The Economist of June 23, 2012 (p.84) reviewed the book "The Price of Inequality: How Today's Divided Society Endangers our Future" by Joseph Stiglitz.
We hear frequently from politicians what a wonderful country we are because in no other country do the poor have such opportunity to rise to success. The review begins by noting that while the American Dream may live on in Politics, as demonstrated by Barack Obama, it is much less evident in the rest of society. In Denmark 75% of those born in families from the 20% of poorest circumstances and in Britain 70% of lower class British residents rise out of their humble beginnings. In the US fewer than 60% manage to scramble up the ladder.
It is also far less common for people in the lowest 20% in the US to rise into the top 20% than it is in Denmark or Britain.
The richest 1% in the US gained 93% of the additional income created in 2010. But generally the public doesn't realize the extent to which the richest take the most in the US. A survey in 2011 found that most American's thought that the richest 20% of Americans had 60% of the wealth, when in fact the they have 85%. The average American thought the ideal was 30%.
Mr. Stiglitz argues this income inequality is a function of the richest shaping the law to their benefit. Mr Stiglitz ask that we imagine that the world allowed free movement of labor, but not Capital (the reverse of the current situation). Mr Stiglitz argues that countries would compete to attract workers with laws creating a fairer society.
The reviewer notes some weaknesses in Mr. Stiglitz's argument. The review notes:
1. That high income inequality has been the norm through much of human history, the period in the the developed world from 1950 to 1980 when western societies were much more equal was unusual.
2. That Spain and Ireland also went through property bubbles , and they are much more equal societies, so the housing collapse can't be pinned on income inequality, and
3. That Mr. Stiglitz's solutions assume a Congress much more responsible than the one that has characterized the last decades.
The review ends by noting that regardless of whether Mr. Stiglitz has the right answers, the question is crucial. Income inequality is bound to have negative social and political consequences.
Thursday, August 30, 2012
Wednesday, August 29, 2012
Comparing Economic Recoveries after a downtown
(Notes and comments sparked by an article in the Economist, 8/11/12, p.24)
Mr. Romney frequently compares the roaring recovery during Mr. Reagan's Presidency after the recession in the early 1980's with the tepid recovery that has followed the economic collapse of 2008-09 in arguing Mr. Obama has done a poor job.
The Economist notes it is a poor comparison.
The recession in the early 1980's was a result of high interest rates by the Fed trying to control inflation - at one point short term interest rates were at about 20%. When inflation dropped, the Fed relaxed interest rates - dropping the short term interest rate by 12% in a fairly short period of time - followed by the government starting to spend lots more money (defense spending under Mr. Reagan's arms race acceleration seeking to break the economy of the Soviet Union). It was the perfect recipe for a booming recovery, much lower interest rates for businesses that had been starving for funds to borrow and invest, coupled with lots of Government spending to drive up demand for goods and services.
This downturn, on the other hand, has been characterized by extremely low interest rates because the private sector is already deeply in debt so there is not enough private sector demand for credit. Couple that with major spending cuts in government spending at all levels and what you have is the worst possible recipe for jump starting growth.
One other factor the Economist doesn't touch on is the difference in the population dynamics between the early 1980's and the current period. In the early 1980's the biggest single age group in our population, the baby boomers were moving into their most productive and acquisitive years. They (including me) are now moving into retirement, are less productive, less willing to take on debt to acquire things.
The Economist notes that Mr. Romney recently said Mr. Obama's suggestion for more stimulus for the economy was "a bad idea". The Economist concludes by drolly noting that Mr. Romney's views on more stimulus " might evolve... if Mr. Romney wins the White House."
Mr. Romney frequently compares the roaring recovery during Mr. Reagan's Presidency after the recession in the early 1980's with the tepid recovery that has followed the economic collapse of 2008-09 in arguing Mr. Obama has done a poor job.
The Economist notes it is a poor comparison.
The recession in the early 1980's was a result of high interest rates by the Fed trying to control inflation - at one point short term interest rates were at about 20%. When inflation dropped, the Fed relaxed interest rates - dropping the short term interest rate by 12% in a fairly short period of time - followed by the government starting to spend lots more money (defense spending under Mr. Reagan's arms race acceleration seeking to break the economy of the Soviet Union). It was the perfect recipe for a booming recovery, much lower interest rates for businesses that had been starving for funds to borrow and invest, coupled with lots of Government spending to drive up demand for goods and services.
