Since George W. Bush’s presidency, Republican economic ideas have become drastically more conservative. Instead of massive tax cuts for the rich coupled with a general tolerance of the rest of government (or even new welfare programs), the party is now committed to much larger tax cuts coupled with eye-watering cuts to government.
Every Republican presidential candidate proposes staggering tax cuts heavily weighted toward the rich. Donald Trump would give the top one-thousandth of taxpayers $1.3 million apiece per year, while Ted Cruz would give them an even $2 million. Trump does favor preserving the welfare state, but he is a marked outsider in this respect. The entire rest of the party is committed to gigantic cuts to welfare, as shown by the budget formulated by House Republicans. Their most recent plan would slash $5.3 trillion in spending over a decade, 69 percent of which would come from programs for the needy.
The party’s intellectual apparatus (distinct from the Trumpist insurgency) has more-or-less fully regressed to an economic libertarianism straight out of the 1920s. They view basically all government programs outside of the military and the courts as illegitimate, to be slashed or eliminated wherever possible. The only problem with this is that when you try it, the results are immediate disaster.
Republicans haven’t been able to fully implement their plan of tax and service cuts on the federal level, but they have tried it in a few places on the state level. Louisiana under Gov. Bobby Jindal has had it the worst. Jindal’s massive cuts to education and services were not nearly enough to cover his gigantic tax cuts, and draining every rainy day fund in the state only delayed the day of reckoning. Eventually the results were so disastrous that the unthinkable happened — a Democrat replaced Jindal. Now Gov. John Bel Edwards is scrambling to deal with the most extreme budgetary emergency of any state government in decades, working feverishly just to keep the state from literal financial collapse.
Kansas is also suffering from Republican quack economics. Gov. Sam Brownback (who barely scraped through re-election in 2014 and now sits at a 21-percent approval rating) tried the same tricks as Jindal, though to a somewhat lesser degree, and the results were similar: a huge budget deficit with none of the promised explosive growth or job gains. Now Kansas conservatives are running into problems with the state’s Supreme Court, which found legal problems with the distribution of education cuts. Their solution: Attack the justices politically, by drawing up a new impeachment law and trying to get them thrown out in an upcoming confirmation election.
It’s the same story in Wisconsin with both deficits and lousy economic performance. Gov. Scott Walker’s major innovation has been an effort to basically destroy the Wisconsin state university system with drastic cuts and the abolishment of tenure, which is already leading to serious problems at the flagship school in Madison.
However, it could have been worse for all these states. The federal government, with its grants, its spending on social programs, and its employment of in-state government workers and contractors, provides a buffer of spending state governments cannot cut. For example, Louisiana gets over 40 percent of its state budget from the feds, as well as $5,917 per person in social spending, $3.5 billion in federal contracts, and $5.3 billion in compensation paid to almost 68,000 federal workers (as of the most recent data). That’s $48 billion in income against $39 billion paid in federal taxes (other states don’t make out so well).
This means that the results would be far more disastrous should Republicans get to implement their ideas on a federal level. Great chunks of the federal programs — food stamps, federal health programs, the Earned Income Tax Credit, and so on — that have provided inadequate but vital economic stabilization would be cut or eliminated altogether.
The results would be just as what happened on the state level, only worse.
It took many years for Republicans to talk themselves out of the fact that Herbert Hoover’s presidency was a disastrous failure, but with the exception of Trump, Hooverism is where they stand. It’s an ideology that can gain wide popularity only insofar as it is not actually tried on a wide scale. It turns out that a vision of government that was already outdated a century ago (when farmers were over a quarter of the workforce) is not very well-suited to a modern economy. It’s just too bad the American people might have to be the collateral damage in re-learning that lesson.
