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“A Marco Rubio Administration During A Recession? Depressing”: A Rudderless Economy Drifting Onto The Rocks

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 | Balanced Budget Amendment, Economic Policy, GOP Presidential Candidates, Marco Rubio | , , , , , , , , | Leave a comment

“Loose Money”: Paul Ryan Just Twisted Himself Into A Knot Trying To Undermine Obama’s Economic Record

It is not surprising that House Speaker Paul Ryan is unimpressed with President Obama’s economic record. What is surprising is who Ryan thinks does deserve credit for helping the recovery: the Federal Reserve.

“I think the Federal Reserve has done more,” the speaker told reporters on Tuesday, after being asked if Obama “deserves any credit at all” for the recovery. “What’s happening is people at the high end are doing pretty darn well because of loose money from the Fed,” he said. This will be news to followers of Ryan’s career. He’s long railed against loose money from the Fed, claiming it will debase the dollar and lead to inflation. (It hasn’t.)

It’s not crazy to claim, as Ryan did, that the Fed’s policies amounts to “trickle down economics.” But there is nothing in Paul Ryan’s history to suggest he thinks monetary policy can help the economy at all, even if it’s just at the top. Plus, if that’s his critique, there are some progressive money-printing enthusiasts — and even some conservative ones — who would probably like to schedule a chat with the speaker.

To recap: Paul Ryan thinks loose money helped the economy. But Paul Ryan opposes loose money. He also thinks loose money favors the rich too much. But shows no indication of wanting to make loose money favor the poor.

 

By: Jeff Spross, The Week, January 13, 2016

January 15, 2016 Posted by | Economic Recovery, Economy, Paul Ryan | , , , , | 2 Comments

“Greece’s Economy Is A Lesson For Republicans In The U.S.”: The Toxic Combination Of Austerity With Hard Money

Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.

But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.

To understand the real lessons of Greece, you need to be aware of two crucial points.

The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.

The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.

Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.

Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.

Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.

Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.

So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.

On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)

On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.

The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2015

July 11, 2015 Posted by | Austerity, Greece, Republicans | , , , , , , , , , | Leave a comment

“The ‘Depends’ Defense”: Republicans Will Hate Obama’s New Overtime Rule, But They Can’t Do Anything About It

Last night President Obama announced — in an article on the Huffington Post — that he will raise the threshold for overtime pay in American workplaces. The new regulations are substantively important for the millions of workers who will be affected, and they’re politically important as well. Republicans are going to squawk, saying that this change will cost jobs and is another example of Obama’s tyrannical rule. But they can’t stop it, and they’re going to lose the argument as well.

Under the Fair Labor Standards Act, employers have to provide overtime pay (usually time and a half) to employees who work more than 40 hours a week, but executives and managers are exempt from the requirement, as are those who make higher salaries. The trouble is that the rules don’t account for inflation, and so over time, what constituted a higher salary became absurdly low. The threshold has been raised only once since 1975, when it covered nearly half of U.S. workers; today it stands at less than $24,000, or lower than the poverty level for a family of four. (This document from the Economic Policy Institute offers some background on the regulation if you’re interested.) Here’s how Obama described the change he will be making:

We’ve got to keep making sure hard work is rewarded. Right now, too many Americans are working long days for less pay than they deserve. That’s partly because we’ve failed to update overtime regulations for years — and an exemption meant for highly paid, white collar employees now leaves out workers making as little as $23,660 a year — no matter how many hours they work.

This week, I’ll head to Wisconsin to discuss my plan to extend overtime protections to nearly 5 million workers in 2016, covering all salaried workers making up to about $50,400 next year. That’s good for workers who want fair pay, and it’s good for business owners who are already paying their employees what they deserve — since those who are doing right by their employees are undercut by competitors who aren’t.

That’s how America should do business. In this country, a hard day’s work deserves a fair day’s pay. That’s at the heart of what it means to be middle class in America.

