Daily Archives: December 1, 2012

In the US, an Insecure Economy Needs a Stronger Safety Net

Truth Out has republished the article In the US, an Insecure Economy Needs a Stronger Safety Net by Paul Krugman.

Every time you read an article by someone extolling the dynamism of the modern economy, the virtues of risk-taking and declaring that everyone has to expect to have multiple jobs in his or her life and that you can never stop learning, etc., bear in mind that this is a portrait of an economy with no stability, no guarantees that hard work will provide a consistent living and the constant possibility of being thrown aside simply because you happen to be in the wrong place at the wrong time.

And nothing people can do in their personal lives or behavior can change this.

Your church and your traditional marriage won’t guarantee the value of your 401(k) or make insurance affordable on the individual market.

So here’s the question: isn’t this exactly the kind of economy that should have a strong welfare state?

Isn’t it much better to have guaranteed health care and a basic pension from Social Security rather than simply hanker for a corporate safety net that no longer exists?

Might one not even argue that a bit of basic economic security would make our dynamic economy work better, by reducing the fear factor?

I have often thought along these lines.  It is often said about the stock market that it is driven by fear and greed.  It’s probably true about much of what happens in life.  Some amount of fear probably helps to drive progress, but too much fear can tend to lead to paralysis. (Deer in the headlights problem).

One issue that I have wondered about for a long time in observing the high tech industry is that a young engineer may be driven to create innovative technology by the love of the challenge and thoughts of possible future rewards.  Once the best and the brightest of our engineers achieve a good amount of success, part of their brain is occupied by efforts to manage the wealth that are the fruits of this success.  They have less time to devote to continued technological achievements.  I wonder what would happen if many of these people, who wanted to, could spend more time in continuing their devotion to research if the safety net were stronger and they had to spend less time worrying about preserving their gains.

Keep in mind that the amount of safety net is a quantitative decision.  I am not saying that either extreme of all encompassing safety net or absolutely no safety net would be the optimum solution.  We need to have a national discussion on where on the scale from zero to infinity we would like to have the safety net.

Why the Fiscal Cliff is a Scam

The Real News Network has the interview Why the Fiscal Cliff is a Scam with economist James K. Galbraith.

For those who are interested in econometric models and their predictions, perhaps this excerpt may talk to you.

But those long-term CBO forecasts of very rapidly rising national debt, very rapidly rising deficits, rest on a couple of very doubtful assumptions. One is that health-care costs will continue to rise more rapidly than every other cost in the economy forever—can’t happen and won’t happen, but that’s—you can build a computer forecast that makes it happen, in which it happens. And the other is that the interest rate that the federal government pays on its public debt will be raised by the Federal Reserve, let’s say, four years from now, to a point where it’s higher than the growth rate of total output, the growth rate of income, and then that interest burden compounds, the interest payments compound as a share of GDP and go up very rapidly after that. If you stretch out that forecast long enough, you can get a debt-to-GDP ratio as high as you like in a computer projection. But once again, it will not happen in real life. It’s not consistent with the way an actual economy is going to function.

I hope to find more details of the article referred to in the interview. Right now, the web site serving this article is not responding. Apparently, this down time is so common that there is a website to answer the question Is the Alternet down right now? Well, the web site is not particular to alternet, but the fact that the link that checks the alternet appears in a Google search is what is indicative.