A friend of mine thinks I am overly pessimistic about the eco-political situation. That is because I fear that the election of 2012 may be won by a Republican “conservative,” the quotes because I don’t believe the Glenn Becks and Sarah Palins are conservative. They are fascistic wingnuts. Perhaps I AM over the top. But in general, I don’t consider myself a pessimist by nature, unless one believes that someone who doesn’t believe in heaven is ipso facto a pessimist.
Here are the main reasons for my pessimism.
1. The economy will continue to be in bad shape when the election takes place in November 2012. Either the unemployment will be coming down slowly, but too slowly, and still be (being optimistic) at about 7% or there will be a double dip (a W), a recession within the Great Recession (just as in 1937-38, there was a recession within the Great Depression. Both Roubini and Krugman believe there is more than a remote chance of this happening–say one chance in five (my judgment of their odds). If it happens, it will be an economic disaster, not to speak of a political disaster for the Democrats and Obama (notwithstanding the fact that a second stimulus which could prevent this is being blocked by Republicans).
None of this need have happened if Obama had listened to his own chairwoman of the Council of Economic Advisers, Christina Romer. She was advocating at the beginning of the year a stimulus of $1.2 trillion. Instead, we got $787 billion. In other words, she was advocating 50% more than what passed. Obama was probably influenced by Geithner and Summers (and there was recently a story in the New Yorker that makes one think that Summers hid Romer’s suggested amount from Obama). These two apparently thought that with a stimulus of $787 billion unemployment would only rise to 8 ½ %. Without it, unemployment would rise to about 9 ½ %. [As everyone knows, it has reached 10% and may or may not go higher (even if there is no W). Krugman has asked how these advisers could be so off base. Stiglitz, at the time, called for a billion dollars and Krugman called for more, although I’m sure he specified the amount.]
2. It is likely that the war in Afghanistan will be politically hurtful. There is about one chance in a million that significant improvements will have taken place by 2011, not to speak of 2012. Most, if not all of the troops will still be there. The casualties will be coming in, at higher rates, and even if they in no way approach the levels they reached in Vietnam, it is likely the war will become increasing unpopular. I think this inevitably undercuts the popularity of President in power.
3. The medical bill, if it passes, whatever its final shape (and one that will likely be highly flawed) may also hurt Obama. People will fear higher costs as well as less coverage, but there will be little to counter this by the limited positives of what will pass since the program doesn’t go into effect until 2013. Thus it hangs as an uncertainty, in an area already plagued by fears.
To their credit, the people of the US, who are not I believe known for their political acumen, do not blame Obama for the economic crisis. (Only a few percent do.) But about 50% believe (correctly in my view) that he hasn’t done enough to end it. I suspect that percentage will increase for the reasons previously stated.
The question is whether the rogue, if she is nominated, can overcome her negatives. Obama is an excellent campaigner, but it is harder to be so as an incumbent if things are not going well. Of course there are others the Republicans can nominate, who are not I suppose “rogues,” but who are extremely threatening. Get one as aggressive and undemocratic as Dick Chaney (if not Chaney himself) and there may be no limit to the democratic rights we will lose. Among the possibilities are many I find Cheney-like threatening.
So is my pessimism justified?
Wednesday, December 16, 2009
Correction/Clarification to Poem
On line 7 of the poem, there is a typo. Hoods should be hooks.
Also, note that fairway, wood, wedges, leading edge, traps, lies, strokes, hooks and iron are all golf ters and some like lies, trap and iron havae dual meanings.
Also, note that fairway, wood, wedges, leading edge, traps, lies, strokes, hooks and iron are all golf ters and some like lies, trap and iron havae dual meanings.
Monday, December 7, 2009
Tid-bits
1. Poem: Blake Begins Update
Tiger, tiger burning bright
On the fairways of the night,
What immortal wood or wedge
Could frame thy fearful leading edge?
On what distant traps or oaks
Burnt the lies of thine strokes?
On what hoods dare he his flubs?
What the iron dare Jaimee Grubbs?
2. One of the blogs I read irregularly is “Grasping Reality With All Eight Tentacles (no, I can’t explain the title). It is sub-titled: The Semi-Daily Journal of an economist: A fair, balanced, Reality-Based and Multi Appendaged Look at the World. It’s by Brad DeLong, a Berkeley economist. Occasionally, it is technical, but often he appropriately attacks the press and the following appears about twice a week: “Why oh why can’t we have a better press corps? His comments are invariably interesting.
3. I am aware that readers know I read and admire Paul Krugman. However, I urge you to go beyond his Monday-Friday column and read his blog. It is invariably interesting (and he forewarns you when it is technical).
4. Rather than send troops to Afghanistan, can’t we simply hang out a sign: Five Billion Dollars for Osama bin Laden, Dead or alive. Cheaper and it might work.
5. Worrying about the current President’s courage, I thought back over the years I can remember and conclude the best example of Presidential bravery was Harry Truman’s firing of General Douglas MacArthur. Had he not done so, MacArthur could have used his position to get us into a full-scale war against China. As some may know, MacArthur got a ticker-tape parade here in New York City and then went to Congress and gave a speech ending with the words of a (very) simple old army song–Old soldiers never die. They just fade away.
Actually, within minutes this song was on all the radio stations: Old soldiers never die, never die, never die. Old soldiers never die. They just fade away. The melody is as simple as the words.
As none of you know, my high school principal called a special assembly of about 1000of us in Forest Park High School (Baltimore) and after perfunctory acknowledgment of the President spent most of the hour praising MacArthur.
In contrast, perhaps the worst example of Presidential behavior, not counting the invasion of Iraq, was the carpet bombing of North Vietnam, before the election and lasting to the end of the year (1972) after Henry Kissinger had said “peace is at hand.” Who knows how many lives were snuffed out and for no reason whatever, since the treaty signed in January appeared to be the same as what it was when Kissinger made his statement–in October.
6. A fully argued critique of Obama will have to wait for another time, as I’m exhausted. But the shortest version is that he failed to enact as much of a stimulus as he should have and one better directed at creating jobs (and he could have since the right wing crazies in February were not organized and they had no clout). Moreover he has virtually ignored unemployment since then, the recent job conference notwithstanding. He squandered a lot of potential in both this area and on the health area by engaging in a bi-partisan effort with opponents who are simply out to get him. Finally, his Afghanistan decision is likely to be disastrous. Is he doing this because he believes what he is saying or is he doing this because he feels if he doesn’t he won’t get reelected?
Tiger, tiger burning bright
On the fairways of the night,
What immortal wood or wedge
Could frame thy fearful leading edge?
On what distant traps or oaks
Burnt the lies of thine strokes?
On what hoods dare he his flubs?
What the iron dare Jaimee Grubbs?
2. One of the blogs I read irregularly is “Grasping Reality With All Eight Tentacles (no, I can’t explain the title). It is sub-titled: The Semi-Daily Journal of an economist: A fair, balanced, Reality-Based and Multi Appendaged Look at the World. It’s by Brad DeLong, a Berkeley economist. Occasionally, it is technical, but often he appropriately attacks the press and the following appears about twice a week: “Why oh why can’t we have a better press corps? His comments are invariably interesting.
3. I am aware that readers know I read and admire Paul Krugman. However, I urge you to go beyond his Monday-Friday column and read his blog. It is invariably interesting (and he forewarns you when it is technical).
4. Rather than send troops to Afghanistan, can’t we simply hang out a sign: Five Billion Dollars for Osama bin Laden, Dead or alive. Cheaper and it might work.
5. Worrying about the current President’s courage, I thought back over the years I can remember and conclude the best example of Presidential bravery was Harry Truman’s firing of General Douglas MacArthur. Had he not done so, MacArthur could have used his position to get us into a full-scale war against China. As some may know, MacArthur got a ticker-tape parade here in New York City and then went to Congress and gave a speech ending with the words of a (very) simple old army song–Old soldiers never die. They just fade away.
Actually, within minutes this song was on all the radio stations: Old soldiers never die, never die, never die. Old soldiers never die. They just fade away. The melody is as simple as the words.
As none of you know, my high school principal called a special assembly of about 1000of us in Forest Park High School (Baltimore) and after perfunctory acknowledgment of the President spent most of the hour praising MacArthur.
In contrast, perhaps the worst example of Presidential behavior, not counting the invasion of Iraq, was the carpet bombing of North Vietnam, before the election and lasting to the end of the year (1972) after Henry Kissinger had said “peace is at hand.” Who knows how many lives were snuffed out and for no reason whatever, since the treaty signed in January appeared to be the same as what it was when Kissinger made his statement–in October.
6. A fully argued critique of Obama will have to wait for another time, as I’m exhausted. But the shortest version is that he failed to enact as much of a stimulus as he should have and one better directed at creating jobs (and he could have since the right wing crazies in February were not organized and they had no clout). Moreover he has virtually ignored unemployment since then, the recent job conference notwithstanding. He squandered a lot of potential in both this area and on the health area by engaging in a bi-partisan effort with opponents who are simply out to get him. Finally, his Afghanistan decision is likely to be disastrous. Is he doing this because he believes what he is saying or is he doing this because he feels if he doesn’t he won’t get reelected?
Takes on the Economy--Mine and PK's
[Check earlier economic posts for additional details about the hole we are in which I have decided not to repeat in what follows.].
The following was written before the improvement in the unemployment rate (from 10.2 % to 10.0 %) and the fact that only 11,000 jobs disappeared last month, far fewer than in previous months and far fewer than what was expected. If, early in the year, the detection of green shoots had little reality, this is a genuine improvement.
And yet, it falls short of being reassuring. The fundamental problems are still very much with us. I know some may think Paul Krugman (and I and Roubini and others are too pessimistic–and can I trot out Simon Maierhofe from a Yahoo posting or Dallas Federal Reserve President, Richard Fisher, and other sources I collect) but here is Krugman’s reaction to the decrease in unemployment and job disappearances: “Today’s unemployment report was good news. But in a real sense good news is bad news, because this month’s not-too-bad number deflates the sense of urgency. The fact remains that realistic projections show unemployment staying disastrously high for many years. The chart above is from the minutes of the Fed’s Open Market Committee. Unemployment above 8 percent in the fourth quarter of 2011; above 7 percent in the fourth quarter of 2012.
And what are we going to do about it? The de facto consensus is, not much — that we can’t and/or shouldn’t take any significant further action.
It’s a tragedy, wrapped in a weird complacency.”
*****
I. Below are two pessimistic economic prognoses by Paul Krugman, from his blog (not his NY Times column). In one, he mentions his increased fear of a double dip–that is, a return to a declining economy or if you prefer, a recession within the Great Recession (in the new economic lettering, a W, although the symmetries of the downs and ups may not exist). Before dismissing Krugman’s fears as that of a perennial pessimist, which in my view he is not–he is a liberal realist--one should consider the following.
There are two kinds of double dips. The more conventional way of viewing one is when a recovery from a recession quickly loses steam and we go back into a decline. An example, perhaps, is the recession of 1980, followed by the second dip, the recession of 1981-2. The second dip was far more serious than the initial decline, though, because the Federal Reserve under Paul Volcker was determined to rid the economy of double-digit inflation and pushed interest rates up to unprecedented levels–mortgage rates peaked at about 17-18% and the prime rate for a brief moment reached as high as 21 ½ % (it is now, by contrast, 3 1/4%).
But there is a second type of double dip, one carefully researched by President Obama’s chairwoman of the Council of Economic Advisers, Christina Romer. It was the decline, during the Great Depression, in 1937-38, and is known as the recession within the Depression. It was brought on mostly by tight money but also by contractionary fiscal policy–primarily tax increases. It was serious and pushed unemployment which had dropped from a high of 25% in 1933 to about 12% in early
1937, only to rise to the upper teens in 1938. This latter kind of double dip is only possible now if the deficit hawks have their way and cut the deficit through spending cutbacks (or tax increases, although deficit hawks are rarely inclined to favor tax increases as an answer to a deficit) or if Bernanke and the Fed cave in to the hawks and start raising rates. While this is possible, and I don’t think Bernanke is to be trusted, I doubt he and the Fed will do this as long as unemployment rates are in double digits. But watch out if rates dip to 8 or 9 percent!
