Colin Powell On The Election And His Remaining A Republican

From "Colin Powell endorses Barack Obama for president",

"'The major problem faced either by Gov. Romney or President Obama, whoever wins the election, is going to be what to do about the fiscal cliff we're about to fly over,' Powell said. 

'This is something that was put in place by Congress and while we're talking about the two candidates for president let's not forget that Congress bears a lot of responsibility for many of the problems that we have now. ... '"

and

"And, despite his endorsement of a Democratic candidate in two presidential elections, Powell says he remains a Republican. 'I think I'm a Republican of a more moderate mold," he said before adding, "That's something of a dying breed I'm sorry to say.'"

Money and Toasters: Value As Real As Any Other

Steve Williamson sparked some exposition on the value of money by claiming, "Money, for example, is a pure bubble, as its fundamental is zero." This can reasonably be interpreted, as Noah Smith did, as claiming that "money is just little green pieces of paper!" Noah's excellent instinct was, of course, to reject that idea.

In the grand scheme of things, it's at least as true to claim that the fundamental of anything whatsoever is zero as it is to make that claim for money. Gold? It's shiny and all that. Oh, and it's supply is relatively limited. But there's no absolute necessity that we place a certain value on things that are shiny and available in limited supply. Gold has exchange value because people are interested in accumulating it and ultimately for no other reason. Stocks in companies? They have value only because we expect that company to continue to have a certain level of profit and thus make the stock redeemable for something. But in ever case, it's the same root. It doesn't matter what we substitute. The exchange value of every single thing depends on what people believe to be the exchange value of that thing. Yet many think that there's some special magic to gold that makes little shiny bits of a certain metal inherently more valuable than little, intricate, artfully printed, green pieces of paper.

Sadly, no discussion is likely to change the opinion of the steadfast phobic of "fiat currency". However, for the rest of us, we can at least enjoy the entertainment value of some turns of phrase on the matter.

From Noah Smith's "Money is just little green pieces of paper!",

"So what is 'fundamental value'? Is it consumption value? If that's the case, then a toaster has zero fundamental value, since you can't eat a toaster (OK, you can fling it at the heads of your enemies, but let's ignore that possibility for now). A toaster's value is simply that it has the capability to make toast, which is what you actually want to consume"

From Brad DeLong's "Noah Smith's Sanity Requires That He Stop Reading Steve Williamson: Foundations Of Monetary Theory Weblogging,

"A toaster has fundamental value because it performs the useful service of making toast. Money has a fundamental value because it performs the useful service of enabling transactions."

and

"Perhaps what Williamson might mean by 'money is a bubble' is: 'while money is not a bubble, the government can drive the value of money to zero by printing near-infinite amounts of it'. While this is true, it is not very interesting: the government could, after all, drive the value of toasters to zero by manufacturing near-infinite quantities of them as well."

and chickens. He found a way to work chickens into it too. Let's not forget about the chickens.

And from Paul Krugman's "Things That Aren’t Bubbles", though there's a lamentable lack of toaster references and nothing about the chickens, there's a point that ought to be the finale for anyone who is working from logic rather than preconceptions,

"In each case what people are missing is that value is an emergent property, not an essence: money, and actually everything, has a market value based on the role it plays in our economy — full stop."

If by some meltdown we ever were to reach a point where people no longer recognize a value to money, it would be because we had bigger problems than merely whether money has value. That may be the biggest thing missed by those folks who worry about the value of "fiat currency". If we ever reached that point, gold wouldn't likely do much good either. For that matter, unless they're solar or wind-up, toasters might not either. Chickens? Well, they are tasty.

Russia a Rival or Partner, Not a "Foe"

Someone please fill Mitt in on a fact of diplomacy: Word choice matters, Mr. Romney ... especially when running for or being President.

While this forum seeks to avoid specific endorsements to vote for a particular candidate, it's fair to say that there are certain statements that should clearly rule out the election of a candidate. It's the sort of thing that leaves one wondering, "what was he thinking?"

Not for the first time, having previously said similar things, in the third 2012 Presidential debate Mr. Romney said,

"First of all, Russia, I indicated, is a geopolitical foe ..."

