I was a split second away from hitting post! I'll hang on to mine until I get into work.
To the OP: there are two separate economies, and the corporations have not been experiencing the recession for two years. They can be taxed.
And that income could be spent solely on stimulative spending until people go back to work, and then once the economy is booming, the deficit will once again run a surplus.
From Warren Buffet's op ed "And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what's happened since then: lower tax rates and far lower job creation."
Congressional testimony by the chief economist at Moody's, Mark Zandi, indicates that the multiplier for all of the Bush tax cuts was .29, indicating that a buck in tax cuts gives you 29 cents of GDP expansion, while a buck in food stamps spending gives you $1.73 in GDP expansion.
The multiplier is presumably lower for tax cuts on the $250,000-plus crowd, but food stamps is a particularly high-multiplier kind of spending. Extending unemployment benefits gets you $1.64; infrastructure clocks in at $1.59, and general aid to state governments is $1.36.
So it looks like the answer to your question is "Yes."
http://econospeak.blogspot.com/2011/08/its-political-economy-stupid.html
tax cuts stimulate the economy, and raising taxes does the reverse
This is always true if you happen to live in an Econ 101 textbook. In the real world, some tax cuts are stimulative and some are not, some tax hikes are a drag on the economy and some are not. It's like the eternal argument that raising the minimum wage leads to low-end job losses, despite having several decades of real-world evidence that B does not necessarily follow A.
Similarly, private business is always more efficient than government at everything and God will end a drought if you pray for rain.
Something to ponder about the Internet and productivity: It took me about 10 minutes to assemble the answer in 4 on a matter I wouldn't have attempted to research pre-Internet, even if the question had occurred to me.
On the other hand, I'm supposed to be working ...
No one has proposed a national consumption tax for a while. Isn't it about time for that to come up again, in the cycles of things?
2
And that income could be spent solely on stimulative spending until people go back to work, and then once the economy is booming, the deficit will once again run a surplus.
That last bit is magical thinking. Like the conservative claim that you can increase revenue by cutting taxes.
I agree with 9, perhaps because I haven't had breakfast yet and I'm cranky.
You're saying that with Clinton-era taxes and Clinton-era economy boom, we wouldn't run a Clinton-era surplus?
If so, then I prescribe ending three wars. That would do the trick.
Anyway, we're certain not consuming our household savings or investing it productively. I have no idea how to invest productively and every time I try to spend money, I start to worry about what to do if the economy gets worse.
The argument is that if you raise taxes, people will consume less, which will cut aggregate demand. If you cut taxes, they will consume more, which will increase aggregate demand. The Bush tax cut expiration is sufficiently weird that it's hard to say what would really happen, in practice. If most people who's taxes go up just save less, then it wouldn't make much difference.
Given the institutional constraints of the US, it's probably better that the tax cuts expire. Given the economic incompetence of official Washington, there is no chance of actual good policy, an increase in revenue would at least limit the chances of bad policy being enacted, since debt hysteria is in full swing.
You're saying that with Clinton-era taxes and Clinton-era economy boom, we wouldn't run a Clinton-era surplus?
My strong suspicion is that economic growth we had then was either not real or not sustainable (waves hands and murmurs "peak oil, growing trade deficit, kids on my lawn").
That last bit is magical thinking. Like the convservative claim that you can increase revenue by cutting taxes.
You can indeed increase revenue by cutting taxes under certain very unusual circumstances. Likewise, in certain situations, stimulative spending can literally pay for itself.
Our current economic situation is unusual in a way that resembles the latter scenario.
Anyway, we're certain not consuming our household savings or investing it productively.
Does this mean you are literally storing sacks of cash in your closet? Because pretty much anything else you could do to save the money qualifies as "investing it productively." Buying stocks or bonds, putting it in a bank account, etc. Banks turn around and lend out the money.
18: It's in a savings account and given how the banks are run, I'm fairly certain this doesn't count as productive. It's certainly no emu farm.
Banks turn around and deposit it at the Fed, you mean.
I thought it was conventional wisdom that there was a lot of hoarding going on at the moment? And really not as much productive investment as you'd think.
Because if nobody is going to feel safe to spend money on high quality emu steaks, nobody is going to start an emu farm.
Well, granted. But from an individual actor's perspective, putting it in the bank account qualifies as investing it productively every bit as much as anything else does.
So, if you raised taxes and got .30 cent negative multiplier per dollar taxed, but then spent the money on infrastructure and got $1.50 positive multiplier per dollar spent, you would have 5 times the positive impact on the economy as negative.
"Tax and spend" used to be an epithet, but it sure would make a whole lot of sense in the current era.
nobody is going to start an emu farm
tax cuts stimulate the economy, and raising taxes does the reverse
Not only is this false as it is stated, I advise you to start discounting the truthfulness of future statements by anyone who tells you this.
Politicalfootball and Apostropher seem to have the details of how this is wrong down. I'll stick with emphasizing that you hare hanging out with too many supply siders.
Further to 17, Delong makes the case that fiscal contraction costs money:
As long as the sum of the economy's long-term growth rate--which is now about 3%--and the share of a rise in unemployment that becomes structural is greater than 2%--which it definitely is--fiscal contraction is a bad, imprudent, and spendthrift thing.