This downturn, on the other hand, has been characterized by extremely low interest rates because the private sector is already deeply in debt so there is not enough private sector demand for credit. Couple that with major spending cuts in government spending at all levels and what you have is the worst possible recipe for jump starting growth.
One other factor the Economist doesn't touch on is the difference in the population dynamics between the early 1980's and the current period. In the early 1980's the biggest single age group in our population, the baby boomers were moving into their most productive and acquisitive years. They (including me) are now moving into retirement, are less productive, less willing to take on debt to acquire things.
The Economist notes that Mr. Romney recently said Mr. Obama's suggestion for more stimulus for the economy was "a bad idea". The Economist concludes by drolly noting that Mr. Romney's views on more stimulus " might evolve... if Mr. Romney wins the White House."
Sunday, August 26, 2012
Watching Out for the "Big Government" Bogeyman
Politicians get a lot of mileage out of the term "big government." It works well for them because it is a pretty meaningless glittering generality. For most of us it's lack of a precise meaning encourages us to conjure up emotional memories of bad experiences with government - standing in line, paying our taxes, frustrating phone calls with government officials. It allows the politician to touch our emotions without committing to anything at all. So here are some questions to ask yourself when some politician starts talking about "Big Government."
So what is "big Government"? Do we have a "big government"?
Economists measure the size of government by looking at how much of each countries total yearly wealth is spent by Government. As of 2010 of the twenty biggest economies in the world 14 countries spend a bigger percentage of their national income than the US. We are down there with Brazil, Russia, South Korea, Mexico, India and China, in the low spending category. Way above us in the spending are countries like Norway, Sweden, Germany, Japan and most of the rest of Europe (in short all the places we like to visit because they are so nice and safe).
If you measure "big" by how much we spend per person, of the 20 biggest economy's in the world, the US spends per person slightly more than Russia, South Korea, Mexico, Brazil, India and China, but much less than residents of Norway, Sweden, Germany, Japan and the rest of Europe.
But even these rankings are a little misleading, because they don't address how the Government spends its money. The US spends far more on defense than any other country. 41% of the worlds defense spending is spent by the US. We spend two to three times more on defense than the countries that are immediately below us on the list (including China) and many times more than most of the countries in the world. You couldn't find three countries in this world who, if you lumped all their defense spending together, would match the US. So in terms of spending on things that improve the lives of citizens we spend less than every other large economy.
So, factually, if we eliminate defense spending, we already have a very small government in comparison with the rest of the world. And if you still think Government in the US is to big, ask yourself, what other government in this world do you think is better?
Even if you assume we have a "big government" what should we cut to shrink it?
Do we want to cut aid programs to the poor? Let them starve or be homeless? Sorry, even if we cut those programs, they are a miniscule part of overall Federal spending. If we cut those programs we end up with more non-productive people in our economy, and little economic benefit, so to some degree we are cutting our nations economic future for little current benefit.
Do we want to cut Social Security? Make everyone give their money to Wall Street to fund their retirement? Or rely on their employer to fund their retirement? This country is full of people who lost much of their retirement in the 2008-2009 economic meltdown, even as Wall Street walked away doing just fine. Even before the 2008-09 meltdown we had already seen lots of employee's of big corporations lose most or all of their retirement when the companies collapsed or got rolled into a bankruptcy reorganization in which the company was allowed to dump their pension obligations to employees (I checked with a friend who is a bankruptcy expert - he has never heard of a bankruptcy reorganization where executives of the company lost any of their retirement - only the workers). What about people who don't bother to save for retirement? Do we want to stand by and watch as millions of old people die destitute? Social Security is a program good government does, and does pretty well - at least it would if Congress wasn't always stealing money out of the Social Security trust fund to pay for tax cuts for rich folks.
Do we want to cut government spending on highways, and bridges and other infrastructure? The infrastructure our economy depends on our ability to operate efficiently. It wouldn't save much and would undermine our economy in the future. Do we want to cut the environmental programs that have cleaned up our air and water? Have we forgotten the days when our major rivers were prone to catching on fire because of all the pollutants? Do we need to remind ourselves of the amount of money we save by reducing health care costs caused by ignoring the environment we live in?
