I notice a lot of people are reading this blog post in the last two days. What has become increasingly apparent is that Ed Markey is the only truly progressive candidate in this race in either party. For instance, all the other candidates seem to be in favor of repealing Obamacare after we fought so hard to get a barely acceptable plan in place. I hear that Stephen Lynch has even abandoned the pretense that he voted against it because it was not good enough. I remember how the election of Scott Brown to the Senate was the final nail in the coffin of getting a good bill passed. If Lynch thinks we can repeal what is in place and get something better, I have to wonder what he is smoking.
After we worked so hard to get Elizabeth Warren elected and Scott Brown ousted, the last thing we need to do is repeat the original mistake by putting anybody else in the Senate but Ed Markey.
Even if you do not agree with me, the stakes are too high to not go out and vote.
The financial crisis and the subsequent recession have sparked a continuing debate on inflation and deflation. To date, the fears of deflation among policymakers and economist have been more profound than the prospects of inflation or hyperinflation. This, despite the fact that the U.S. adjusted monetary base has expanded by nearly $2.2 trillion and government debt by nearly $8 trillion after the crisis. This article discusses the reason for inflation remaining muted in the United States amidst ultra expansionary monetary policies of the central bank.
The article and the workbook are great explanations of why using monetary policy to fight a recession is just like pushing on a string. You can give the banks all the resources they need to lend, but they won’t lend until there is an economic reason to do so.
The Fed wouldn’t have to be trying so hard to push on this string if only the Congress would do their job of pulling on that string. Pulling on the string means creating large enough government purchases of economically stimulative items. These items are commonly described as infrastructure, education, and research and development. Purchasing is creating the economic demand that the banks and private enterprise cannot resist and still call themselves capitalists.
POLLIN: Yeah, I mean, it’s not like policymakers are calling me up and saying, I’ve changed my position. So I’m just following it in the press like anybody can.
There’s been some interesting stories. One is Erskine Bowles, who was the cochair of the deficit reduction commission appointed by President Obama, who was reported in the press as saying, yes, he heard about our study, he knows the results, he understands that this pillar of his approach with Reinhart and Rogoff has been refuted. But that doesn’t change his thinking at all, because he knows intuitively that when you have a lot of debt, it’s bad. So that was his reaction.
One of the amusing ones was a report in a British paper that said the British chancellor, George Osborne, who is the architect of austerity policies in Great Britain, was seen crying at Margaret Thatcher’s funeral. But the article said, well, we know the real reason why George Osborne is crying: because his sainted Reinhart and Rogoff paper has now been refuted, and so the main pillar of his austerity policies has now melted away.
And then the third example, in a blog that was written over the weekend by Professor John Taylor of Stanford, who is a leading austerity hawk, I would say equal to Reinhart and Rogoffand we’ve talked about John Taylor before in our discussions. And he said in this thing he wrote over the weekend that our results have already led to changes in policy at the IMFWorld Bank meetings last week and at the G20 meetings and in the U.S. that the case for austerity is now getting attacked and is weaker. So that’s from three pretty reliable sources.
If I hadn’t read the book How We Decide by Jonah Lehrer, I might be surprised at how resistant our preconceived notions are to the facts. The book explains how we first conclude how we feel about an issue, and then we look for facts to support our conclusion (and ignore facts that do not support the conclusion).
The interview gives a very strong defense of the reason why austerity is a bad plan and has no merit in economic turns, but it still does not completely answer the question of who benefits.
I have developed my own analysis of who benefits.
If it is true, and there probably is some truth to it, that the wage rates in this country have become uncompetitive in the world, there are a couple of ways to solve that problem. Which one you choose shifts the burden of the adjustment from one place in society to another.
If we get the dollar to decline in value with respect to the world, then our wage rates will decline relative to the world, but won’t have to drop much, if at all, in dollar terms. It will make the cost of imported goods rise, but the cost of locally produced goods and assets won’t change much. In other words, assets and debt will stay in synch in dollar terms, and will fall together in world terms.