Krugman finds Delong's argument "plausible."
27
As long as the sum of the economy's long-term growth rate--which is now about 3%-- ...
The 3% is derived by fitting a curve to past performance. There is no guarantee it will continue.
Daniel Davies over at D-Squared Digest ...
Just to be clear on this, as I think some people are confused. The bad thing about cutting the federal deficit is not that it might affect Social Security or Medicare. Even if these were totally ringfenced it would be a bad idea. The bad thing about cutting the federal deficit is not that some other virtuous program might be defunded. Even if all the savings came from military procurement it would be a bad idea. The bad thing about cutting the federal deficit is not that it "shrinks the state". Even if all the deficit cuts were obtained by tax rises it would still be a bad idea. The bad thing about cutting the federal deficit is not that the burden falls disproportionately on the poor. Even if the deficit were reduced specifically by taxes which only fell on the top 1% of the income distribution it would still be a bad idea.
The bad thing about cutting the federal deficit is that unemployment is very high and interest rates are very low. Given that, taxing productive activity to pay down debt is really obviously the wrong thing to do, and borrowing money to employ currently unemployed resources is really obviously the right thing to do. It would not need to be spent on "shovel-ready" projects. By definition, for purposes of expansionary fiscal policy, anything you can spend money on is shovel ready. It doesn't have to be spent on vital infrastructure. Even completely pointless activity would be better than nothing. In some cases, even actually destructive activity, like war, has had a stimulative effect on the domestic economy.
The basic issue, and the one which ought to have people running around like their hair is on fire, is the unemployment rate. That, combined with the interest rate, shows you that deficit reduction is the stupidest possible policy at the current time. This is a very important issue, and the current President of the USA is on the wrong side of it.
But this is macroeconomics. The individual actor's perspective only matters insofar as it affects aggregates.
With interest rates near zero, it's now a workable strategy for banks to take all of their depositor's money, and stick it in a big vault.
tax cuts stimulate the economy, and raising taxes does the reverse
Since rob wants to involve me in his reflexive commie pinko loathing of America's producers, I want to state for the record that I have no quarrel with this statement in context.
The 3% is derived by fitting a curve to past performance. There is no guarantee it will continue.
Yup. But there's no particular reason to suppose it couldn't continue, either.
26: This isn't a supply-side argument at all. This is basic Keynesian demand-side economics -- the statement is conditional on being in a recession. In a recession, aggregate demand is too low to give everyone a job, so anything that stimulates aggregate demand promotes job growth.
If there was no unemployment, then tax cuts would just cause inflation, and increases would decrease inflation.
Supply-side economics isn't Econ 101 at all. The Econ 101 argument would be that government spending is inefficient, so if we cut spending, Sparkle the magical market pony would make everything more efficient. But this is about spending, not taxes versus deficit spending.
Sparkle the magical market pony
The people who make kids' TV are just as out of ideas as the people who make adult TV.
If taking money from the rich and giving it to the poor is stimulative can this be taken as evidence that at least part of our current economic problems are due to too much wealth concentration?
The economic policy in the US has been so awful that I'm surprised Krugman hasn't burst into flames from rage. Maybe he calms himself by rolling around in the Nobel Prize money.
Here's what's stupid about the deficit hysteria. So we know that we need more resources in the future, when the Boomers retire. We could start building those resources now by employing the 9% of the economy doing nothing. But no, apparently the policy we're going to pursue is to let those people sit on their asses because some numbers in an Excel spreadsheet look too big.
So we know that we need more resources in the future, when the Boomers retire.
That future is now. The first boomers are drawing Medicare now.
29: Yeah, that was part of what got me wondering -- if it were impossible to combine deficit reduction with stimulus/unemployment reduction, or just politically unlikely.
35:Yes
Income Distribution in the US, 2007
The top quintile starts at $95, 000 and gets almost 60% of the national income. That is where the interesting questions come, 95k-250k, which gets 4 times as much of the income as the top 2%.
Yeah, that was part of what got me wondering -- if it were impossible to combine deficit reduction with stimulus/unemployment reduction, or just politically unlikely.
It's impossible that ideal policy in a high-unemployment/low-interest/low-inflation scenario includes any emement of deficit reduction. There's an inherent tradeoff between the two, and as long as you've got high unemployment with those other conditions, you should be doing what you can to stimulate the economy.
OTOH, when you're operating under policies that are miles away from ideal, it's not at all impossible or even unlikely that there could be policy changes that would generate simultaneous reductions in the deficit and in unemployment. Some suggested policies are contained in this thread. Pure stimulus would be even better (from an economic perspective; the political question is of course much more complicated), but there's no reason you can't do both.
Mmm. What I'm really looking for (and am getting) is ammunition for the future argument about letting the Bush tax cuts expire -- under the assumption that the economy will still suck at that point, I expect to hear that the administration couldn't possibly use the leverage it has by threatening to block renewal of the cuts, because that would screw the economy over. If increasing the progressivity of the system and spending the increased revenues would have a net stimulative effect, then letting all the cuts expire becomes thinkable, and therefore useful as leverage.
