Competing views

The economist Dean Baker examines a WaPo piece and concludes that the WaPo is in complete agreement with his liberal Keynesian economic theories, but the WaPo doesn't appear to want to admit that.

The WaPo piece on the slow economy at first agrees with the liberal Keynesians and says: "Many Democrats say the economy needs more stimulus." Yee-hah to that. Very sensible. But then the piece sets up the counter-point: "Business lobbyists and their Republican allies say it needs less regulation and lower taxes." But then they go even further and say: "But here in the heartland of America, senior executives say neither side's assessment fits." So what evidence does the WaPo present to bolster any of the sides?

During the first half of this year, capital expenditures by business have been a bright spot in the economy, growing at more than a 20 percent annual rate. But executives say little of this reflects expanded capacity. They say firms are spending primarily to replace equipment they had held onto longer than usual last year to conserve cash.

Okay, this makes sense given the first two sentences: "Corporate profits are soaring. Companies are sitting on billions of dollars of cash." But hmm, why are business capital expenditures no longer "a bright spot in the economy"?

The piece then runs through the tale of Brook Furniture Rental and how Brooks is reacting to slow consumer demand by investinng much less. Okay, this is in complete accord with what liberal Keynesians are saying. Next, the piece examines attitudes in the "executive class in the Chicago region" and finds them sour and grumpy over the proposed expiration of the Bush tax cuts (That did very little to boost the economy in the first place*) and uncertainty over the Affordable Care Act. Key point?

None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring.

Finally, an interview with the CEO of the Illinois Tool Works concludes

More fiscal stimulus "might help make things a little better for a couple of quarters, but I'm not sure it would get at the underlying economic issue," Speer said.

Soooo, fiscal stimulus is lacking only in that it's not a permanent solution, but in the piece, Speer offers no indication of what the US's long-range financial problems are and thus, no idea is presented as to what the long-range answer might be.

Bottom line of the piece: The liberal Keynesians are absolutely correct and the other two groups "Business lobbyists and their Republican allies" and senior executives in the heartland of America, don't have any ideas to counter those of the liberal Keynesians.

*From a 2002 piece examining the impact of the 2001 tax cut:

...a new study by the President's Council of Economic Advisors, which reportedly shows that the tax cut package passed last year substantially reduced the severity of the recession. It is worth noting that the main stimulative impact of the tax cut that went into effect last year was a $300 per worker income tax rebate. This rebate was put in at the insistence of Congressional Democrats, not the Bush Administration, and was derived from a proposal that came from its Progressive Caucus.

The total cost of the tax cut: $1.35 trillion. Total spent on the $300 and $600 checks: $38 billion. So 2.81% of the 2001 tax cut did the major part of the work in providing the economy with what little stimulus it got. As Paul Krugman points out, the stimulative impact of the Bush tax cuts on employment was awfully minimal. The 2001 tax cut doesn't appear to have affected employment at all and the 2003 tax cut might, possibly, at best, have had a delayed effect.

Just hafta respond to this

Second comment down on a piece in the Inky today.

Posted 08:08 AM, 08/13/2010

taxmancometh

As a matter of fact, let me save the LWNJ's some of the trouble. "Sarah Palin is a lunatic".¹ "Where were you when Bush was President"? (we were right here protesting deficit spending)² "Most of the people in the TEA Party want smaller government but they want their Social Security and Medicare, right?" (that they were FORCED INTO BY LAW - NOT VOLUNTARY, and PAID INTO THEIR ENTIRE LIVES and and yes, they want THEIR money back AS PROMISED)³.....did I miss anything? Help me out here LWNJ's⁴. Oh yeah, I forgot to mention "Cheney started the Iraq War"⁵ and "Bush is a Nazi"⁶. "(even though this was off topic) AND "The Republicans are responsible for all US Debt!!!"⁷ (even though they only controlled the House of Representatives for about 1/3rd of the time since 1921.)⁸ There. Now even RightWinghypocrite doesn't have to post. I think that about covers it all! Have a blessed Friday the 13th!