Interestingly, looking at the history of business cycles in the US since they began shortly before the Civil War, most expansions were only for a few years (say, two, three or four), followed by relatively short recessions. If this pattern still existed, we would be due for a recession before the election of 2012. But this pattern seems no longer to exist. It was undermined in the 1930's because of the seriousness of the Depression, which lasted for more than a decade (at least in terms of high unemployment). In the post-WW II period, I think it fair to state that the Federal Reserve did a better job than it had previously done, and of course prior to 1913, there was no Federal Reserve (and unless Ron Paul has his way, we will continue to have a Federal Reserve, which for all its faults keeps the economy working better, I think, than if it didn’t exist–an unprovable conjecture since, in the last analysis, we can’t compare reality to a hypothetical). But monetary policy, in the current situation, is all but useless. Rates can’t be dropped any lower than what they already are.
Of course, there was the lengthy expansion in the 1960's–almost a decade of expansion--but this was associated not only with a tax cut early on designed to stimulate the economy, but more important there was the stimulus provided by the Vietnam War. I don’t know the ins and outs of this, but I am certain that wartime spending then provided more stimulus than wartime stimulus does now.
There was also the relatively long period of advance, from the end of the recession of 1982 to 1990, but I would attribute this to the deepness of the recession that the Fed created to counter inflation. Once it let up, the economy could slowly overcome obstacles and advance for a longer period than usual, since wage pressures were weak, given the unemployment left over from the recession and the global situation was less inhibiting–China had not captured as much of our manufacturing as it has now. But while the current recession is more or less equally deep, it was not caused by tight money. I doubt we should use the eighties as any kind of precedent.
Finally, there was the expansion of the Clinton era, actually beginning before he came to power, but in its first years it was so weak, and unemployment so high, that Clinton kept reminding himself during the 1992 campaign to keep hammering at Bush’s economic woes by reciting to himself: “it’s the economy, stupid.” One reason the expansion lasted until 2001 was the tax increase Clinton pushed through in 1993, which fortunately did not push us off the expansion track, but helped create not only a balanced budget but a considerable surplus by the end of the decade. But in the final analysis what made for the lengthy expansion was, of course, the dot-com bubble of the 2nd half of the 1990's. It helped to explain both the continued prosperity (and the official unemployment rate actually dipped below 4%) as well as the surpluses just mentioned.
The Bush “expansion”–the old terminology of boom and bust no longer seems appropriate when expansions are weak--was, to be sure, longer than what used to exist, except that it was anything but a boom for the average worker and only lasted as long as it did only because there was the incredible housing-financial bubble that we are still trying to recover from.
II. Given the past history of expansions and given the special factors that are preventing us from climbing back on the path to growth–to be mentioned shortly and which Krugman points to–it would not be surprising to see the economy relapse into a recession although whether it should be considered a “double dip” or simply a new recession is perhaps a matter of taste. I suppose declines that are considered double dips occur when a previous level of output is not reached or when unemployment has not dropped to anything near what one could call “full employment,” although Krugman is fearful (and correctly so) that prosperity will be defined down and that 8 or 9% or “maybe even 10%” will be “the new normal.”
Krugman’s recent posts indicate that the growth and employment effects of the stimulus are coming to an end. But one has only to look at newspaper headlines to realize that the debt and banking situation is a long way from normal. As Times reporter David Leonhardt reports, the quaking in Dubai has not brought a collapse, but banking woes lurk wherever you look. Most important, banks are still not making the kinds of loans needed to stir a more vigorous upturn. Nor are the desires of businesses to borrow at high levels since capacity utilization (indicating the extent businesses are using their factories) is unusually low, at about 70%. Consumers are spending but warily. Perhaps most important, I believe no recovery has ever made it, or made it big, without a strong construction component. Yet, both housing and commercial real estate spending are in the doldrums, a oft-used but rarely defined word that simply means “stagnating,” with no end in sight. Finally, on the international scene, Europe and Japan are operating at sub-par levels–you can take Roubini’s word for it.
What is also true is that the picture is worse than what the numbers suggest, especially when one chooses to use the conventional measure of unemployment, which is just over 10 percent. As Elizabeth Warren-- http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html--puts it, in an excellent article (12/3/09)–she is Chair of the Congressional Oversight Panel created to oversee the banking bailouts, and an absolute winner, “one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can’t make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure” and she goes on and on. And the context for all this is even more upsetting–the article is titled, “America Without a Middle Class.”–“the wages of the average fully-employed male have been flat since the 1970's.”
Whether or not there is a double dip, we are still in a deep economic crisis. And there is no end in sight.
If so, one might ask, why is the stock market doing so well. Partly, it is because the market anticipated a deeper decline, and sank very low, leading people to buy what they considered a bargain. Of course, if there is a double dip, or even a sharp slowdown, which Krugman, Roubini and others believe, the stock contraction might be sharper than its current buyers might expect.
Easy money and low interest rates have also lead people to borrow and buy something–and why not stocks, when the economy seems to be edging up. Finally, there is herd behavior or might I actually say it, what appears to be the reappearance of a bubble mentality, at least in this area of the economic arena.
In point of fact, the price-earnings ratio (p/e) of the S&P 500 has probably averaged about 15 over the last 125 years, peaking at about 32 in 1929 and at about 43 in 2000. It is now over 20, a level it should only be at if expected earnings are expected to be rising rapidly, which few anticipate. Roubini expects a rush to the door out of the market soon. I think he’s right
In short, we are far from out of the woods.
*****Krugman’s*****
December 1, 2009, 11:30 am
Double dip warning
I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.
Two stories this morning highlight the risks. The WSJ has a report on highway construction titled Job Cuts Loom as Stimulus Fades:
Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture.
Meanwhile, the ISM for manufacturing suggests that industrial growth is already slowing down.
I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.
The chances of a relapse into recession seem to be rising.
***********************
November 30, 2009, 2:09 pm
Things to come
What’s going to happen, economically and politically, over the next few years? Nobody knows, of course. But I have a vision — what I think is the most likely course of events. It’s fairly grim — but not in the approved way. This vision lies behind a lot of what I’ve been writing, so it might clarify things for regular readers if I laid it out explicitly.
Start with the short-term economics. What we’re in right now is the aftermath of a giant financial crisis, which typically leads to a prolonged period of economic weakness — and this time isn’t different. A bolder economic policy early this year might have led to a turnaround, but what we actually got were half-measures. As a result, unemployment is likely to stay near its current level for a year or more.
And politically it’s hard to do anything about that. Those economic half-measures have landed the Obama administration in a trap: much of the political establishment now sees stimulus as having been discredited by events, so that it’s very hard to come back and scale the policy up to where it should have been in the first place. Also, with the apocalypse on hold, the deficit scolds have come back into their own, decrying any policy that actually involves spending money.
The result, then, will be high unemployment leading into the 2010 elections, and corresponding Democratic losses. These losses will be worse because Obama, by pursuing a uniformly pro-banker policy without even a gesture to popular anger over the bailouts, has ceded populist energy to the right and demoralized the movement that brought him to power.
Despite all this, the midterms probably won’t give Republicans the majority in the House. But the losses will be big enough to deny Obama a working majority for any major initiatives in the rest of his first term. (My guess is that he’ll be reelected thanks to the true awfulness of the Republican nominee). Since Republicans are dead set against any of the things I think could help pull the economy out of its rut, this means more economic stagnation.
Along with this will come a process of defining prosperity down. All the wise heads will tell us that 8 or 9 percent unemployment — maybe even 10 percent — is the “new normal”, and that only irresponsible people want to do anything about the situation.
So what I see is years of terrible job markets, combined with political paralysis.
I hope I’m wrong about all this. But my sense is that to have any hope of breaking out of this trap, Obama and company have to take risks — they have to propose new initiatives that might not pass, and be prepared to run against the do-nothing Republicans if the initiatives fail. That’s not happening now; as best as I can tell, the administration strategy is to insist that only a few minor course corrections are needed, and to wait for the jobs to start coming in.
Maybe they’ll get lucky. But hope is not a plan.
What can the rest of us do? Progressives have to keep the pressure on. The time for trusting the administration to do what’s necessary is past — all indications are that it won’t, not on its own. But maybe, just maybe, the president can be brought to see the danger he’s running by playing it safe.
The following was written before the improvement in the unemployment rate (from 10.2 % to 10.0 %) and the fact that only 11,000 jobs disappeared last month, far fewer than in previous months and far fewer than what was expected. If, early in the year, the detection of green shoots had little reality, this is a genuine improvement.
And yet, it falls short of being reassuring. The fundamental problems are still very much with us. I know some may think Paul Krugman (and I and Roubini and others are too pessimistic–and can I trot out Simon Maierhofe from a Yahoo posting or Dallas Federal Reserve President, Richard Fisher, and other sources I collect) but here is Krugman’s reaction to the decrease in unemployment and job disappearances: “Today’s unemployment report was good news. But in a real sense good news is bad news, because this month’s not-too-bad number deflates the sense of urgency. The fact remains that realistic projections show unemployment staying disastrously high for many years. The chart above is from the minutes of the Fed’s Open Market Committee. Unemployment above 8 percent in the fourth quarter of 2011; above 7 percent in the fourth quarter of 2012.
And what are we going to do about it? The de facto consensus is, not much — that we can’t and/or shouldn’t take any significant further action.
It’s a tragedy, wrapped in a weird complacency.”
*****
I. Below are two pessimistic economic prognoses by Paul Krugman, from his blog (not his NY Times column). In one, he mentions his increased fear of a double dip–that is, a return to a declining economy or if you prefer, a recession within the Great Recession (in the new economic lettering, a W, although the symmetries of the downs and ups may not exist). Before dismissing Krugman’s fears as that of a perennial pessimist, which in my view he is not–he is a liberal realist--one should consider the following.
There are two kinds of double dips. The more conventional way of viewing one is when a recovery from a recession quickly loses steam and we go back into a decline. An example, perhaps, is the recession of 1980, followed by the second dip, the recession of 1981-2. The second dip was far more serious than the initial decline, though, because the Federal Reserve under Paul Volcker was determined to rid the economy of double-digit inflation and pushed interest rates up to unprecedented levels–mortgage rates peaked at about 17-18% and the prime rate for a brief moment reached as high as 21 ½ % (it is now, by contrast, 3 1/4%).
But there is a second type of double dip, one carefully researched by President Obama’s chairwoman of the Council of Economic Advisers, Christina Romer. It was the decline, during the Great Depression, in 1937-38, and is known as the recession within the Depression. It was brought on mostly by tight money but also by contractionary fiscal policy–primarily tax increases. It was serious and pushed unemployment which had dropped from a high of 25% in 1933 to about 12% in early
1937, only to rise to the upper teens in 1938. This latter kind of double dip is only possible now if the deficit hawks have their way and cut the deficit through spending cutbacks (or tax increases, although deficit hawks are rarely inclined to favor tax increases as an answer to a deficit) or if Bernanke and the Fed cave in to the hawks and start raising rates. While this is possible, and I don’t think Bernanke is to be trusted, I doubt he and the Fed will do this as long as unemployment rates are in double digits. But watch out if rates dip to 8 or 9 percent!