Not that any of this is going to happen.
Historically, countries that have successfully coupled deficit reduction with growth have done so through devaluing their currency and increasing exports.
42: Everybody and their dog is trying to do that at the same time. They can't all succeed.
41: I suspect that argument has long since been lost, as no Democrat, however self-effacing, wants to run for re-election with 9+% unemployment and then hand the "He raised taxes!" applause line to his opponent.
43: True. But we can do it. Because we've got the bombs, that's why. 2 words, nuclear fuckin' weapons, OK? Russia, Germany, Romania, they can have all the democracy they want. They can have a big democracy cakewalk right through the middle of Tianamin Square and it won't make a lick of difference because we've got the bombs, OK?
What I'm really looking for (and am getting) is ammunition for the future argument about letting the Bush tax cuts expire -- under the assumption that the economy will still suck at that point, I expect to hear that the administration couldn't possibly use the leverage it has by threatening to block renewal of the cuts, because that would screw the economy over. If increasing the progressivity of the system and spending the increased revenues would have a net stimulative effect, then letting all the cuts expire becomes thinkable, and therefore useful as leverage.
But that's because the policy changes are analyzed individually. Letting the BTC expire would harm the economy at least somewhat (UTATTEWSSATP). So if it's an either/or analysis, the criticism is correct. (Although, it will sure grate to hear that line coming from all the same people who will have spent the last two years resisting all possible stimulative measures at every turn). But, if the package proposal was: let the BTC expire but use, say, half the money for new progressive stimulus, then yes, that would be a big policy improvement over just keeping the BTC in place. You'd cut the deficit and stimulate the economy all at once. Is that what you're asking?
44: Is the expiration before the election?
That's why I think the Democrats will completely cave to Republican demands on the supercommittee -- they don't want to hand the "Democrats forced 500 billion dollars in cuts to defending our nation's security" to their opponents.
41:LB, This Paper, draft pdf 2007 by Christie and David Romer is the current conventional wisdom among mainstream economists. Thoma is totally convinced. I have been fighting it since it came out.
"The resulting estimates indicate that tax increases are highly contractionary. The effects are strongly significant, highly robust..."
41 should probably be qualified with the statement that in theory you can do long term (contractionary) deficit reduction while doing short term (deficit increasing) expansion. The problem with that is that in practice nobody who cares about deficits believes the long term deficit reduction will actually happen (with some justification), there's little point in doing it at all. To get people to believe the long term deficit problem will be solved, you have to cut the deficit now, even if it's economically, and quite possibly fisally, counterproductive. Hence the situation in Greece and Ireland.
I thought Ireland's problem was that the decided to bail out their banks instead of hanging the bankers.
tax cuts stimulate the economy, and raising taxes does the reverse
I agree with this statement too, although I think the lesson of the Bush tax cuts is that, yeah, tax cuts do have a stimulus affect, but not a particularly big one. Otherwise the economic boom of the 2000s would have been less forgettable.
The mirror image of this effect was the Clinton tax hikes in the 1990s. Yes, there was some macroeconomic anti-stimulus caused by higher taxes, but it wasn't big enough to outweigh other factors going on which lead to such robust growth.
44,47: It's adorable how you guys think those lines won't be used anyway.
50: It seems to me that if it's really important for Greece and Ireland to cut their deficit long-run, that it would be easy to implement -- the ECB or whoever should just lend them big sums now, but with caps on how much they can borrow elsewhere.
53: You mean it's adorable that the actual Democratic candidates don't think those lines won't be used anyway.
Well yes, but bailing out the banks didn't directlycause the recessions, or prolong it. Deficit reduction, forced on them by the consequences of the bailouts, did (it's a bit more complicated than that of course). The point being, the more Ireland and Greece cut spending now, the deeper their economic whole gets, which in turn makes it harder for them to cut the deficit. But they have to cut spending now, because nobody believes they will get their deficit and hence debt burden under control if they don't.
Christie Romer is a major major player in New Keynesian circles, which frankly control economics much more than the Chicago freshwater crowd. Her influence cannot be overestimated. Three critical papers by her demonstrate "empirically beyond any doubt"
1) Tax increases are contractionary
2) Fiscal policy during the FDR administration did not help the economy, only the monetary policy increased growth
3) Fed policy during the 60s hurt growth, and caused the inflation of 70s.
She is really really good, and very very bad. The New Keynesian neo-liberal deficit hawk par excellence.
55: Well, yes, but I preferred to call you and Flip adorable, even if it meant misreading your comments.
Because you are a moral monster, Eggplant.
What's shocking is that Romer -- who I honestly would have thought was a Republican -- is now to the left of the administration.
I thought Ireland's problem was that the decided to bail out their banks instead of hanging the bankers.
I thought that was America's problem. Ireland's too of course, but it would have been much easier for Ireland to hang the bankers if they weren't faced with a huge precedent from the world's biggest economy.
Ireland need the bombs, chris. It's the answer to all life's problems.
56 to 51. And I meant "economic hole" obviously.