1. I left the comment:

Posted 10:52 AM, 08/13/2010

rich2506

taxmancometh: your analysis is largely correct, but I don't think anyone on the left characterizes Sarah Palin as a lunatic. I think our view is that Rush Limbaugh, Ann Coulter and Sarah Palin all use the term "half-black" to describe the President. Limbaugh and Coulter use the term because they're hard-core racists, but I don't credit Palin with the smarts to know what the term means.

As of 9:00pm, no one had responded to my assertion, even though there were seven other comments afterwards.

2. Sure, okay, I'll take the guy's word for it that he and a few other lone, isolated conservatives protested against "Dear Leader" Bush's excessive spending. Not sure if he has any opinions as to Bush's tax cuts, but the public at the time was pretty underwhelmed. They tepidly supported the cuts, but accurately saw that only the upper income brackets would really benefit from them.  Big problem with the guy's thesis: The Republican Party as a whole and conservatives in general didn't have an articulated problem with Bush's excessive spending. Certain individuals may be able to claim they opposed that spending, but they can't point to any actual political movement of any significance that agreed with them at the time. Progressives just don't really care about "excess" spending and a Kaiser Family Foundation study of Medicare Part D didn't uncover any strenuous opposition, even though it found a pretty strong feeling that the program was duplicative and unnecessary. A blogger suggests that the Medicare Part D program eventually became popular because it was a "no pain, all gain" program, but even then it took two years for the public to warm to it.

3. Hmm, okay. People want promised benefits from programs they've paid into. Just like if I paid into a 50-year Missile Defense program (I count the period between the 1973 ABM Treaty and Reagan's 1984 revival, called "Star Wars" as an "on-spec" period) with my taxes, I'm going to be annoyed that this program still hasn't produced tangible results after a half-century of working on it! Heck, that strikes me as just plain thievery by a bunch of swindlers!

4. LWNJ refers to Left Wing Nut Jobs.

5. Not quite sure I'd agree with that. The Iraq War started because A. The Bush Administration as a whole wanted Iraqi's oil, B. Democrats were frantically calculating whether Iraq really had WMDs and decided they'd beter play it safe and assume that Iraq was indeed a deadly threat to the US and C. Our press corps was utterly broken and completely failed to fulfill its' proper function. That's why the Alternative Media, then with technological progress, the Left Blogosphere, or as it's known today, the Netroots, was born.

6. Nah, calling Bush a Nazi improperly glamourizes him. That's like saying Bush communicates directly with the Devil. I prefer to think of Bush as bragging of all of his evil misdeeds to a minor subordinate of the Devil. In response, the suburdinate passes on the Devil's "Attaboy!"

7. That's an entirely accurate evaluation and the blame traces back to Ronald Reagan, who

promised something arithmetically impossible: to increase military spending, cut taxes, and balance the budget. He kept the first two promises, delivering the largest peacetime military build-up in American history, and cutting taxes massively, mostly for upper-income households.

The extra spending the current President has engaged in and the reduced tax receipts that constitute Obama's extra additions to the deficit are a direct result of the near-depression that began in late 2007. But if there's an economic crisis today, it comes from the deficit scolds who insist on balancing the budget at the expense of jobs for those who need them.

8. They controlled it for the last six years of Clinton's term and the first six years of Bush's term. Clinton was interested in lowering the deficit and so the deficit went down. Bush couldn't have cared less and so the deficit exploded. With conservative "Blue Dog" Democrats and the Republicans together constituting a majority and the Presidency and its veto pen in Bush's hands from 2007 to 2009, which party had the majority in Congress just wasn't a terribly relevant measurement.

