“It’s The Facts Stupid”: The GOP Should Stop Lying About Obama’s Economy
Friday’s boffo jobs report—the 58th straight month of jobs growth in an expansion that has now entered its 67th month—was only the latest in a long string of positive economic data.
This recovery, which started in July 2009, has been the most politicized, partisan expansion I can recall. Indeed, for the last six years, monthly data like the employment report –as well as new initiatives and proposals to get the economy rolling—have been greeted by critics with apocalyptic declarations. For the last six years, we’ve seen a continuing response from Republicans: Under the set of policies pursued by President Obama (some of them continuations of policies enacted by President Bush) and of Federal Reserve Chairman Ben Bernanke (a Bush appointee) and Federal Reserve Chairman Janet Yellen, the U.S. economic ship is like the Titanic—rudderless in dangerous seas, bound for doom, about to sink.
Let’s review some of the greatest hits. In March 2009, at the depths of the recession, when the stimulus bill passed Michael Boskin, economic adviser to the first President Bush, took to the Wall Street Journal editorial page on March 6, 2009, to proclaim ”Obama’s Radicalism is Killing the Dow.” Were his budget and stimulus plans to be adopted, the U.S. would risk becoming a “European-style social welfare state with its concomitant long-run economic stagnation.” That day, the Dow touched, 6,600. Almost immediately, the markets commenced a raging, historical bull run. The Dow closed Friday at 17,737, an increase of 168 percent from March 2009.
In February, 2011, Rep. Paul Ryan, the former vice presidential candidate, took out after Bernanke, arguing that the Fed’s efforts to support an economy still laboring under the fallout of a financial crisis and a deep recession were poison. Specifically, Ryan assured the public that the Fed’s bond-buying efforts would ignite runaway inflation and tank the dollar. “There is nothing more insidious that a country can do to its citizens than debase its currency.” Whoops. Since then, inflation has been remarkably tame. The consumer price index, the official measure of inflation, actually fell .3 percent in November, and is up a mere 1.3 percent in the previous 12 months—far below the historical norm. And the dollar? Far from depreciating, it has been going gangbusters. The trade-weighted dollar index, which measures the strength of our currency against those of our major economic partners and competitors, has soared 15 percent since early 2011 and now stands at a nine-year high.
As the Bureau of Labor Statistics started pumping out reports that showed the economy adding jobs starting in early 2010, the response was generally to ignore them, or worse. In October, 2012, former General Electric CEO Jack Welch famously tweeted, “Unbelievable jobs numbers…these Chicago guys will do anything..can’t debate so change numbers.” In fact, we now know that the September 2012 jobs report was one of a continuing series—59 straight months and counting—in which the economy has added jobs. More than 10 million in all, more than recouping all the positions lost in the deep recession.
In 2011, candidate Mitt Romney claimed that, were he to be elected, the unemployment rate would fall below 6 percent by the end of his first term in 2016. Last month, under Obama, the rate fell to 5.6 percent, the lowest level since June 2008.
Next we were assured, the botched rollout of Obamacare was certain to manage the twin tasks of tanking the economy as a whole and resulting in a massive loss of insurance. In March 2014, House Speaker John Boehner noted “there are less people today with health insurance than there were before this law went into effect.” In fact, as countless studies and the continuing series of Gallup polls have shown, the percentage of people without health insurance has declined dramatically—from 18 percent in the third quarter of 2013, to 12.9 percent in the final quarter of 2014, a decline of nearly 30 percent. Oh, and in the year since Obamacare formally launched, the U.S. economy has posted solid growth while adding 2.95 million jobs—the best such performance since 1999.
Look. The recovery is nowhere near complete—there are still too many people who want and need jobs but can’t find them. And wages remain stagnant. But the larger narrative that has played out in front of our eyes has defied the one predicted by Republican establishment economists and economic thinkers, and vindicated those who argued America was coming back (like me). The stock market is booming, not tanking; interest rates are muted, not out of control; the deficit is shrinking, not expanding; the economy is adding lots of jobs, not shedding them; the dollar is robust, not weak; inflation is nonexistent, not out of control; energy prices have plummeted, not soared; millions of people have gained health insurance, not lost it.
