“The Obama Recovery”: You Shouldn’t Conclude That Hitting Yourself In The Head Is Smart Because It Feels So Good When You Stop
Suppose that for some reason you decided to start hitting yourself in the head, repeatedly, with a baseball bat. You’d feel pretty bad. Correspondingly, you’d probably feel a lot better if and when you finally stopped. What would that improvement in your condition tell you?
It certainly wouldn’t imply that hitting yourself in the head was a good idea. It would, however, be an indication that the pain you were experiencing wasn’t a reflection of anything fundamentally wrong with your health. Your head wasn’t hurting because you were sick; it was hurting because you kept hitting it with that baseball bat.
And now you understand the basics of what has been happening to several major economies, including the United States, over the past few years. In fact, you understand these basics better than many politicians and commentators.
Let’s start with a tale from overseas: austerity policy in Britain. As you may know, back in 2010 Britain’s newly installed Conservative government declared that a sharp reduction in budget deficits was needed to keep Britain from turning into Greece. Over the next two years growth in the British economy, which had been recovering fairly well from the financial crisis, more or less stalled. In 2013, however, growth picked up again — and the British government claimed vindication for its policies. Was this claim justified?
No, not at all. What actually happened was that the Tories stopped tightening the screws — they didn’t reverse the austerity that had already occurred, but they effectively put a hold on further cuts. So they stopped hitting Britain in the head with that baseball bat. And sure enough, the nation started feeling better.
To claim that this bounceback vindicated austerity is silly. As Simon Wren-Lewis of Oxford University likes to point out, if rapid growth after a gratuitous slump counts as success, the government should just close down half the economy for a year; the next year’s growth would be fantastic. Or as I’d put it, you shouldn’t conclude that hitting yourself in the head is smart because it feels so good when you stop. Unfortunately, the silliness of the claim hasn’t prevented its widespread acceptance by what Mr. Wren-Lewis calls “mediamacro.”
Meanwhile, back in America we haven’t had an official, declared policy of fiscal austerity — but we’ve nonetheless had plenty of austerity in practice, thanks to the federal sequester and sharp cuts by state and local governments. The good news is that we, too, seem to have stopped tightening the screws: Public spending isn’t surging, but at least it has stopped falling. And the economy is doing much better as a result. We are finally starting to see the kind of growth, in employment and G.D.P., that we should have been seeing all along — and the public’s mood is rapidly improving.
What’s the important lesson from this late Obama bounce? Mainly, I’d suggest, that everything you’ve heard about President Obama’s economic policies is wrong.
You know the spiel: that the U.S. economy is ailing because Obamacare is a job-killer and the president is a redistributionist, that Mr. Obama’s anti-business speeches (he hasn’t actually made any, but never mind) have hurt entrepreneurs’ feelings, inducing them to take their marbles and go home.
This story line never made much sense. The truth is that the private sector has done surprisingly well under Mr. Obama, adding 6.7 million jobs since he took office, compared with just 3.1 million at this point under President George W. Bush. Corporate profits have soared, as have stock prices. What held us back was unprecedented public-sector austerity: At this point in the Bush years, government employment was up by 1.2 million, but under Mr. Obama it’s down by 600,000. Sure enough, now that this de facto austerity is easing, the economy is perking up.
And what this bounce tells you is that the alleged faults of Obamanomics had nothing to do with the pain we were feeling. We weren’t hurting because we were sick; we were hurting because we kept hitting ourselves with that baseball bat, and we’re feeling a lot better now that we’ve stopped.
Will this improvement in our condition continue? Britain’s government has declared its intention to pick up the baseball bat again — to engage in further austerity, which does not bode well. But here the picture looks brighter. Households are in much better financial shape than they were a few years ago; there’s probably still a lot of pent-up demand, especially for housing. And falling oil prices will be good for most of the country, although some regions — especially Texas — may take a hit.
So I’m fairly optimistic about 2015, and probably beyond, as long as we avoid any more self-inflicted damage. Let’s just leave that baseball bat lying on the ground, O.K.?