By: Ryan Cooper, The Week, April 4, 2016
April 6, 2016
Posted by raemd95 |
Economic Policy, Republicans, Spending Cuts, Tax Cuts | Bobby Jindal, Conservatives, Donald Trump, Economic Libertarianism, Herbert Hoover, Sam Brownback, Scott Walker, Ted Cruz |
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America isn’t broke. Nor is it on the verge of a government debt crisis (whatever “crisis” even means for a nation whose debt is printed in a currency that is both its own and the world’s reserve). America is not in decay, and the last thing the U.S. should do is rashly withdraw from a dangerous world because of those mistaken beliefs.
This should be especially clear after the Belgium terror attacks.
Yet retreat is just what Donald Trump seems to be proposing. In an interview with The Washington Post editorial board Monday, Trump questioned the U.S. role in NATO and presence in Asia due to the financial burden they require:
I mean, we pay billions — hundreds of billions of dollars to supporting other countries that are in theory wealthier than we are. … When you look at the kind of money that our country is losing, we can’t afford to do this. Certainly we can’t afford to do it anymore…. I think we were a very powerful, very wealthy country. And we’re a poor country now. [Trump]
Looks like we finally found something Trump is in favor of off-shoring: America’s security.
Now, it’s certainly legitimate to evaluate the mission and cost of America’s overseas military commitments and posture. But that’s a different thing than scrapping our military alliances — or threatening to do so as some ham-handed budget negotiating tactic. Leading the free world, reassuring allies, and deterring aggression have little overlap with the skills needed to drive a hard bargain with a potential tenant in Trump Tower.
And yet, Republicans might give Trump’s defense policy ideas more of a hearing than they deserve because of their persistent debt fears. After all, it’s mainstream GOP economic thought that U.S. finances are precarious. How could they not be given the $19 trillion federal debt — $22 trillion if you include state and local government? These are figures Trump always mentions, as do many Republican politicians. They provide handy justification for arguing we can’t afford to invest in science, repair and upgrade our infrastructure, or bolster wages for low-income workers.
But here’s the thing: The U.S. is far from a poor nation. American households entered 2016 with a net worth of nearly $87 trillion, according to the Federal Reserve. To put that ginormous number in some context, China’s private wealth has been estimated at $23 trillion. Even if you factor in America’s debt-laden public sector and China’s large state-owned companies, the U.S. still has a $45 trillion wealth edge.
There are other ways of looking at national wealth that also show America’s riches. The value of U.S. intellectual capital has been estimated at around $9 trillion, with the value of the intangible assets — such as patents, copyrights, and general business methods — at nearly $15 trillion. And given Trump’s appreciation of brands — he generously values his own at $3 billion — you would think the businessman would appreciate America’s, which has been valued at close to $20 trillion.
Maybe all this wealth is one reason global financial markets don’t seem so worried about the U.S. debt. Well, that and the U.S. tax burden being one of the lowest in the developed world. The dollar is strong, and interest rates are low, as are inflation expectations. None of this is to say the U.S. should be a spendthrift in either defense or social spending. Without entitlement reform, Medicare and Social Security will require massive tax increases to keep their promises. Yet Trump would leave them untouched, vowing implausibly to fix their fiscal problems through higher economic growth alone.
The U.S. isn’t bankrupt. Our pockets aren’t empty. We aren’t a pauper nation.
But, of course, you can’t promise to make America great again without arguing that it currently isn’t.
By: James Pethokoukis, The Week, March 23, 2016
March 27, 2016
Posted by raemd95 |
Donald Trump, Economic Policy, Foreign Policy, National Security | Belgium Attacks, China, Debt Crisis, GOP, Infrastructure, National Wealth, NATO, Republicans, Science, Wages |
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Since the seventh anniversary of the American Recovery and Reinvestment Act – the “stimulus” – was this week, it was a good time to ask, “Who Do You Want In The White House When The Next Recession Comes?”
On Friday, Ed Dolan, writing in Nouriel Roubini’s EconomMonitor, answers: Definitely not Marco Rubio.