Virtually everything GOP critics have told us would follow from the policies put in place has not come to pass. You would think that this would occasion a few mea culpas, some rethinking, an admission of poor prognostication. But, alas, it continues. Rep. Paul Ryan is now warning in a column that Obamacare “is weighing down our economy and discouraging hiring” and will ultimately “collapse under its own weight.”
I shouldn’t say nothing has changed. Efforts to deny economic gains have been increasingly difficult to carry off the longer the expansion continues. And so we’re now seeing a slight shift in narrative. Rather than argue that the economy and everything associated with it is in the crapper, Republicans are conceding that things might be looking up. But it’s only because the GOP won control of the House and Senate in November. “After so many years of sluggish growth, we’re finally starting to see some economic data that can provide a glimmer of hope,” Majority Leader Mitch McConnell said last week. “the uptick appears to coincide with the biggest political change of the Obama Administration’s long tenure in Washington: the expectation of a new Republican Congress.”
By: Daniel Gross, The Daily Beast, January 12, 2014
“The Forever Slump”: The Debate Between The ‘Too-Muchers’ And The ‘Not-Enoughers’
It’s hard to believe, but almost six years have passed since the fall of Lehman Brothers ushered in the worst economic crisis since the 1930s. Many people, myself included, would like to move on to other subjects. But we can’t, because the crisis is by no means over. Recovery is far from complete, and the wrong policies could still turn economic weakness into a more or less permanent depression.
In fact, that’s what seems to be happening in Europe as we speak. And the rest of us should learn from Europe’s experience.
Before I get to the latest bad news, let’s talk about the great policy argument that has raged for more than five years. It’s easy to get bogged down in the details, but basically it has been a debate between the too-muchers and the not-enoughers.
The too-muchers have warned incessantly that the things governments and central banks are doing to limit the depth of the slump are setting the stage for something even worse. Deficit spending, they suggested, could provoke a Greek-style crisis any day now — within two years, declared Alan Simpson and Erskine Bowles some three and a half years ago. Asset purchases by the Federal Reserve would “risk currency debasement and inflation,” declared a who’s who of Republican economists, investors, and pundits in a 2010 open letter to Ben Bernanke.
The not-enoughers — a group that includes yours truly — have argued all along that the clear and present danger is Japanification rather than Hellenization. That is, they have warned that inadequate fiscal stimulus and a premature turn to austerity could lead to a lost decade or more of economic depression, that the Fed should be doing even more to boost the economy, that deflation, not inflation, was the great risk facing the Western world.
To say the obvious, none of the predictions and warnings of the too-muchers have come to pass. America never experienced a Greek-type crisis of soaring borrowing costs. In fact, even within Europe the debt crisis largely faded away once the European Central Bank began doing its job as lender of last resort. Meanwhile, inflation has stayed low.
However, while the not-enoughers were right to dismiss warnings about interest rates and inflation, our concerns about actual deflation haven’t yet come to pass. This has provoked a fair bit of rethinking about the inflation process (if there has been any rethinking on the other side of this argument, I haven’t seen it), but not-enoughers continue to worry about the risks of a Japan-type quasi-permanent slump.
Which brings me to Europe’s woes.
On the whole, the too-muchers have had much more influence in Europe than in the United States, while the not-enoughers have had no influence at all. European officials eagerly embraced now-discredited doctrines that allegedly justified fiscal austerity even in depressed economies (although America has de facto done a lot of austerity, too, thanks to the sequester and cuts at the state and local level). And the European Central Bank, or E.C.B., not only failed to match the Fed’s asset purchases, it actually raised interest rates back in 2011 to head off the imaginary risk of inflation.
The E.C.B. reversed course when Europe slid back into recession, and, as I’ve already mentioned, under Mario Draghi’s leadership, it did a lot to alleviate the European debt crisis. But this wasn’t enough. The European economy did start growing again last year, but not enough to make more than a small dent in the unemployment rate.
And now growth has stalled, while inflation has fallen far below the E.C.B.’s target of 2 percent, and prices are actually falling in debtor nations. It’s really a dismal picture. Mr. Draghi & Co. need to do whatever they can to try to turn things around, but given the political and institutional constraints they face, Europe will arguably be lucky if all it experiences is one lost decade.