50: It seems to me that if it's really important for Greece and Ireland to cut their deficit long-run, that it would be easy to implement -- the ECB or whoever should just lend them big sums now, but with caps on how much they can borrow elsewhere.
First, legally the ECB can't lend them money directly. Second, despite this, the ECB is kind of lending them big sums now. It owns something like 30% of the outstanding government bonds of Greece and Ireland. Third, from the European institutional perspective, caps on borrowing "elsewhere" means they'll be reliant on public sector funding for the foreseeable future. Of course, to most people that's obviously already the case, but Europe seems to still be operating on the principle that this will all blow over in a year or two.
New Keynesian circles, which frankly control economics much more than the Chicago freshwater crowd.
Oh, we wish.
I thought that was America's problem. Ireland's too of course, but it would have been much easier for Ireland to hang the bankers if they weren't faced with a huge precedent from the world's biggest economy.
Actually, Ireland was the real precedent setter. It was the first country to explicitly guarantee effectively all the liabilities of the banks, not just deposits or newly issued senior bonds. This started a terrible race to the bottom, especially in Europe (not to mention a huge diplomatic row, which would have been huger if they'd known then what they do now). If it weren't for Ireland's unprecedented action, we probably wouldn't be in the situation we are now where even the smallest European bank (outside of Denmark) is deemed too big to fail, either officially or unofficially.
I thought Ireland's problem was that the decided to bail out their banks instead of hanging the bankers.
Ireland could have split the difference here - either forcing the banks to take a haircut and letting the bankers live, or bailing out the banks and hanging the bankers . You liberals need to learn to compromise.
Ireland needs the bombs, chris. It's the answer to all life's problems.
Because that's worked so well for Ireland in the past.
Well, those were small bombs.
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Almost on topic: a good song about hard times that I came across this weekend, "Hubbin' It"
While I'm being self-indulgent, I've been thinking that my Obama inauguration mix holds up well. Not that it anticipated any of the events of the last two and a half years, but the general feeling that progress is difficult, and built out of a history which combines tragedy and optimism is still relevant.
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64. Didn't know that, wasn't paying attention.
I did notice that a lot of the non-core business of AIB has been sold to Capita. (Joke appreciated by Brit commenters only.)
The people, and especially people who happen to be corporations, with money in America right now have no particular interest in spending that money in America, hiring American people, building things in America, etc. Not only do they think hiring people in places with cheaper labor is better for their finances, they think it's by definition the moral option to give up on the fat overpaid wastrels here and help out the hungry, hard-working desperate people elsewhere. Taxing the people with money is the only way to get their money to be spent in our economy.
Hm, the only argument for lower tax rates (as opposed to eliminating loopholes, so-called "expenditures" or subsidies) has to do with corporate tax rates. Word is that US corporate tax rates are a disincentive to corporate investment here in this country: companies are, even as we speak, choosing to enter into new contracts in, say, Canada instead.
Is there a reason this thread isn't talking about decoupling expiration of the Bush tax cuts for the wealthy from cuts for the middle class? Extend the latter but not the former?
I'm realizing that I don't fully understand the breadth of what we call the Bush tax cuts: do they involve corporate tax rates as well, or only personal income taxes? Are capital gains rates part of it/them?
Is there a reason this thread isn't talking about decoupling expiration of the Bush tax cuts for the wealthy from cuts for the middle class?
Well, the definition of 'middle class' that gets used in that context is kind of tendentious. Most of the benefit from the 'middle class' end of the tax cuts still goes to rich people. And getting rid of all the Bush cuts is procedurally infinitely easier than picking and choosing, because all the Senate has to do to get rid of them all is nothing.
all the Senate has to do to get rid of them all is nothing.
And yet somehow they will be spurred from their usual inaction.
In a sane world, I think decoupling might work. Let the Bush tax cuts expire, then introduce a new bill reintroducing "middle class tax cuts" and dare the GOP to vote against it. In practice I think one of the following would happen if the Dems tried to do that.
1) Republicans would threaten to filibuster absolutely everything until the whole shebang was extended.
2) As revenue bills must originate in the House, the House GOP leadership would refuse to bring a middle class tax cut bill to the floor, figuring that the benefit to them of being able to accuse Obama of a) raising taxes, and b) breaking his campaign promise not to, would outweight the consequences of such obstruction. And they'd probably be right.
Hm. (Again.).
47: Is the expiration before the election?
I'm pretty sure the expiration is in December 2012, after the election; presumably intense discussion about them will be occurring in the run-up to the election, though. It's kind of weird, actually -- and ridiculously bad timing -- given that we won't know until after the election whether the Senate will be controlled by Republicans. It'll be a lame-duck Congress again, as in December 2010. This is no way to run a country.
I don't suppose we can take back the House.
I went and looked at the actual bill. The tax cuts expire December 31, 2012. So it come up before or after the election.
Taking back the House (25 seat pickup) is within the realm of feasibility. The bigger question is whether the Democrats can hold on to the Senate, where 6 Democrats are retiring (so far) and 17 seats are being defended, compared with 2 and 8 for the GOP.
There is a whole lot of people making dumb arguments here, just to avoid using rhetoric that republicans misuse.