By: Paul Krugman, Op-Ed Columnist, The New York Times, December 28, 2014
We got the latest quarterly economic growth numbers today, and they’re pretty striking:
The U.S. economy grew at its fastest rate in more than a decade between the months of July and October, helped by a surge in consumer spending, according to government data released Tuesday morning.
The Commerce Department said gross domestic product growth hit an annualized rate of 5 percent in the third quarter, revised upward from the previous estimate of 3.9 percent. Not since 2003 has the economy expanded so quickly.
The third quarter performance, coupled with 4.6 percent growth in the second quarter, amounts to the best sign since the Great Recession that the U.S. recovery has hit its stride.
The simple way to look at the political implications of these numbers is to say that it’s good for Democrats, since there’s a Democrat in the White House. And though it’s extremely unlikely for growth to stay over 5 percent for any length of time — it’s been 30 years since we had more than two consecutive quarters at that level — if both growth and job creation remain strong for the next two years, it’ll be somewhere between difficult and impossible for a Republican to win the White House in 2016, since the state of the economy swamps every other issue in presidential campaigns.
That’s the simple way to look at it, and it’s not wrong. But there’s another layer to the state of the country’s economy that could make things more complicated for both parties. It has to do with the difference between the two numbers that get the most attention — job creation and GDP growth — and the rest of how Americans experience their economic and working lives.
If you listen to the way President Obama talks about the economy these days, you’ll notice that he always says both that things are going well and that “we have more work to do.” It’s a way to assure people that he understands that they don’t feel secure and that many may not have gotten back to where they were before the Great Recession. On the other side, for a long time Republicans would say, “Where are the jobs, Mr. President?” But they can’t say that anymore, nor can they complain about growth being weak.
The economic debate of 2016 will start in about a year from now. While there could certainly be a downturn between now and then, let’s assume for the moment that the momentum continues. How could Republicans make a case that although growth and job creation are strong, all is still not well? Even if that’s what Americans feel, it would be a difficult case for Republicans to make, because those top-line figures are what they generally point to when they discuss the economy. What else can they build their case on? They aren’t going to talk about the stock market or corporate profits, not only because those have both performed spectacularly during the Obama presidency, but because they know that ordinary people don’t much care.
And they aren’t going to talk about the things that really make people worried. The most important fact of the American economy in the past few decades may be its failure to produce rising wages, but that’s not something Republicans are particularly concerned with. Their economic focus is usually on business owners — the taxes they pay, the regulations they have to abide by, and so on. Even if you believe that helping those owners is the best way to help the people who work for them, you’re going to have a hard time finding Republicans who want to talk about something like wage stagnation.
And the arguments Republicans always make against Democratic proposals aimed directly at workers, like increasing the minimum wage or expanding health coverage, are that the proposals will cost jobs and hinder growth. So they can’t turn around and say, “OK, so growth and job creation may look good, but the real problem is what people earn and how they’re treated on the job.” That’s just not in the Republican DNA.
If there’s an accompanying problem for Democrats, it’s that voters could look at the Obama years and say that yes, it’s now a lot easier to find a job, but the jobs don’t pay what they should or offer the same security and dignity they used to. The American economy is a much crueler place than it once was, and two terms of a Democratic administration haven’t done enough to reverse that evolution.
That could be a genuinely biting critique. But fortunately for Hillary Clinton (or whoever the 2016 Democratic nominee is), Republicans are the last ones who are going to make it.
By: Paul Waldman, Contributing Editor, The American Prospect; The Plum Line, The Washington Post, December 23, 2014
“Three Expensive Milliseconds”: Society Is Devoting An Ever-Growing Share Of Its Resources To Financial Wheeling And Dealing
Four years ago Chris Christie, the governor of New Jersey, abruptly canceled America’s biggest and arguably most important infrastructure project, a desperately needed new rail tunnel under the Hudson River. Count me among those who blame his presidential ambitions, and believe that he was trying to curry favor with the government- and public-transit-hating Republican base.
Even as one tunnel was being canceled, however, another was nearing completion, as Spread Networks finished boring its way through the Allegheny Mountains of Pennsylvania. Spread’s tunnel was not, however, intended to carry passengers, or even freight; it was for a fiber-optic cable that would shave three milliseconds — three-thousandths of a second — off communication time between the futures markets of Chicago and the stock markets of New York. And the fact that this tunnel was built while the rail tunnel wasn’t tells you a lot about what’s wrong with America today.
