Republican decadence

I often feel as if I could check the “politics” category on every post of this blog. It’s not because I particularly love the stuff. Indeed, I’d rather it go away. But it is inescapable in a representative democracy, and what our elected officials do can make a world of difference. Yet, and you knew this was coming, there seems to be a perversion afoot, a completely bizarre, if not deranged, form of the ancient art of compromise—and how silly to even refer to it in that vein, given the verbal slings and arrows that fill chambers and airwaves these days. What emerges from our legislative bodies stinks.

It’s easy for me to blame it on a single party. I call them bastards, taking a cue from my grandfather. However, calling Republicans names or dismissing them with profane descriptors does not make them go away. There are literally millions of them in the U.S., and while they do not breed like cockroaches they are every bit as pernicious. See. I can’t help myself.

The very large question begs itself: Why are there Republicans at all?

They don’t like government, yet they spend billions of dollars in an effort to run them, and, I dare say, into the ground should they succeed.

They don’t like people not of their own ilk—basically white guys and their worshipping females.  In demonstrating disdain for others, Republicans lock them behind bars, deny them the ballot, and refuse them assistance.

They don’t like science and do their best to betray ignorance of all things.

However, they do like guns, wars, prisons, Ronald Reagan, and John Wayne.

Margaret Thatcher suggested that there is no such thing as society, only individuals. She was no philosopher, but rather an ideologue who believed that ‘I’ was far more important than ‘we.’ Her legacy lives on in the Republican Party, which eschews collective responses to systemic problems. (I suppose that systems don’t exist in Thatcherville either.) Thus, there is no real difference between one person unable to find work and tens of millions in the same boat. It does not occur to the Thatcherite Republicans to even wonder why so many might lack jobs. Also, the answer to all problems is lower taxes on the rich, those folks who have shown the Rest of Us that they deserve all they have and more if they can get it—by whatever means.

Why should anyone find this appealing?

Well, I don’t get it and neither do people who live outside our borders, judging from this post at ginandtacos.com. I can’t resist sharing the opening two paragraphs:

It makes sense that people around the world can enjoy occasional America-bashing; god knows we make it easy for them. We export the worst parts of our culture – fast food, corn syrup beverages, idiotic entertainment, Jerry Lewis – around the globe, we still have a strict policy of American Exceptionalism in global affairs, we have an unpleasant tendency to start wars, and (worst of all, in my opinion) a large number of Americans know absolutely nothing about the world outside our borders. Many people around the world no doubt conceive of Americans as the stereotypes that some of us work so hard to deserve: as anti-intellectual, violent, proudly ignorant slobs who eat KFC every day and drive pickup trucks.

When I read non-U.S. news sites it’s hard to miss the occasional “Look at how barbaric Americans are” stories, usually focusing on gun violence, racism, our failing healthcare system, or the latest can-you-believe-this-shit proposal from some Republican state legislator. Part of the reason that people in one country look down on another is to distract from their own problems, but there certainly is a ring of truth to these criticisms. Like I said, we do make it easy for anyone who wishes to paint us with a broad brush. It would be silly to take it personally or to point out the bleedingly obvious fact that stereotypes do not describe all members of a group accurately.

I am a reminded of the following quote, attributed to Oscar Wilde:

America is the only country that went from barbarism to decadence without civilization in between.

Two trends

The Bureau of Labor Statistics released the latest figures on economic output. Last quarter the economy grew at an annual rate of 1.7 percent. The bureau also revised downward the previous quarter’s GDP to 1.1 from an original 1.8 percent, a nearly 40 percent difference. (That same revision applied to the most recent data would drop the annual growth rate to just over 1.0.)

The newspaper accounts, including the above link to the New York Times, couch the report in optimistic tones: better than forecasted. However, the economy is not exactly humming along and hardly enough to yield enough jobs to drop the unemployment rate to pre-recession levels.