In short do we want to turn into the US into the kind of country much of the third world is trying to escape from? Where the amoral, powerful and aggressive do well at the expense of everyone else? Government is a big part of what makes life in the US better than life in much of the rest of the world.
Federal programs exist because most people support those programs, so Politicians kill their chances of being elected if they start talking about cutting specific programs. So instead, some years ago, politicians who don't really care if our country treats all its citizens humanly learned they can they haul out the 'big government" bogeyman to make it sound like they will actually do something without specifying what they mean or actually doing much.
Again, ask yourself what other government in this world do you think is better?
But what about the deficit?
Politicians often imply our deficit is a result of social programs to benefit the poor or middle class. This implication is false.
Do a search online for a timeline charting the United States Public debt. What you will see is we ran up a huge debt in WW II, then the debt fell steadily between 1950 and 1980, the time when most of those social programs were enacted. Then in the early 1980's public debt began to expand. It was not caused by social programs, but as a direct result of Mr. Reagan's policy of cutting taxes without making offsetting cuts in programs, and in fact he greatly increased government spending by juicing up military budgets. The debt trended up rapidly through the Reagan and Bush Sr. administrations, then began to reverse during the Clinton years. But in 2003 the second President Bush followed Mr. Reagan's example, cutting taxes while increasing defense spending (he was the only President in history who did not increase taxes during war time). The debt shot upward again. Then in 2008-2009, when the financial world collapsed, first the Bush administration and then the Obama administration sought huge bailouts that, while they probably prevented us from sliding into a Depression, shot the deficit up further.
So bottom line our current deficit would not have happened without the two rounds of tax cuts accompanied by increases in military spending, and the financial collapse that capped off the 12 years Republican's controlled Congress.
Even now, the one place where cuts would really make a big difference would be to cut defense. As noted above we spend more on defense than most of the rest of the world combined. $.50 of every dollar we spend on items budgeted to be supported by our income taxes goes to defense spending. Yet the Republican architects of the deficit still refuse to consider cuts in defense spending.
If one was of a conspiratorial persuasion one could make the case the people who really would like to turn the US into a third world country where the rich have everything and the poor scramble to survive, have for 30 years cut taxes and increased defense spending. It is apparent to anyone with half a brain that if you cut your income and increase your spending, you are going into debt. Yet the very politicans who most talk about "big government" have been the ones who cut taxes and increased spending. Now we have a big deficit, and they are arguing we have to cut all these other programs because we can't afford them, but we can't touch defense spending. So instead of having to come out and argue with voters that we need to cut these social programs because they think they are bad programs (an argument they would lose), they can now come to voters and say "we just can't afford them - look at our deficit!"
After all, cutting social programs is a win/win situation for many wealthy folks. They personally don't need them; they make a lot of money off of their investments in defense companies; they pay relatively little in taxes, and it generally isn't their kids who get killed or maimed for life on distant battlefields.
So what is "big Government"? Do we have a "big government"?
Economists measure the size of government by looking at how much of each countries total yearly wealth is spent by Government. As of 2010 of the twenty biggest economies in the world 14 countries spend a bigger percentage of their national income than the US. We are down there with Brazil, Russia, South Korea, Mexico, India and China, in the low spending category. Way above us in the spending are countries like Norway, Sweden, Germany, Japan and most of the rest of Europe (in short all the places we like to visit because they are so nice and safe).
If you measure "big" by how much we spend per person, of the 20 biggest economy's in the world, the US spends per person slightly more than Russia, South Korea, Mexico, Brazil, India and China, but much less than residents of Norway, Sweden, Germany, Japan and the rest of Europe.
But even these rankings are a little misleading, because they don't address how the Government spends its money. The US spends far more on defense than any other country. 41% of the worlds defense spending is spent by the US. We spend two to three times more on defense than the countries that are immediately below us on the list (including China) and many times more than most of the countries in the world. You couldn't find three countries in this world who, if you lumped all their defense spending together, would match the US. So in terms of spending on things that improve the lives of citizens we spend less than every other large economy.
So, factually, if we eliminate defense spending, we already have a very small government in comparison with the rest of the world. And if you still think Government in the US is to big, ask yourself, what other government in this world do you think is better?
Even if you assume we have a "big government" what should we cut to shrink it?