I also enjoyed Shearer's humian epistemological nihilism
78: If the filibuster still exists, who cares if we hold the Senate? We couldn't pass much of anything anyway, and we can still block whatever we like.
If the Republicans ditch the filibuster, the next couple of election cycles will suck but it's a good thing long term.
If the Republicans ditch the filibuster
This won't happen until they next control all three braches (and isn't a certainty then, but I wouldn't bet against it). What possible advantage do they gain ditching it prior to then?
To be comprehensibly on-topic, I guess 81 should have said that republicans controlling all three braches seems like an unlikely outcome in 2012.
I think you're right, but if the filibuster is still there (and we're willing to use it) losing the Senate is pretty painless.
We won't use it though, or at least not enough to make yet useful
78: Thanks for that. It's all about the specific numbers, I know that, but I don't often attend to them. Please keep us informed in this regard, Apo. I love ya for it.
Anyway, okay: I'd been fretting about the Senate, but maybe the new freshman Tea Party seats in the House are the place to focus attention. Those guys might be on shaky ground. (I'm speculating; don't know.)
Also, I think losing the Senate is a big deal just because Committee chairmanships shift in that case.
I wasn't disagreeing with 80.1, so much as noting that 80.2 seemed irrelevant.
That being said, I'm sort of uncomfortable with lunatics having a majority in any branch of the federal government. It may seem painless enough, but it reflects poorly on the country.
To the OP, this seems entirely possible in theory. The current problem is insufficient aggregate demand, and effective demand comes from the portion of income which is spent rather than saved as cash. (Investment proper is just spending on capital goods.) Transferring part of the income stream from people or organizations which will hold it as cash to those who will spend it could indeed raise aggregate demand; this gets towards the multipliers mentioned in 4. In fact I think there is something about this in Keynes himself, in connection with the declining marginal propensity to consume as income rises.
In fact I think there is something about this in Keynes himself, in connection with the declining marginal propensity to consume as income rises.
Sure there is, some think it is the key to the GT. Savings != Investment.
But as I said above the interesting group is the 95k to 250k quintile. This quintile is much richer than they were 50 years, and have been turned into more dedicated savers than their equivalents. Defined benefits versus defined contributions, used to be GM (or Wall Street) took the pensions and built new plants, now everything, all the savings goes to Finance. And as we saw with that Chicago economist, people in the 100-500k range save a lot, and think they desperately need to.
Housing, IRA, retirement, kid's education funds.
The idea of Reagan, Greenspan, Friedman, the neo-liberals and New Keynesians was to give the upper middle class back some money, and then stress the fuck out of them by threatening the commons and welfare state, forcing them into savings and survival modes. This savings would then go to Finance, where the masters could get their cut and gamble with it.
Yep. That's me, and you've described the feeling very accurately.
The Dems don't have the party discipline to use the filibuster as effectively as we'd like. Maybe they're happy with it.
89 is helpful.
On the filibuster, I'd like it noted that it's not a choice between the filibuster as it currently exists, and eliminating it altogether: there are proposals out there, some of them quite good and reasonable, to reform it. So we don't have to behave as though it's an all-or-nothing proposition. This is just a quibble I have regarding many mentions of the filibuster in the left blogosphere; it doesn't necessarily bear on the current discussion.
89: By "something about this", I meant the possibility of increasing aggregate demand simply by transfers. It is indeed the key insight in Keynes that savings != investment, but you can have a shortfall of demand even without inequality of income. That's the situation of Uncle Paul's immortal example of the baby-sitting co-op. (I wonder if there's a Chicago School or Real Business Cycle response to that example? Prescott explaining how it's all a rational response to a negative shock to the technology of baby-sitting?)
There were just so many stupid loans floating out there I don't see how a bad recession could have been avoided.
Hypothesis: Recessions are needed to keep capitalists from believing that markets are actually self-maintaining.
Avoided by any government action, that is. Banks not being stupid would have worked just fine.
94.2: One scary thing about this recession is that the capitalists do not appear to have learned the lesson.
Government action in the form of maintaining banking regulations might have worked.
98: That only works in really boring places like Canada.
Okay, so you should take back 94.1.
94.1 was perhaps over broad, but most of the discussion was thinking about ending a recession that has already started.
I should have bought in emu farm on my credit cards back when the banks were being reckless. Now I have to save my own money.
102: I don't see what remarks about bad loans (by which I assume you mean bad mortgage loans) has to do with ending the current recession.
I mean, ARMs, adjustable rate mortgages, were a bad idea for a lot of people; they were pushed upon people in shaky circumstances because banks could bundle these things and muck about with credit default swaps and whatnot. It turns out that deregulation is a very very bad idea, because the market is not self-regulating, there is no invisible hand, the market is rapacious! Golly. Shitloads of corporate and investment/banking types made a lot of money, and they still have the vast majority of it.
In the event, let's try to keep it straight about how this came about. The OP mystified me a bit as well, in its apparent willingness to give credit to rhetoric about how tax cuts stimulate the economy, and raising taxes does the reverse.
105: It wasn't just bad loans for mortgages or even consumers. Bad commercial loans were very common (just resolved with less newspaper coverage) as were bad loans to governments like Greece.
