“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
“An Ad-Hoc Fallback Position”: Immigration; The Only Time The GOP Cares About The Working Class
Last Monday, Scott Walker, Wisconsin’s Republican governor and a presumed GOP presidential hopeful, kicked the hornets’ nest that is the immigration debate.
He told Glenn Beck’s radio show that America needs to “make decisions about a legal immigration system that’s based on, first and foremost, protecting American workers and American wages,” and that this concern should be “at the forefront of our discussion going forward.”
Walker’s comments are significant because they’re something of a reversal for him, but also because they break with the “legal-immigration-good, illegal-immigration-bad” orthodoxy of the GOP establishment.
Lumping both forms of immigration together as equally questionable makes sense from an economic perspective; market forces don’t care about legal formalities like borders. But it takes near-cosmic chutzpah for Walker to say our first concern should be American wages and workers, given that pretty much every policy move by the Republican Party and the conservative movement seems designed to keep lower class incomes as depressed as possible.
By now, the battle lines on this issue should be familiar. First you get the argument from the center left and right that whenever immigrants, documented or undocumented, come to America, they bring added demand to the economy: They gotta eat, drink, put a roof over their head, get health care, and entertain themselves, just like everyone else. Even as they take on work, they increase the economy’s overall ability to create jobs. So claiming immigrants “take jobs from Americans” is wrong.
This is the view of the economics of immigration from 30,000 feet, and it’s right as far as it goes.
But closer to the ground, the terrain becomes more complicated. The U.S. economy isn’t one big market. It’s actually lots of overlapping markets, with different types of businesses and workers participating in each. And sometimes movement between these markets is easy for those workers, and sometimes it isn’t. So it’s possible for big influxes of low-skill, low-education immigrants to decrease wages and jobs for low-skill, low-education natives. You get more workers in particular markets, so wages go down. Meanwhile, the wealth created by those new entrants flows to other parts of the economy, so jobs in that market don’t increase all that much. And the native workers in those markets can’t easily hop to other markets, so they’re stuck with depressed wages and fewer jobs.
You can click through the links for a fuller examination of this phenomenon. But the short version is that it’s possible the second story is true, even if concrete evidence has been hard to tease out.
What this all boils down to is a problem of bargaining power. If you increase the number of workers in a market, but don’t increase the number of jobs proportionally, employers can play workers off one another, driving wages down. That’s why some Republicans like Alabama Sen. Jeff Sessions — whom Walker is apparently taking his cues from — are opposed to increasing legal avenues for high-skill immigrants. Tech workers, doctors, lawyers, and other professionals don’t like seeing their incomes reduced either.
But immigration policy doesn’t occur in a vacuum. There are lots of ways we could increase worker bargaining power, especially for low-skill Americans, while still taking in many more immigrants than we do now.
We could break up the work the economy already provides into smaller chunks that can be distributed to more workers, through things like national paid leave mandates, paid vacation, strengthened overtime laws, and a shortened work week. We could get the Federal Reserve to run much more aggressive monetary stimulus, or even fundamentally reform the way that policy operates, so that the boost the Fed pumps into the economy goes straight to the Americans hardest hit by bad economic times. We could ramp up government stimulus spending, the generosity of the social safety net, or both, which would also create jobs. And we could change laws to make unions more powerful, so they’d be ready and waiting to take on new immigrants as members and fight on their behalf.
Full employment should really be the top line goal, and it’s what the first four of those five policy options aim at. (With an expanded social safety net and stronger unions also acting as a backstop for wages when full employment isn’t reached.) When there are more workers than jobs available, bargaining power is going to go down across the economy. But at full employment, the first story about immigration — about how it just grows the size of the pie, and everyone benefits — is most likely to be true, because employers aren’t able to play the new workers off the old ones.
Fundamentally, the U.S. economy faces a two-stage problem: First, the share of national income going to labor is getting smaller, as more and more is gobbled up by people who own capital. Second, of that share going to labor, a bigger portion is going to elite workers, leaving the working class with less and less. That’s the context in which the question of immigration has to be understood. Full employment and increased bargaining power for all workers would solve both these problems — equalizing shares between workers, and getting them a bigger slice of the pie vis-a-vis capital.
In a sane and decent world, we would open our borders as wide as humanly possible. Because letting other people immigrate to America makes their lives better; much better in many cases. And we would rely on all those other policy levers to keep the wages and jobs of immigrant and native-born Americans alike healthy and robust.
The perversity of the whole immigration discussion amongst conservatives and Republicans is that they’ve already rejected all these other options for increasing worker bargaining power. That the elite GOP establishment still wants more immigration even after that rejection should make their goal plain as day: keep capital’s share as high as possible!