Interestingly, looking at the history of business cycles in the US since they began shortly before the Civil War, most expansions were only for a few years (say, two, three or four), followed by relatively short recessions. If this pattern still existed, we would be due for a recession before the election of 2012. But this pattern seems no longer to exist. It was undermined in the 1930's because of the seriousness of the Depression, which lasted for more than a decade (at least in terms of high unemployment). In the post-WW II period, I think it fair to state that the Federal Reserve did a better job than it had previously done, and of course prior to 1913, there was no Federal Reserve (and unless Ron Paul has his way, we will continue to have a Federal Reserve, which for all its faults keeps the economy working better, I think, than if it didn’t exist–an unprovable conjecture since, in the last analysis, we can’t compare reality to a hypothetical). But monetary policy, in the current situation, is all but useless. Rates can’t be dropped any lower than what they already are.
Of course, there was the lengthy expansion in the 1960's–almost a decade of expansion--but this was associated not only with a tax cut early on designed to stimulate the economy, but more important there was the stimulus provided by the Vietnam War. I don’t know the ins and outs of this, but I am certain that wartime spending then provided more stimulus than wartime stimulus does now.
There was also the relatively long period of advance, from the end of the recession of 1982 to 1990, but I would attribute this to the deepness of the recession that the Fed created to counter inflation. Once it let up, the economy could slowly overcome obstacles and advance for a longer period than usual, since wage pressures were weak, given the unemployment left over from the recession and the global situation was less inhibiting–China had not captured as much of our manufacturing as it has now. But while the current recession is more or less equally deep, it was not caused by tight money. I doubt we should use the eighties as any kind of precedent.
Finally, there was the expansion of the Clinton era, actually beginning before he came to power, but in its first years it was so weak, and unemployment so high, that Clinton kept reminding himself during the 1992 campaign to keep hammering at Bush’s economic woes by reciting to himself: “it’s the economy, stupid.” One reason the expansion lasted until 2001 was the tax increase Clinton pushed through in 1993, which fortunately did not push us off the expansion track, but helped create not only a balanced budget but a considerable surplus by the end of the decade. But in the final analysis what made for the lengthy expansion was, of course, the dot-com bubble of the 2nd half of the 1990's. It helped to explain both the continued prosperity (and the official unemployment rate actually dipped below 4%) as well as the surpluses just mentioned.
The Bush “expansion”–the old terminology of boom and bust no longer seems appropriate when expansions are weak--was, to be sure, longer than what used to exist, except that it was anything but a boom for the average worker and only lasted as long as it did only because there was the incredible housing-financial bubble that we are still trying to recover from.
II. Given the past history of expansions and given the special factors that are preventing us from climbing back on the path to growth–to be mentioned shortly and which Krugman points to–it would not be surprising to see the economy relapse into a recession although whether it should be considered a “double dip” or simply a new recession is perhaps a matter of taste. I suppose declines that are considered double dips occur when a previous level of output is not reached or when unemployment has not dropped to anything near what one could call “full employment,” although Krugman is fearful (and correctly so) that prosperity will be defined down and that 8 or 9% or “maybe even 10%” will be “the new normal.”
Krugman’s recent posts indicate that the growth and employment effects of the stimulus are coming to an end. But one has only to look at newspaper headlines to realize that the debt and banking situation is a long way from normal. As Times reporter David Leonhardt reports, the quaking in Dubai has not brought a collapse, but banking woes lurk wherever you look. Most important, banks are still not making the kinds of loans needed to stir a more vigorous upturn. Nor are the desires of businesses to borrow at high levels since capacity utilization (indicating the extent businesses are using their factories) is unusually low, at about 70%. Consumers are spending but warily. Perhaps most important, I believe no recovery has ever made it, or made it big, without a strong construction component. Yet, both housing and commercial real estate spending are in the doldrums, a oft-used but rarely defined word that simply means “stagnating,” with no end in sight. Finally, on the international scene, Europe and Japan are operating at sub-par levels–you can take Roubini’s word for it.
What is also true is that the picture is worse than what the numbers suggest, especially when one chooses to use the conventional measure of unemployment, which is just over 10 percent. As Elizabeth Warren-- http://www.huffingtonpost.com/elizabeth-warren/america-without-a-middle_b_377829.html--puts it, in an excellent article (12/3/09)–she is Chair of the Congressional Oversight Panel created to oversee the banking bailouts, and an absolute winner, “one in five Americans is unemployed, underemployed or just plain out of work. One in nine families can’t make the minimum payment on their credit cards. One in eight mortgages is in default or foreclosure” and she goes on and on. And the context for all this is even more upsetting–the article is titled, “America Without a Middle Class.”–“the wages of the average fully-employed male have been flat since the 1970's.”
Whether or not there is a double dip, we are still in a deep economic crisis. And there is no end in sight.
If so, one might ask, why is the stock market doing so well. Partly, it is because the market anticipated a deeper decline, and sank very low, leading people to buy what they considered a bargain. Of course, if there is a double dip, or even a sharp slowdown, which Krugman, Roubini and others believe, the stock contraction might be sharper than its current buyers might expect.
Easy money and low interest rates have also lead people to borrow and buy something–and why not stocks, when the economy seems to be edging up. Finally, there is herd behavior or might I actually say it, what appears to be the reappearance of a bubble mentality, at least in this area of the economic arena.
In point of fact, the price-earnings ratio (p/e) of the S&P 500 has probably averaged about 15 over the last 125 years, peaking at about 32 in 1929 and at about 43 in 2000. It is now over 20, a level it should only be at if expected earnings are expected to be rising rapidly, which few anticipate. Roubini expects a rush to the door out of the market soon. I think he’s right
In short, we are far from out of the woods.
*****Krugman’s*****
December 1, 2009, 11:30 am
Double dip warning
I’ve never been fully committed to the notion that we’re going to have a “double dip” — that the economy will slide back into recession. But it has been clear for a while that it’s a serious possibility, for two reasons. First, a large part of the growth we’ve had has been driven by the stimulus — but the stimulus has already had its maximum impact on the growth of GDP, will hit its maximum impact on the level of GDP in the middle of next year, and then will begin to fade out. Second, the rise in manufacturing production is to a large extent an inventory bounce — and this, too, will fade out in the quarters ahead.
Two stories this morning highlight the risks. The WSJ has a report on highway construction titled Job Cuts Loom as Stimulus Fades:
Highway-construction companies around the country, having completed the mostly small projects paid for by the federal economic-stimulus package, are starting to see their business run aground, an ominous sign for the nation’s weak employment picture.
Meanwhile, the ISM for manufacturing suggests that industrial growth is already slowing down.
I’d be more sanguine about all of this if there were any indications that private, final demand is taking off — consumers, business investment, whatever. But I haven’t seen anything suggesting that sort of thing.
The chances of a relapse into recession seem to be rising.
***********************
November 30, 2009, 2:09 pm
Things to come
What’s going to happen, economically and politically, over the next few years? Nobody knows, of course. But I have a vision — what I think is the most likely course of events. It’s fairly grim — but not in the approved way. This vision lies behind a lot of what I’ve been writing, so it might clarify things for regular readers if I laid it out explicitly.
Start with the short-term economics. What we’re in right now is the aftermath of a giant financial crisis, which typically leads to a prolonged period of economic weakness — and this time isn’t different. A bolder economic policy early this year might have led to a turnaround, but what we actually got were half-measures. As a result, unemployment is likely to stay near its current level for a year or more.
And politically it’s hard to do anything about that. Those economic half-measures have landed the Obama administration in a trap: much of the political establishment now sees stimulus as having been discredited by events, so that it’s very hard to come back and scale the policy up to where it should have been in the first place. Also, with the apocalypse on hold, the deficit scolds have come back into their own, decrying any policy that actually involves spending money.
The result, then, will be high unemployment leading into the 2010 elections, and corresponding Democratic losses. These losses will be worse because Obama, by pursuing a uniformly pro-banker policy without even a gesture to popular anger over the bailouts, has ceded populist energy to the right and demoralized the movement that brought him to power.
Despite all this, the midterms probably won’t give Republicans the majority in the House. But the losses will be big enough to deny Obama a working majority for any major initiatives in the rest of his first term. (My guess is that he’ll be reelected thanks to the true awfulness of the Republican nominee). Since Republicans are dead set against any of the things I think could help pull the economy out of its rut, this means more economic stagnation.
Along with this will come a process of defining prosperity down. All the wise heads will tell us that 8 or 9 percent unemployment — maybe even 10 percent — is the “new normal”, and that only irresponsible people want to do anything about the situation.
So what I see is years of terrible job markets, combined with political paralysis.
I hope I’m wrong about all this. But my sense is that to have any hope of breaking out of this trap, Obama and company have to take risks — they have to propose new initiatives that might not pass, and be prepared to run against the do-nothing Republicans if the initiatives fail. That’s not happening now; as best as I can tell, the administration strategy is to insist that only a few minor course corrections are needed, and to wait for the jobs to start coming in.
Maybe they’ll get lucky. But hope is not a plan.
What can the rest of us do? Progressives have to keep the pressure on. The time for trusting the administration to do what’s necessary is past — all indications are that it won’t, not on its own. But maybe, just maybe, the president can be brought to see the danger he’s running by playing it safe.
Social Security Redux
With all eyes focused on Obama’s medical reform or on Afghanistan or on the economy and the unemployment rate (aside from those eyes watching football and other sports and thinking about Tiger Woods among other diversions–in essence, most eyes, in our relatively primitive, political culture), there may be a hidden drama of enormous negative import taking place.
Kent Conrad, a Democratic Senator from North Dakota, is leading an effort to get Nancy Pelosi (and President Obama) to cede the power of Congress to control budget and taxes to an independent commission that will allow it to slash Social Security and partially privatize it (what George W. Bush attempted in his second term–it never got out of committee–but in his case, I believe, the goal was the ultimate abolition of a government run retirement program).
The reason Conrad can even think about getting away with this is that the average person–I suspect even you, gentle reader–is of the belief that Social Security is in great financial difficulties, if not “flat broke,” to use the deceitful characterization of our unlamented previous president.
But the truth is exactly the opposite. I will quote the words of the country’s leading health expert, a Senior Fellow at the moderately liberal and prestigious Brookings Institution, Henry J Aaron (an equal in his field to his namesake in baseball).
Speaking on May 14, 2009, Aaron says "I think the Social Security trust funds report should be interpreted as worse news than last year, but actually better than the news that has been on the average for about the last 15 years. The Actuary's projections have been pretty much constant over that period. The system has enough money until sometime late in the 2030s or early 2040s. It does face a long term deficit, and the sooner we deal with that problem the better, but there is really no cause for hand ringing that the sky is falling. There is a steady warning that it is time for Congress to face this problem and deal with it. Furthermore it’s a relatively easy problem to deal with. Small adjustments in revenues or in benefits would be sufficient to put the system on a steady financial course for the indefinite future."
Many good books have written, including two I recommend (though a little dated): Social Security: The Phony Crisis by Dean Baker and Mark Weisbrot, 1999 and Is Social Security Broke? A Cartoon Guide to the Issues by Barbara Bergmann (a distinguished economist) and Jim Bush. But I recommend above all–the best single article I have read on the subject–“A Question of Numbers,” by Roger Lowenstein which appeared in The New York Times Magazine, January 16, 2005 (and can be read in total, just by getting to it, though I did have trouble printing it).
A quote from the Lowenstein article: “What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.”
Again, from Lowenstein: “No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. [The trustees make three different projections–DM] Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.
And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.”
But no doubt, the unusual economic weakness that exists right now is likely to slightly worsen things, as less employment means less receipts, although–and this is ugly but perhaps true–if life expectancy is negatively affected by the Great Recession, and probably it is, the Social Security fund benefits.
What deceives some, and scoundrels use this to confuse and mislead, is that the money coming in from workers will, in about 8 years, fall short of the amounts being paid out–or if you like social security will have a deficit. Suppose, however, we take two cases, in which the money you are earning is less than the money you are paying out for food, clothing, necessities and luxuries. In case one, you are in deep do-do, because you have no savings to draw upon. But in case two, suppose you have one million dollars in government bonds. You can make up the difference in case two by using the interest and drawing down the amount you own.