The good news is that things don’t look that dire in America, where job creation seems finally to have picked up and the threat of deflation has receded, at least for now. But all it would take is a few bad shocks and/or policy missteps to send us down the same path.
The good news is that Janet Yellen, the Fed chairwoman, understands the danger; she has made it clear that she would rather take the chance of a temporary rise in the inflation rate than risk hitting the brakes too soon, the way the E.C.B. did in 2011. The bad news is that she and her colleagues are under a lot of pressure to do the wrong thing from the too-muchers, who seem to have learned nothing from being wrong year after year, and are still agitating for higher rates.
There’s an old joke about the man who decides to cheer up, because things could be worse — and sure enough, things get worse. That’s more or less what happened to Europe, and we shouldn’t let it happen here.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 14, 2014
“Who Wants A Depression?”: The Rich Believe That What’s Good For Them Is Good For America
One unhappy lesson we’ve learned in recent years is that economics is a far more political subject than we liked to imagine. Well, duh, you may say. But, before the financial crisis, many economists — even, to some extent, yours truly — believed that there was a fairly broad professional consensus on some important issues.
This was especially true of monetary policy. It’s not that many years since the administration of George W. Bush declared that one lesson from the 2001 recession and the recovery that followed was that “aggressive monetary policy can make a recession shorter and milder.” Surely, then, we’d have a bipartisan consensus in favor of even more aggressive monetary policy to fight the far worse slump of 2007 to 2009. Right?
Well, no. I’ve written a number of times about the phenomenon of “sadomonetarism,” the constant demand that the Federal Reserve and other central banks stop trying to boost employment and raise interest rates instead, regardless of circumstances. I’ve suggested that the persistence of this phenomenon has a lot to do with ideology, which, in turn, has a lot to do with class interests. And I still think that’s true.
But I now think that class interests also operate through a cruder, more direct channel. Quite simply, easy-money policies, while they may help the economy as a whole, are directly detrimental to people who get a lot of their income from bonds and other interest-paying assets — and this mainly means the very wealthy, in particular the top 0.01 percent.
The story so far: For more than five years, the Fed has faced harsh criticism from a coalition of economists, pundits, politicians and financial-industry moguls warning that it is “debasing the dollar” and setting the stage for runaway inflation. You might have thought that the continuing failure of the predicted inflation to materialize would cause at least a few second thoughts, but you’d be wrong. Some of the critics have come up with new rationales for unchanging policy demands — it’s about inflation! no, it’s about financial stability! — but most have simply continued to repeat the same warnings.
Who are these always-wrong, never-in-doubt critics? With no exceptions I can think of, they come from the right side of the political spectrum. But why should right-wing sentiments go hand in hand with inflation paranoia? One answer is that using monetary policy to fight slumps is a form of government activism. And conservatives don’t want to legitimize the notion that government action can ever have positive effects, because once you start down that path you might end up endorsing things like government-guaranteed health insurance.
But there’s also a much more direct reason for those defending the interests of the wealthy to complain about easy money: The wealthy derive an important part of their income from interest on bonds, and low-rate policies have greatly reduced this income.
Complaints about low interest rates are usually framed in terms of the harm being done to retired Americans living on the interest from their CDs. But the interest receipts of older Americans go mainly to a small and relatively affluent minority. In 2012, the average older American with interest income received more than $3,000, but half the group received $255 or less. The really big losers from low interest rates are the truly wealthy — not even the 1 percent, but the 0.1 percent or even the 0.01 percent. Back in 2007, before the slump, the average member of the 0.01 percent received $3 million (in 2012 dollars) in interest. By 2011, that had fallen to $1.3 million — a loss equivalent to almost 9 percent of the group’s 2007 income.
That’s a lot, and it surely explains a lot of the hysteria over Fed policy. The rich are even more likely than most people to believe that what’s good for them is good for America — and their wealth and the influence it buys ensure that there are always plenty of supposed experts eager to find justifications for this attitude. Hence sadomonetarism.
Which brings me back to the politicization of economics.