Shitloads of corporate and investment/banking types made a lot of money, and they still have the vast majority of it.
Because they were to big to fail. But they are now even bigger. Now I want to put Bob in charge for just a week.
Anyway, understanding how this came about means you could have written regulations to stop this particular series of events from coming about. It doesn't mean that somebody wouldn't have found a new type of teh stupid. The way to stop teh stupid in general is to make it so that taking risks gets smacked down from time to time. Which is one more reason (aside from basic fairness) why I'm still upset about the bailout even after 800 very smart people have argued that it was required to keep me from eating cardboard or something.
Which view is at least partially against what Uncle Paul says in the link at 93. But, if he's so smart, how come I don't read the New York Times?
Anyway, understanding how this came about means you could have written regulations to stop this particular series of events from coming about.
There's something about the repeal of Glass-Steagall, is there not? I am not an economist, much less a banker, but I thought this was relatively common knowledge among the political junkie, slightly wonky, attention-paying set.
109: That was Al Franken's joke policy (along with no ATM fees) in Why Not Me? There were lots of mistakes that various people recognized at the time and that was one of them on the list but far from the most common. Banks did enough damage to themselves just making regular old loans.
110: Plus Joe Lieberman as his VP (written in 1999)! I love that book even more now that he is a senator.
The para I read just minutes ago, Douglas Dowd, . Dowd has been around forever, 60s hippie at Berkeley, moved to Bologna
Not so [Says Law], said Keynes. Savings are a function of income, not of the rate of interest. Moreover, given the inequality of incomes, with a few at the top receiving a disproportionate share, that means that as the national income rises, savings will also, and at an increasing rate (that is, the percentage of savings to income will rise). And, inevitably, this will mean that excess productive capacities exist, and that the demand for loanable funds will level off and decline and result in depression and unemployment. The lack of "effective demand requires non-private (that is, governmental) sources of demand (that is, governmental) to take up the slack - spending on public projects - while providing sales to businesses and jobs to workers and services of one sort or another to society.
The highlighted section to me does not require inequality among classes.
I grew up in the 50s and 60s, when we had recessions every other year, short & sharp, and corrected in both directions by the Fed. Remember McChesney's "taking away the punchbowl?" I seem to remember it also being called "wringing inflation out of the system" and it was considered an inevitable and healthy part of capitalism. Thou Shalt Not try to eliminate the business cycle. Greenspan and the New Keynesians and monetarists tried to do exactly that during the "Great Moderation."
(The old Keynesians would also allow inflationary spurts, in order to assist re-allocations of capital, IIRC)
There are various ways to look at it, Marx, Keynes, Minsky (RBC is an attempt to hide it) but Capital creates a surplus by its nature that feeds on itself and accelerates (which is why we have good things*) until it cannot find productive outlets and causes inflation, often concentrated in a single sector. If everybody had the same income in a Capitalist society at some point we would be bidding up tulip bulbs til the bubble burst.
*The problem and wonder of capitalism is that it allows us to produce more than we consume. It is an accelerating system, not a steady velocity.
I still don't know how anybody could write that and get elected.
If everybody had the same income in a Capitalist society at some point we would be bidding up tulip bulbs til the bubble burst.
I like to pile my tulip bulbs in more of a pyramid shape.
110: Well, I haven't seen Why Not Me?, but the idea that nobody coulda known, it was all just a muck up in every arena, so there's nothing in particular we can identify as troublesome, is wrong-headed, in my view.
I believe we had this conversation not long ago in connection with a piece by Ezra Klein in which he, erm, reviewed somebody else's piece. I'm getting tired and don't remember the details right now, but the gist was who-coulda-known-it-was-very-complicated (Ezra's view) vs. everybody should have fucking known, and stop making excuses.
Right, it's coming back to me: Nick S. wrote a guest post that Ben posted, reflecting on Ezra's excuse-making piece.
I just figured that out. I haven't read it.
115: There is a lot of ground between "nobody could have known" and "proper management can prevent recessions." I'm arguing against technocratic hubris, not for unfettered capitalism.
113: Yes. What gives me faith in democracy is that the writer of this "diary entry" can get elected to the US Senate:
Took an unusually satisfying shit this morning. It was very large and smooth and shaped like a question mark, even with little dot on the bottom. Tried to take Polaroid but no film left over from shoot with T. Went down the hall to get O and Dan [Dan Haggerty (Grizzly Adams) - JPS] but they had just gone to sleep and didn't want to come see shit. Also got some sort of memo from N [Norm Ornstein - JPS]. Looks interesting. Tried to save shit but question mark shape started to deteriorate by lunchtime. Also had to take another shit then. So everybody will just have to take my word for it.
It is the best political novel of its generation.
I'm arguing against technocratic hubris
Fair enough, but I don't see why the repeal of Glass-Steagall wasn't a huge mistake that set the stage (in part, if you insist) for what happened.
As for "proper management can prevent recessions", obviously not entirely, though it can mitigate them. We do have a bubble cycle going on, and our best bet for getting out of our current trouble is to create another one with green investment and infrastructure repair. It could be worse: we actually need that stuff. Maybe it wouldn't actually be a bubble -- that would be cool.