Oh, and my response to the piece is:

The Tea Party represents something new? Hardly. The Tea Party is a group of the old Bush dead-enders with a few extra hangers-ons and people like the Log-Cabin Republicans included, i.e., people who don't understand that the Republican Party loathes them. The group was pulled together by astro-turf organizations as an anti-Democratic Party group, so while it's entirely correct to say that racial hatred was never the primary motivation behind the Tea Party, it's also entirely correct to refuse to recognize the Tea Party as a genuinely grassroots phenomenon.
It's all very fine and well for Tea Party members to say that they believe in small, limited, cheap government, but from Ronald Reagan on, no one in the Republican Party has ever explicitly disagreed with this. They just never actually carried out anything along those lines. Is there even the slightest chance that a Tea Party in power will do so? No. They'll just run headlong into the same problems that the Republican Party has long since been aware of.

So there was a statement from a later comment that "The message of the Tea Party movement is: free people and free markets, Constitutional rule of law, first principles, spending restraint, limited government. This life-affirming, traditional message resonates with the vast majority of Americans."

I and other progressives agree with the commenter as to the value of the "Constitutional rule of law," but as to "free markets, ... spending restraint, limited government"? Nah. Buncha worthless conservative/libertarian nonsense.

The other side of the question

I previously showed that deficits are really far more a political problem than they are or ever were an economic problem. Certainly, they're not something to try and achieve. In the long run, it's better for the economy if income and payments roughly match, but deficits are not and never were the problem that conservatives have made them out to be.

How about the other side of the coin? What happens when governments fail to spend enough? Arizona  is the model Grover Norquist-inspired state, where those in charge of the government strive mightily to lower the tax burden on their citizens. How's that workin' out for them? Not well, actually. Not well at all.

Relative to the size of the Arizona economy, state government general fund revenue has fallen significantly since 1995, likely reaching a historical low in the near term. Expenditures also have declined relative to the size of the economy. Spending increases beyond the needs of a growing state are not a cause of the current deficit or the long-term structural deficit.

Okay, so Arizona must have made spending cuts to match their smaller resource base, right? Wel-l-l-...

These revenue cuts were not matched by spending cuts of a commensurate size because of the increasing population-driven demands for public services and infrastructure, such as education and public safety.

Oops!

"Could we cut our way out [of our budget crisis] mathematically? Anything is possible, but for practical purposes it can't be done, unless you want to start releasing prisoners, shutting down universities, and eliminating extracurricular activities at schools. We've already has a $2 billion haircut over the past two years. Try another $2 billion and see what the state looks like."

Even worse:

Hardest hit was the Department of Water Resources, whose budget and workforce was slashed by more than half. The statewide planning division, responsible for helping secure future water supplies, was reduced to just two people and funding was eliminated for remote sensors that can alert communities to flood threats.

This is what they call going beyond cutting the fat, this is cutting into the muscle, heck it's cutting into the bone of the state. This is cutting a dire necessity that could very easily end up costing lives. And...

First, unlike much of the private sector, demand does not decline for most public-sector services during a recession. In some government programs, demand rises.

This is an extremely important point. The idea of "everyone tighten your belts" or "do more with less" is just wildly impractical. During a recession, it's time for deficit spending, not for cutting expenditures. The Grover Norquist idea of shrinking government down smaller and smaller is a pleasant fantasy for those who think about government in entirely abstract terms. For those of us who live in the real world, the idea is completely insane.

Update: Further commentary on the cat food commission. Pete Peterson is such a charming fellow [/snark]

Progressive views on the economy

Good piece from Salon shows how progressives think about the economy and goes into how conservatives think about it and the distinctions.

A few years ago, I think it was Ms. Magazine that said there is the private sector, there is the government and there are non-profits. Which one do you use for which task? Well, it depends. Some sectors are better at performing certain tasks than others are. Michael Lind adds in utilities. He defines a utility as something that operates more or less as a private enterprise does, but it's regulated so that the public doesn't have to deal with constant votality. Electric power is regulated because consumers and businesses simply don't have the time and the energy to deal with constant price fluctuations and to bargain and haggle for the best electric rate of the day.  Sure, society as a whole might pay a bit less for electric power per year, but we have better uses for our time and energy than to squander it on such trivial savings.

