Category Archives: Economics

A kinder, gentler nation

Posted on by davald

That phrase of George H.W. Bush, surprisingly, describes my aspiration for this country. We’ve got a long way to go.

A friend occasionally scolds me for being “progressive,” which he equates with utopianism. The world is what it is, and there’s really nothing anyone can do about it. That may very well be true, but I choose to believe that things could be—and should be—different.

Suppose you join me for a bit as I describe that aspiration. I’ll just lay out a list.

  • free health care for everyone, regardless of circumstances
  • free education, from pre-school through graduate school
  • a squeezing from both the top and the bottom, so that the rich aren’t so rich and the poor aren’t so poor
  • generous, even lavish support for the arts, in schools and in communities
  • clean water
  • clean air
  • immaculate and well-maintained sidewalks and streets
  • human-scale architecture that both calms and uplifts
  • no death penalty
  • rare and always safe abortions
  • great, not just adequate, schools, with beautiful, clean, and efficient buildings, well-paid and well-trained teachers, ample supplies, state-of-the-art technology
  • a national pension fund that provides a secure and adequate retirement for every worker
  • livable-wage jobs for anyone who needs work
  • truly livable, walkable cities and towns
  • state-of-the-art public transportation systems readily available to all, with an emphasis on convenience, comfort, and aesthetics
  • no guns or bullets
  • safe and high-quality food at affordable prices
  • attractive and eminently usable “third places” (home and work being the other two places), where people congregate to eat and socialize
  • beautiful, proximate, and citizen-friendly public buildings
  • no Fox News
  • no coal plants
  • no Tea Party
  • no Rush Limbaugh
  • a military with the sole objective of only defending our borders against foreign enemies, and no more
  • no Grover Norquist
  • no Harley Davidsons in downtowns
  • a completely different government based on and fueled by ideas; no politics of dirt (i.e., real estate); a unicameral parliament; no judicial review

I should think that in such a country, people would be less anxious, less worried, less greedy, and less angry. They would me more tolerant, more relaxed, more educated, more social, more civil, and more reasonable. In short, we would become a kinder, gentler nation.

What’s wrong with that?

In what universe…

Posted on by davald

Mr. Boehner receives multiple blows from the editors at the New York Times. He deserves all the disapprobation the paper dispenses.

It clearly does not bother Speaker John Boehner that he pushed the United States to the brink of default last year. It does not matter that the deep spending cuts in the resolution he demanded to end that crisis will hurt economic growth. It does not even matter that the House he leads is determined now to break that agreement with even deeper cuts in vital programs.

No, the only thing that matters to Boehner and his ilk is to frustrate Obama’s re-election chances and to shit on the Rest of Us. So, I ask in what universe does Boehner garner support? Oh, that’s right. This is the United States of America, otherwise known as Darwin’s social society, where the superior reign over and steal from those unworthy of decent lives, which, it appears, are us 99-percenters—minus the damnable Tea Party.

Debt, again

Posted on by davald

We know why debt skyrocketed during the early to mid 40s. The U.S. was at war, big time. But think about this for a moment in terms of America’s collective psyche.

Europe was already engaged in a massive conflagration when Japan attacked Pearl Harbor. Congress immediately declared war on Japan, and since Japan was part of the German axis, we were forced to fight on two fronts. No problem, evidently. We Americans committed any and all resources to prevail, even, as it turned out, if our debt-to-GDP ratio soared past 100. The cause justified the fiscal imbalance.

Besides winning the war, the U.S. economy also grew.

To be sure, GDP was growing before the war, which Berkeley economist Christine Romer attributes to monetary expansion. In 1941 the U.S. was already jumpstarting industries to provide materiel to England in its battle with Berlin. That year saw real GDP soar by 17 percent. The next two years the annual GDP growth was 18 percent. Then GDP fell to 8 percent and even hit a negative 11 percent from 1945 to 1946. From then on, however, the economy grew steadily in real dollars, with only a few negative blips.

Meanwhile, as we see in the first chart, the debt-to-GDP ratio fell. Interesting. The country not only reduced its debt levels but also saw the economy expand.

Suppose the present economic conditions represent, in Krugman’s vernacular, the Lesser Depression. Suppose further that the biggest factor in ending the Great Depression was the massive fiscal stimulus required of the war effort, which also drove debt sky high, more than 120 percent of GDP. Would it not make sense, then, for the federal government to spend massive amounts of money now, even if debt levels rise?