This is exactly the position Social Security is in. The surpluses of the past decades have been invested in US government bonds–it owns more than two trillions of dollars of these. It will, in 2018 (or whenever the point is reached) begin using the interest from these bonds to pay fully those it owes–retirees, those on disability and others. After the late 2020's, it can begin cashing in the bonds to make its payments. In about 2040, it will cash out these bonds and at that point it will only be able to pay about 75% of what it legally owes to retirees and others.
But wait. Before this induces the gotcha’s by the anti-Social Security crowd–probably no one reading this is in this crowd [if anyone is reading this (excuse my anxiety)]-- the 75% people will be getting–ADJUSTED FOR INFLATION–will be more than what you or I are getting, if you are retired as I am. This I will try to show with a numerical example, but note first the Social Security payment system is a (progressive) retrieval system. (Progressive, because those making lower incomes receive as Social Security payments a higher percentage of their incomes than those making very high incomes.)
Suppose you are earning $40,000 and you earn one-half of median income. (Actually of course, the situation is much more complicated because people make different amounts during their lifetimes and there is also inflation.) Suppose this amount–$40,000--today, receives 40% in Social Security payments or $16,000 a year. Then, suppose persons who are earning one-half of median income receive, in 2040, $60,00 in real (inflation-adjusted) income, the result of average yearly increases of about 1.3 %, which is way below the historic level of real wage increases (over the years 1989 to 1996, for example, real wages rose 2.6% a year) and unless there is an utter catastrophe ahead, wages should rise at least this minimal rate and probably will do much better.
Anyway, 40% of $60,000 is $18,000. The person receiving 75% of what he is legally due in Social Security will be getting 12.5% more than what a similar economically positioned person receives today. Keep in mind, this figure is adjusted to inflation. (The recipients of Social Security in 2040 I am talking might, because of inflation, be receiving $30,000, depending on the rate of inflation, and when adjusted, it will be equal to what $18,000 buys today.) In other words, in the worst case scenario, we in no way have a disaster.
But go back to Aaron: “Small adjustments in revenues or in benefits would be sufficient to put the system on a steady financial course for the indefinite future." I think what he has in mind is that raising the SS tax from the 6.2% level on both the employee and the employer by about one point, to 7.2% (on each) would solve the problem, plain and simple. Or better yet, follow Medicare. It taxes people 1.45 %, with no limit on income, whereas Social Security has a limit on the income which can be taxed (which is adjusted for inflation) but is now approximately $102,000. Changing this cap on taxes to what Medicare does would, I believe, probably solve the problem or come close. At the very least, we could go a long way towards a “solution”–that is, a situation where for 75 years no problem is projected–simply by increasing the amount of income that is subject to Social Security taxes to, say $250,000 (adjusted yearly, as now, for inflation).
Finally, options I might not prefer, but ones which would solve the problem (and be in keeping with Aaron’s “small adjustments . . . in benefits”) would be to increase over time the age when benefits are available. This is being done and we are in the process of moving the age from 65 to 67 (and I think at this moment, the regular Social Security payment is now made at 66), but it could be phased in over time to 68or 69. This is less of a burden, some argue, since life expectancy has been increasing. But I would prefer the tax on higher incomes be increased.
Given all this, why is Kent Conrad doing what he is doing? And will Pelosi and Obama permit him and others like Senator Bayh to do this? In many ways Social Security is as important to the well-being of Americans as a good health plan. Without Social Security, nearly 50% of the elderly would be classified as
poor (47.6%), while with Social Security, the percentage falls to 11.9%.
One last point: Medicare does have a problem. As Aaron puts it, “In the case of Medicare the prospects as indicated by the trust funds reports this week (this was a speech delivered May 14, 2009) are far more serious than in the case of Social Security. There are smaller reserves for hospital insurance, so the system is projected to exhaust those reserves much sooner.” But to parlay Medicare’s problems with Social Security is nasty and duplicitous. Let’s hope, as in 2005, with Bush’s SS fiasco, common sense prevails, aided by the appropriate emotional feelings people have about Social Security.
Kent Conrad, a Democratic Senator from North Dakota, is leading an effort to get Nancy Pelosi (and President Obama) to cede the power of Congress to control budget and taxes to an independent commission that will allow it to slash Social Security and partially privatize it (what George W. Bush attempted in his second term–it never got out of committee–but in his case, I believe, the goal was the ultimate abolition of a government run retirement program).
The reason Conrad can even think about getting away with this is that the average person–I suspect even you, gentle reader–is of the belief that Social Security is in great financial difficulties, if not “flat broke,” to use the deceitful characterization of our unlamented previous president.
But the truth is exactly the opposite. I will quote the words of the country’s leading health expert, a Senior Fellow at the moderately liberal and prestigious Brookings Institution, Henry J Aaron (an equal in his field to his namesake in baseball).
Speaking on May 14, 2009, Aaron says "I think the Social Security trust funds report should be interpreted as worse news than last year, but actually better than the news that has been on the average for about the last 15 years. The Actuary's projections have been pretty much constant over that period. The system has enough money until sometime late in the 2030s or early 2040s. It does face a long term deficit, and the sooner we deal with that problem the better, but there is really no cause for hand ringing that the sky is falling. There is a steady warning that it is time for Congress to face this problem and deal with it. Furthermore it’s a relatively easy problem to deal with. Small adjustments in revenues or in benefits would be sufficient to put the system on a steady financial course for the indefinite future."
Many good books have written, including two I recommend (though a little dated): Social Security: The Phony Crisis by Dean Baker and Mark Weisbrot, 1999 and Is Social Security Broke? A Cartoon Guide to the Issues by Barbara Bergmann (a distinguished economist) and Jim Bush. But I recommend above all–the best single article I have read on the subject–“A Question of Numbers,” by Roger Lowenstein which appeared in The New York Times Magazine, January 16, 2005 (and can be read in total, just by getting to it, though I did have trouble printing it).
A quote from the Lowenstein article: “What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.”
Again, from Lowenstein: “No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. [The trustees make three different projections–DM] Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.
And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.”
But no doubt, the unusual economic weakness that exists right now is likely to slightly worsen things, as less employment means less receipts, although–and this is ugly but perhaps true–if life expectancy is negatively affected by the Great Recession, and probably it is, the Social Security fund benefits.
What deceives some, and scoundrels use this to confuse and mislead, is that the money coming in from workers will, in about 8 years, fall short of the amounts being paid out–or if you like social security will have a deficit. Suppose, however, we take two cases, in which the money you are earning is less than the money you are paying out for food, clothing, necessities and luxuries. In case one, you are in deep do-do, because you have no savings to draw upon. But in case two, suppose you have one million dollars in government bonds. You can make up the difference in case two by using the interest and drawing down the amount you own.
This is exactly the position Social Security is in. The surpluses of the past decades have been invested in US government bonds–it owns more than two trillions of dollars of these. It will, in 2018 (or whenever the point is reached) begin using the interest from these bonds to pay fully those it owes–retirees, those on disability and others. After the late 2020's, it can begin cashing in the bonds to make its payments. In about 2040, it will cash out these bonds and at that point it will only be able to pay about 75% of what it legally owes to retirees and others.
But wait. Before this induces the gotcha’s by the anti-Social Security crowd–probably no one reading this is in this crowd [if anyone is reading this (excuse my anxiety)]-- the 75% people will be getting–ADJUSTED FOR INFLATION–will be more than what you or I are getting, if you are retired as I am. This I will try to show with a numerical example, but note first the Social Security payment system is a (progressive) retrieval system. (Progressive, because those making lower incomes receive as Social Security payments a higher percentage of their incomes than those making very high incomes.)
Suppose you are earning $40,000 and you earn one-half of median income. (Actually of course, the situation is much more complicated because people make different amounts during their lifetimes and there is also inflation.) Suppose this amount–$40,000--today, receives 40% in Social Security payments or $16,000 a year. Then, suppose persons who are earning one-half of median income receive, in 2040, $60,00 in real (inflation-adjusted) income, the result of average yearly increases of about 1.3 %, which is way below the historic level of real wage increases (over the years 1989 to 1996, for example, real wages rose 2.6% a year) and unless there is an utter catastrophe ahead, wages should rise at least this minimal rate and probably will do much better.
Anyway, 40% of $60,000 is $18,000. The person receiving 75% of what he is legally due in Social Security will be getting 12.5% more than what a similar economically positioned person receives today. Keep in mind, this figure is adjusted to inflation. (The recipients of Social Security in 2040 I am talking might, because of inflation, be receiving $30,000, depending on the rate of inflation, and when adjusted, it will be equal to what $18,000 buys today.) In other words, in the worst case scenario, we in no way have a disaster.
But go back to Aaron: “Small adjustments in revenues or in benefits would be sufficient to put the system on a steady financial course for the indefinite future." I think what he has in mind is that raising the SS tax from the 6.2% level on both the employee and the employer by about one point, to 7.2% (on each) would solve the problem, plain and simple. Or better yet, follow Medicare. It taxes people 1.45 %, with no limit on income, whereas Social Security has a limit on the income which can be taxed (which is adjusted for inflation) but is now approximately $102,000. Changing this cap on taxes to what Medicare does would, I believe, probably solve the problem or come close. At the very least, we could go a long way towards a “solution”–that is, a situation where for 75 years no problem is projected–simply by increasing the amount of income that is subject to Social Security taxes to, say $250,000 (adjusted yearly, as now, for inflation).
Finally, options I might not prefer, but ones which would solve the problem (and be in keeping with Aaron’s “small adjustments . . . in benefits”) would be to increase over time the age when benefits are available. This is being done and we are in the process of moving the age from 65 to 67 (and I think at this moment, the regular Social Security payment is now made at 66), but it could be phased in over time to 68or 69. This is less of a burden, some argue, since life expectancy has been increasing. But I would prefer the tax on higher incomes be increased.
Given all this, why is Kent Conrad doing what he is doing? And will Pelosi and Obama permit him and others like Senator Bayh to do this? In many ways Social Security is as important to the well-being of Americans as a good health plan. Without Social Security, nearly 50% of the elderly would be classified as
poor (47.6%), while with Social Security, the percentage falls to 11.9%.
One last point: Medicare does have a problem. As Aaron puts it, “In the case of Medicare the prospects as indicated by the trust funds reports this week (this was a speech delivered May 14, 2009) are far more serious than in the case of Social Security. There are smaller reserves for hospital insurance, so the system is projected to exhaust those reserves much sooner.” But to parlay Medicare’s problems with Social Security is nasty and duplicitous. Let’s hope, as in 2005, with Bush’s SS fiasco, common sense prevails, aided by the appropriate emotional feelings people have about Social Security.
2012
There’s a lot of premature discussion of the election of 2012. So why not be a pre-maturist and join in? One interesting commentator (hosertohoosier, a Canadian grad student who appears to prefer anonymity) suggests the following key constituencies within the GOP:
1. economic conservatives
2. evangelicals
3. national greatness conservatives
4. angry white working class males
5. moderate/liberal Republicans
He (or she) then adds that in 2008 McCain got the nomination by uniting groups 3 and 5. Huckabee was the choice of 2 and Romney, 1. In 2012, Gingrich, hosertohoosier believes, is the choice of group 1. Group 4's choice is Palin. Perhaps, he (or she) suggests, Pawlenty is group 3's choice. Huckabee or Palin could do well among evangelicals.
And there are many other long shots (or possibles)–including Charlie Christ, John Thune, Bobby Jindel, Mark Sanford, Haley Barbour, Jeb Bush, Mark Sanford, David Petraeus and so on.
