Daily Archives: August 3, 2015

Elizabeth Warren to Republicans: Did You Fall Down, Hit Your Head, and Wake Up In 1950’s

Elizabeth Warren posted this video on her Facebook timeline.

The Republican plan to defund Planned Parenthood is a right-wing attack on women’s rights. Watch why I voted to stand with Planned Parenthood.

Imagine if we had a fighter like this as President. Elizabeth Warren is doing a great job in the Senate. Bernie Sanders would do an equally great job as President. Imagine if both of them had a platform from which to speak and rouse the public to action.

Imagine a President who would not be cowed into preventing this woman from heading a federal agency. That’s what drove her to become a Senator, and we in Massachusetts are actually glad this happened.

You don’t mess with Elizabeth Warren. We can elect Bernie Sanders as President to show that you don’t mess with Bernie Sanders either.

How Would You Kill the Tax Code?

In case you didn’t see what Ted Cruz was responding to as shown in my previous post Making Machine-Gun Bacon with Ted Cruz, here is Rand Paul in all his glory.

Instead of a motto of “Unleash the American Dream”, maybe he should change it to “Unleash an oligarch’s wet dream”. 14% flat tax indeed. Would a one-page tax code allow for deductions?

If $15/hour is a barely livable wage – equivalent of $30,000 per year, let’s see what that flat tax rate is on various salaries above the barely livable wage.

Gross Wage Wage in excess of
the poverty line
14% tax on
gross income
Tax rate for income in
excess of poverty
$50,000 $20,000 $7,000 35%
$100,000 $70,000 $14,000 20%
$1,000,000 $970,000 $140,000 14%
$1,000,000,000 $999,970,000 $140,000,000 14%

Does it still sound fair to you?

Now think of the huge increases in wealth from unrealized capital gains that are not even counted as income and which people at the $50,000 level have hardly any of. This increase in wealth, not recognized as income, is many multiples of the amount of money counted as income for the billionaires. This is the way the wealthy arrange for their compensation, not income, to be paid. Is this still sounding fair?

Making Machine-Gun Bacon with Ted Cruz

Apparently there is a YouTube video of a Ted Cruz political commercial.

It’s almost as if he were saying, “Don’t take Steve Greenberg’s word that I am crazy. Let me give you a demonstration of what he means.”

Ironically, Ted Cruz is such a firearms expert apparently he wouldn’t know a machine gun when he didn’t fall over it. That’s no machine gun compared to what I got an expert’s badge firing while in US Army training. (Well, what Ted has is actually called an automatic rifle. And he purports to live in Texas? In case you missed my point, an automatic rifle is very distinctly different from a machine gun.)

In my recollections, I can still hear the firing range officer “Fire a burst of six.”

I wonder if the lame stream media will play this like they did Michael Dukakis riding in a tank, or Barack Obama bowling, or Howard Dean shouting over a noisy crowd with the crowd noise filtered out by the news media inventing faux news.

The Difference Between Private and Public Morality

Robert Reich has posted his 2012 essay The Difference Between Private and Public Morality on his Facebook timeline. The introduction to the recent post is

The Republican attacks on a woman’s right to choose once again confuse private morality with public morality. The Republican concept of morality centers on bedrooms rather than boardrooms. They fixate on the most intimate decisions people make about their own personal lives, and ignore the abuses of power emanating from large corporations and Wall Street. Yet public morality is the crisis of our time, not private morality. Public morality is all of our business. Private morality is not.

The closing remark in the original essay is

It’s time once again to save capitalism from its own excesses – and to base a new era of reform on public morality and common sense.

One of these times when it may seem we need to come to the rescue of capitalism again, more people might start to wonder why we bother.

Star Trek Economics: Life After the Dismal Science

Bloomberg has the article Star Trek Economics: Life After the Dismal Science.

In other words, the rise of new technology means that all the economic questions will change. Instead of a world defined by scarcity, we will live in a world defined by self-expression. We will be able to decide the kind of people that we want to be, and the kind of lives we want to live, instead of having the world decide for us. The Star Trek utopia will free us from the fetters of the dismal science.

I have a thought experiment that I like to pose to people, and that is to imagine the day when everything we need can be produced without any human workers. How will wealth be distributed then?