The answer to that question depends on whether or not the U.S. is in similar circumstances as it was during the Great Depression, when so many people were out of work, banks and businesses shuttered, and the economy essentially stagnant. Again, Krugman believes the parallels are there, which is why he, among others, is calling for a massive fiscal stimulus, knowing full well that current politics makes it impossible.

One other thing is equally certain: business as usual isn’t working, and probably cannot work. Austerity under present circumstances almost guarantees economic contraction. That’s what states have been forced to practice—and how are their economies doing? (California’s Governor Jerry Brown, to name one example, just called for more draconian cuts in the state’s budget, with predictable consequences.)

I should add one other certainty. Should Mitt Romney defeat Obama and Republicans gain numerical control of both houses, the country is doomed, since the GOP is all about cuts—in both spending and taxes. Then watch the debt explode and unemployment soar. History tells us so.

Precedents for a Euro breakdown

Posted on by davald

One nice thing about reading Matthew Yglesias is that he is a thinking man writing about economics. Having trained as a philosopher (at Harvard, no less, and magnum cum laude to boot), Yglesias penetrates through the turgid prose of economic discourse to cull out gems or their opposite, then treats his audience to clear, cogent analysis.

Just one example is on the topic of potential, if not imminent, eurozone collapse, precipitated by an almost certain Greek exit. Would other countries follow? If so, how many and which ones?

Via Twitter, Yglesias asked for examples of common currencies—that is, several sovereign nations using the same coin—that did not collapse once a member left. His readers provided just one instance: the Sterling Area of the UK and its Commonwealth of Nations. Both Canada and New Zealand withdrew from the sterling without upsetting the remaining whole.

However, if you think of the euro as gold, history is on the side of unraveling. Yglesias:

I would also put the interwar Gold Standard in the category of total dissolutions of a currency regime. The Gold Standard “worked” as a monetary system as long as it was “unthinkable” that a country would abandon gold. But once countries started leaving, there was a downward spiral.

Uh-oh.

Hedges and “the gap”

Posted on by davald

Writing for Truthdig, Chris Hedges sets the tone:

We have been, like nations on the periphery of empire, colonized. We are controlled by tiny corporate entities that have no loyalty to the nation and indeed in the language of traditional patriotism are traitors. They strip us of our resources, keep us politically passive and enrich themselves at our expense.

Hedges, citing Robert Gamer’s book The Developing Nations, explains that the Rest of Us are to the One-percenters as colonies are to imperials. Hedges:

In it Gamer notes that although the oppressed often do revolt, the object of their hostility is misplaced. They vent their fury on a political puppet, someone who masks colonial power, a despised racial or ethnic group or an apostate within their own political class. The useless battles serve as an effective mask for what Gamer calls the “patron-client” networks that are responsible for the continuity of colonial oppression. The squabbles among the oppressed, the political campaigns between candidates who each are servants of colonial power, Gamer writes, absolve the actual centers of power from addressing the conditions that cause the frustrations of the people. Inequities, political disenfranchisement and injustices are never seriously addressed. “The government merely does the minimum necessary to prevent those few who are prone toward political action from organizing into politically effective groups,” he writes.

So, what about the Occupy movement? Does it worry the One-percenters? Hedges thinks so.

The real danger to the elite comes from déclassé intellectuals, those educated middle-class men and women who are barred by a calcified system from advancement. Artists without studios or theaters, teachers without classrooms, lawyers without clients, doctors without patients and journalists without newspapers descend economically. They become, as they mingle with the underclass, a bridge between the worlds of the elite and the oppressed. And they are the dynamite that triggers revolt.

This is why the Occupy movement frightens the corporate elite. What fosters revolution is not misery, but the gap between what people expect from their lives and what is offered. This is especially acute among the educated and the talented. They feel, with much justification, that they have been denied what they deserve. They set out to rectify this injustice. And the longer the injustice festers, the more radical they become.

Or, maybe not. We’ll see.

When I ponder the American Revolution and its causes, varied to be sure, I appreciate Hedges’s focus on the expectation gap. The American colonists, or at least their putative leaders, weren’t miserable. They did, however, sense opportunity. Why allow ourselves to be governed from afar? Why should we have to pay this or that tax yet be denied political representation? Why do we obey a king? Besides, there are fortunes to be made, none of which should be siphoned off by the Crown.

The recent uprisings in the Middle East suggest the same. People’s expectations, no doubt fueled by the West and its manifestations, changed from passive resignation to we shall overcome. Dictatorship rubs against newfound sensibilities. Therefore, remove the dictator. We’ll figure out the rest as we go along.