But what strikes me is the new context (developed more in the posting which follows, entitled “Goodby Two Parties: Hello Danger”). Romney probably can’t get the nomination because of past indiscretions–in 2006, for example, he signed the Massachusetts health reform law which requires almost all residents of that state to buy health insurance coverage or face the loss of their personal income tax exemption.
But if somehow, he did get the nomination, he might well get independent votes, in large numbers, but would lose the Rush-Beck hard-liners. If, to adjust to this, he selected for his ticket someone who might appeal to this group–Paley again or Huckabee (if people get over the fact that he paroled someone who then murdered four police officers) or (heaven help us Beck or Rush)–he gains the hard liners but loses the independents.
With the exception of Petraeus, whose domestic views we know little about and who clearly has little experience in domestic programs (but who might, like Eisenhower in 1952 win although Ike first got himself the presidency of Columbia University and maybe that helped), all of the Republicans have this hard-line vs independent problem. Again, with the exception of Petraeus, what I think this means is that Obama gets re-elected unless (1) the economy has a double dip (or even without a double dip, unemployment stays very high–at least close to 8%, maybe lower) or (2) Afghanistan becomes a disaster.
For Obama, I should think this means he must use every dollar of unspent TARP money to lower unemployment, not to mention creating other initiatives. And, he must reverse what I think may turn into a nightmare–Afghanistan–into its opposite, using the George Aiken formula (the Republican Senator from Vermont). Declare victory and leave. And do so no later than mid-2011. And by leaving, I mean really leave. Virtually all, if not all, troops have to be taken out, although a small number of stand-by troops can exist not far away (maybe in Pakistan, if that country hasn’t disintegrated by then).
However, should these troops use drones, and I hope they do not, let us insist that this operation is not run, as it is now, to some extent, by the mercenary and undemocratic corporation, Blackwater, the head of which is the fundamentalist fanatic, Erik Prince. (See Blackwater, The Rise of the World’s Most Powerful Mercenary Army, by Jeremy Scahill.) [Blackwater recently changed its name to Xe. Prince resigned as CEO, but he remains chairman and sole owner of the network of companies now operating under the Xe umbrella. “Blackwater” is attempting to re-brand itself, given its scurrilous reputation in general as well as the specific murders it committed in Iraq.]
[Masochists might consider reading my September 22 posting, entitled “Who Are the Republicans?” It doesn’t have a neat array of 5 alternative constituencies, as above, but it does offer other ways of thinking about constituencies, even if the discussion of alternatives are broadened or marred by my antagonistic views to elephantitis.]
1. economic conservatives
2. evangelicals
3. national greatness conservatives
4. angry white working class males
5. moderate/liberal Republicans
He (or she) then adds that in 2008 McCain got the nomination by uniting groups 3 and 5. Huckabee was the choice of 2 and Romney, 1. In 2012, Gingrich, hosertohoosier believes, is the choice of group 1. Group 4's choice is Palin. Perhaps, he (or she) suggests, Pawlenty is group 3's choice. Huckabee or Palin could do well among evangelicals.
And there are many other long shots (or possibles)–including Charlie Christ, John Thune, Bobby Jindel, Mark Sanford, Haley Barbour, Jeb Bush, Mark Sanford, David Petraeus and so on.
But what strikes me is the new context (developed more in the posting which follows, entitled “Goodby Two Parties: Hello Danger”). Romney probably can’t get the nomination because of past indiscretions–in 2006, for example, he signed the Massachusetts health reform law which requires almost all residents of that state to buy health insurance coverage or face the loss of their personal income tax exemption.
But if somehow, he did get the nomination, he might well get independent votes, in large numbers, but would lose the Rush-Beck hard-liners. If, to adjust to this, he selected for his ticket someone who might appeal to this group–Paley again or Huckabee (if people get over the fact that he paroled someone who then murdered four police officers) or (heaven help us Beck or Rush)–he gains the hard liners but loses the independents.
With the exception of Petraeus, whose domestic views we know little about and who clearly has little experience in domestic programs (but who might, like Eisenhower in 1952 win although Ike first got himself the presidency of Columbia University and maybe that helped), all of the Republicans have this hard-line vs independent problem. Again, with the exception of Petraeus, what I think this means is that Obama gets re-elected unless (1) the economy has a double dip (or even without a double dip, unemployment stays very high–at least close to 8%, maybe lower) or (2) Afghanistan becomes a disaster.
For Obama, I should think this means he must use every dollar of unspent TARP money to lower unemployment, not to mention creating other initiatives. And, he must reverse what I think may turn into a nightmare–Afghanistan–into its opposite, using the George Aiken formula (the Republican Senator from Vermont). Declare victory and leave. And do so no later than mid-2011. And by leaving, I mean really leave. Virtually all, if not all, troops have to be taken out, although a small number of stand-by troops can exist not far away (maybe in Pakistan, if that country hasn’t disintegrated by then).
However, should these troops use drones, and I hope they do not, let us insist that this operation is not run, as it is now, to some extent, by the mercenary and undemocratic corporation, Blackwater, the head of which is the fundamentalist fanatic, Erik Prince. (See Blackwater, The Rise of the World’s Most Powerful Mercenary Army, by Jeremy Scahill.) [Blackwater recently changed its name to Xe. Prince resigned as CEO, but he remains chairman and sole owner of the network of companies now operating under the Xe umbrella. “Blackwater” is attempting to re-brand itself, given its scurrilous reputation in general as well as the specific murders it committed in Iraq.]
[Masochists might consider reading my September 22 posting, entitled “Who Are the Republicans?” It doesn’t have a neat array of 5 alternative constituencies, as above, but it does offer other ways of thinking about constituencies, even if the discussion of alternatives are broadened or marred by my antagonistic views to elephantitis.]
Goodby Two Parties: Hello Danger
One of the durable features of our society is our two party system, at least since 1900--minor exceptions like the Prohibitionist, Socialist, Communist, Progressive, and States’ Rights parties notwithstanding. [And it should be acknowledged there were more significant third parties in the 19th century, such as the Free Soil Party as well as complicated splits of the kind that led to Lincoln’s election in 1860–in this case the Democrats split.]
Yes, of course, there was the attempt by Theodore Roosevelt to regain the presidency as the Bull Moose (or Progressive Party) candidate. And there was also, of course, Ross Perot’s effort in 1992, which probably led to Clinton being elected rather than Bush. But Teddy and Ross were personal affairs, not longer-lasting issue-oriented efforts, like those made by the Prohibition party or Norman Thomas' Socialist Party. In general, it has been the Democrats and Republicans for as long as most people can remember. This is not to say that the Democratic Party of recent years is anything like the Democratic Party of the 1950's, which was an amalgam of Southern conservatives and Northern liberals, a long-standing hangover from the fact that Lincoln was a Republican. The Southerners said goodby to the Democrats in the late sixties, seventies and eighties and became Republicans.
But as someone once sang–“the times they are a-changing.” Let us take the famous (or infamous) 23rd Congressional District of New York, a district or area that had voted Republican since way back in the 19th century. In a special election, recently, caused by the appointment of the Republican Congressman, John McHugh by Obama to be Secretary of the Army, the line-up included the Republican, Dede Scozzafava; the Conservative, Doug Hoffman; and the Democrat, Bill Owen. Because of attacks on her by people like Sarah Palin and Minnesota Governor, Tim Pawlenty, Dede not only dropped out of the race but soon thereafter announced she was supporting the Democrat (who eventually won in a close race). [Scozzafava has subsequently announced she is remaining in the Republican Party.]
But I think what happened here foretells a change. There are conservatives, moderates and liberals. And while a case can be made that the moderates and the liberals are not as antagonistic to each other as the conservatives are to the moderates–after all Dede did support the Democrat–it will still be difficult for many Republicans to vote for Democrats. But, on the other hand, the conservatives are increasingly alienating the moderates because–let’s face it–they are lunatic wingnuts. They are extremists of a vile kind, symbolized by the rantings and ravings of people like Glenn Beck and Rush Limbaugh. They are criticizing Obama’s health plan as being a death plan. As “birthers,” they continue to question his American bona fides. I’m sure there are differences among them, but many (or most) are bigots--against blacks, Latinos, gays, immigrants; creationists and intolerant religious fanatics; and they believe you should love America (in their way, which has meant backing America in its war against Iraq) or leave it.
This type of American could never stomach criticism of America, though our history is filled with perversities, beginning with the murders of Indians and continuing with slavery–and much more. I used to march, early in the sixties, in lonely groups of 10 or 20, with signs, against the early stages of the Vietnam War, which in 1962 only had Green Berets and Special Forces there, and drivers in passing cars told me to “go back to Russia.” How did they know that my maternal grandmother probably came from Lithuania, which in 1962 was part of the USSR?]
I don’t think this vicious group is a temporary phenomenon. I have reprinted below Paul Krugman’s column of November 9, 2009, entitled “Paranoia Strikes Deep.” He argues, to me persuasively, that as long as the right thought that history was on their side, their actions were more symbolic than real, but after the Democratic victory in 2008, something in them snapped. I can’t see this un-snapping in the near future.
One way of seeing this is to look again at the election of 2008. McCain was in a difficult spot since he was in no way the favorite of a large number of his right wing (read Beck, Limbaugh) constituency. Without a conservative on his ticket, he thought (properly in my view) he would lose. Palin was appointed to shore up his right wing vote, but of course this backfired since it moved independents to vote for the Democrat. In hindsight, McCain could have made a less provocative choice, but it would have had to have been a conservative–maybe Haley Barbour, or Mike Huckabee or Tom Coburn or Tim Pawlenty (although whether any or all of these would pass the Rush test is uncertain). But McCain’s problem would have remained and it is unclear whether he could have won with a rock-ribbed conservative as his VP choice.
But generally, vice-presidents don’t decide elections, even if in this one it played a larger role than usual. In the world we are entering, the wingnuts will insist that Republicans put in conservatives to head their tickets for President (and for that matter as NY 23 shows, for the House and Senate). If they don’t get what they want, they will either run their own, as a separate party, or sit the election out. I can’t see how this situation can be resolved, barring a huge change in attitudes on the part of this disaffected but sizeable minority, except in a new re-alignment, a Three Party System--Conservatives, Republicans, Democrats. How long this re-alignment might last is of course unknown, especially since it is simply a conjecture, but it could easily last a few decades or more. Over time–I’m thinking at least a decade but maybe more--I believe moderate Republicans will gravitate to the liberal Democrats, since younger persons are more liberal, especially on gay issues, and more Latino voters (and white women as well) are increasingly sympathetic to the Democrats. Moreover, the Democrats are increasingly less scary to many than they used to be. What they favor–a universal health care system, a cleaner and greener environment, an end to discrimination against minorities of all kinds (and women), and most of its other programs--is increasingly the norm.
In other words, in a few decades, if nothing terrible happens, I think that we will return to a variant of the two party system–Democrats and Conservatives, with the Republicans having faded away. Political battles will be between the more moderate liberals (including former Republicans) and those more liberal, with the wingnut Conservatives hopefully becoming a fringe. (In a sense, we may then have a vibrant one-party state, with the real battles in the primaries.)
But, and this is a big but, the near future strikes me as politically dangerous, and extremely so, with the possibility of quasi-fascistic conservatives winning out. The reason the extremists may win out in the short run–2012 or 2016--is that we have intractable economic problems and politically we lack the maturity to face the fact that we are not going to have the superlative economy we once had–or even close--or be able to dominate the world economically, politically and militarily. Gaining this maturity will take time and maybe vast numbers will never be able to accept what appears to be unfolding in the 21st century.
