In my previous post Errors Dealing With Economic Recovery Originate With Obama, I used the quote from Brad DeLong’s post:
I learn that Barack Obama was attracted to the idea that on top of our business-cycle demand-driven downturn was a longer-run trend rise in technological unemployment that virtually guaranteed that the recovery would be “jobless”:
[Summers and Romer] were concerned by something the president had said in a morning briefing: that he thought the high unemployment was due to productivity gains in the economy. Summers and Romer were startled. “What was driving unemployment was clearly deficient aggregate demand,” Romer said. “We wondered where this could have been coming from. We both tried to convince him otherwise. He wouldn’t budge.” Summers had been focused intently on how to spur demand, and on what might drive a meaningful recovery…. [W]ithout a rise in demand, in Summers’s view, nothing else would work…. But productivity?… If Obama felt that 10 percent unemployment was the product of sound, productivity-driven decisions by American business, then short-term government measures to spur hiring were not only futile but unwise. The two economists strained their memory… had they said something he’d misconstrued?… After a month, frustration turned to resignation. “The president seems to have developed his own view,” Romer said.
I’d like to talk about what is so wrong about Obama’s thinking.
Obama is short sighted when he thinks, “high unemployment was due to productivity gains in the economy.” He needs to realize that because of the way our taxes are structured and the rules that have been set up for our economy since 1980, the fruits of increasing productivity flow almost exclusively to the top of the economic pyramid. The rest of the economy is left to suffer only the bad consequences of how this economic structure is set up.
In my previous post Imagine – Total Automation, I tried to show that by taking the rise of productivity to an extreme it might be clearer that one could imagine a different outcome is possible for the 98% of the economy that is actually harmed by increasing productivity under the current system.
Where Romer missed making an effective argument, was in saying that “What was driving unemployment was clearly deficient aggregate demand,” as if that were totally unrelated to the President’s vision of the cause of high unemployment being the fault of increased productivity.
Letting the top 2% of the population take all of the benefits of increased productivity, robs the other 98% of the money needed to buy all that can be produced by this highly productive economy. This combination is what leads to high unemployment. Contrary to what Obama was thinking, the high productivity does not inevitably lead to high unemployment.
This flow of all benefits upward is a product of our tax structure and economic rules and regulations created by the government. Both of these are within Obama’s domain to try to change. When faced with the thought that “the high unemployment was due to productivity gains in the economy”, he needed to ask himself, so how can we change this outcome of productivity gains without losing the benefits of those gains.
There are plenty of experts around who can explain to Obama how to do this.
When I voted for Obama, I thought of him as a man of vision and great enough intellectual curiosity that he would learn the things he needed to in order to be a success. In the case of economics, he has been a man of little vision. He has been completely intellectually unaware that he was not an economics expert. There is no reason why he would have even thought that he was an expert.
Somehow, his erroneous thinking has shifted him from “Yes we can”, to “Oh well, I guess we really can’t” with respect to fixing the economic problems of the country.
He is going to have to work extremely hard in the next 14 months to convince me that he has seen the error of his ways. So far he blames the discouragement of his natural constituency on themselves. All the exhortation in the world won’t get these people excited about him again unless he gives them something to be excited about.
The one lesson we learned from Ronald Reagan’s tenure is that when faced with such dire problems, we may not be able to fix them until someone comes along with the courage and the heartlessness to let the economy crash so that it can finally be reshaped in a better way. With his programs, Reagan was finally able to break the back of OPEC and solve our inflation problems. Of course, what he and his descendants in the office of President did after he solved the inflation problem is the proximate cause of our current problems.
In 2012, should I vote for Obama if he shows signs that he is just going to manage to prolong the agony? Or I should I vote for someone to crash the economy so we can finally go on to the next phase of resolving the issues? As in Reagan’s case, the actions of the person who solves the problem of economic depression will be taken to extremes and in the long run will swing the pendulum too far in the opposite direction.