Before the financial crisis, many central bankers and economists were, it’s now clear, living in a fantasy world, imagining themselves to be technocrats insulated from the political fray. After all, their job was to steer the economy between the shoals of inflation and depression, and who could object to that?
It turns out, however, that using monetary policy to fight depression, while in the interest of the vast majority of Americans, isn’t in the interest of a small, wealthy minority. And, as a result, monetary policy is as bound up in class and ideological conflict as tax policy.
The truth is that in a society as unequal and polarized as ours has become, almost everything is political. Get used to it.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2014
“Beliefs, Facts And Money”: Conservative Delusions About Inflation
On Sunday The Times published an article by the political scientist Brendan Nyhan about a troubling aspect of the current American scene — the stark partisan divide over issues that should be simply factual, like whether the planet is warming or evolution happened. It’s common to attribute such divisions to ignorance, but as Mr. Nyhan points out, the divide is actually worse among those who are seemingly better informed about the issues.
The problem, in other words, isn’t ignorance; it’s wishful thinking. Confronted with a conflict between evidence and what they want to believe for political and/or religious reasons, many people reject the evidence. And knowing more about the issues widens the divide, because the well informed have a clearer view of which evidence they need to reject to sustain their belief system.
As you might guess, after reading Mr. Nyhan I found myself thinking about the similar state of affairs when it comes to economics, monetary economics in particular.
Some background: On the eve of the Great Recession, many conservative pundits and commentators — and quite a few economists — had a worldview that combined faith in free markets with disdain for government. Such people were briefly rocked back on their heels by the revelation that the “bubbleheads” who warned about housing were right, and the further revelation that unregulated financial markets are dangerously unstable. But they quickly rallied, declaring that the financial crisis was somehow the fault of liberals — and that the great danger now facing the economy came not from the crisis but from the efforts of policy makers to limit the damage.
Above all, there were many dire warnings about the evils of “printing money.” For example, in May 2009 an editorial in The Wall Street Journal warned that both interest rates and inflation were set to surge “now that Congress and the Federal Reserve have flooded the world with dollars.” In 2010 a virtual Who’s Who of conservative economists and pundits sent an open letter to Ben Bernanke warning that his policies risked “currency debasement and inflation.” Prominent politicians like Representative Paul Ryan joined the chorus.
Reality, however, declined to cooperate. Although the Fed continued on its expansionary course — its balance sheet has grown to more than $4 trillion, up fivefold since the start of the crisis — inflation stayed low. For the most part, the funds the Fed injected into the economy simply piled up either in bank reserves or in cash holdings by individuals — which was exactly what economists on the other side of the divide had predicted would happen.
Needless to say, it’s not the first time a politically appealing economic doctrine has been proved wrong by events. So those who got it wrong went back to the drawing board, right? Hahahahaha.
In fact, hardly any of the people who predicted runaway inflation have acknowledged that they were wrong, and that the error suggests something amiss with their approach. Some have offered lame excuses; some, following in the footsteps of climate-change deniers, have gone down the conspiracy-theory rabbit hole, claiming that we really do have soaring inflation, but the government is lying about the numbers (and by the way, we’re not talking about random bloggers or something; we’re talking about famous Harvard professors.) Mainly, though, the currency-debasement crowd just keeps repeating the same lines, ignoring its utter failure in prognostication.
You might wonder why monetary theory gets treated like evolution or climate change. Isn’t the question of how to manage the money supply a technical issue, not a matter of theological doctrine?
Well, it turns out that money is indeed a kind of theological issue. Many on the right are hostile to any kind of government activism, seeing it as the thin edge of the wedge — if you concede that the Fed can sometimes help the economy by creating “fiat money,” the next thing you know liberals will confiscate your wealth and give it to the 47 percent. Also, let’s not forget that quite a few influential conservatives, including Mr. Ryan, draw their inspiration from Ayn Rand novels in which the gold standard takes on essentially sacred status.
And if you look at the internal dynamics of the Republican Party, it’s obvious that the currency-debasement, return-to-gold faction has been gaining strength even as its predictions keep failing.