Do we want to cut aid programs to the poor? Let them starve or be homeless? Sorry, even if we cut those programs, they are a miniscule part of overall Federal spending. If we cut those programs we end up with more non-productive people in our economy, and little economic benefit, so to some degree we are cutting our nations economic future for little current benefit.
Do we want to cut Social Security? Make everyone give their money to Wall Street to fund their retirement? Or rely on their employer to fund their retirement? This country is full of people who lost much of their retirement in the 2008-2009 economic meltdown, even as Wall Street walked away doing just fine. Even before the 2008-09 meltdown we had already seen lots of employee's of big corporations lose most or all of their retirement when the companies collapsed or got rolled into a bankruptcy reorganization in which the company was allowed to dump their pension obligations to employees (I checked with a friend who is a bankruptcy expert - he has never heard of a bankruptcy reorganization where executives of the company lost any of their retirement - only the workers). What about people who don't bother to save for retirement? Do we want to stand by and watch as millions of old people die destitute? Social Security is a program good government does, and does pretty well - at least it would if Congress wasn't always stealing money out of the Social Security trust fund to pay for tax cuts for rich folks.
Do we want to cut government spending on highways, and bridges and other infrastructure? The infrastructure our economy depends on our ability to operate efficiently. It wouldn't save much and would undermine our economy in the future. Do we want to cut the environmental programs that have cleaned up our air and water? Have we forgotten the days when our major rivers were prone to catching on fire because of all the pollutants? Do we need to remind ourselves of the amount of money we save by reducing health care costs caused by ignoring the environment we live in?
In short do we want to turn into the US into the kind of country much of the third world is trying to escape from? Where the amoral, powerful and aggressive do well at the expense of everyone else? Government is a big part of what makes life in the US better than life in much of the rest of the world.
Federal programs exist because most people support those programs, so Politicians kill their chances of being elected if they start talking about cutting specific programs. So instead, some years ago, politicians who don't really care if our country treats all its citizens humanly learned they can they haul out the 'big government" bogeyman to make it sound like they will actually do something without specifying what they mean or actually doing much.
Again, ask yourself what other government in this world do you think is better?
But what about the deficit?
Politicians often imply our deficit is a result of social programs to benefit the poor or middle class. This implication is false.
Do a search online for a timeline charting the United States Public debt. What you will see is we ran up a huge debt in WW II, then the debt fell steadily between 1950 and 1980, the time when most of those social programs were enacted. Then in the early 1980's public debt began to expand. It was not caused by social programs, but as a direct result of Mr. Reagan's policy of cutting taxes without making offsetting cuts in programs, and in fact he greatly increased government spending by juicing up military budgets. The debt trended up rapidly through the Reagan and Bush Sr. administrations, then began to reverse during the Clinton years. But in 2003 the second President Bush followed Mr. Reagan's example, cutting taxes while increasing defense spending (he was the only President in history who did not increase taxes during war time). The debt shot upward again. Then in 2008-2009, when the financial world collapsed, first the Bush administration and then the Obama administration sought huge bailouts that, while they probably prevented us from sliding into a Depression, shot the deficit up further.
So bottom line our current deficit would not have happened without the two rounds of tax cuts accompanied by increases in military spending, and the financial collapse that capped off the 12 years Republican's controlled Congress.
Even now, the one place where cuts would really make a big difference would be to cut defense. As noted above we spend more on defense than most of the rest of the world combined. $.50 of every dollar we spend on items budgeted to be supported by our income taxes goes to defense spending. Yet the Republican architects of the deficit still refuse to consider cuts in defense spending.
If one was of a conspiratorial persuasion one could make the case the people who really would like to turn the US into a third world country where the rich have everything and the poor scramble to survive, have for 30 years cut taxes and increased defense spending. It is apparent to anyone with half a brain that if you cut your income and increase your spending, you are going into debt. Yet the very politicans who most talk about "big government" have been the ones who cut taxes and increased spending. Now we have a big deficit, and they are arguing we have to cut all these other programs because we can't afford them, but we can't touch defense spending. So instead of having to come out and argue with voters that we need to cut these social programs because they think they are bad programs (an argument they would lose), they can now come to voters and say "we just can't afford them - look at our deficit!"