I'm too tired now to fight over particulars, but your 94 rubbed me the wrong way, as must have been clear: I'm still not comfortable with what sounds like a demonizing of "technocratic" fixes, as though there's something awful about that. I'd love to live in a less complicated world too, but we don't.
121: Well this is the third time I've posted it here (but the other two times* I just did the one where it deteriorated).
*Of late I seem to be having better archive searching success.
I am truly loving 120. Thanks, man.
82
To be comprehensibly on-topic, I guess 81 should have said that republicans controlling all three braches seems like an unlikely outcome in 2012.
What's so unlikely about it? According to intrade the chances are about 77% for the Senate, 63% for the House and 47% for the Presidency. Since these events are highly correlated this implies a 40% or so chance of all 3.
123: I'm not demonizing technocratic fixes, I'm demonizing technocratic hubris. Every fix brings new, and hopefully smaller, problems.
32
Yup. But there's no particular reason to suppose it couldn't continue, either.
Sure it could continue (at least for a while) but it isn't some natural constant like pi. So past history is no justification for flatly asserting it currently has some particular value. One thing that bugs me about economists is their hubris.
126: Fivethirtyeight says the Reps are likely to lose the House if turnout is high.
Aren't Californians supposed to bounce in for a bit to cover things before work starts in Britain?
One thing that bugs me about economists is their hubris.
U.S. growth rates have been pretty stable in the big picture, and don't tend have sudden, permanent changes.
And sure, the past is no guarantee of future results, but it's a legitimate place to look. Economic policy choices need to be made - they literally can't be avoided. I'd submit that these decisions turn out better when they are based on something other than ad hoc rationalizations rooted on political ideology.
134
U.S. growth rates have been pretty stable in the big picture, and don't tend have sudden, permanent changes.
Without checking I would guess US growth tracts growth in fossil fuel consumption pretty closely. The latter is plausibly likely to permanently slow.
And sure, the past is no guarantee of future results, but it's a legitimate place to look. Economic policy choices need to be made - they literally can't be avoided. I'd submit that these decisions turn out better when they are based on something other than ad hoc rationalizations rooted on political ideology.
DeLong gives me the impression of picking his economic arguments to support his policy preferences. I could be wrong of course but spurious assertions of greater certainty than exists put me off. In fact because we don't understand macroeconomics very well it seems inevitable that policy choices will reflect political ideology.
Without checking I would guess US growth tracks growth in fossil fuel consumption pretty closely.
Not so.
The relationship here - fuel burn per dollar of GDP - is called "energy intensity" and it has been declining steadily for decades. It's now less than half what it was in the 1950s. The same pattern exists in lots of other places too.
The result is that the relationship you propose barely exists at all. US energy consumption went from 78 to 99 quads between 1980 and 2006. In the same time, GDP went from $5.9 trillion to $13.2 trillion (inflation adjusted). There's no close tracking there at all.
It's true that this is a relationship between fuel and GDP, not fossil fuel specifically, but the percentage of non-fossil energy used in the US has increased over that time as things like nuclear come on line, so a "fossil energy density" calculation would show an even sharper decline.
When you make, without checking, assumptions like this, and then find out that they are very wide of the mark indeed, it would be a good idea to ask questions like:
"Why did I assume this in the first place?"
"Why is it my automatic assumption that the economy depends so closely on our burning fossil fuels?"
"Whom have I been listening to and trusting who has been spreading this sort of misconception?"
"What organisations might have an interest in making people believe that the continued prosperity of my country depends on its continuing to burn ever-increasing amounts of fossil fuels?"
"What other beliefs of mine might rest on this - for example, a belief that anyone advocating a reduction in fossil fuel use is deliberately or unknowingly calling for a massive decrease in the size of the economy, and is therefore either a fool or a traitor - and should I now re-examine these beliefs too?"
136
When you make, without checking, assumptions like this, and then find out that they are very wide of the mark indeed, it would be a good idea to ask questions like:
I would like to see both on a log plot for the last 200 years before I concede they are unrelated.
"What other beliefs of mine might rest on this - for example, a belief that anyone advocating a reduction in fossil fuel use is deliberately or unknowingly calling for a massive decrease in the size of the economy, and is therefore either a fool or a traitor - and should I now re-examine these beliefs too?"
Actually my belief is there will inevitably be sharp reductions in fossil fuel use as supplies are exhausted and that this is unlikely to be painless. It may even shift the long term growth rate of the economy.
There's no close tracking there at all.
Does the rate of economic growth track the change in fuel prices, maybe with a suitable lag? I don't know and don't know how to google it quickly, but it does seem that in my memory rising gas prices are associated with slower growth. We do burn much less fuel that we did in the 70s (my parents had a station wagon that got a single digit mpg), but there were transition costs and an economic slowdown before things improved. Then gas got cheap and everybody went and bought stupid cars again and now gas is up and we're back with slower growth, especially for U.S. car makers. I am aware that lots of stuff is going on in addition to shifting fuel prices.
Anyway, using taxes to set a floor on gas prices is one of my favorite ideas (now that I can ride the bus to work) and part of the reason I'd heard for supporting it is because it stops the kinds of growth that might be easier but not sustainable.