Presuming he's not confused as to what "is" means, perhaps Mr. Romney is unclear on the meaning of "foe". Merriam-Webster defines foe as

1. one who has personal enmity for another
2. an enemy in war
3. one who opposes in principle
4. something prejudicial or injurious

That's very harsh language. As he's repeatedly stated that they're our foe, the only way it could have been an accident is if he just doesn't understand the meaning of the term. Assuming that he has some idea what he's saying then according to Mr. Romney's choice of term, he essentially claims that either there's hatred between our nations, that we're at war, that we're directly opposed as a matter of principle, or that they're actively hurting us. Mr. Romney is, of course, wrong. Quite thoroughly wrong. Un-Presidentially, ineptly, dangerously wrong.

Granted, relations with Russia are sometimes tense. Granted, our nations historically were foes of each other at certain points in our history. But the same could be said for many of our modern allies, such as Germany and the United Kingdom. That would be no excuse for calling them foes today.

Russia today is our geopolitical rival in many ways. In other ways it our geopolitical partner. We compete with Russia for influence over various nations that are important to both nations in trade. That makes us rivals, not foes. Russia recently allowed us to pass supplies through their territory and worked with us on joint counter-terrorism and counter-piracy efforts. That makes us sometimes partners, not foes.

Romney attempts to excuse his declaration by saying, 

"Russia does continue to battle us in the U.N. time and time again. I have clear eyes on this. I'm not going to wear rose-colored glasses when it comes to Russia or Mr. Putin ..."

If one wishes to avoid wearing rose-colored glasses about a village facing a harsh winter, one does not set fire to the village. That Russia doesn't agree with us about everything in the United Nation just makes them a different nation with interests that don't always match our own. One can't improve our chances of cooperation in the U.N. by declaring them our foe. We may, however, make them more willing to side with us on issues where there's potential for compromise by engaging in joint efforts against our real, mutual foes: terrorists and pirates ... as we have done recently.

One builds an ally through efforts to work together. One builds foes through setting oneself against potential foes. Mitt Romney told us loud and clear what he would do for the United States. He would build us an array of foes. That would hurt us in trade. That would hurt us in treaties. Mitt Romney clearly represents the wrong direction for America in the world.

Shall We Restore our Cavalry Numbers?

President Obama during the final 2012 Presidential debate:

"You mention the Navy, for example, and the fact that we have fewer ships than we did in 1916. Well governor, we also have fewer horses and bayonets ... because the nature of our military has changed. We have these things called aircraft carriers where planes land on them. We have ships that go underwater, nuclear submarines."

Not All Tax Cuts Are Created Equal

From "Tax Cuts for Job Creators" by Laura D’Andrea Tyson and Owen Zidar:

"... if the priority is to create a substantial number of jobs over the next presidential term, evidence from the last half-century strongly suggests that tax cuts for the top 5 percent won’t work. Tax cuts for working families, tax cuts directly aimed at expanded hiring or increases in infrastructure investment would have much more bang for the buck and would cost much less in terms of forgone revenue and deficit reduction in the future."

If we can't talk enough people out of some kind of tax cut despite that taxes are unusually low by modern historic standards, it should at least be the relatively sensible tax cuts for the lower 95% instead of the entirely senseless tax cuts for the top 5%.

Government and Job Creation: Where Both Candidates Got It Wrong (Although One More So), Government Does Create Jobs

No binders involved in this jobs question, not even Mitt's "binders full of women" for filling state cabinet positions. In the Presidential debate last night neither of the Presidential candidates got it right on government and job creation. One, of course, was more wrong than the other ... but neither got it right.

Mr. Romney:

"Government does not create jobs. Government does not create jobs. (Chuckles.)"

 President Obama (in response to "What do you believe is the biggest misperception that the American people have about you as a man and a candidate?"):

"... a lot of this campaign, maybe over the last four years, has been devoted to this notion that I think government creates jobs, that that somehow is the answer. That's not what I believe. 

I believe that the free enterprise system is the greatest engine of prosperity the world's ever known. I believe in self-reliance and individual initiative and risk-takers being rewarded. But I also believe that everybody should have a fair shot and everybody should do their fair share and everybody should play by the same rules, because that's how our economy is grown. That's how we built the world's greatest middle class."