Despite his insight, I’m more pessimistic than Hedges. Most of us aren’t miserable, though we may be anxious. Moreover, we’re disinclined to organize ourselves politically. We’re too busy “friending” and “texting” and otherwise chatting about and sharing our decidedly mundane experiences, whether it be an infant’s laughter, a cat’s playful encounter with an iPad, or the most recent sightings of the ubiquitous Kardashians.

Hedges is certainly mindful of popular culture. Indeed, that’s a major point, expressed previously by Walter Lippman and Noam Chomsky—our consent has been and is forever being manufactured. I submit that the implicit consent serves as an obstacle to political action, whether or not organized or coordinated.

We can impose on this phenomenon the conclusions of the research done by Daniel Kahneman and others about the human psyche. We humans are inherently lazy. We’d prefer not to use our “Type 2″ mental processes, because that involves work. But the business of organizing and coordinating requires such Type 2 thinking, what Kahneman also calls “slow.” We’d rather live in the world of “fast,” where instincts rule.

Returning to the American Revolution, that was led by a relative handful of learned men passionate about the possibilities of severing “political bands.” I recall reading a short textbook in college wherein the author estimated that support for revolution among the general population was in the single digits, inadequate numbers to expect a spontaneous irruption. Urgent disdain for England needed manufacturing.

I often wonder about the Canadians, our neighbors to the north. Immersed in profound ignorance of that country’s history, I ask myself why they didn’t similarly revolt. Canada patiently waited until 1982, when it obtained legal independence from the UK, though it remains within the Commonwealth of Nations. To my eye, Canadians are doing quite nicely without the perceived need to revolt.

So, I just don’t see revolution in the cards. My realistic hope is that we reverse the thousand cuts and chip away at the system that no longer works for us—if it ever did. Discretion trumps valor.

A concise summary

Posted on by davald

By way of her “co-author,” Paul Krugman links to this post, wherein Robin Wells (okay, Krugman’s wife) writes:

The fact is that Greece never was a suitable member of the eurozone. That the Greek economy was extremely inefficient, that corruption was rife, that the government budgets were perpetually out of control, and that the official statistics were not to be believed were widely known. But, as in many marriages, Greece’s entry into the euro was a triumph of sentimentality and wilful blindness over realism.

The better writer of the couple?

A new manifesto, sort of

Posted on by davald

On the cover of the May 2012 issue of the Monthly Review we are treated to these sobering words, ending with a call to arms:

The world is being subjected to a process of monopolistic capital accumulation so extreme and distorted that not only has it produced the Great Inequality and the conditions of stagnation and financial instability, but also the entire planet as a place of human habitation is being put in peril in order to sustain this very system. Hence, the future of humanity—if there is to be one at all—now lies with the 99%.

Takin’ it to the streets? Not likely.

But it’s clear, or it is to me at least, that those who have dominated our economic, political, and social worlds cannot be expected to alter the rules in our favor. They’re at the top, enjoying themselves, and to hell with the Rest of Us. Moreover, because their wealth and power are so extreme, they have established major, multiple impediments to those who dare challenge the system by which they benefit.

John Bellamy Foster and Robert W. McChesney, who seem to write the lion’s share of the publication’s cover articles, offer graphic illustration of a key theme: that the immediate post-war era was likely an anomaly not likely to be revisited.

As you readily note, there’s a decided downward trend in economic production from the 60s. Extending the trend suggests negative growth in the not-too-distant future.

Why are the relative halcyon days of the 50s and 60s an anomaly? McChesney and Foster suggest six unique conditions that obtained during that two-decade period. I quote:

In the mid–1970s the U.S. economy slowed down drastically, ending a period of rapid expansion that had been fueled by: (1) the build up of consumer liquidity during the war; (2) the second great wave of automobilization in the United States (including the construction of the Interstate highway system); (3) a period of cheap energy based on the massive exploitation of oil; (4) the rebuilding of the war-torn European and Japanese economies; (5) two regional wars in Asia, and Cold War military spending in general; and (6) a period of unrivaled U.S. hegemony.