Dolan fleshes out the argument that our post made earlier this week about the kind of economic decision-making any rational person would want to have in the White House in the event of an economic downturn. And he concludes that in the case of Rubio (and other Republicans, for Dolan notes Rubio’s views are “widely shared” within the GOP), “the federal government would be legally bound to allow the economy to drift rudderless onto the rocks.”
That’s because Rubio – and for that matter all of the Republican presidential candidates – don’t have a firm grasp of Economics 101.
If you remember your basic college econ course, you’ll know that the first line of defense against a recession is fiscal policy. When the economy goes into a slump, spending rises on unemployment compensation, food stamps, and other benefits. At the same time, tax receipts, which are linked to income, decrease. Because the spending increase plus the tax decrease automatically cushion the slump, economists call them automatic stabilizers.
If you’re a true Keynesian, automatic stabilizers aren’t enough. You add some discretionary fiscal stimulus in the form of road projects and maybe a temporary tax rebate. If the timing is right, that softens the recession even more and speeds the recovery.
But Rubio, as Dolan notes, is a staunch supporter of a balanced budget amendment to the Constitution. (So is Ted Cruz, Jeb Bush, Ben Carson and John Kasich.)
It sounds like a sensible idea, until you think about it. But then, you see that the idea of balancing the federal budget every year is nuts. It would mean that when the economy went into a slump, pulling tax revenues down, Congress would have to enact across the board emergency spending cuts to keep a deficit from emerging. The cuts would quickly hit jobs and household budgets. Consumer spending would fall, firms would cut output to fight ballooning inventories. Without the automatic stabilizers, a mild recession would turn into a tailspin.
But Rubio would not stop there, Dolan goes on to write. Rubio also wants to constrain the ability of the Federal Reserve to stimulate job creation – one half of its dual mandate to keep both unemployment and inflation low.
Here is what [Rubio] said about the Fed in this week’s South Carolina town hall:
That’s not the Fed’s job to stimulate the economy. The Fed is a central bank, it is not some sort of overlord of the economy. They’re not some sort of special Jedi Counsel that can decide the best things for us.
The Fed is a central bank. Their job is provide stable currency and I believe they should operate on a rules based system. They would have a very simple rule that determines when interest rates go up and when interests rates go down.
So just what is this “simple rule” Rubio is talking about? He provides the details elsewhere. His rule would replace the Fed’s dual mandate with a single mandate to prevent inflation. The Fed would be required to raise rates to stop inflation during a boom, but it would be barred from doing anything when unemployment soars during a recession.
That is why it behooves us to ask pointed questions of the presidential candidates about what they would do if the U.S. faced an economic downturn on their watch. Chances are, if they are reading from the same economic playbook that Marco Rubio uses, they would turn the next recession into the next Great Depression.
By: Isaiah J. Poole, Editor of OurFuture.org, Campaign For America’s Future, February 19, 2016
February 22, 2016
Posted by raemd95 |
Balanced Budget Amendment, Economic Policy, GOP Presidential Candidates, Marco Rubio | Automatic Stabilizers, Depression, Economic Recovery, Federal Reserve, Fiscal Discretionary Stimulus, Inflation, Jobs, Recession, Wage Stagnation |
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America’s two big political parties are very different from each other, and one difference involves the willingness to indulge economic fantasies.
Republicans routinely engage in deep voodoo, making outlandish claims about the positive effects of tax cuts for the rich. Democrats tend to be cautious and careful about promising too much, as illustrated most recently by the way Obamacare, which conservatives insisted would be a budget-buster, actually ended up being significantly cheaper than projected.
But is all that about to change?
On Wednesday four former Democratic chairmen and chairwomen of the president’s Council of Economic Advisers — three who served under Barack Obama, one who served under Bill Clinton — released a stinging open letter to Bernie Sanders and Gerald Friedman, a University of Massachusetts professor who has been a major source of the Sanders campaign’s numbers. The economists called out the campaign for citing “extreme claims” by Mr. Friedman that “exceed even the most grandiose predictions by Republicans” and could “undermine the credibility of the progressive economic agenda.”