Can anything reverse this descent into dogma? A few conservative intellectuals have been trying to persuade their movement to embrace monetary activism, but they’re ever more marginalized. And that’s just what Mr. Nyhan’s article would lead us to expect. When faith — including faith-based economics — meets evidence, evidence doesn’t stand a chance.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 6, 2014
“Fear Of Wages”: For Some People, It’s Always 1979
Four years ago, some of us watched with a mixture of incredulity and horror as elite discussion of economic policy went completely off the rails. Over the course of just a few months, influential people all over the Western world convinced themselves and each other that budget deficits were an existential threat, trumping any and all concern about mass unemployment. The result was a turn to fiscal austerity that deepened and prolonged the economic crisis, inflicting immense suffering.
And now it’s happening again. Suddenly, it seems as if all the serious people are telling each other that despite high unemployment there’s hardly any “slack” in labor markets — as evidenced by a supposed surge in wages — and that the Federal Reserve needs to start raising interest rates very soon to head off the danger of inflation.
To be fair, those making the case for monetary tightening are more thoughtful and less overtly political than the archons of austerity who drove the last wrong turn in policy. But the advice they’re giving could be just as destructive.
O.K., where is this coming from?
The starting point for this turn in elite opinion is the assertion that wages, after stagnating for years, have started to rise rapidly. And it’s true that one popular measure of wages has indeed picked up, with an especially large bump last month.
But that bump is probably a snow-related statistical illusion. As economists at Goldman Sachs have pointed out, average wages normally jump in bad weather — not because anyone’s wages actually rise, but because the workers idled by snow and storms tend to be less well-paid than those who aren’t affected.
Beyond that, we have multiple measures of wages, and only one of them is showing a notable uptick. It’s far from clear that the alleged wage acceleration is even happening.
And what’s wrong with rising wages, anyway? In the past, wage increases of around 4 percent a year — more than twice the current rate — have been consistent with low inflation. And there’s a very good case for raising the Fed’s inflation target, which would mean seeking faster wage growth, say 5 percent or 6 percent per year. Why? Because even the International Monetary Fund now warns against the dangers of “lowflation”: too low an inflation rate puts the economy at risk of Japanification, of getting caught in a trap of economic stagnation and intractable debt.
Over all, then, while it’s possible to argue that we’re running out of labor slack, it’s also possible to argue the opposite, and either way the prudent thing would surely be to wait: Wait until there’s solid evidence of rising wages, then wait some more until wage growth is at least back to precrisis levels and preferably higher.
Yet for some reason there’s a growing drumbeat of demands that we not wait, that we get ready to raise interest rates right away or at least very soon. What’s that about?
Part of the answer, I’d submit, is that for some people it’s always 1979. That is, they’re eternally vigilant against the danger of a runaway wage-price spiral, and somehow they haven’t noticed that nothing like that has happened for decades. Maybe it’s a generational thing. Maybe it’s because a 1970s-style crisis fits their ideological preconceptions, but the phantom menace of stagflation still has an outsized influence on economic debate.
Then there’s sado-monetarism: the sense, all too common in banking circles, that inflicting pain is ipso facto good. There are some people and institutions — for example, the Basel-based Bank for International Settlements — that always want to see interest rates go up. Their rationale is ever-changing — it’s commodity prices; no, it’s financial stability; no, it’s wages — but the recommended policy is always the same.
Finally, although the current monetary debate isn’t as openly political as the previous fiscal debate, it’s hard to escape the suspicion that class interests are playing a role. A fair number of commentators seem oddly upset by the notion of workers getting raises, especially while returns to bondholders remain low. It’s almost as if they identify with the investor class, and feel uncomfortable with anything that brings us close to full employment, and thereby gives workers more bargaining power.
Whatever the underlying motives, tightening the monetary screws anytime soon would be a very, very bad idea. We are slowly, painfully, emerging from the worst slump since the Great Depression. It wouldn’t take much to abort the recovery, and, if that were to happen, we would almost certainly be Japanified, stuck in a trap that might last decades.
Is wage growth actually taking off? That’s far from clear. But if it is, we should see rising wages as a development to cheer and promote, not a threat to be squashed with tight money.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 13, 2014
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