Who cares about three milliseconds? The answer is, high-frequency traders, who make money by buying or selling stock a tiny fraction of a second faster than other players. Not surprisingly, Michael Lewis starts his best-selling new book “Flash Boys,” a polemic against high-frequency trading, with the story of the Spread Networks tunnel. But the real moral of the tunnel tale is independent of Mr. Lewis’s polemic.
Think about it. You may or may not buy Mr. Lewis’s depiction of the high-frequency types as villains and those trying to thwart them as heroes. (If you ask me, there are no good guys in this story.) But either way, spending hundreds of millions of dollars to save three milliseconds looks like a huge waste. And that’s part of a much broader picture, in which society is devoting an ever-growing share of its resources to financial wheeling and dealing, while getting little or nothing in return.
How much waste are we talking about? A paper by Thomas Philippon of New York University puts it at several hundred billion dollars a year.
Mr. Philippon starts with the familiar observation that finance has grown much faster than the economy as a whole. Specifically, the share of G.D.P. accruing to bankers, traders, and so on has nearly doubled since 1980, when we started dismantling the system of financial regulation created as a response to the Great Depression.
What are we getting in return for all that money? Not much, as far as anyone can tell. Mr. Philippon shows that the financial industry has grown much faster than either the flow of savings it channels or the assets it manages. Defenders of modern finance like to argue that it does the economy a great service by allocating capital to its most productive uses — but that’s a hard argument to sustain after a decade in which Wall Street’s crowning achievement involved directing hundreds of billions of dollars into subprime mortgages.
Wall Street’s friends also used to claim that the proliferation of complex financial instruments was reducing risk and increasing the system’s stability, so that financial crises were a thing of the past. No, really.
But if our supersized financial sector isn’t making us either safer or more productive, what is it doing? One answer is that it’s playing small investors for suckers, causing them to waste huge sums in a vain effort to beat the market. Don’t take my word for it — that’s what the president of the American Finance Association declared in 2008. Another answer is that a lot of money is going to speculative activities that are privately profitable but socially unproductive.
You may object that this can’t be right, that the invisible hand of the market ensures that private returns and social returns coincide. Economists have, however, known for a long time that when it comes to speculation, that proposition just isn’t true. Back in 1815 Baron Rothschild made a killing because he knew the outcome of the Battle of Waterloo a few hours before everyone else; it’s hard to see how that knowledge made Britain as a whole richer. It’s even harder to see how the three-millisecond advantage conveyed by the Spread Networks tunnel makes modern America richer; yet that advantage was clearly worth it to the speculators.
In short, we’re giving huge sums to the financial industry while receiving little or nothing — maybe less than nothing — in return. Mr. Philippon puts the waste at 2 percent of G.D.P. Yet even that figure, I’d argue, understates the true cost of our bloated financial industry. For there is a clear correlation between the rise of modern finance and America’s return to Gilded Age levels of inequality.
So never mind the debate about exactly how much damage high-frequency trading does. It’s the whole financial industry, not just that piece, that’s undermining our economy and our society.
By: Paul Krugman, Op-Ed Columnist, The New York Times, April 13, 2014
“Low Wage Jobs Endanger Nothing”: Wall Street’s 2013 Bonuses Were More Than All Workers Earned Making The Federal Minimum
Purveyors of Ferraris and high-end Swiss watches keep their fingers crossed toward the end of each calendar year, hoping that the big Wall Street banks will be generous with their annual cash bonuses.
New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.
That money will no doubt boost sales of luxury goods. Just imagine how much greater the economic benefit would be if that same amount of money had gone into the pockets of minimum-wage workers.
The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.
And boosting their pay in that way would give our economy much more bang for the buck. That’s because low-wage workers tend to spend nearly every dollar they make to meet their basic needs. The wealthy can afford to squirrel away a much greater share of their earnings.