After all, cutting social programs is a win/win situation for many wealthy folks. They personally don't need them; they make a lot of money off of their investments in defense companies; they pay relatively little in taxes, and it generally isn't their kids who get killed or maimed for life on distant battlefields.
Friday, August 24, 2012
The Curious Nature of Human Nature
The Economist of July 14. 2012 (p. 71) contained an entertaining and information article on some recent findings in psychological research. Researchers have found:
1. Give a person an icy drink at a party and it causes them to be more likely to perceive other guests are giving them the cold shoulder. On the other hand a warm drink makes people feel more warm towards others (hence the popularity down through history of the coffee shop?).
2. A Canadian study found that subjects who sat at a slightly wobbly table next to a wobbly table were more likely to opine that relationships of celebrities were unstable. They also were more likely to rate stability as a more important factor in their own relationships.
1. Give a person an icy drink at a party and it causes them to be more likely to perceive other guests are giving them the cold shoulder. On the other hand a warm drink makes people feel more warm towards others (hence the popularity down through history of the coffee shop?).
2. A Canadian study found that subjects who sat at a slightly wobbly table next to a wobbly table were more likely to opine that relationships of celebrities were unstable. They also were more likely to rate stability as a more important factor in their own relationships.
Tuesday, August 21, 2012
A plea to Republicans to step outside their political comfort zone
For most of us our political ideas don't result from long years of studying the alternatives. We don't chose a party because we have studied how Republican or Democratic ideology has worked in the real world, we go with the ideology we find emotionally comfortable. In some cases our emotional comfort zone is defined by our personality, in some cases it is defined by the social environment in which we are raised. For most of us our emotional comfort zone - whether we are Democrats or Republican's, is an amalgam of these two factors. Once we have made that emotional choice both parties have volumes of logic we can adopt to reinforce our choice.
That's why political advertising is often so grossly misleading. It is aimed at our emotions, not our deliberative intellect. Political ads don't represent an attempt to help us study facts and determine what an intelligent choice would be, they are aimed at lighting a fire under our emotional comfort zone. Often it doesn't matter much. Both parties will do well enough that they will cancel out the really bad ideas the other party puts forward. But not always. There is a core issue in the current election that is one of those exceptions - it matters greatly.
I was a Republican for many years. It was my emotional comfort zone. I voted for Richard Nixon, and Ronald Reagan and George Bush senior for President. But my profession exposed me to historical facts and economic data that eventually caused me to leave the party in 1992 because it was becoming apparent to me that Republican economic ideas were based in ideology, not reality.
I write to make a plea to Republicans to step outside their emotional comfort zone and take a hard look at how current Republican economic orthodoxy measures up against history and economic data.
Mitt Romney and Paul Ryan are basing their campaign on the notion the way to bring back prosperity is to cut taxes, cut the size of government and cut regulations on business. The campaign is very adept at building logical explanations to make the case that business is not creating new jobs because of regulations and government interference, that if we cut taxes on the wealthy it will spark investment, that if we cut the size of government it will free up the private sector to step up and put us all to work.
But, as former Chief Justice Oliver Wendell Holmes once said, a page of history is worth a volume of logic. Here are some easily documented historical facts useful in evaluating the Romney/Ryan plan:
It's formula of cutting taxes, cutting regulations and cutting the size of government is exactly the same formula the Republican party put forth in the 12 years they controlled both houses of Congress from 1995 to 2007 (adding control of the Presidency in the last six years) that led to a huge expansion in the National debt, produced pretty mediocre GDP numbers along with bubbles in the stock and housing markets, and ended in the most spectacular economic crash since the Great Depression.
The formula is also the same formula that caused the Great Depression. Republicans took over both houses of Congress in 1919, added the Presidency in 1921, and controlled all three until 1933. They cut taxes, cut regulations and cut government. The result was eight years of mediocre growth during which bubbles in housing and the stock market developed, followed by a crash in 1929.
Unlike 2007, when the Republicans were being shown the door by the voters just as the collapse began, the Republicans continued to control both houses of Congress and the Presidency between 1929 and January of 1933. Herbert Hoover was convinced that the private sector would pull us out of the downturn, so continued with the Republican polices that reduced the influence of government, lowered taxes and eliminated regulations. It didn't work. By the time the Republicans were shown the door in 1933 unemployment was near 25%, 5000 banks had failed, foreclosures were rampant in all part of the country. The circumstantial case is strong that a big part of the reason the recession that followed the 1929 crash turned to a depression was because of the Republican policies. Voters certainly made the connection. In the 47 years from 1933 to 1980 Democrats controlled both houses on Congress for 38 of those years.