But for anyone on the right that still wants to claim they give a damn about working class Americans, trying to limit immigration is a kind of ad-hoc fallback position to keep wages up.
By: Jeff Spross, The Week, April 28, 2015
“Money Makes Crazy”: The GOP Consensus On Money Is Crazy, Full-On Conspiracy-Theory Crazy
Monetary policy probably won’t be a major issue in the 2016 campaign, but it should be. It is, after all, extremely important, and the Republican base and many leading politicians have strong views about the Federal Reserve and its conduct. And the eventual presidential nominee will surely have to endorse the party line.
So it matters that the emerging G.O.P. consensus on money is crazy — full-on conspiracy-theory crazy.
Right now, the most obvious manifestation of money madness is Senator Rand Paul’s “Audit the Fed” campaign. Mr. Paul likes to warn that the Fed’s efforts to bolster the economy may lead to hyperinflation; he loves talking about the wheelbarrows of cash that people carted around in Weimar Germany. But he’s been saying that since 2009, and it keeps not happening. So now he has a new line: The Fed is an overleveraged bank, just as Lehman Brothers was, and could experience a disastrous collapse of confidence any day now.
This story is wrong on so many levels that reporters are having a hard time keeping up, but let’s simply note that the Fed’s “liabilities” consist of cash, and those who hold that cash have the option of converting it into, well, cash. No, the Fed can’t fall victim to a bank run. But is Mr. Paul being ostracized for his views? Not at all.
Moreover, while Mr. Paul may currently be the poster child for off-the-wall monetary views, he’s far from alone. A lot has been written about the 2010 open letter from leading Republicans to Ben Bernanke, then the Fed chairman, demanding that he cease efforts to support the economy, warning that such efforts would lead to inflation and “currency debasement.” Less has been written about the simultaneous turn of seemingly respectable figures to conspiracy theories.
There was, for example, the 2010 op-ed article by Representative Paul Ryan, who remains the G.O.P.’s de facto intellectual leader, and John Taylor, the party’s favorite monetary economist. Fed policy, they declared, “looks an awful lot like an attempt to bail out fiscal policy, and such attempts call the Fed’s independence into question.” That statement looks an awful lot like a claim that Mr. Bernanke and colleagues were betraying their trust in order to help out the Obama administration — a claim for which there is no evidence whatsoever.
Oh, and suppose you believe that the Fed’s actions did help avert what would otherwise have been a fiscal crisis. This is supposed to be a bad thing?
You may think that at least some of the current presidential aspirants are staying well clear of the fever swamps, but don’t be so sure. Jeb Bush appears to be getting his economic agenda, such as it is, from the George W. Bush Institute’s 4% Growth Project. And the head of that project, Amity Shlaes, is a prominent “inflation truther,” someone who claims that the government is greatly understating the true rate of inflation.
So monetary crazy is pervasive in today’s G.O.P. But why? Class interests no doubt play a role — the wealthy tend to be lenders rather than borrowers, and they benefit at least in relative terms from deflationary policies. But I also suspect that conservatives have a deep psychological problem with modern monetary systems.
You see, in the conservative worldview, markets aren’t just a useful way to organize the economy; they’re a moral structure: People get paid what they deserve, and what goods cost is what they are truly worth to society. You could say that to the free-market true believer, to know the price of everything is also to know the value of everything.
Modern money — consisting of pieces of paper or their digital equivalent that are issued by the Fed, not created by the heroic efforts of entrepreneurs — is an affront to that worldview. Mr. Ryan is on record declaring that his views on monetary policy come from a speech given by one of Ayn Rand’s fictional characters. And what the speaker declares is that money is “the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. … Paper is a check drawn by legal looters.”
Once you understand that this is how many conservatives really think, it all falls into place. Of course they predict disaster from monetary expansion, no matter the circumstances. Of course they are undaunted in their views no matter how wrong their predictions have been in the past. Of course they are quick to accuse the Fed of vile motives. From their point of view, monetary policy isn’t really a technical issue, a question of what works; it’s a matter of theology: Printing money is evil.
So as I said, monetary policy should be an issue in 2016. Because there’s a pretty good chance that someone who either gets his monetary economics from Ayn Rand, or at any rate feels the need to defer to such views, will get to appoint the next head of the Federal Reserve.
By: Paul Krugman, Op-Ed Contributor, The New York Times, February 13, 2015
“An Incredible Ignorance About The Economy”: Rand Paul Has The Most Dangerous Economic Views Of Any 2016 Candidate
Kentucky Senator Rand Paul has had better weeks. On Monday, he suggested there could be a link between vaccines and autism in a CNBC interview. Later on in that interview, he actually shushed—as in, pressed one finger to his lips—the female CNBC anchor. On Tuesday, a New York Times article linked him to a medical group that promotes anti-vaccine theories. But Paul’s dumbest comments came in Iowa on Friday night—and they show why Paul has the most dangerous economic views of any presidential candidate.