That’s harsh. But it’s harsh for a reason.
The claims the economists are talking about come from Mr. Friedman’s analysis of the Sanders economic program. The good news is that this isn’t the campaign’s official assessment; the bad news is that the Friedman analysis has been highly praised by campaign officials.
And the analysis is really something. The Republican candidates have been widely and rightly mocked for their escalating claims that they can achieve incredible economic growth, starting with Jeb Bush’s promise to double growth to 4 percent and heading up from there. But Mr. Friedman outdoes the G.O.P. by claiming that the Sanders plan would produce 5.3 percent growth a year over the next decade.
Even more telling, I’d argue, is Mr. Friedman’s jobs projection, which has the employed share of American adults soaring all the way back to what it was in 2000. That may sound possible — until you remember that by 2026 more than a quarter of U.S. adults over 20 will be 65 and older, compared with 17 percent in 2000.
Sorry, but there’s just no way to justify this stuff. For wonks like me, it is, frankly, horrifying.
Still, these are numbers on a program that Mr. Sanders, even if he made it to the White House, would have little chance of enacting. So do they matter?
Unfortunately, the answer is yes, for several reasons.
One is that, as the economists warn, fuzzy math from the left would make it impossible to effectively criticize conservative voodoo.
Beyond that, this controversy is an indication of a campaign, and perhaps a candidate, not ready for prime time. These claims for the Sanders program aren’t just implausible, they’re embarrassing to anyone remotely familiar with economic history (which says that raising long-run growth is very hard) and changing demography. They should have set alarm bells ringing, but obviously didn’t.
Mr. Sanders is calling for a large expansion of the U.S. social safety net, which is something I would like to see, too. But the problem with such a move is that it would probably create many losers as well as winners — a substantial number of Americans, mainly in the upper middle class, who would end up paying more in additional taxes than they would gain in enhanced benefits.
By endorsing outlandish economic claims, the Sanders campaign is basically signaling that it doesn’t believe its program can be sold on the merits, that it has to invoke a growth miracle to minimize the downsides of its vision. It is, in effect, confirming its critics’ worst suspicions.
What happens now? In the past, the Sanders campaign has responded to critiques by impugning the motives of the critics. But the authors of the critical letter that came out on Wednesday aren’t just important economists, they’re important figures in the progressive movement.
For example, Alan Krueger is one of the founders of modern research on minimum wages, which shows that moderate increases in the minimum don’t cause major job loss. Christina Romer was a strong advocate for stimulus during her time in the White House, and a major figure in the pushback against austerity in the years that followed.
The point is that if you dismiss the likes of Mr. Krueger or Ms. Romer as Hillary shills or compromised members of the “establishment,” you’re excommunicating most of the policy experts who should be your allies.
So Mr. Sanders really needs to crack down on his campaign’s instinct to lash out. More than that, he needs to disassociate himself from voodoo of the left — not just because of the political risks, but because getting real is or ought to be a core progressive value.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 19, 2016
February 22, 2016
Posted by raemd95 |
Bernie Sanders, Economic Policy, Gerald Friedman, Progressives | Alan Kruger, Christina Romer, Conservatives, Council of Economic Advisers, Economic Growth, Jobs, Middle Class, Republicans, Social Safety Net, Voodoo Economics |
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Bill Clinton’s 1992 campaign famously focused on “the economy, stupid.” But macroeconomic policy — what to do about recessions — has been largely absent from this year’s election discussion.
Yet economic risks have by no means been banished from the world. And you should be frightened by how little many of the people who would be president have learned from the past eight years.
If you’ve been following the financial news, you know that there’s a lot of market turmoil out there. It’s nothing like 2008, at least so far, but it’s worrisome.
