Bring on the Real EconomistsPosted: September 7, 2012
I really loved the line in Obama’s acceptance speech on the Republican’s apple vinegar cure-all for everything that ails you. Take two tax cuts, throw out a few regulations, and call us in the morning! Here’s a great read. The NYT book review looks at the new books of Nobel prize winning economists Paul Krugman and Joseph Stiglitz. These out spoken economists speak truth to power. I just wish the current powers-that-be would listen.
…Washington is stuck in neutral. Worse than neutral; it is in reverse. As the last elements of the 2009 stimulus phase out, the initial flood of federal aid has slowed to a trickle. If no agreement is reached before early next year, the trickle will become a huge backward flow, as President Obama’s payroll tax cut and all the Bush tax cuts expire while automatic spending cuts agreed to in previous legislative sessions kick in. Already, Republican leaders are threatening to replay last year’s standoff over the debt ceiling. Meanwhile, state and local governments—prohibited from running sustained deficits, increasingly dominated by anti-spending forces—continue to cut aid to those out of work and slash programs that invest in the nation’s future while laying off teachers and other public workers. Without those layoffs, the current unemployment rate would probably be around 7 percent.
Against this backdrop, no book could be more timely than Paul Krugman’s End This Depression Now! Since the crisis began, Krugman has argued with consistency and increasing frustration that the United States has become caught not in a normal recession, but in a “liquidity trap.” Since interest rates are already at rock bottom, normal measures, such as easy credit, won’t work, and expanded government expenditures must play a central part in boosting anemic demand. Otherwise, the efforts of private citizens to pay down debts laid bare by the financial crisis will continue to hold the economy back.
We continue to see Republicans blame the current Democratic administration for an economy they wrecked and a lackluster recovery that they actively work to prevent from becoming better. Today’s job report is not what it should or could be. But, it’s not what the Republicans make it out to be either. History shows us that the Democrats have been the job creators.
In the eighteen months from the beginning of 2008 through the middle of 2009, a period fully shaped by the Bush economic program to which Republicans now want to return, (but before the Obama stimulus had a chance to take effect), approximately 7.5 million jobs were lost.
Over the most recent 18 months of the Obama administration, approximately 2.8 million jobs have been added.
That means that the average monthly job loss during the “difficult situation” before Obama’s policies took effect was 417,000. Over the last year-and-a-half, the average monthly job gain has been 155,000.
If Rep. Ryan and Gov. Romney see that as making a bad situation worse, it should tell us something about their “vision.”
Joseph Stiglitz has been focused on the huge income gap created by policies that funnel money to the highest income earners. His concern is of the US as a Banana Republic.
We may be the richest nation in the world, but poverty is higher and social mobility between generations lower than in other rich nations. In other respects, our model is bloated: we release far more carbon dioxide and use far more water on a per capita basis; and we spend far more on health care, while leaving tens of millions uninsured and achieving health outcomes that are mediocre at best.
The reason, according to Stiglitz, is that the vaunted American market is broken. And the reason for that, he argues, is that our economy is being overwhelmed by politically engineered market advantages—special deals that Stiglitz labels with a term familiar to economists: “rent-seeking.” By this, he means economic returns above normal market levels that are derived from favorable political treatment. In the most powerful parts of The Price of Inequality, Stiglitz chronicles the blatant tax and spending giveaways to big agriculture, big energy, and countless other sectors. Yet he also pointedly argues that much of the rent-seeking that plagues our economy takes a more subtle form, also familiar to economists: “negative externalities,” or costs that economic producers impose on society for which they don’t pay.
The spectacular profits of the energy industry, for example, rely heavily on the failure of regulation to incorporate fully the social and economic costs associated with environmental degradation, including climate change. Similarly, the increasingly aggressive activities of Wall Street—whether in the marketing of unsound mortgages, the use of excessive leverage, or the irresponsible use of derivatives—create huge risks for the economy as a whole. Yet these risks are largely not taken into account in the prices paid in financial markets. Without effective regulation, the costs are borne by all of us—most acutely by the struggling millions who have been pushed out of jobs.
Weeding out these and other forms of rent-seeking would thus promote both efficiency and equity, and Stiglitz provides a broad list of reform ideas, ranging from strict regulation of financial markets to more effective anti-trust laws. Yet he is most passionate about the need for political reform. Either those at the top will realize that things must change, or, he suggests, the kinds of popular revolts sweeping Middle Eastern nations will come to the United States.
Clinton has some intriguing facts on his side. Aside from a rounding error, his historical numbers are accurate (figures from the Bureau of Labor Statistics show that the tally under Democrats since 1961 rounds to 41 million, not 42 million). I crunched the numbers a few different ways to see if Clinton was cherry-picking the best numbers. His figures measure job gains from the month a president took office until the month he left. Since it takes a year or so for any president’s policies to go into effect, I also measured job gains from one year after each president took office till one year after he left. Here’s the score by that measure: Democrats: 38 million new jobs, Republicans, 27 million.
Clinton only mentioned private-sector jobs, so I pulled the data for all jobs, including government. Again, the Dems have a big edge, accounting for 48 million new jobs, compared with 31 million for Republicans. If you push the boundaries out one year for each president, the gap narrows to 44 million new jobs under Democrats, and 34 million under Republicans.
Other measures also show that the economy performs better under Democratic presidents. Sam Stovall, chief equity strategist for S&P Capital IQ, conducted an analysis recently showing that GDP, stock prices, and corporate earnings have all increased more under Democratic presidents than under Republicans.
The S&P 500 stock index, for example, has risen 12.1 percent per year under Democratic presidents since 1900, and just 5.1 percent under Republicans. Since 1949, GDP has grown 4.2 percent per year under Democrats and 2.6 percent per year under Republicans. The same trend extends to corporate profits, which have grown 10.5 percent under Dems and 8.9 percent under Republicans.
The irony is obvious, since Republicans are considered the business-friendly party, while “tax and spend” Democrats are regarded as redistributionists eager to transfer wealth from those who have it to those who don’t.
We need to hold the Republicans responsible for all the evil they have done recently. I’m rejecting them all up and down the ticket this fall because I want a healthy economy and they never really deliver that.