If instead, we try to preserve the value of the dollar, then wage rates must fall in dollar terms. Many of the assets that the not rich have borrowed to purchase will fall in dollar terms, but the debt they owe on these assets will not fall in dollar terms. It seems like the cost is borne only by the not rich because the debt owed to the rich is preserved in dollar terms and in world terms. If the not rich default on their debt burden which is rising relative to their wages in dollar terms, then the rich can buy these assets at fire-sale prices.
The other benefit to the rich is that the wages, in dollar terms, of the people they hire drops precipitously relative the the value of the assets, in dollar terms, that the rich own.
Maintaining the value of the dollar then becomes a way of transferring to the rich whatever wealth the rich do not already own. The burden is shifted onto the backs of only the not rich. I can see why some of the rich, or people who think they are rich, would prefer the austerity plan.
In a micro view of how the economy works, it might even seem that the austerity plan is a prudent plan. That is surely why some people who are not rich think it is good. However, if you can look at the big picture, you can see that an austerity plan is an unfair way to get the most vulnerable to bear all the costs of adjusting to changes in the world economy. Only the rich are exempted from the adjustment. From this point of view it looks good to the rich no matter what it does to the domestic economy. Or it may even look good to the rich exactly because of what it does to the domestic economy.
Here is the letter that I wrote to the editors of the Boston Globe. It was almost published the way I wrote it.
Boston Globe Editor:
There is something I do not understand about the failed gun control legislation that was proposed in the aftermath of the Newtown tragedy.
The compromise legislation had a loophole specifically to exempt the only act that was related to that tragedy. That act is the passing of guns from one family member to another without any need for a check.
As I understand it, the guns in the Newtown episode were bought by the mother of the perpetrator and given to him for his use.
Given the language of the compromise, I don’t see how anybody could use the excuse for voting against the law the fact that it would not have prevented Newtown. It was very carefully written to not prevent another Newtown.
In essence, the opposition to the bill got it watered down to suit them and then used that as an excuse to vote against it.
Beside the “error” that Reinhart and Rogoff made, the quote below from Baker shows one of the reasons why Reinhart and Rogoff should have been suspicious about their numerical results. It should have been a tip-off to double, triple check their results until they could explain why their numbers ran counter to so much economic theory.
Third, the whole notion of public debt turns out to be ill-defined. Countries can sell off assets to pay down debts, would this avoid the R&R high debt twilight zone of slow growth? In fact, even the value of debt itself is not constant.Long-term debt issued in times of low interest rates will fall in value when interest rates rise. If there is a high debt twilight zone effect as R&R claim, then we can just buy back bonds at steep discounts and send our debt-to-GDP ratio plummeting.
For all the people that use the comparison of the Federal Budget to their personal budgets, it is time to stop and ask themselves, if economic history runs counter to what they predict from their analogy, they really need to study the reasons why the facts do not match their intuition. All good engineers check their calculations against whatever intuition they have built up overs years of experience. If the calculation and their intuition disagree, they do not rest until they understand why.
If the numbers for building a bridge tell a engineer that the bridge will fall down, but their intuition says it will stand, they don’t build that bridge until they understand whether the numbers are wrong or their intuition is wrong.
I don’t think that lawyers and politicians without this engineering or scientific foundation realize the need to check the results they get from a single analysis of a complex situation. Certainly many recent Supreme Court decisions show the dangers of using a single faulty analogy without a cross check against other ways of looking at the problem.
Research in recent years has linked the tax rates, sluggish growth and rising inequality. Remember, the low tax rates at the top were supposed to spur savings and hard work, and thus economic growth. They didn’t. Indeed, the household savings rate fell to a record level of near zero after President George W. Bush’s two rounds of cuts, in 2001 and 2003, on taxes on dividends and capital gains. What low tax rates at the top did do was increase the return on rent-seeking. It flourished, which meant that growth slowed and inequality grew. This is a pattern that has now been observed across countries. Contrary to the warnings of those who want to preserve their privileges, countries that have increased their top tax bracket have not grown more slowly. Another piece of evidence is here at home: if the efforts at the top were resulting in our entire economic engine’s doing better, we would expect everyone to benefit. If they were engaged in rent-seeking, as their incomes increased, we’d expect that of others to decrease. And that’s exactly what’s been happening. Incomes in the middle, and even the bottom, have been stagnating or falling.