Given his relatively conservative budget policy and restraint -- arguably ambivalence -- on fiscal stimulus, it seems plausible that the President really doesn't get that government can create jobs. Sure, he could have just been playing to conservatives, but his actual record suggests he really meant it. He may see more of a role for government in helping free enterprise than his opponent. But that just makes him less wrong. He apparently doesn't particularly believe in fiscal stimulus as a major tool to raise actual GDP towards potential GDP, which shouldn't be surprising to all of the Keynesian economists who called for a much larger, better stimulus and who read the accounts of how we came to get what stimulus we got, mostly without the President seriously pushing for any more. Sure, it might not have been politically feasible to get more, but that was partially because the President wasn't using the bully pulpit to push hard for more. Why? Apparently because he believes the widespread conservative myth that "government does not create jobs".

Despite what the candidates appear to believe, the fact of the matter is clear. Government most certainly can create jobs when actual GDP is significantly below potential GDP. Such as now.

As Dean Baker put it in summing up a different debate, "the Baker-Rowe-DeLong-Krugman Deficit Debate",

"First, we all seem to agree that in a situation where the economy is clearly operating well below its potential, governments can run deficits to boost employment and output. I believe we all agree that in principle the government can also use these deficits to increase future output through productive investment in either physical or human capital. This would make future generations better off on net as a result of deficits today, since the economy will be larger than it would be without the deficits."

When the economy is running at capacity, deficit spending generally won't stably boost us above potential. At that point, extra government spending risks crowding out private enterprise and in some cases certainly will do so. We're not at that point. Heck, we're nowhere near that point. The economy is gradually improving, but we've got a long way to go. While we're still plugging an output gap, deficit spending most certainly can and does create jobs whereas government cuts directly reduce overall employment.

Yet deficit spending during a downturn just illustrates one of many ways that government can create jobs. Progressive tax rates combined with social safety-net programs mitigate inequality and -- by getting money to those who have more want than means to fulfill it -- increase commerce, both effective and potential. Then there's research and development, for which various estimates show it's just a matter of exactly how many dollars are added to the economy for each dollar we've spent on NASA research that we've patented and licensed out to domestic firms. The only question is the exact multiplier; it's certain that NASA spending (not to mention DARPA and others) has created some number of private enterprise jobs beyond those that would have existed without the space program.

Private enterprise certainly excels at many things and government would be the wrong choice for a number of tasks, especially producing most kinds of manufactured products from MP3s to ice cream. So please don't misconstrue this as suggesting that more government is always better; there's a limit to what government reasonably can be expected to do or should do. President Obama is correct to believe that a major part of government's role consists of working towards creating a level playing field for private enterprise. But like Mr. Romney, he's wrong to fall for the conservative delusion on government and job creation. Government most certainly can create jobs. And right now, even more than usual, we very much need government to stop cutting back and do all that it can to create jobs.

But how do we get these politicians and the general public they serve to understand that?

The Progressive Path to Jobs

Steve Roth at Angry Bear yesterday covered similar ground to one of mine from February, "Debunking the Notion that Inequality Wouldn't Impact the Economy". Roth's "GDP, Prosperity, The Wealth Effect, and Marginal Propensity to Consume", took a slightly different track. Whereas I discussed the impact on GDP from inequality of income, Roth looks at inequality of wealth. As of yet, it's hard to say which is the better angle, although as Roth notes, the distinction starts to blur with age, since "people nearing or in retirement start paying a lot more attention to wealth than income." That is, unless you're dealing with folks who have nothing but social security because -- among other possible reasons -- they never had high enough disposable income to put anything aside.

Either way, whether income or wealth is the more important factor, clearly inequality matters. It impacts our commerce, our GDP. At least so long as the people at the middle (let alone the bottom) have wants and needs they can't fulfill for lack of means, a reduction in inequality achieved with the effect of getting more means to those who will use it will increase GDP and general prosperity. Ironically, spreading the wealth around a bit should lead to more potential for our economy to support more wealth. [Caveat: of course, we shouldn't go overboard. Just more equitable ... not perfectly even.]

And by progressive policies leading to more equitable distribution, that would constitute a way that -- contrary to what both candidates said or implied in tonight's debate -- government most certainly can create jobs. What leads to more commerce generally leads to more jobs, and a more equitable distribution would mean more commerce.