We should note that Obama could have gone higher than $50,400. Earlier this year, some Democrats on Capitol Hill worried that the administration was going to propose a lower overtime threshold, something like $42,000 a year. A group of liberal senators urged Obama to set the threshold at $54,000. They also argued that it should be pegged to increase with inflation going forward, an absolutely critical provision that would give the measure lasting effect. So Obama didn’t raise the threshold as far as they wanted, but he is accounting for future inflation, by pegging the overtime threshold to the 40th percentile of incomes.

As much as Republicans will object, they can’t expect that their next president will undo this action. There are some regulations that we can expect to change whenever the White House changes hands. For instance, the Mexico City Policy, also known as the “global gag rule,” prohibits the funding of any organization anywhere in the world that even discusses abortion with a woman; when a Republican president takes office, he institutes it, and when a Democratic president takes office, he revokes it. But rules such as this one almost certainly won’t fall into that category. Try to imagine a President Rubio or Walker announcing that he was taking overtime pay away from millions of lower-middle-class U.S. workers. It won’t happen. They may argue against the rule when it is proposed, but once it’s in place, undoing it becomes politically impossible.

The more immediate political impact of this rule change lies in its place among a constellation of proposals Democrats will be offering on things such as the minimum wage and paid sick leave, proposals that are aimed at arresting the growing cruelty of the American workplace. As I’ve argued before, one way to think about the contrast between what Republicans and Democrats offer on the economy is that Republicans say they’ll get you as far as your employer’s door, while Democrats want to walk inside with you. Republicans argue that their preferred policies, mostly tax cuts and light regulation on businesses, will accelerate growth so that new jobs will be created. But once you’ve got the job, you’re on your own. The Democratic argument is that government has to come inside the workplace, to make sure people are being treated fairly. So they want to increase pay, provide family and sick leave, allow workers to bargain collectively, make sure no one is discriminated against and generally establish a structure that guarantees that people are treated well and can maintain some measure of dignity.

The Republican counter, of course, is that all those things increase costs to employers and therefore cost jobs. But their argument presumes that there’s nothing fundamentally wrong with the American workplace, which most of us know just isn’t true. Yes, many employers already treat their employers well. But millions of others don’t and would treat their workers even worse if they could get away with it.

As for this measure, we know exactly what employers will say: This will cost us money, which means fewer jobs. We know that’s what they will say, because that’s what they say about every marginal improvement in working conditions, benefits or pay. And in the short term, they’re right: It will cost them some money.

But let’s turn it around. What if employers said, “We could save money by removing the employee bathrooms and just telling our workers to wear Depends to the job. And that would mean we’d be able to hire more people.” Would we respond, “Well, if it would save you money and produce a few more jobs, then that sounds great”? Of course not. The short-term cost to employers of a regulation is certainly something to consider, but it’s not the only thing to consider.

The change to overtime regulations isn’t some kind of dramatic transformation. Like increasing the minimum wage, it’s nothing more than taking an existing rule and updating it for inflation. But it’s built on the assumption that the government should come into the workplace and make sure that what happens there is fair. Republicans don’t believe that’s government’s job. But it isn’t going to be easy for them to make that case to a population that feels increasingly insecure at work. And even if they could win the argument, they won’t be able to change the policy.

 

By: Paul Waldman, Senior Writer, The American Prospect; Contributor, The Plum Line Blog, The Washington Post, June 30, 2015

July 2, 2015 Posted by | Fair Labor Standards Act, Middle Class, Salaried Workers | , , , , , , , | Leave a comment

“Cranking Up For 2016”: Pledging Allegiance To Charlatans And Cranks

Scott Walker, the governor of Wisconsin, is said to be a rising contender for the Republican presidential nomination. So, on Wednesday, he did what, these days, any ambitious Republican must, and pledged allegiance to charlatans and cranks.