But also, in the next few years, the Afghan War will very possibly come to the foreground. I think it is a tragic mistake, with little chance that we will be pulling out, in significant numbers, in 2011. Obama officials have already announced the pullout will be slow. This war may produce such large numbers of casualties, create such dissension in Democratic ranks, cause such increased fiscal problems--and all this without any real sign of success--that it will inevitably play into the hands of the extremists. If this should happen, it is quite possible, even likely, that the conservatives take will take over the Republican Party and have a chance at winning in 2012 or 2016. Or they may run as a 3rd Party and somehow the electoral votes line up for them–unlikely but possible. If they do take power, then I fear, but really fear, for this country. The right wing extremists, as I see them, may end democracy as we know it. Elections, as we know them, may be postponed or cancelled. At the very least, civil liberties and the right to dissent will be diminished if not endangered. And hatreds will express themselves in ways we cannot even imagine.
OK. I am sure to many this sounds unrealistic. But listen to what we are getting at the Tea Parties. Listen to the language calling Obama a Fascist. And what does one make of the fact that many who were previously considered moderates in the Republican Party are going along with much of this. Again, OK, maybe it’s all a bit of a game and in power these persons would behave reasonably well. But I doubt it. And besides momentum plays a role. Would you really feel safe if Beck, Limbaugh or Palin–or their facsimiles--were actually in power? Would you feel secure that our sacred institutions–the Congress and the Judiciary–will protect us? If so, you believe American Exceptionalism lives unscathed.
Wikipedia: American Exceptionalism: refers to the theory that the United States occupies a special niche among the nations of the world in terms of its national credo, historical evolution, political and religious institutions and unique origins. And, by implication, will forever be a democratic beacon. I think, instead (alas), we could go the way of a country like Argentina, which was a leading economic power prior to the Great Depression and then fell apart because of disastrous political infighting and for a while was an outright dictatorship. Or even worse possibilities exist--I won't even mention them. I would pray, if I could. I will continue to contribute to the Democrats and, holding my nose, support Obama.
*****************
Paranoia Strikes Deep by Paul Krugman (November 9, 2009)
Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.
The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.
True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is “mild.” The signs were “inappropriate,” said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, “conjures up images that frankly are not, I think, very helpful.”
What all this shows is that the G.O.P. has been taken over by the people it used to exploit.
The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?
But while the paranoid style isn’t new, its role within the G.O.P. is.
When Hofstadter wrote, the right wing felt dispossessed because it was rejected by both major parties. That changed with the rise of Ronald Reagan: Republican politicians began to win elections in part by catering to the passions of the angry right.
Until recently, however, that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and “values,” only to announce, as soon as the election was behind him, that his first priority was changing Social Security.
But something snapped last year. Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they’d get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.
Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York’s special Congressional election.
Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren’t interested in actually governing, they feed the base’s frenzy instead of trying to curb or channel it. So all the old restraints are gone.
In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.
In fact, the party of Limbaugh and Beck could well make major gains in the midterm elections. The Obama administration’s job-creation efforts have fallen short, so that unemployment is likely to stay disastrously high through next year and beyond. The banker-friendly bailout of Wall Street has angered voters, and might even let Republicans claim the mantle of economic populism. Conservatives may not have better ideas, but voters might support them out of sheer frustration.
And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.
The point is that the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.
Yes, of course, there was the attempt by Theodore Roosevelt to regain the presidency as the Bull Moose (or Progressive Party) candidate. And there was also, of course, Ross Perot’s effort in 1992, which probably led to Clinton being elected rather than Bush. But Teddy and Ross were personal affairs, not longer-lasting issue-oriented efforts, like those made by the Prohibition party or Norman Thomas' Socialist Party. In general, it has been the Democrats and Republicans for as long as most people can remember. This is not to say that the Democratic Party of recent years is anything like the Democratic Party of the 1950's, which was an amalgam of Southern conservatives and Northern liberals, a long-standing hangover from the fact that Lincoln was a Republican. The Southerners said goodby to the Democrats in the late sixties, seventies and eighties and became Republicans.
But as someone once sang–“the times they are a-changing.” Let us take the famous (or infamous) 23rd Congressional District of New York, a district or area that had voted Republican since way back in the 19th century. In a special election, recently, caused by the appointment of the Republican Congressman, John McHugh by Obama to be Secretary of the Army, the line-up included the Republican, Dede Scozzafava; the Conservative, Doug Hoffman; and the Democrat, Bill Owen. Because of attacks on her by people like Sarah Palin and Minnesota Governor, Tim Pawlenty, Dede not only dropped out of the race but soon thereafter announced she was supporting the Democrat (who eventually won in a close race). [Scozzafava has subsequently announced she is remaining in the Republican Party.]
But I think what happened here foretells a change. There are conservatives, moderates and liberals. And while a case can be made that the moderates and the liberals are not as antagonistic to each other as the conservatives are to the moderates–after all Dede did support the Democrat–it will still be difficult for many Republicans to vote for Democrats. But, on the other hand, the conservatives are increasingly alienating the moderates because–let’s face it–they are lunatic wingnuts. They are extremists of a vile kind, symbolized by the rantings and ravings of people like Glenn Beck and Rush Limbaugh. They are criticizing Obama’s health plan as being a death plan. As “birthers,” they continue to question his American bona fides. I’m sure there are differences among them, but many (or most) are bigots--against blacks, Latinos, gays, immigrants; creationists and intolerant religious fanatics; and they believe you should love America (in their way, which has meant backing America in its war against Iraq) or leave it.
This type of American could never stomach criticism of America, though our history is filled with perversities, beginning with the murders of Indians and continuing with slavery–and much more. I used to march, early in the sixties, in lonely groups of 10 or 20, with signs, against the early stages of the Vietnam War, which in 1962 only had Green Berets and Special Forces there, and drivers in passing cars told me to “go back to Russia.” How did they know that my maternal grandmother probably came from Lithuania, which in 1962 was part of the USSR?]
I don’t think this vicious group is a temporary phenomenon. I have reprinted below Paul Krugman’s column of November 9, 2009, entitled “Paranoia Strikes Deep.” He argues, to me persuasively, that as long as the right thought that history was on their side, their actions were more symbolic than real, but after the Democratic victory in 2008, something in them snapped. I can’t see this un-snapping in the near future.
One way of seeing this is to look again at the election of 2008. McCain was in a difficult spot since he was in no way the favorite of a large number of his right wing (read Beck, Limbaugh) constituency. Without a conservative on his ticket, he thought (properly in my view) he would lose. Palin was appointed to shore up his right wing vote, but of course this backfired since it moved independents to vote for the Democrat. In hindsight, McCain could have made a less provocative choice, but it would have had to have been a conservative–maybe Haley Barbour, or Mike Huckabee or Tom Coburn or Tim Pawlenty (although whether any or all of these would pass the Rush test is uncertain). But McCain’s problem would have remained and it is unclear whether he could have won with a rock-ribbed conservative as his VP choice.
But generally, vice-presidents don’t decide elections, even if in this one it played a larger role than usual. In the world we are entering, the wingnuts will insist that Republicans put in conservatives to head their tickets for President (and for that matter as NY 23 shows, for the House and Senate). If they don’t get what they want, they will either run their own, as a separate party, or sit the election out. I can’t see how this situation can be resolved, barring a huge change in attitudes on the part of this disaffected but sizeable minority, except in a new re-alignment, a Three Party System--Conservatives, Republicans, Democrats. How long this re-alignment might last is of course unknown, especially since it is simply a conjecture, but it could easily last a few decades or more. Over time–I’m thinking at least a decade but maybe more--I believe moderate Republicans will gravitate to the liberal Democrats, since younger persons are more liberal, especially on gay issues, and more Latino voters (and white women as well) are increasingly sympathetic to the Democrats. Moreover, the Democrats are increasingly less scary to many than they used to be. What they favor–a universal health care system, a cleaner and greener environment, an end to discrimination against minorities of all kinds (and women), and most of its other programs--is increasingly the norm.
In other words, in a few decades, if nothing terrible happens, I think that we will return to a variant of the two party system–Democrats and Conservatives, with the Republicans having faded away. Political battles will be between the more moderate liberals (including former Republicans) and those more liberal, with the wingnut Conservatives hopefully becoming a fringe. (In a sense, we may then have a vibrant one-party state, with the real battles in the primaries.)
But, and this is a big but, the near future strikes me as politically dangerous, and extremely so, with the possibility of quasi-fascistic conservatives winning out. The reason the extremists may win out in the short run–2012 or 2016--is that we have intractable economic problems and politically we lack the maturity to face the fact that we are not going to have the superlative economy we once had–or even close--or be able to dominate the world economically, politically and militarily. Gaining this maturity will take time and maybe vast numbers will never be able to accept what appears to be unfolding in the 21st century.
But also, in the next few years, the Afghan War will very possibly come to the foreground. I think it is a tragic mistake, with little chance that we will be pulling out, in significant numbers, in 2011. Obama officials have already announced the pullout will be slow. This war may produce such large numbers of casualties, create such dissension in Democratic ranks, cause such increased fiscal problems--and all this without any real sign of success--that it will inevitably play into the hands of the extremists. If this should happen, it is quite possible, even likely, that the conservatives take will take over the Republican Party and have a chance at winning in 2012 or 2016. Or they may run as a 3rd Party and somehow the electoral votes line up for them–unlikely but possible. If they do take power, then I fear, but really fear, for this country. The right wing extremists, as I see them, may end democracy as we know it. Elections, as we know them, may be postponed or cancelled. At the very least, civil liberties and the right to dissent will be diminished if not endangered. And hatreds will express themselves in ways we cannot even imagine.
OK. I am sure to many this sounds unrealistic. But listen to what we are getting at the Tea Parties. Listen to the language calling Obama a Fascist. And what does one make of the fact that many who were previously considered moderates in the Republican Party are going along with much of this. Again, OK, maybe it’s all a bit of a game and in power these persons would behave reasonably well. But I doubt it. And besides momentum plays a role. Would you really feel safe if Beck, Limbaugh or Palin–or their facsimiles--were actually in power? Would you feel secure that our sacred institutions–the Congress and the Judiciary–will protect us? If so, you believe American Exceptionalism lives unscathed.
Wikipedia: American Exceptionalism: refers to the theory that the United States occupies a special niche among the nations of the world in terms of its national credo, historical evolution, political and religious institutions and unique origins. And, by implication, will forever be a democratic beacon. I think, instead (alas), we could go the way of a country like Argentina, which was a leading economic power prior to the Great Depression and then fell apart because of disastrous political infighting and for a while was an outright dictatorship. Or even worse possibilities exist--I won't even mention them. I would pray, if I could. I will continue to contribute to the Democrats and, holding my nose, support Obama.
*****************
Paranoia Strikes Deep by Paul Krugman (November 9, 2009)
Last Thursday there was a rally outside the U.S. Capitol to protest pending health care legislation, featuring the kinds of things we’ve grown accustomed to, including large signs showing piles of bodies at Dachau with the caption “National Socialist Healthcare.” It was grotesque — and it was also ominous. For what we may be seeing is America starting to be Californiafied.
The key thing to understand about that rally is that it wasn’t a fringe event. It was sponsored by the House Republican leadership — in fact, it was officially billed as a G.O.P. press conference. Senior lawmakers were in attendance, and apparently had no problem with the tone of the proceedings.
True, Eric Cantor, the second-ranking House Republican, offered some mild criticism after the fact. But the operative word is “mild.” The signs were “inappropriate,” said his spokesman, and the use of Hitler comparisons by such people as Rush Limbaugh, said Mr. Cantor, “conjures up images that frankly are not, I think, very helpful.”
What all this shows is that the G.O.P. has been taken over by the people it used to exploit.
The state of mind visible at recent right-wing demonstrations is nothing new. Back in 1964 the historian Richard Hofstadter published an essay titled, “The Paranoid Style in American Politics,” which reads as if it were based on today’s headlines: Americans on the far right, he wrote, feel that “America has been largely taken away from them and their kind, though they are determined to try to repossess it and to prevent the final destructive act of subversion.” Sound familiar?