Little did I realize that Star Trek provided the answers. Maybe if I had watched Star Trek after the original series had finished, I would have seen what this author describes.

The F story about the Great Inflation

On his Mainly Macro blog, Simon Wren-Lewis had posted The F story about the Great Inflation. He starts the post by describing the false story.

Here F could stand for folk. The story that is often told by economists to their students goes as follows. After Phillips discovered his curve, which relates inflation to unemployment, Samuelson and Solow in 1960 suggested this implied a trade-off that policymakers could use. They could permanently have a bit less unemployment at the cost of a bit more inflation. Policymakers took up that option, but then could not understand why inflation didn’t just go up a bit, but kept on going up and up. Along came Milton Friedman to the rescue, who in a 1968 presidential address argued that inflation also depended on inflation expectations, which meant the long run Phillips curve was vertical and there was no permanent inflation unemployment trade-off. Policymakers then saw the light, and the steady rise in inflation seen in the 1960s and 1970s came to an end.

As great as the article is, the back and forth commentary may be even better. The comment that I found most compelling was the one by Blissex. I found the initial connection of the inflation to the huge government “global security” oriented spending in the USA a little overwrought. However, on second reading, and thinking about the Vietnam War and what Lyndon Johnson did about guns and butter, I see the connection better.

«If it wasn’t a belief in a long run inflation unemployment trade-off, what was it that allowed inflation to gradually rise during those two decades? Forder has a lot to say on this, but the following is my own take. I think two things were critical: the idea that demand management was primarily designed to achieve full employment, and that full employment had primacy over the objective of price stability.»

And here we have another version of the usual neoliberal story of the completely imaginary “wage-price” spiral of the 70s and 80s, according to which nasty greedy workers pushed up their wages and this caused endogenous price inflation.

The story that is instead apparent from the numbers of the 1960s, 1970s, 1980s is that the great inflation was the product of huge government “global security” oriented spending in the USA, and other factors that caused the USA to switch from a net exporter to a net importer, and the international dollar shortage of the 1940s and 1950s to become slowly a dollar glut, which resulted not many years later in the decision to devalue the dollar by a huge amount, the *symptom* of which was the end of the gold standard.

The huge devaluation of the dollar was in effect a “cram-down”. The oil producers refused to be crammed down and increased massively the price of their product after the dollar devaluation, and the Fed Board decided to “accomodate” the huge exogenous price shock, to avoid undermining the USA government’s global security policy, and this created a massive eurodollar recycling problem.

All this transmitted the cram-down shock wave through the value chain, and unionized workers reacted to sharply rising prices driven by oil and commodity inflation by demanding higher wages, which was temporarily successful. At that point because of the exogenous price shock caused by the falling dollar and oil and commodity producers and unionized workers resisting the cram-down it was creditors and businesses who were forced to take the cram-down as massive losses on existing bond valuation because of increasing nominal interest rates and much reduced profits.

Eventually creditors and businesses fought back and thanks to Volcker and Reagan managed to push the costs of the cram-down onto unionized and non-unionized workers, and debtors, and the cram-down continues today: in the USA median hourly wages have been flat or declining since 1973, and the interest rates have been falling for decades, generating enormous capital gains for creditors.

Most other anglo-american economies just followed the leader, in various particular ways, and most of the world economy was deeply affected.

It was a gigantic price-push shock caused by USA government dollar policy, not
by greedy unions causing wage-push price increases.

The greatness of this article and the ensuing discussion was the raising of the many different events that occurred in the history of the times that had an impact on economies, inflation, wages, and employment. It starts to become so much clearer that trying to focus on one specific cause as opposed to all the others is a fool’s errand. You really have to take everything into consideration at once. Each factor had more or less impact varying with time over the period. If you try to ignore one factor during one period of time, you find that factor to not be ignorable at a different point in time. To think you have a model that works for all time, but does not account for all factors, then you are kidding yourself and others.

This fits quite nicely with my December 14, 2011 post Stop Arguing About Economic Theory And Politics. It also fits with my April 23, 2015 post Constructing Models of the Economy. The discussion of today’s post adds some concrete examples to the abstract discussions in the previous posts.