The chart below (from FRED data) shows the annual change in real GDP (solid black) and the unemployment rate (solid grey). I’ve included simple linear trend lines (dashed).

GDP and unemploymentThe trends are going in the wrong direction.

 

Lazy journalism

Both the New York Times and the Washington Post carried an article by the Associated Press on Obama’s soon-to-be-proposed “grand bargain” on creating jobs. The Republicans were quick to pounce.

House Speaker John Boehner’s office said Obama’s proposals were hardly a compromise.

“This proposal allows President Obama to support President Obama’s position on taxes and President Obama’s position on spending, while leaving small businesses and American families behind,” Boehner spokesman Michael Steel said.

Dean Baker laments the failure of journalists to inform readers, a novel approach, it seems. In this case Baker chides both papers for simply running the story without providing context and the results of a small bit of sleuthing.  About Republicans, he quotes this from the article:

“…they have long insisted on tying corporate and individual tax reform so that small business owners who use the individual tax code would be offered cuts along with large corporations.”

So, what’s wrong with this? Baker:

The vast majority of small businesses would receive little or no benefit from Republican proposals to change the tax code, which center on reducing the top tax brackets. In addition, the vast majority of the people who would benefit from reductions in the top tax bracket are not small business owners.

Moral economics [u]

Economists, I suspect, believe that their discipline is more like physics than philosophy. It’s hard rather than soft, relying on data and mathematical models to generate predictions about the future and perhaps knowledge of the past. The last thing economists want is to have ethics creep under their academic tents.

So we have this curious statement of Paul Krugman:

But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too; making soaring inequality the cause of our macro woes too is a bit too, well, comfortable for us liberals.

Yet, in decrying the failure of the federal government to spend money in the manner of FDR and the New Deal, Krugman appeals to sympathy for the unemployed, millions of whom have been out of work for extended periods. After all, if we didn’t give a damn about people down on their luck, why should we adopt policies that, according to Krugman, would help them?

To the point about “soaring inequality [being] the cause of our macro woes,” perhaps Joseph Stiglitz is right. Moreover, whether or not he’s correct strikes me as being an empirical question, notwithstanding possible underlying ethical motivations, including sympathy for the unfortunate.

There is a growing body of literature, including the work by British researcher Richard Wilkinson, whose recent book Spirit Level carries the subtitle “Why greater equality makes societies stronger.” Inequality, Wilkinson argues, is behind much of societies’ ills, including degraded medical health.

But what about macroeconomics, how might inequality contribute to unemployment, as opposed to being a symptom?

If the gross domestic product relies heavily on personal consumption (about 70 percent), then the incomes of the Rest of Us would appear to matter. Let’s turn to Stiglitz.

In his book The Price of Inequality, the Nobel laureate writes:

The underlying thesis is that we are paying a high price for our inequality—an economic system that is less stable and less efficient, with less growth, and a democracy that has been put into peril.

Stiglitz and others point out that the Rest of Us spend more of our money than the rich, mostly because we have to. The wealthy tend to hoard their surpluses. So the more wealth that goes to the top one percent the less money is in circulation.

On a larger scale, at the macroeconomic level, those consumer purchases lead firms to produce more. In turn, their managers increase investments in capital (e.g., machinery) and hire more workers. The added payroll leads to more spending, more circulation, and increased output, creating a virtuous cycle of economic growth.

In the post-war period ending in the late 70s, wealth was more evenly distributed than it is today. Unemployment was lower, the economy was growing at higher annual rates, and more money was in circulation. The chart below shows the Gini index and money velocity over time.

money velocity and gini

As for economic output, the 50s and 60s were relative halcyon days.

GDP annual change with five year trendBetween 1955 and 1973 the economy grew at an average annual rate of four percent. From 1974 the growth rate fell by nearly a third, to 2.7 percent on average. What else was going on during the economic slowdown?

ratio top .01 percent and bottom 90

The economy does better when the Rest of Us have more money. Greater equality, as Wilkinson concludes, means more financial stability, better health outcomes, higher savings, greater investments, lower unemployment rates, and increased well-being for the Rest of Us.