But while the paranoid style isn’t new, its role within the G.O.P. is.
When Hofstadter wrote, the right wing felt dispossessed because it was rejected by both major parties. That changed with the rise of Ronald Reagan: Republican politicians began to win elections in part by catering to the passions of the angry right.
Until recently, however, that catering mostly took the form of empty symbolism. Once elections were won, the issues that fired up the base almost always took a back seat to the economic concerns of the elite. Thus in 2004 George W. Bush ran on antiterrorism and “values,” only to announce, as soon as the election was behind him, that his first priority was changing Social Security.
But something snapped last year. Conservatives had long believed that history was on their side, so the G.O.P. establishment could, in effect, urge hard-right activists to wait just a little longer: once the party consolidated its hold on power, they’d get what they wanted. After the Democratic sweep, however, extremists could no longer be fobbed off with promises of future glory.
Furthermore, the loss of both Congress and the White House left a power vacuum in a party accustomed to top-down management. At this point Newt Gingrich is what passes for a sober, reasonable elder statesman of the G.O.P. And he has no authority: Republican voters ignored his call to support a relatively moderate, electable candidate in New York’s special Congressional election.
Real power in the party rests, instead, with the likes of Rush Limbaugh, Glenn Beck and Sarah Palin (who at this point is more a media figure than a conventional politician). Because these people aren’t interested in actually governing, they feed the base’s frenzy instead of trying to curb or channel it. So all the old restraints are gone.
In the short run, this may help Democrats, as it did in that New York race. But maybe not: elections aren’t necessarily won by the candidate with the most rational argument. They’re often determined, instead, by events and economic conditions.
In fact, the party of Limbaugh and Beck could well make major gains in the midterm elections. The Obama administration’s job-creation efforts have fallen short, so that unemployment is likely to stay disastrously high through next year and beyond. The banker-friendly bailout of Wall Street has angered voters, and might even let Republicans claim the mantle of economic populism. Conservatives may not have better ideas, but voters might support them out of sheer frustration.
And if Tea Party Republicans do win big next year, what has already happened in California could happen at the national level. In California, the G.O.P. has essentially shrunk down to a rump party with no interest in actually governing — but that rump remains big enough to prevent anyone else from dealing with the state’s fiscal crisis. If this happens to America as a whole, as it all too easily could, the country could become effectively ungovernable in the midst of an ongoing economic disaster.
The point is that the takeover of the Republican Party by the irrational right is no laughing matter. Something unprecedented is happening here — and it’s very bad for America.
Sunday, October 4, 2009
Economic Catastrophe Ahead?
I. If there is a paramount intellectual problem to be solved by philosophers, it is how, or how much, the past can be used by present-day philosophers, economists, sociologists, political scientists, historians and other intellectuals. Santayana famously wrote: "Those who cannot remember the past are condemned to repeat it." Karl Marx once penned: "Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy. The second time as farce."
"What’s past is prologue," is engraved on the National Archives Building (but originally appeared in The Tempest). But what is being said? Something came first and now something else comes later? No problem with this, but it’s neither helpful nor particularly enlightening.
Economists are forever using the past: if productivity or capacity utilization or home prices or construction spending does this, rather than that, it will mean recovery is around the corner. Leading indicators (or lagging ones) have been so over-utilized that there is an undeserved belief, if not faith, in them. Their limitations were correctly indicated years ago by America’s greatest economist, Paul Samuelson, when he suggested that "economists (and I believe this was based on their uses of leading indicators) have correctly predicted nine of the last five recessions.
I suppose many, many centuries ago, cave people could use the past, with much greater assurance–keeping in mind weather’s variability–until something big changed permanently–like the ice caps and then all Hell broke loose, slowly.
But in the economic world we live in, change, on one level, is snail-like. But looked at from a different angle, and over a longer time span, it is vast. We go from agriculture to manufacturing or from manufacturing to services or from a mostly closed economy to a globalized one. About 50 years ago, only about 35% of US women were in the labor force. Today, almost twice as many. Actually, new developments seem to be appearing more frequently: of recent there were unprecedented bubbles, one after another; the development of the Internet has transformed everyday life, along with the parallel decline in newspapers.
But the question still remains. How different is the past from the present? Economic predictions can only have real value if much that takes place now is what used to take place not that many years ago. But how does one determine this? Which changes are meaningful and which are mere noise? Without any question, the more life as we live it today is different from what it was a decade ago, or two decades ago, the less able we can use the past to understand what will be unfolding, either in the economy or in our politics (and culture).
Take a simple question I have no answer for. What is to become of Social Security? A few years ago, there was a consensus that Social Security was going to reach in the mid to late teens a situation where the money coming in was just equal to the money paid out. But not to worry: the SS fund owns trillions of dollars of US debt and for a number of years, it can simply use the interest from this debt and then it could draw down the principle, and in some distant future year–about 2040, the money will run out. But even then recipients will get about 70% of what they were previously entitled to. And believe it or not 70% of what you get in 2040 would be more than what the highest paid recipients get in 2009 (adjusted for inflation). Thus, 70% was not the end of the world (and this can be achieved without any changes in payroll taxes). [And some experts thought, including those mentioned in a first rate NY Times Magazine article (January 16, 2005) by Roger Lowenstein, that these estimates were far too pessimist and that Social Security would be able to pay fully what it owed for many decades after 2040.) But with the economy now in shambles and likely to be in shambles for some time to come, I’m sure more recent estimates are far more pessimistic. The original assumptions were based on a future economy which functioned as well as it did in the past. An unlikelihood.
All this is raised because I believe that beyond the pessimistic predictions being made by eminent economists is an associated assumption that, after we take care of or solve a few serious but temporary economic problems, we can think again in normal terms. In other words, after these disastrous difficulties are worked out of the system, we will once again be able to make predictions that are as good as those we once made.
Unfortunately, I believe this is an illusion. (The particulars are looked at next.)
II An economist friend of mine thinks I’m too pessimistic about the economy, even though he believes we are in for a “very protracted and anemic recovery.” In believing this, he is not different from many whose words I have read (and in one case, heard, Joseph Stiglitz).
He too knows of the weaknesses in consumer spending because of unemployment; an inability (or lesser ability) to borrow against housing values, stock advances, and credit cards; and perhaps a extended trend of consumer caution, where people save more in case there is a rainy day (or perhaps one should put it, for when the inevitable rainy day arrives). Investment in new houses will take a long time to recover and investment in general will be hampered for some time to come by a bank crisis that resists healing—smaller banks continue to fail at high rates. And describing the weak economic situation as “very protracted ,” with prospects for an “anemic recovery,” is extremely well put.
But what I believe, and I guess my friend does not, is that we are in the early stages of what I believe will be an epic economic transformation. It has started, but has not really been noticed, because of Bush’s perverse policies in Iraq and the Great Recession we are in the midst of, but most of all because people are slow to realize change.
In short, I believe the centuries in which the First World [or West—and by that I mean Western Europe, the U.S., the British Empire States—such as Canada, Australia and New Zealand—and “the great exception”—Japan] exploited through political and military means the Third World (mostly countries in Africa, Latin America and Asia), and thereby gained prosperity at their expense. These days are over. More important, the rise of such countries as China, but not limited to China, and their ability to produce goods at lower costs than we are able to produce them, implies that their rise will be associated with our decline, although none of this will happen overnight.
A partial sign of what is in store for us is provided by Great Britain. As its ability to control the world declined, its relative prosperity declined. But its absolute prosperity did not, since the Third World countries had not yet thrown off the imperialist yoke and made themselves into potential economic powers and rivals. I recognize that China has deep problems, especially on the environmental front (but also the fact that it lacks democracy) which will limit its economic potential). [One can get a glimpse of what is at issue by reading a Times article on a Chinese dissenter, its most famous economist, Wu Jinglian (in Sunday Business, September 27) and, in its way, a more optimistic version of what might take place in China by Thomas Friedman, a serious attempt at greening which will enable China to compete with us in solar and wind power, warning us “We ignore it (Chinese greening) at our peril.”(Week in Review—same day.)]
Perhaps another possibility is too horrible to contemplate. By all accounts, Argentina was once a first world country and by one account, it had, in 1929, the world’s 4th highest GDP per capita. The Great Depression in and of itself helped do it in, but mostly it was the nasty politics unleashed by the depression that ended its prosperity, a nastiness that lasted on and off for many decades. By 2008, according to the International Monetary Fund, Argentina was ranked 46th in per capital GDP, which was $14,465; by the World Bank, it ranked 58th with $14, 413; and by the CIA World Factbook, a rank of 62, with $14,200. Argentina is now behind many, many familiar names, including the US of course, ranked 6th or 8th , but also behind half-pseudo countries like Luxembourg, Liechtenstein, and Macau, with GDP's per capita of about $46, 800 (in 2008). The Argentine nastiness of the 1930's sounds dismayingly familiar. A recent description of what is going here in the US, in
2009, by Rachel Maddow, describing our mob mentality and hooliganism, is not reassuring.
These historical precedents aside, there are unusual signs of contemporary American distress. To mention a few: (1) manufacturing, as a percentage of GDP was in the early 1950’s just under 30%, but in 2006, before the Great Recession began, was just under 12% (and as best I can determine it has dropped below 10% since then); since the recession of 2001, it—manufacturing—grew slower than after any previous recession; (2) the average work week of recent, an associate measure of economic distress, along with unemployment, is 33 hours, the lowest since records began in 1964; (3) the employment/population ratio was 65.8 in 1999 and 2000 but in 2007 was down to 63—even for women it was down, bucking a long term trend (in 1960, the percentage was only 35.5 ) but in 2000—57.5—and in 2007, 56.6). The current unemployment rate of 9.8 percent is an archaic measure since it excludes those no longer looking for a job because they no longer feel they can find one and also those who are working part time but really want a full time job. Measured this way, unemployment is almost double the “official” rate.
Short term patterns can reflect many factors, although the figures on manufacturing are dramatic. What we know, however, is that before the Great Recession our trade deficit with China was astronomical. It is less now, but primarily because we are simply buying less (of goods and services wherever their origin). China and other nations are simply able to produce goods at vastly lower cost than we can and that situation will continue for decades. And while some products need to be produced near where they are to be sold, most are readily shippable. All but the biggest can even be shipped by air-freight.
Moreover, there is the question of the outsourcing of services. Not long ago, Alan Blinder (a distinguished Princeton economist and former Vice-Chairman of the Federal Reserve) indicated that the outsourcing of services was in its early stages. Now it’s true that many services cannot be outsourced—waitering or waitressing at restaurants, people who fix your plumbing, Walmart clerks, taxis drivers, etc. But one thing is true, in most of the cases, where service jobs replace manufacturing jobs, the earnings of most of those who are now working in the service sector earn less, by far, than what they previously earned.
One possible answer is not likely to be realistic—a change in trade rules which makes it both harder for American companies to outsource as well as makes it difficult for Chinese companies to export to us. At the moment, and for some time to come, free trade is believed in religiously, not only by economists, but by those who hold power--business leaders. That doesn’t preclude minor changes, of course, but meaningful changes that could help are not likely. Besides some economists manipulatively use the foolish attempt in 1930 to fix the deteriorating economy through the Smoot-Hawley tariff, which clearly worsened things. What I think this means is that trade changes have to be intelligently enacted—but when you look at the health care changes President Obama is proposing, and which are being attacked mercilessly as well as deceitfully, who really believes American politics can be fine-tuned to make reasonable trade changes?
A varient of this is that exchange rates change and life continues in a more normal fashion. (This is projected by my "optimistic" economist friend). But is it likely that the Chinese will let the Renminbi rise to a genuine market value, undermining Chinese exports? To ask is to answer. Moreover, as the dollar continues its likely descent--already visible against the Euro and Yen--it is possible that to some extent jobs might be saved, but at an enormous cost in living standards, as products from abroad will cost more. And, as the the Consumer Price Index rises, it is predictable that the Fed will step in to throttle increased inflation by raising rates, once again causing unemployment to rise.