1921-1933 and 1995-2007 were the only times in the last 100 years where Republicans controlled all the levers of the Federal Government (other than 1953-54 - which was also followed by a recession).
Beyond the circumstantial evidence of US history, the Romney/Ryan plan ignores slam-dunk evidence from Economic studies that have looked at the effect of cutting government. The international monetary fund looked at 173 times in the last couple decades where developed countries cut government spending. They found that in a situation like we are currently in, with very low interest rates, there was nearly a 100% correlation between cutting government spending and a drop in GDP and a rise in unemployment.
The Romney/Ryan plan is very similar to the policies the Conservatives rode into power in Britain a couple years ago. They started cutting government, and many Brits were sure the recovery from the 2008 crash would now take off. Instead, predictably ,GDP growth has turned negative and Britain has been in recession for the last three quarters (the last quarter was surprisingly bad according to the BBC). The unemployment rate in Britain has been trending up and is at about 8%. Although the unemployment rate actually dropped a little last month, one has to suspect that drop related to the massive government spending on preparing and hosting the Olympic's rather than being evidence of an economic rebound.
The evidence the Romney/Ryan campaign offers to support their plan is the booming recovery following the "Reagan" recession in the early 1980's. It is a totally false comparison. It's like saying you should eat an orange by just picking it up and biting into it like you would an apple. The cause of the recession in the early 1980's was extremely high interest rates - the Fed had interest rates up near 20% at one point in their effort to battle inflation. The recession was a product of the fact business could not afford to borrow money to operate or expand. When inflation cooled off, the Fed lowered interest rates and suddenly business could afford to borrow and expand. What President Reagan did that contributed to the rapid recovery was, not cut government spending, but to spend a lot more Government money by greatly increasing defense spending.
In short the recovery in the early 1980's the Romney/Ryan plan offers as its principal justification was in an environment of interest rates falling from historically high levels coupled with low consumer debt. That recipe is not available to us right how. We have historically high consumer debt and interest rates have hovered at near zero for a couple years. The current conditions could not be more different.
In my 47 years as a voting citizen I have never seen either party building their platform around ideas as demonstrably wrong as the Romney/Ryan economic plan. If Mr. Romney and Mr. Ryan get elected, and do what they say they are going to do, it appears to me almost a certainty we will be back in recession within a year, and at risk of a serious depression.
I am not asking that you take my word for it. But I am asking that you, please, step outside your emotional comfort zone for awhile and start doing your own research. Instead of nodding your head and indulging in the emotional comfort you feel when Conservatives tout the Romney/Ryan plan, look for provable facts they offer to support the plan, and check the facts. Look into the history of the great Depression, the great recession. Look at what has happened in Britain since the David Cameron took over. Look for economic studies that have looked at what happens to GDP and the employment rate when Government's cut spending.
Please.
That's why political advertising is often so grossly misleading. It is aimed at our emotions, not our deliberative intellect. Political ads don't represent an attempt to help us study facts and determine what an intelligent choice would be, they are aimed at lighting a fire under our emotional comfort zone. Often it doesn't matter much. Both parties will do well enough that they will cancel out the really bad ideas the other party puts forward. But not always. There is a core issue in the current election that is one of those exceptions - it matters greatly.
I was a Republican for many years. It was my emotional comfort zone. I voted for Richard Nixon, and Ronald Reagan and George Bush senior for President. But my profession exposed me to historical facts and economic data that eventually caused me to leave the party in 1992 because it was becoming apparent to me that Republican economic ideas were based in ideology, not reality.
I write to make a plea to Republicans to step outside their emotional comfort zone and take a hard look at how current Republican economic orthodoxy measures up against history and economic data.
Mitt Romney and Paul Ryan are basing their campaign on the notion the way to bring back prosperity is to cut taxes, cut the size of government and cut regulations on business. The campaign is very adept at building logical explanations to make the case that business is not creating new jobs because of regulations and government interference, that if we cut taxes on the wealthy it will spark investment, that if we cut the size of government it will free up the private sector to step up and put us all to work.