Today, we still have the wars, always the wars. The Rest of Us lack “liquidity,” since a large chunk of us are out of work, and our wages have stagnated. Add to this the sharp decline in housing equity, relied on for so many years to pay off accumulating credit card debt and to finance major purchases, and we can appreciate that we’re ill-positioned to buy a lot of things, and consumer demand has always driven the economy. We know about Detroit’s problems, although it is in the midst now of a modest resurgence. The U.S. is still exploiting oil, though there’s not as much in the ground as there most certainly was during the relative halcyon days. We’re no longer the principal hegemon, as Europe and more recently China challenge us on the economic front. The Marshall Plan is history, as are the rebuilding of new markets. Globalization has taught us that the ebb and flow of countries’ GDPs track together. The U.S. is depressed; and so are Europe, Japan, and perhaps even China, whose recent growth rates nosedived.

Before concluding I’d like to draw your attention to another disturbing trend, one that I’ve mentioned several times. That is, our economy and the economies of Europe have been gradually taken over by the financial sector, known by the acronym FIRE, for finance, insurance, and real estate. Consider this chart, taken from the linked Monthly Review article:

Dollars siphoned off by the financial sector typically remain there; they do not circulate amongst the Rest of Us. Few, if any, of us are stockbrokers, bank CEOs, hedge-fund managers, or insurance moguls. The Rest of Us, if we’re lucky, build and repair things, maintain the assets of the One-percenters, teach children, populate spreadsheets, clean toilets, harvest fruits and vegetables, turn burgers, or blog. We spend most of what we make, and our precious dollars circulate for a bit in the consumer economy before making their inevitable way into the (mostly offshore) accounts of the very rich.

The economy and the political apparatus have not been designed or molded into systems that serve the interests of the Rest of Us. The fact that the Rest of Us greatly outnumber the One-percenters, and that we have incipient Lockean momentum, has so far escaped our recognition. Unless and until we awaken to the obvious, we consign ourselves to continuing anxiety over present and future circumstances.

We are the 99-percenters. Pass it on. Or not.

A brief note on debt

Posted on by davald

There seems to be consensus that accumulating federal debt poses long-run problems for the U.S. and its economy. The Right is particularly keen on pointing out the rising debt during Obama’s first term. Indeed, the Republicans like to scare the hell out of us on that topic alone, without providing much basis for the fear.

Keynes famously said that in the long run we’re dead. He was responding to critics back in the 30s who criticized his debt-financed fiscal stimulus proposals. For Keynes, high unemployment persisting over time represented a more serious problem than the long-term concern over debt. He also believed that the government was the only entity that could break the recessionary cycle, since  Depression-era people lacked sufficient money to purchase goods and services and producers couldn’t justify expanding capacity if the additional products would not be consumed.

The recent rise in government debt appears to be a global phenomenon, with some exceptions. This chart below shows government debt as a percentage of GDP for a several countries, including the U.S. (sources are OECD and FRED).

The Great Recession began in the latter part of 2007. We’ll note that federal debt levels were stable or even declining in a few countries (e.g., Spain and Ireland). Since 2007, however, debt has climbed, in some cases spectacularly so (e.g., Ireland). And for all its virtuous rhetoric, Germany’s debt is rising too. I should also note that U.S. federal debt as a percentage of GDP pushed beyond the century mark last year.

Why the increases? The likely suspect is falling revenues, occasioned by declining wages and jobs. Federal spending has continued to rise, mostly due to increased need of public services (e.g., unemployment benefits) and financing two wars. It should not surprise us that losing work and income creates further stresses on government agencies, federal as well as state and local.

In 1947, two years after the war ended, the ratio of debt to GDP was 105 percent. Then federal debt levels began to fall. Each year the ratio declined, reaching its post-war low in 1973, at 32 percent. It then rose slightly, before returning to its nadir in 1979-1981. Beginning with conservative Republican Ronald Reagan, the debt began to rise steadily, reaching its highest pre-recession level in 2006, at 64 percent of GDP.

The political debate today is between those who focus on debts and those who focus on misery. But this country weathered higher debt ratios in the past without economic collapse. It will likely survive the recent rise. Keep in mind, though, that the ratio was at its lowest when marginal tax rates were very much higher than they are today. The correlation begs a causal relationship.

Moreover, and I’ll leave here, if one is truly concerned about debts, the obvious solution is to raise taxes on those who are not just surviving the recession, they are increasing their wealth. By the way, these One-percenters are not “job creators,” as the evidence reveals.

Spending time with FRED

Posted on by davald

The St. Louis Federal Reserve houses a treasure trove of economic data. I often download their data to create my own graphs, but you’ll often see the FRED’s original graphs embedded in blogs, including those of Paul Krugman and Matthew Yglesias and even here.