Speaking in front of more than 150 Iowa activists, Paul ripped into the Federal Reserve and promoted his “Audit the Fed” bill, which he introduced earlier this week. “I think there needs to be some sunshine,” he said, according to reports of the event. “I’m going to fight ’em, and we’re going to get a vote on audit the Fed.” I’m not sure if Paul will get that vote—ultimately, that’s up to Senate Majority Leader Mitch McConnell. But I do know that “Audit the Fed” is a terrible idea. First, the Fed already is extensively audited by the Government Accountability Office (GAO), the Office of the Inspector General (OIG) and even private sector auditors like Deloitte. Each week, the central bank also releases its balance sheet and even has an interactive guide of its balance sheet available for further explanation.
However, the GAO and OIG audits exclude a few parts of the Fed’s policymaking, including transactions by the Federal Open Market Committee. Paul’s bill removes those exclusions and requires “recommendations for legislative or administrative action” from the Comptroller General. Sounds innocuous, right? It’s not. That would significantly damage the Fed’s independence, which exists so that politicians cannot influence the central bank for their own political purposes. In other words, “Audit the Fed” would lead legislators to interfere with monetary policy matters and put the entire economy at risk. For further explanations why the legislation is so dangerous, see the Roosevelt Institute’s Mike Konczal and the Washington Post’s Catherine Rampell.
With President Barack Obama in office, Paul’s legislation stands no chance of becoming law. It’s hard to imagine it overcoming a filibuster in the Senate, and even if it did, the president would veto it. If Paul were to win the presidency, “Audit the Fed” would still face long odds in the Senate since, even in the best case scenario, Republicans likely won’t have a filibuster-proof majority in the next Congress. So while “Audit the Fed” is theoretically dangerous, it’s not much of an actual threat to Fed independence.
But a Paul presidency would still have disastrous effects on the U.S. economy, for other reasons that were on wide display in Iowa on Friday night.
“Once upon a time, your dollar was as good as gold,” he said. “Then for many decades, they said your dollar was backed by the full faith and credit of government. Do you know what it’s backed by now? Used car loans, bad home loans, distressed assets and derivatives.” Paul’s comments make very little sense. When Paul asks what backs the U.S. dollar now, he’s effectively asking what makes it valuable. When the U.S. used a gold standard, it meant that a dollar was worth a certain amount of gold. Economists overwhelmingly agree that that was a terrible idea, but the connection seemed to explain why dollars had value. The real reason dollars had value is the same today as it was back then: It’s the only currency the government accepts to pay taxes. Businesses and consumers thus have an incentive to carry out transactions using dollars. Paul’s quip about dollars being backed by “used car loans, bad home loans, distressed assets and derivatives” may sound good to Iowa conservatives but it betrays an incredible ignorance about the economy.
What Paul and his followers are concerned about is the purchasing power of the dollar. They want to return the U.S. to the gold standard to ensure that inflation doesn’t undermine the actual purchasing power of the dollar. Over the long run, a gold standard would guarantee that price stability. But over the short run, prices would still fluctuate violently, as happened when the U.S. used the gold standard.
In terms of current policy, goldbugs, as they are often called, think the Fed’s recent decisions—its zero interest rate policy and bond-buying program—will cause skyrocketing inflation and reduce what you can buy with dollars. Those warnings look more foolish by the day. Inflation over the past year was just 0.7 percent, 1.3 percent if you remove volatile food and energy prices. Inflation expectations for the next 10 years are also very low. You would think that these low inflation rates would convince Paul and his followers to rethink their economic theory.
Paul’s economic ignorance doesn’t end there. “[The Fed’s] liabilities are $4.5 trillion; their assets are $57 billion. Do the math,” he said in Iowa. “They are leveraged 80-1. They are leveraged three times greater than Lehman Brothers was when Lehman Brothers went bankrupt. Why do we give ‘em a pass? Because they’ve got a printing press, and they can print up some more money.” Paul apparently can’t read the Fed’s balance sheets, because as of November, its assets were $4.487 trillion and its liabilities were $4.430 trillion. Where did the $57 billion figure come from? That’s its total capital. But as Cullen Roche, the founder of financial services firm Orcam Financial Group, points out, Paul also ignores the fact that the Fed remits most of its profits to the Treasury Department. In 2013, they gave Treasury nearly $80 billion. “The Federal Reserve isn’t just a profitable entity,” Roche writes. “It is perhaps the most profitable entity on the face of the planet.”