For those unfamiliar with the phrase, “charlatans and cranks” is associated with N. Gregory Mankiw, a professor at Harvard who served for a time as George W. Bush’s chief economic adviser. In the first edition of his best-selling economics textbook, Mr. Mankiw used those words to ridicule “supply-siders” who promised that tax cuts would have such magic effects on the economy that deficits would go down, not up.

But, on Wednesday, Mr. Walker, in what was clearly a rite of passage into serious candidacy, spoke at a dinner at Manhattan’s “21” Club hosted by the three most prominent supply-siders: Art Laffer (he of the curve); Larry Kudlow of CNBC; and Stephen Moore, chief economist of the Heritage Foundation. Politico pointed out that Rick Perry, the former governor of Texas, attended a similar event last month. Clearly, to be a Republican contender you have to court the powerful charlatan caucus.

So a doctrine that even Republican economists consider dangerous nonsense has become party orthodoxy. And what makes this political triumph especially remarkable is that it comes just as the doctrine’s high priests have been setting new standards for utter, epic predictive failure.

I’m not talking about the fact that supply-siders didn’t see the crisis coming, although they didn’t. Mr. Moore published a 2004 book titled “Bullish on Bush,” asserting that the Bush agenda was creating a permanently stronger economy. Mr. Kudlow sneered at the “bubbleheads” asserting that inflated home prices were due for a crash. Still, you could argue that few economists of any stripe fully foresaw the coming disaster.

You can’t say the same, however, about postcrisis developments, where the people Mr. Walker was courting have spent years warning about the wrong things. “Get ready for inflation and higher interest rates” was the title of a June 2009 op-ed article in The Wall Street Journal by Mr. Laffer; what followed were the lowest inflation in two generations and the lowest interest rates in history. Mr. Kudlow and Mr. Moore both predicted 1970s-style stagflation.

To be fair, Mr. Kudlow and Mr. Laffer eventually admitted that they had been wrong. Neither has, however, given any indication of reconsidering his views, let alone conceding the possibility that the much-hated Keynesians, who have gotten most things right even as the supply-siders were getting everything wrong, might be on to something. Mr. Kudlow describes the failure of runaway inflation to materialize — something he has been predicting since 2008 — as “miraculous.”

Something else worth noting: as befits his position at Heritage, Mr. Moore likes to publish articles filled with lots of numbers. But his numbers are consistently wrong; they’re for the wrong years, or just plain not what the original sources say. And somehow these errors always run in the direction he wants.

So what does it say about the current state of the G.O.P. that discussion of economic policy is now monopolized by people who have been wrong about everything, have learned nothing from the experience, and can’t even get their numbers straight?

The answer, I’d suggest, runs deeper than economic doctrine. Across the board, the modern American right seems to have abandoned the idea that there is an objective reality out there, even if it’s not what your prejudices say should be happening. What are you going to believe, right-wing doctrine or your own lying eyes? These days, the doctrine wins.

Look at another issue, health reform. Before the Affordable Care Act went into effect, conservatives predicted disaster: health costs would soar, the deficit would explode, more people would lose insurance than gain it. They were wrong on all counts. But, in their rhetoric, even in the alleged facts (none of them true) people like Mr. Moore put in their articles, they simply ignore this reality. Reading them, you’d think that the dismal failure they wrongly predicted had actually happened.

Then there’s foreign policy. This week Jeb Bush tried to demonstrate his chops in that area, unveiling his team of expert advisers — who are, sure enough, the very people who insisted that the Iraqis would welcome us as liberators.

And don’t get me started on climate change.

Along with this denial of reality comes an absence of personal accountability. If anything, alleged experts seem to get points by showing that they’re willing to keep saying the same things no matter how embarrassingly wrong they’ve been in the past.

But let’s go back to those economic charlatans and cranks: Clearly, failure has only made them stronger, and now they are political kingmakers. Be very, very afraid.

 

By: Paul Krugman, Op-Ed Columnist, The New York Times, February 20, 2015

February 23, 2015 Posted by | Economic Policy, GOP Presidential Candidates, Scott Walker | , , , , , , , | Leave a comment

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