But, as former Chief Justice Oliver Wendell Holmes once said, a page of history is worth a volume of logic. Here are some easily documented historical facts useful in evaluating the Romney/Ryan plan:
It's formula of cutting taxes, cutting regulations and cutting the size of government is exactly the same formula the Republican party put forth in the 12 years they controlled both houses of Congress from 1995 to 2007 (adding control of the Presidency in the last six years) that led to a huge expansion in the National debt, produced pretty mediocre GDP numbers along with bubbles in the stock and housing markets, and ended in the most spectacular economic crash since the Great Depression.
The formula is also the same formula that caused the Great Depression. Republicans took over both houses of Congress in 1919, added the Presidency in 1921, and controlled all three until 1933. They cut taxes, cut regulations and cut government. The result was eight years of mediocre growth during which bubbles in housing and the stock market developed, followed by a crash in 1929.
Unlike 2007, when the Republicans were being shown the door by the voters just as the collapse began, the Republicans continued to control both houses of Congress and the Presidency between 1929 and January of 1933. Herbert Hoover was convinced that the private sector would pull us out of the downturn, so continued with the Republican polices that reduced the influence of government, lowered taxes and eliminated regulations. It didn't work. By the time the Republicans were shown the door in 1933 unemployment was near 25%, 5000 banks had failed, foreclosures were rampant in all part of the country. The circumstantial case is strong that a big part of the reason the recession that followed the 1929 crash turned to a depression was because of the Republican policies. Voters certainly made the connection. In the 47 years from 1933 to 1980 Democrats controlled both houses on Congress for 38 of those years.
1921-1933 and 1995-2007 were the only times in the last 100 years where Republicans controlled all the levers of the Federal Government (other than 1953-54 - which was also followed by a recession).
Beyond the circumstantial evidence of US history, the Romney/Ryan plan ignores slam-dunk evidence from Economic studies that have looked at the effect of cutting government. The international monetary fund looked at 173 times in the last couple decades where developed countries cut government spending. They found that in a situation like we are currently in, with very low interest rates, there was nearly a 100% correlation between cutting government spending and a drop in GDP and a rise in unemployment.
The Romney/Ryan plan is very similar to the policies the Conservatives rode into power in Britain a couple years ago. They started cutting government, and many Brits were sure the recovery from the 2008 crash would now take off. Instead, predictably ,GDP growth has turned negative and Britain has been in recession for the last three quarters (the last quarter was surprisingly bad according to the BBC). The unemployment rate in Britain has been trending up and is at about 8%. Although the unemployment rate actually dropped a little last month, one has to suspect that drop related to the massive government spending on preparing and hosting the Olympic's rather than being evidence of an economic rebound.
The evidence the Romney/Ryan campaign offers to support their plan is the booming recovery following the "Reagan" recession in the early 1980's. It is a totally false comparison. It's like saying you should eat an orange by just picking it up and biting into it like you would an apple. The cause of the recession in the early 1980's was extremely high interest rates - the Fed had interest rates up near 20% at one point in their effort to battle inflation. The recession was a product of the fact business could not afford to borrow money to operate or expand. When inflation cooled off, the Fed lowered interest rates and suddenly business could afford to borrow and expand. What President Reagan did that contributed to the rapid recovery was, not cut government spending, but to spend a lot more Government money by greatly increasing defense spending.
In short the recovery in the early 1980's the Romney/Ryan plan offers as its principal justification was in an environment of interest rates falling from historically high levels coupled with low consumer debt. That recipe is not available to us right how. We have historically high consumer debt and interest rates have hovered at near zero for a couple years. The current conditions could not be more different.
In my 47 years as a voting citizen I have never seen either party building their platform around ideas as demonstrably wrong as the Romney/Ryan economic plan. If Mr. Romney and Mr. Ryan get elected, and do what they say they are going to do, it appears to me almost a certainty we will be back in recession within a year, and at risk of a serious depression.
I am not asking that you take my word for it. But I am asking that you, please, step outside your emotional comfort zone for awhile and start doing your own research. Instead of nodding your head and indulging in the emotional comfort you feel when Conservatives tout the Romney/Ryan plan, look for provable facts they offer to support the plan, and check the facts. Look into the history of the great Depression, the great recession. Look at what has happened in Britain since the David Cameron took over. Look for economic studies that have looked at what happens to GDP and the employment rate when Government's cut spending.