As all this shows, Paul’s views on monetary policy are profoundly misguided. As long as he’s in the Senate, that doesn’t really matter. He can spout his nonsense without having any effect on the Federal Reserve. But if he became president, he would be responsible for choosing the next Fed Chair when Janet Yellen’s term expires in 2018 and for nominating board members to the FOMC. That doesn’t give Paul unlimited power, since the Senate would still have to confirm his nominees. But as president, Paul would be the leader of the GOP, with an even greater ability to dictate its position on monetary policy and convince Republican senators to support his nominees.
Of course, the Republican Party itself has an incredibly misguided position on monetary policy. In 2012, its platform included returning to the gold standard. That’s a good reason why just about any Republican nominee would be a dangerous president. But Paul is far more open about his disdain for the Fed, and given his ideological bent, he’s far less likely to listen to conservative economists who reject his monetary policy views. At least on the economy, that makes Rand Paul by far the most dangerous candidate in the 2016 field.
By: Danny Vinik, The New Republic, February 8, 2015
“Doesn’t Even Rise To The Level Of Pitiful”: Sorry, Republicans; The Keystone XL Pipeline Is Not A Jobs Agenda
In the new Congress, Republicans will have the majority in both the Senate and the House for the first time in eight years. As they get ready to take power, their rhetorical focus is clear: jobs, the economy, and more jobs.
So far, there are two main proposals on deck for the GOP. First, the Hire More Heroes Act, which would make it easier for small businesses that hire veterans to deny health care to their employees. Second, they want to immediately build the Keystone XL pipeline, a project that would transport oil from Canada to the Gulf Coast.
On their own, these are both extremely small-bore policies. But as a jobs agenda, this doesn’t even rise to the level of pitiful. It’s the latest evidence that Republicans continue to struggle with basic macroeconomics — and it does not bode well for the nation should they win the White House in 2016.
Let’s examine the Hire More Heroes Act first. ObamaCare requires that all businesses that have over 50 full-time employees provide health-insurance benefits. This law would exempt veterans from counting toward that cap, thus making it easier to expand a business over 50 employees if you hire veterans.
On its face, this might not even be a terrible idea. Health-care policy experts have long argued that funneling American health care through employer subsidies is bad, locking people into jobs they don’t like for fear of losing coverage, and increasing health-care spending. Rolling that system back very slightly might be a good thing. My problem is that there’s no reason to direct general social spending to veterans so preferentially.
But make no mistake, this is a tiny, tiny policy involving a relative handful of people and jobs.
Keystone XL is bigger in one respect. Generous estimates predict that the pipeline would create around 42,000 temporary jobs — about 2,000 construction jobs and the rest in supplying goods and services.
How many long-term jobs? Fifty. That’s right, 50 whole long-term jobs. (One more, and the pipeline would have to get health insurance for them! Unless they hired veterans, I suppose.)
Furthermore, the argument that Keystone XL would help by lowering gas prices just had the legs kicked out from under it, with the price of oil plummeting toward $50 per barrel with no sign of stopping. This was always a bogus argument, since the pipeline is a drop in the bucket compared with world supply, but now it makes even less sense.
To get a sense of the bigger picture, the U.S. economy pumped out probably close to 3 million jobs total last year. The GOP’s proposals, if enacted, will fail to make more than a small ripple in the job market.
The problem with the American economy is the same problem we’ve had since 2007: a lack of demand. With factories idle and workers unemployed, there’s not enough spending and not enough investment. Nations have two options for attacking this problem. First, spend money, through government investment in things like infrastructure, or handouts to citizens in the form of checks or tax cuts (fiscal policy). Second, use control of the money supply to ease credit and stimulate lending (monetary policy).
Republicans used to accept this framework, proposing a $713 billion government stimulus bill as recently as 2009. But they’ve since regressed intellectually to the pre–Great Depression era. The economic policy of the GOP today is almost indistinguishable from the days of Herbert Hoover and Andrew Mellon. Their platform is muddled on fiscal policy, proposing massive spending-side cuts coupled with large tax cuts for the rich — which in macro terms would cancel each other out. On monetary policy, they propose tighter money and reexamining the gold standard — which would slow the economy and throw people out of work. At best, it’s a large net negative for workers.
After the colossal failure of Hoover, when the Republican Party was largely locked out of national politics for a generation, they learned that parties ignore the lessons of Keynes at their peril. But it seems they will have to learn them again — and if they win full power in 2016, it will be at everyone’s expense.
By: Ryan Cooper, The Week, January 6, 2014
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