When low-wage workers spend their money at the grocery store or on utility bills, this cash ripples through the economy. According to my new report, every extra dollar going into the pockets of low-wage workers adds about $1.21 to the national economy. Every extra dollar a high-income American makes, by contrast, only adds about 39 cents to the gross domestic product (GDP).
And these pennies add up.
If the $26.7 billion Wall Streeters pulled in on their bonuses last year had instead gone to minimum wage workers, our economy would be expected to grow by about $32.3 billion — more than triple the $10.4 billion boost expected from the Wall Street bonuses.
This immense GDP differential only speaks to one price we pay for Wall Street’s bonus reward culture. Huge bonuses, the 2008 financial industry meltdown made clear, create an incentive for high-risk behaviors that endanger the entire economy.
And yet, nearly four years after passage of the Dodd-Frank financial reform, regulators still haven’t implemented the modest provisions in that law to prohibit financial industry pay that encourages “inappropriate risk.” Time will tell whether last year’s Wall Street bonuses were based on high-risk gambles that will eventually blow up in our faces.
Low-wage jobs, on the other hand, endanger nothing. The people who harvest, prepare and serve our food, the folks who keep our hotels clean, and the workers who care for our elderly all provide crucial services. They deserve much higher rewards.
By: Sarah Anderson, Moyers and Company, Bill Moyers Blog, March 12, 2014; This post originally appeared at Other Words
The politics of paranoia can lead policymakers into some unfortunate directions. On everything from homeland security to education to guns, paranoid politicians invariably end up pushing some truly bizarre proposals for no good reason.
In the latest example, some far-right congressional Republicans have decided to wage a war on census data because they have paranoid ideas about “big government.”
A group of Republicans are cooking up legislation that could give President Barack Obama an unintentional assist with disagreeable unemployment numbers — by eliminating the key economic statistic altogether.
The bill, introduced last week by Rep. Jeff Duncan (R-S.C.), would bar the U.S. Census Bureau from conducting nearly all surveys except for a decennial population count. Such a step that would end the government’s ability to provide reliable estimates of the employment rate. Indeed, the government would not be able to produce any of the major economic indices that move markets every month, said multiple statistics experts, who were aghast at the proposal.
“They simply wouldn’t exist. We won’t have an unemployment rate,” said Ken Prewitt, the former director of the U.S. Census who is now a professor of public affairs at Columbia University.
The core issue is something called the American Community Survey, which the Census Bureau uses as a supplemental to the decennial reports, providing information on commuting, income, family structure, educational attainment, housing, and finance. The results are used extensively by businesses, researchers, academics, and government agencies, and have been an invaluable tool for decades.
Right-wing lawmakers, however, have come to believe nefarious government officials are collecting the information as part of a larger scheme — it’s never been entirely clear to me what they see as the point of the plot — that must be stopped. Sen. Rand Paul (K-Ky.), who revels in strange conspiracy theories, proposed legislation in March to make elements of the American Community Survey optional, apparently because he didn’t realize that they were already optional.
But it’s not just the American Community Survey that congressional Republicans are eager to crush.
Indeed, Rep. Jeff Duncan’s (R-S.C.) bizarre proposal, which has 10 co-sponsors, would also explicitly eliminate the agricultural census, economic census, government census, and mid-decade census.
As a consequence, Duncan’s bill would eliminate the existence of the unemployment rate and the measurement of the nation’s GDP, among other thing.
Maurine Haver, founder of business research firm Haver Analytics and a past president of the National Association for Business Economics, told the Huffington Post‘s Michael McAuliff, “Do they understand that these data that the Census Bureau collects are fundamental to everything else that’s done? They think the country doesn’t need to know how many people are unemployed, either?”
The answers to these questions are unclear — Duncan and other supporters of this proposal have not explained why they oppose the data, why they see the need to eliminate the data, or even if they understand what it is they’re doing.
Duncan, incidentally, is the same deeply confused congressman who spewed bizarre conspiracy theories about the Boston Marathon bombing, going so far that Homeland Security Secretary Janet Napolitano felt the need to say Duncan’s ignorant inquiries were “full of misstatements and misapprehensions,” and “not worthy of an answer.”
By: Steve Benen, The Maddow Blog, May 2, 2013