments are always about compared to what, right? If you if you say, 'Well, the U.S. is a dangerous place to invest,' I don't think it is, but particularly where is the safe place that people are going to invest? You know, what is this other asset that they're going to buy? And it doesn't really exist."

Wednesday, January 9, 2013

67 Republicans And A Hurricane

Jon Stewart to the Republicans who voted against replenishing the national flood-insurance program: "This is just a simple down-the-middle, black-and-white, cut-and-dry, warm cup of what would Jesus, or any other human being that isn't an asshole, would do. And you blew it!"

Sunday, January 6, 2013

Big Government in 1975 And In The Lesser Depression

Whether our current level of government is big or small, not everyone has always written about "Big Government" as if it were necessarily a bad thing. Here's Hyman Minsky from "Stabilizing an Unstable Economy", writing about the impact of Big Government towards avoiding deep depressions,
"Big Government, with its potential for automatic massive deficits, puts a high floor under an economy's potential downward spiral. Although this high floor is important in itself, it is particularly important in a world with business and household debt because corporate gross profits and household savings are essential to validate such debt.
Without the emergence of a huge government deficit in 1975, the debt-carrying capacity of business and households would have been severely compromised. Such compromising, due to an iterative, downward spiral of income and profits, led to the debt deflation and deep depressions of the past. The sectoral budget impact of Big Government that sustains business profits is precisely what makes such a cumulative interactive decline impossible."
Chart of the output gap through the Lesser Depression so far, real GDP versus potential GDP
The Lesser Depression
Impossible is a strong word, and arguably a bit overboard. Given that Minsky would say we have "Big Government" and the experience of the Lesser Depression starting in 2008, it seems rather clear that a sufficiently large financial crisis without sufficient mitigation from increased discretionary spending can indeed still create such a decline even with our size of government. However, "Big Government" certainly slows the decline. (And even an under-sized increase in discretionary spending -- one not large enough to make up for the output gap -- can still help bring about an anemic recovery ... if not the robust recovery we'd see from an appropriately scaled fiscal mitigation.) As larger government create resistance to decline, it partially stabilizes the economic system. That's likely more or less what Minsky meant in describing the beneficial impact of big government, even if he may perhaps have employed a touch of hyperbole when making that point.

Thursday, January 3, 2013

"Reining in Entitlements"? Consider the Motive

From "Policy Implications of Capital-Biased Technology: Opening Remarks", Paul Krugman says,

"We should keep this line of argument in mind — and when somebody talks about the need to rein in entitlements, we should always ask whose interests, exactly, are being served."

Words of wisdom. When anybody wants anything changed, always consider why they're choosing that approach rather than another. Just because we're spending X amount doesn't mean we need to be spending less rather than raising more ... or raising it differently. If one buys the idea that spending X amount is somehow inherently bad in and of itself, one has just plain failed to consider the full picture. That doesn't make spending exactly X necessarily good either ... it just means that it one shouldn't consider X bad merely because X is at some arbitrary level.