But boy was that a great station wagon. Crash it into a building and you could just pick up the pieces off the ground, put them in the back, and drive away. Assuming nobody saw you crash into the building.
Personally, I would need to see at least 400 years on the log plot before I would be willing to draw any conclusions.
How about just a regular plot but on a really tall piece of paper?
130:126: Fivethirtyeight says the Reps are likely to lose the House if turnout is high.
Riiiight.
No matter what Obama does, no matter what Congress does, no matter how the economy looks...
...It's gonna be all my fault for staying home.
As bob goes from his couch, so goes the nation.
142: Silver's post was about statistical models, bob, not hectoring people about turnout.
I suppose I should have just linked to that back when I did 130. In my defense, I'm lazy.
I would like to see both on a log plot for the last 200 years before I concede they are unrelated.
Shearer, who would be convinced by seeing a long historical trend, meet Shearer:
The 3% is derived by fitting a curve to past performance. There is no guarantee it will continue.
who would never be convinced by seeing a long historical trend.
And, of course, being related is not the same as "closely tracking" AND YOU KNOW IT.
And I'm not even getting into the basic know-nothingism of someone who says "and do you have a reliable series nation-wide energy consumption data going back to the Madison administration? No? Well, in that case I simply won't believe you, and will go back to my own assumptions, which I freely admit were made without any factual backing at all, like a dog returning to its vomit."
James, ajay has covered my objections to your epistemological approach, so I'll leave that (mostly) alone.
I'll grant that there are many things that could affect growth assumptions - in fact, part of Delong's point is that foolish choices in economic policy can affect growth rates. But to go back to your original comment (#9): People like DeLong are not engaged in magical thinking. They're doing science.
DeLong gives me the impression of picking his economic arguments to support his policy preferences.
I don't know if this contradicts or supports that belief, but here is DeLong commenting on the nature of his political education.
You Know, I Arrived in Washington in 1993 to Work for Lloyd Bentsen's Treasury as Part of the Sane Technocratic Bipartisan Center... And it took me only two months--two months!--to conclude that America's best hope for sane technocratic governance required the elimination of the Republican Party from our political system as rapidly as possible.
See also
James Fallows points out that what is new is not the Republican desire to wreck the country in order to make the Democratic President look like a loser, but rather the accusation that to try to promote the pubic interest is "almost treasonous". That is genuinely new. He is correct. Gingrich worked as hard as he could to try to make sure that Clinton's policies failed and the country became worse off, but he didn't call those of us trying to make the policies work traitors.
I happen to have a plot of US economic growth rates right here. (The data source only lets me go back to 1952.) If I treat oil prices the same way, i.e., compute growth rates of the inflation-adjusted price of a barrel of oil, it looks like so. (I'd make a scatter plot, but it doesn't seem worth the effort.) If that's close tracking, I'd hate to see loose.
150: Brad oddly combines this belief with a touching faith that somewhere there are right-wing economists who are intellectually honest and with whom he should be in a productive dialogue. (Thus his [recanted] Greenspanism, the recent cognitive dissonance regarding Tyler Cowen, etc.) In other words, he fails to recognize that these cossacks, too, work for the czar.
151
I happen to have a plot of US economic growth rates right here. (The data source only lets me go back to 1952.) If I treat oil prices the same way, i.e., compute growth rates of the inflation-adjusted price of a barrel of oil, it looks like so. (I'd make a scatter plot, but it doesn't seem worth the effort.) If that's close tracking, I'd hate to see loose.
Why are you comparing to oil prices when my claim (wrongheaded as it may have been) concerned oil (actually fossil fuel) consumption?
And as long as I have you on the line do you think the claim
... the economy's long-term growth rate--which is now about 3% ...
is well-supported?
151: Interesting graph. The increased volatility after 1970 is perhaps the most interesting part. It makes me wonder if my old IPE professor's constant criticism of LBJ wasn't sound.
153.1: Looking at oil price rather than oil consumption was sheer careless misreading of your post on my part. I am, oddly, having trouble find a series on US oil consumption (specifically) which goes back far enough without gaps. However, as ajay pointed out in 136, it's not hard to find on the relationship between total energy consumption and GDP. Take a look at Table 1.5 here, especially the column "energy consumption per real dollar of GDP". It's been falling fairly steadily as far back as the data goes, from 17.34 kBTU/$ (or, in real units, 18.29 MJ/$) in 1949 to 7.28 kBTU/$ (= 7.68 MJ/$). In other words, each dollar of economic output now only takes about 40% of the energy it did sixty years ago. To the extent one thinks there have been big improvements in the quality of goods and services which are not adequately captured in price deflators, the decline is even steeper.
As for the growth rate, 3% is indeed about the long run average (more exactly, about 3.3% over the whole period since WWII); if we confine ourselves to the last 30 years it's lower, about 2.7%. I've never heard a reasonable explanation of why it should be so steady or take that particular value.
Further to 155: "about 3%" is for the growth in GDP, growth per capita is naturally somewhat lower, about 1.9% for the whole post-WWII period and about 1.7% for the last thirty years.