Why do so many voters keep insisting on electing the people who are stacking the deck against them? Is it their sense of adventure in wanting to create a system where the odds are against them? Do they get extra pleasure when the system bloodies them a little less than their neighbors while heaping huge rewards on people they never get to see?
Excerpt from MHP Dear Rand Paul letter:
“After Democratic President Lyndon Johnson signed the Civil Rights Act and the Voting Rights Act–which were passed by the Democrats in Congress–and after those acts established the framework for black citizens to exercise the franchise and enjoy equal protection. After those Democratic actions, it was white Dixiecrats who left the party and found refuge among Republicans. Those who refused to support civil rights gains were clear that the best party for them in the modern era was the Republican Party.
So folks like Strom Thurmond and large majorities of white voters in Southern states became reliable Republican voters. Because they opposed civil rights. And Sen. Paul, you know a little about opposition to the Civil Rights Act, don’t you?……….If you want to do better with black voters, we don’t need you to explain our history–we need you to make an argument for why your policies are better for our futures.”
Maybe Rand Paul needs to ask his father if he remembers any of this history. I sure do. I bet the students at Howard heard plenty about this history from their parents and grand parents. You don’t suppose the Paul family are all history deniers?
Research from the Minneapolis Federal Research [sic] shows that the financial crisis pushed down earnings among low-income households. The study said that “Earnings among the bottom 20 percent of U.S. wage and salaried workers fell by about 30 percent during the downturn compared with the median income, as workers lost their jobs or left the labor market.” Researchers Fabrizio Perri and Joseph Steinberg said that the bottom 20 percent of the U.S. has never done so bad as earnings for that group fell 30 percent as opposed to the median during that time.
Payrolls grew by 88,000 last month, which was the smallest increase since June, according to the Labor Department. Furthermore, the average hourly earnings were unchanged from March, which is the weakest showing since last October. Thus, even though recovery is underway, many low-income individuals are being left behind. As Bernanke has admitted, the economic recovery is truly not equal. [emphasis added]
As far as Republicans are concerned, now that the stock markets have recovered, the government stimulus has done its job and its time to move on to screwing the middle and working classes again.
Believe me, now that I am retired and living off my investments, I am doing just fine. My net worth has returned to the peak before the crash even though I am living off the dividends that these investments earn. So it is not my narrow self-interest that is at stake here.
JAY: So just quickly dig into this CPI thing, this chained cost of living. Why are people criticizing this, and what does it mean?
HUDSON: Well, because it’s not a cost of living index. It’s the cost of lower living standards index. It’s the–some people call it the cat food index.
Here’s what it does. Suppose that you have to switch away from eating steak or eating meat or eating fish to eating canned tuna fish or canned beans. That’s considered a price reduction.
If the chained index is done properly, you can cut Social Security by 50 percent. And here’s how. If people stop taking cabs and begin to take buses, that’s considered a lower cost of living. Well, what if they buy a bicycle? All Obama has to say is, look, folks, if you really want to save money, get a bike. That’s what Margaret Thatcher said. That was one of her campaign slogans, get a bike. So all of a sudden, the transportation in the cost of living goes down to zero. People pay between 25 percent and 40 percent of their income on rent. Let them live out on the street. Let them live in a homeless shelter
JAY: And that’s because the concept behind this chained CPI is that people are finding cheaper ways to do things, and that supposedly not being reflected in the current system.
HUDSON: That’s right. People are having to walk to work instead of taking buses. They’re having to eat tuna fish and canned beans instead of buying fresh food on the table. Of course they’re finding cheaper ways. We call that declining living standards.
And the start of the budget is: how can we screw the Social Security recipients, how can we pay them less to pay our clientele, our campaign contributors, the 1 percent more? You have to start with where they do, with the class wars back in business. And how do they sugar coat it? By calling it a price index instead of a cat food index or a declining living standards index. This is absolute slimy politics.