The following graph from FRED shows what has happened to the aggregate receipts of our state governments.

Receipts, to no one’s surprise, depend heavily on the economy’s status. If it’s growing, receipts rise. If it’s contracting or stagnating, receipts fall off. And when receipts fall off, state legislatures turn to cutting. And when state legislatures turn to cutting, people who are already hurting hurt more. Republicans, of course, have no problem with this, as long as the rich remain coddled.

Here’s another chart, based on FRED data, showing what the states and local governments have done in response to lower revenues.

If you’re wondering why school districts are suffering, or why the roads aren’t being repaired—the above chart provides a clue.

The next two charts, again based on FRED data, reflect the remarkable changes that must have occurred from the 1970s on.

Save for the WWII downward blip, the federal government was taking in roughly as much as it was spending—until the 1970s, which ushered in deficit spending, save for the Clinton years. And what have the deficits wrought?

At the end of 2011, the debt had grown to $9.3 trillion. We’ve been fighting wars and coddling the rich, after all.

If someone approached you on the street with the question—”Should the government have a balanced budget?”—my guess is that you’d instinctively say yes. That is, the government’s expenditures should not exceed its receipts.

Once again, we can see that federal expenditures rose faster than revenues beginning in the 1970s, with the exception of the Clinton years.

I have mentioned “the Clinton years” a couple of times. Clinton’s tenure was sandwiched between Republican administrations. For all their bluster about fiscal prudence, Republicans hardly practice it when given the reins.

The above graph suggests that it’s far easier to cut taxes, and therefore diminish revenues, than it is to cut spending. When we’re given the opportunity, we vote to cut our own taxes. But we always retain the right to complain about lousy government service, failing to appreciate the causal relationship between the two.

This next graph is a bit misleading. I’ve divided federal receipts by population.

What’s misleading about this curve is the Great Divergence—when the incomes of the very rich soared while everyone else’s stagnated or fell. Even with the sharp reduction in marginal tax rates, the very rich are mostly responsible for driving up federal taxes. In the main, however, when the economy does well government receipts increase.

To be sure, federal tax receipts from corporate income have also risen.

Corporate tax receipts appear to be quite sensitive to economic cycles. Look at the sharp drops in revenues during the last two recessions. But we also see a large spike in corporate tax revenues as the housing bubble expanded along with rising Wall Street fortunes.

The Rest of Us can only hope for a better future, one in which jobs are plentiful, wages are sufficient, anxiety over medical issues is relieved, retirement is met with joy rather than dread, schools properly educate, the air is clean, the water is pure, and everyone is happy.

Not going to happen. The FRED tells me so.

Why so many poor?

Posted on by davald

I suspect that every time people gather to recite the Pledge of Allegiance or sing the National Anthem they implicitly believe that they exist in the greatest country on earth. So, I’ll stick with this motif for a moment to pose some questions.

I begin with a fundamental question: If this country is so great, why are so many of us poor?

According to recent estimates, about half of all Americans are poor or near-poor. One out of every two Americans lives in poverty. Whatever the causes, the mere fact that half of us are struggling to survive should sow doubts about our greatness.

If this country is so great, why are so many of us lacking jobs?

If this country is so great, why do we coddle the rich at the expense of everyone else?

If this country is so great, why does our education system suck?

If this country is so great, why do we spend so much on health care while leaving more than 40 million of us without any insurance at all?

The Republican majority in the House passed a budget yesterday. If it became law, the poor would be punished further. Here’s the New York Times editorial on the subject:

For more than a year, House Republicans have energetically worked to demolish vital social programs that have made this country both stronger and fairer over the last half-century. At the same time, they have insisted on preserving bloated military spending and unjustifiably low tax rates for the rich. That effort reached a nadir on Thursday when the House voted to prevent $55 billion in automatic cuts imposed on the Pentagon as part of last year’s debt-ceiling deal, choosing instead to make all those cuts, and much more, from domestic programs.

The paper’s editors entitle their essay “The Human Cost of Ideology.” They go on to enumerate the toll the Republicans would exact on our most vulnerable citizens. The Democratic minority offered a counter proposal, which was summarily dismissed by the Republicans. The editors:

House Democrats offered an alternative bill that would replace the $109 billion sequester by raising taxes on the wealthy, ending oil company tax loopholes and cutting farm subsidies, but it was rejected. Republicans are determined to protect millionaires and defense contractors, no matter the costs to the country.

“…with liberty and justice for all.” Really?