What’s wrong with that, Prof. Krugman?

UPDATE (July 29, 2013):

Jared Bernstein weighs in. Note the spending numbers for different income categories. The Rest of Us, again, spend almost all our incomes; the rich much less so. Something about the marginal propensity to consume.

The goo

For the past couple of weeks my wife and I have commuted to Seattle and back to babysit our new grandson, which is as delightful a task as we could imagine. However, getting to and from has all the earmarks of society gone mad. Why do so many people join the daily mess on the interstate?

Our distance is about 30 miles. Without traffic, the trip would take less than half an hour. A breeze. Alas, there is always traffic. Last Thursday, upon departing Seattle at four in the afternoon, we didn’t arrive home until 5:30. Yet, the next morning, we managed to go door to door in under 30 minutes. That’s the other annoying aspect to “rush-hour” commutes: the traffic is so unpredictable from day to day and from even second to second, which makes for all those panic stops and rear-end collisions. Skid marks adorn the surface like stripes on a zebra.

Years ago Puget Sound voters had an opportunity to slightly tax themselves to receive matching funds for rapid transit. In a burst of collective insanity, we said no. Atlanta got the dough instead, and we’re now stuck with the same few travel lanes with considerably more vehicles than when the vote was cast. Stupid.

Traveling five miles an hour in densely packed concrete lanes day after day takes a toll. It got to Paul Krugman the other day when circumstances dictated that he drive his car rather than take the train, his normal mode. Not being your typical commuter, the professor conducted calculations in transit on average speeds and whether or not adjacent lanes really do move faster. They don’t. He writes in his blog:

And this creates intense frustration and anger, a sense that it’s grossly unfair that you are in the wrong lane. This sense persists even though (a) you have worked out the analysis above, and realize that in principle the lanes are equally good or bad and (b) you have in fact been playing leapfrog with the same Boltbus the whole way, so that you know that in fact neither lane is better. No matter; you are angry, frazzled, and late for your family event. (Which you make up for by having a good time, and drinking enough wine that it’s past 9 when you realize that you didn’t post Friday Night Music).

Tragic.

Debt and inequality

Did Americans take on more debt because of rising inequality? That’s apparently the view of Joseph Stiglitz, according to Paul Krugman, who writes:

What we all agree on is that this crisis was a-building for a long time, especially through rising household debt, as shown above. But why was household debt rising?

The president came down pretty much for what we might call a Stiglitzian view (although it’s widely held): debt was driven by rising inequality. The rich were taking an ever-larger share of the pie, but not spending to match, while working Americans took on ever more debt to make ends meet.

The figures suggest that Stiglitz has a point. Here’s a graph that shows both the Gini index (red) and the level of consumer debt.

consumer debt and gini index

 

Krugman prefers a Minksy explanation.

Personally, I’m more of a Minskyite than a Stiglitzian, although not 100%; although things like subprime lending were, I believe, mainly about forgetting the past, Elizabeth Warren’s old work on bankruptcy pretty clearly shows that at least some families took on excess debt as a result of rising inequality. But I’m inherently suspicious of any story that makes economics a morality play in which all bad results come from things you consider bad for other reasons too; making soaring inequality the cause of our macro woes too is a bit too, well, comfortable for us liberals.

Yes, correlation is not causation, but it’s still very clear that Americans began taking on much more debt as the rich got richer and the Rest of Us experienced flat or even declining wages. Intuition alone would argue for greater reliance on credit in the face of diminished household income. For, despite smaller paychecks we continued to spend money.

Consider a scenario in which incomes, or wealth, were more equal. In the post-war years, up to the mid-70s, say, the Gini index was lower. What about the savings rate?

personal savings rate

 

Incomes began to sharply diverge after Reagan assumed office. But when the Rest of Us had more money relative to the rich, we also saved more, as the above chart indicates.

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