Once again we have a substantial amount of troubled debt, this time not home mortgages but loans to energy companies, hit hard by plunging oil prices. Meanwhile, formerly trendy emerging economies like Brazil are suddenly doing very badly, and China is stumbling. And while the U.S. economy is doing better than almost anyone else’s, we’re definitely not immune to contagion.
Nobody really knows how bad it will be, but financial markets are flashing warnings. Bond markets, in particular, are behaving as if investors expect many years of extreme economic weakness. Long-term U.S. rates are near record lows, but that’s nothing compared with what’s happening overseas, where many interest rates have gone negative.
And super-low interest rates, which mainly reflect market forces, not policy, are creating problems for banks, whose profits depend on being able to lend money for substantially more than they pay on deposits. European banks are in the biggest trouble, but U.S. bank stocks have fallen a lot, too.
It looks, in other words, as if we’re still living in the economic era we entered in 2008 — an era of persistent weakness, in which deflation and depression, not inflation and deficits, are the key challenges. So how well do we think the various presidential wannabes would deal with those challenges?
Well, on the Republican side, the answer is basically, God help us. Economic views on that side of the aisle range from fairly crazy to utterly crazy.
Leading the charge of the utterly crazy is, you won’t be surprised to hear, Donald Trump, who has accused the Fed of being in the tank for Democrats. A few months ago he asserted that Janet Yellen, chairwoman of the Fed, hadn’t raised rates “because Obama told her not to.” Never mind the fact that inflation remains below the Fed’s target and that in the light of current events even the Fed’s small December rate hike now looks like a mistake, as a number of us warned it was.
Yet the truth is that Mr. Trump’s position isn’t that far from the Republican mainstream. After all, Paul Ryan, the speaker of the House, not only berated Ben Bernanke, Ms. Yellen’s predecessor, for policies that allegedly risked inflation (which never materialized), but he also dabbled in conspiracy theorizing, accusing Mr. Bernanke of acting to “bail out fiscal policy.”
And even superficially sensible-sounding Republicans go off the deep end on macroeconomic policy. John Kasich’s signature initiative is a balanced-budget amendment that would cripple the economy in a recession, but he’s also a monetary hawk, arguing, bizarrely, that the Fed’s low-interest-rate policy is responsible for wage stagnation.
On the Democratic side, both contenders talk sensibly about macroeconomic policy, with Mr. Sanders rightly declaring that the recent rate hike was a bad move. But Mr. Sanders has also attacked the Federal Reserve in a way Mrs. Clinton has not — and that difference illustrates in miniature both the reasons for his appeal and the reasons to be very worried about his approach.
You see, Mr. Sanders argues that the financial industry has too much influence on the Fed, which is surely true. But his solution is more congressional oversight — and he was one of the few non-Republican senators to vote for a bill, sponsored by Rand Paul, that called for “audits” of Fed monetary policy decisions. (In case you’re wondering, the Fed is already audited regularly in the normal sense of the word.)
Now, the idea of making the Fed accountable sounds good. But Wall Street isn’t the only source of malign pressure on the Fed, and in the actually existing U.S. political situation, such a bill would essentially empower the cranks — the gold-standard-loving, hyperinflation-is-coming types who dominate the modern G.O.P., and have spent the past five or six years trying to bully monetary policy makers into ceasing and desisting from their efforts to prevent economic disaster. Given the economic risks we face, it’s a very good thing that Mr. Sanders’s support wasn’t enough to push the bill over the top.
But even without Mr. Paul’s bill, one shudders to think about how U.S. policy would respond to another downturn if any of the surviving Republican candidates make it to the Oval Office.
By: Paul Krugman, Op-Ed Columnist, The New York Times, February 12, 2016
February 13, 2016
Posted by raemd95 |
Economic Growth, Economic Policy, Federal Reserve, Recession | Bernie Sanders, Bond Markets, Donald Trump, Energy Company Loans, Financial Markets, Hillary Clinton, Interest rates, Oil Prices, Paul Ryan |
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