He also brings up the same point about health care that I've heard many progressives bring up as well. A patient who is suffering from an immediate medical problem such as a heart attack is simply in no shape to go online and research which hospitals offer the best heart attack care. It's simply not practical to leave that up to the free market. Regular check-ups are perhaps an exception, but regular check-ups are a positive social good that are well worth the extra expense of providing, so that doesn't really fall under what's best handled by free enterprise either.

James K. Galbraith & the cat food commission

Statement to the Commission on Deficit Reduction

James K. Galbraith, Lloyd M. Bentsen, jr., Chair in Government/Business Relations, Lyndon B. Johnson School of Public Affairs, The University of Texas at Austin
June 30, 2010

One of Galbraith's early statements is:

Your proceedings are clouded by illegitimacy.

And it just gets better from there!  Galbraith delivers a very eloquent, learned and judicious lecture upon the illegitimacy of the "cat food commission" (They want to see your grandparents living on cat food). Worth reading in its' entirety.

Why we’re in the state we’re in

New Yorker piece on Larry Summers tells us that the initial figure for the stimulus bill was $1.2 trillion. As we know, the Obama Administration "negotiated with itself":

And then [White House Chief of Staff] Rahm Emanuel said to me, “Geez, do you really think we can afford to come in with a package that big, isn’t it going to scare people?” I said, “Rahm, you will need that shock value so that people understand just how serious this problem is.” They wanted to hold it to less than $1 trillion. Then [Pennsylvania Senator Arlen] Specter and the two crown princesses from Maine [Sens. Olympia Snowe and Susan Collins] took it down to less than $800 billion.

The final figure was $778 billion. As Atrios says:

 The stimulus 'debate' was so absurd, with dirty fucking hippies saying what needed to happen and Very Serious People objecting not because of any actual reason, but on basic aesthetic grounds. "OOoh, that just sounds so big, can't we make it smaller?"

What are the political consequences of the failure to get a big enough stimulus package through?  The Democratic National Committee is assuring Democrats that this November won't be as bad as the 1994 elections. Not exactly a confidence-builder and not something that was inevitable. It's tempting to blame Rahm Emanuel, of course, but someone hired him and someone keeps him on the job. The buck stops with the President.

Update: Vice President Joe Biden argues that the stimulus package was as big as it realistically could have been and that the Administration simply couldn't have gotten any more. Not so sure about that. President Obama might have been able to exert some pressure by calling out Republican obstructionists and by making it clear to the American people just who was standing in the way of the economic health of America. Of course, that would have put the kibosh on any pretense of bipartisanship, as though that would have been any sort of loss!

Further update: Booman sez "Aw, quit yer bitchin'! The Obama team did the best they could under very por circumstances." Booman makes some good points, but I'm still not convinced that's all they could have done.

Hmmm…

I generally don't have much use for the WaPo columnist David Broder, but I like these two paragraphs:

The terrible irony in all this? More and more people are seeing that what this agonizing situation requires is a limited and temporary measure to pump more life into the economy and create jobs, along with a serious commitment to impose real spending discipline and hold down deficits in the long term -- exactly what a five-year budget resolution could provide.

Gregg and Conrad agree that such a resolution could "unleash huge energy back into the economy," because corporations are hoarding $1.8 trillion in their treasuries and consumers are sitting on billions more.

 I would have worded this differently. I would have said "We need to get our economy out of the ditch NOW and worry about deficits later." But this is a very good start and I especially appreciate Broder's pointing out the $1.8 trillion sitting around in money markets and not being put to productive use. That big bundle of money sitting around gathering dust is important because it means that givig money to already-wealthy people (i.e., "Return the Money to the People!") will do absolutely nothing but build up those idle accounts still further.