Please.
Sunday, August 19, 2012
Did Mr. Bush's bellicose foreign policy hurt tourism?
The Economist (6/30/12 p.33) noted that for the first time in history a tourism agency to promote tourism in the US has been created - Brand USA.
Although the US is the second most visited country in the world (behind France) a study by a consultancy group found that the US share of world tourism spending fell by a third between 2000 and 2010, from 17.2% to 11.6%. Global travel between 2000 and 2009 increased by 31%, yet the number of visitors to the US fell from 26 million to 24 million, which the consultancy calculates as amounting to $214 Billion in lost revenue to US Businesses over the decade.
There were three primary reasons the consultants who did the study cited for the drop:
1. We are so culturally dominant we have turned much of the rest of the world into us, so we are perceived as not that different.
2. Other countries like China, India, Vietnam or Brazil are now perceived to be the "new" world.
3. Visitors were turned off by the "brash and arrogant" American's.
There doesn't appear to me to be much we can do about the first two items on the list. But how could we suddenly start being perceived as "brash and arrogant" starting in about 2000? Hmmmmm. What changed in 2000?
Although the US is the second most visited country in the world (behind France) a study by a consultancy group found that the US share of world tourism spending fell by a third between 2000 and 2010, from 17.2% to 11.6%. Global travel between 2000 and 2009 increased by 31%, yet the number of visitors to the US fell from 26 million to 24 million, which the consultancy calculates as amounting to $214 Billion in lost revenue to US Businesses over the decade.
There were three primary reasons the consultants who did the study cited for the drop:
1. We are so culturally dominant we have turned much of the rest of the world into us, so we are perceived as not that different.
2. Other countries like China, India, Vietnam or Brazil are now perceived to be the "new" world.
3. Visitors were turned off by the "brash and arrogant" American's.
There doesn't appear to me to be much we can do about the first two items on the list. But how could we suddenly start being perceived as "brash and arrogant" starting in about 2000? Hmmmmm. What changed in 2000?
Wednesday, August 15, 2012
GDP as impacted by Cuts in Government and Taxes
Last July (2011) I did a blog addressing the Washington Gridlock of the moment which was at that time characterized by Republicans who threatened to let government slide into insolvency unless they got an agreement to cut taxes and the deficit. Since economic studies and history both demonstrate pretty conclusively that cutting taxes and the size of government reduces GDP and increases joblessness, I predicted that if the Republican's succeeded we would see a rise in joblessness and a drop in GDP, and I promised to revisit the issue one year later to see if I was right. Here is a link to that blog:
http://motrvoter.blogspot.com/2011/07/tax-cuts-and-creating-jobs.html
Well, in the end the Republicans backed off after the Bond markets threatened to downgrade the credit rating of the US and Congress kicked all the fiscal issues on down the road (which they have done a couple more times since then). So, I am revisiting the issue as promised, but really have nothing to say since the situation is essentially unchanged. Republicans are still convinced against the overwhelming evidence of economic studies and history that the cut and cut path will lead to prosperity. In fact Mitt Romney just named the King of cut and cut economics as his Vice Presidential running mate.
So I guess I will promise to revisit the issue if at some point the Republican's get their way and start hacking away at taxes and the size of government. I am hoping that doesn't happen since the last time the Republican's were running the show my business got hammered in the collapse of 2007-2008.
http://motrvoter.blogspot.com/2011/07/tax-cuts-and-creating-jobs.html
Well, in the end the Republicans backed off after the Bond markets threatened to downgrade the credit rating of the US and Congress kicked all the fiscal issues on down the road (which they have done a couple more times since then). So, I am revisiting the issue as promised, but really have nothing to say since the situation is essentially unchanged. Republicans are still convinced against the overwhelming evidence of economic studies and history that the cut and cut path will lead to prosperity. In fact Mitt Romney just named the King of cut and cut economics as his Vice Presidential running mate.
So I guess I will promise to revisit the issue if at some point the Republican's get their way and start hacking away at taxes and the size of government. I am hoping that doesn't happen since the last time the Republican's were running the show my business got hammered in the collapse of 2007-2008.
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