Another possibility is that our productivity improves. In many areas, we still have an edge, although to read Friedman that will soon be undermined by a determined China. Productivity can be improved, and historically it always has. But I am not optimistic, partly because the world is now opened up to a degree no one would have predicted. And thus the Chinese might well succeed in competing with us in ways no one would have predicted a decade or two ago.
I remember an article I wrote and prepared for the New York Times Magazine—actually it was the cover story—the last issue of 1979. Twenty economists, mostly famous ones but I added a few less famous, as to what we should be prepared to do to improve the economy of the 1980’s. Not a single one mentioned the growing threat of Japanese imports—nor did I in my commentary—and therefore no one mentioned the rise of the “rust belt” caused by the Japanese sales of their automobiles. Economists failed as usual to predict what was to happen and thus earned their jocular reputation at being very good at predicting the past. Alas, the same might be said of my own predictions. But I mention this to make a point: I might nonetheless be right and most economists may be missing the biggest story of the 21st century.]
There are other worries. Paul Krugman is concerned about the aging of the American population and the hardships this will bring on programs like health care and social security. On this, he has a point, one that is not limited to the United States, but applies to other First World Countries.
But he is also less worried about stimuluses that increase indebtedness. On this, I am only half-way with him. We need a second stimulus. That is clear, given projections of double-digit unemployment for a number of years by informed economists and government agencies. Krugman asserts (October 2): More stimulus is "urgently needed. The question shouldn't be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no." I fully agree.
However, I believe Krugman believes that once normalcy is restored, the national debt as a percentage of the GDP will decline just as it did from about 1950 to 1975, and did so enormously. (Just after the war--World War II, that is--the national debt as a percentage of the GDP decreased because of a huge inflation. But then, after 1950, economic growth kept pushing GDP up, while deficits remained negligible, until Reagan irresponsibly cut taxes and quadrupled the national debt during his eight years in office. The conclusion might be that responsible fiscal policy--doing what Reagan didn't do (or what George W Bush, didn't do)--can restore our fiscal position over time. But what if "normalcy" never returns?
I think then we can simply live with a higher level of national debt and, if need be, a higher level of taxes (especially if we can capture the taxes from those who are rich and hide their incomes in Swiss banks and off-shore islands) and thus pay out-of-pocket for education and health, services truly worth spending more on, rather than much of what we are now spending our money on.
Simply put, it is not likely "normalcy" will return. Things are not likely to right themselves in 5, 10 or 20 years (Even the Federal Government is predicting high unemployment for a number of years and the Congressional Budget Office--a non-partisan group--is predicting a gap over the next years between what we actually produce and what we could be producing of more than 2 trillion dollars. Read Paul Krugman's column (of 10/2/09, just alluded to) on the negative implications that we all but know are going to happen.)
How will we compete with countries that pay their workers a fraction of what we pay ours? Partly, we may improve productivity, but the real answer is that it is all but inevitable that we will not be able to compete. Our wages and living standards, on average, will likely fall, and the only questions are on whom, when and by how much.
Thus I think the protracted and anemic recovery is going to be endless, something like the Lost Decade Japan suffered beginning in the early 1990’s (and to a degree continues). I don’t believe a Great Depression lies ahead, but I do believe high unemployment and lower living standards do.
Nor do I think this is primarily due to incompetence or political ineptitude. In effect, this is a readjustment to centuries of exploitation of one group (we are in this group) over others. There is no way one can make meaningful amends. Once the economic inabilities of those who were outcasts, and poor, was overcome--and more and more they have been overcome--there is no stopping the transformation. In the end, there is a kind of justice in what is happening. We are finally going to pay for what our forebears and ancestors caused. But, alas, it will undoubtedly be ugly.
"What’s past is prologue," is engraved on the National Archives Building (but originally appeared in The Tempest). But what is being said? Something came first and now something else comes later? No problem with this, but it’s neither helpful nor particularly enlightening.
Economists are forever using the past: if productivity or capacity utilization or home prices or construction spending does this, rather than that, it will mean recovery is around the corner. Leading indicators (or lagging ones) have been so over-utilized that there is an undeserved belief, if not faith, in them. Their limitations were correctly indicated years ago by America’s greatest economist, Paul Samuelson, when he suggested that "economists (and I believe this was based on their uses of leading indicators) have correctly predicted nine of the last five recessions.
I suppose many, many centuries ago, cave people could use the past, with much greater assurance–keeping in mind weather’s variability–until something big changed permanently–like the ice caps and then all Hell broke loose, slowly.
But in the economic world we live in, change, on one level, is snail-like. But looked at from a different angle, and over a longer time span, it is vast. We go from agriculture to manufacturing or from manufacturing to services or from a mostly closed economy to a globalized one. About 50 years ago, only about 35% of US women were in the labor force. Today, almost twice as many. Actually, new developments seem to be appearing more frequently: of recent there were unprecedented bubbles, one after another; the development of the Internet has transformed everyday life, along with the parallel decline in newspapers.
But the question still remains. How different is the past from the present? Economic predictions can only have real value if much that takes place now is what used to take place not that many years ago. But how does one determine this? Which changes are meaningful and which are mere noise? Without any question, the more life as we live it today is different from what it was a decade ago, or two decades ago, the less able we can use the past to understand what will be unfolding, either in the economy or in our politics (and culture).
Take a simple question I have no answer for. What is to become of Social Security? A few years ago, there was a consensus that Social Security was going to reach in the mid to late teens a situation where the money coming in was just equal to the money paid out. But not to worry: the SS fund owns trillions of dollars of US debt and for a number of years, it can simply use the interest from this debt and then it could draw down the principle, and in some distant future year–about 2040, the money will run out. But even then recipients will get about 70% of what they were previously entitled to. And believe it or not 70% of what you get in 2040 would be more than what the highest paid recipients get in 2009 (adjusted for inflation). Thus, 70% was not the end of the world (and this can be achieved without any changes in payroll taxes). [And some experts thought, including those mentioned in a first rate NY Times Magazine article (January 16, 2005) by Roger Lowenstein, that these estimates were far too pessimist and that Social Security would be able to pay fully what it owed for many decades after 2040.) But with the economy now in shambles and likely to be in shambles for some time to come, I’m sure more recent estimates are far more pessimistic. The original assumptions were based on a future economy which functioned as well as it did in the past. An unlikelihood.
All this is raised because I believe that beyond the pessimistic predictions being made by eminent economists is an associated assumption that, after we take care of or solve a few serious but temporary economic problems, we can think again in normal terms. In other words, after these disastrous difficulties are worked out of the system, we will once again be able to make predictions that are as good as those we once made.
Unfortunately, I believe this is an illusion. (The particulars are looked at next.)
II An economist friend of mine thinks I’m too pessimistic about the economy, even though he believes we are in for a “very protracted and anemic recovery.” In believing this, he is not different from many whose words I have read (and in one case, heard, Joseph Stiglitz).
He too knows of the weaknesses in consumer spending because of unemployment; an inability (or lesser ability) to borrow against housing values, stock advances, and credit cards; and perhaps a extended trend of consumer caution, where people save more in case there is a rainy day (or perhaps one should put it, for when the inevitable rainy day arrives). Investment in new houses will take a long time to recover and investment in general will be hampered for some time to come by a bank crisis that resists healing—smaller banks continue to fail at high rates. And describing the weak economic situation as “very protracted ,” with prospects for an “anemic recovery,” is extremely well put.
But what I believe, and I guess my friend does not, is that we are in the early stages of what I believe will be an epic economic transformation. It has started, but has not really been noticed, because of Bush’s perverse policies in Iraq and the Great Recession we are in the midst of, but most of all because people are slow to realize change.
In short, I believe the centuries in which the First World [or West—and by that I mean Western Europe, the U.S., the British Empire States—such as Canada, Australia and New Zealand—and “the great exception”—Japan] exploited through political and military means the Third World (mostly countries in Africa, Latin America and Asia), and thereby gained prosperity at their expense. These days are over. More important, the rise of such countries as China, but not limited to China, and their ability to produce goods at lower costs than we are able to produce them, implies that their rise will be associated with our decline, although none of this will happen overnight.
A partial sign of what is in store for us is provided by Great Britain. As its ability to control the world declined, its relative prosperity declined. But its absolute prosperity did not, since the Third World countries had not yet thrown off the imperialist yoke and made themselves into potential economic powers and rivals. I recognize that China has deep problems, especially on the environmental front (but also the fact that it lacks democracy) which will limit its economic potential). [One can get a glimpse of what is at issue by reading a Times article on a Chinese dissenter, its most famous economist, Wu Jinglian (in Sunday Business, September 27) and, in its way, a more optimistic version of what might take place in China by Thomas Friedman, a serious attempt at greening which will enable China to compete with us in solar and wind power, warning us “We ignore it (Chinese greening) at our peril.”(Week in Review—same day.)]
Perhaps another possibility is too horrible to contemplate. By all accounts, Argentina was once a first world country and by one account, it had, in 1929, the world’s 4th highest GDP per capita. The Great Depression in and of itself helped do it in, but mostly it was the nasty politics unleashed by the depression that ended its prosperity, a nastiness that lasted on and off for many decades. By 2008, according to the International Monetary Fund, Argentina was ranked 46th in per capital GDP, which was $14,465; by the World Bank, it ranked 58th with $14, 413; and by the CIA World Factbook, a rank of 62, with $14,200. Argentina is now behind many, many familiar names, including the US of course, ranked 6th or 8th , but also behind half-pseudo countries like Luxembourg, Liechtenstein, and Macau, with GDP's per capita of about $46, 800 (in 2008). The Argentine nastiness of the 1930's sounds dismayingly familiar. A recent description of what is going here in the US, in
2009, by Rachel Maddow, describing our mob mentality and hooliganism, is not reassuring.
These historical precedents aside, there are unusual signs of contemporary American distress. To mention a few: (1) manufacturing, as a percentage of GDP was in the early 1950’s just under 30%, but in 2006, before the Great Recession began, was just under 12% (and as best I can determine it has dropped below 10% since then); since the recession of 2001, it—manufacturing—grew slower than after any previous recession; (2) the average work week of recent, an associate measure of economic distress, along with unemployment, is 33 hours, the lowest since records began in 1964; (3) the employment/population ratio was 65.8 in 1999 and 2000 but in 2007 was down to 63—even for women it was down, bucking a long term trend (in 1960, the percentage was only 35.5 ) but in 2000—57.5—and in 2007, 56.6). The current unemployment rate of 9.8 percent is an archaic measure since it excludes those no longer looking for a job because they no longer feel they can find one and also those who are working part time but really want a full time job. Measured this way, unemployment is almost double the “official” rate.
Short term patterns can reflect many factors, although the figures on manufacturing are dramatic. What we know, however, is that before the Great Recession our trade deficit with China was astronomical. It is less now, but primarily because we are simply buying less (of goods and services wherever their origin). China and other nations are simply able to produce goods at vastly lower cost than we can and that situation will continue for decades. And while some products need to be produced near where they are to be sold, most are readily shippable. All but the biggest can even be shipped by air-freight.
Moreover, there is the question of the outsourcing of services. Not long ago, Alan Blinder (a distinguished Princeton economist and former Vice-Chairman of the Federal Reserve) indicated that the outsourcing of services was in its early stages. Now it’s true that many services cannot be outsourced—waitering or waitressing at restaurants, people who fix your plumbing, Walmart clerks, taxis drivers, etc. But one thing is true, in most of the cases, where service jobs replace manufacturing jobs, the earnings of most of those who are now working in the service sector earn less, by far, than what they previously earned.
One possible answer is not likely to be realistic—a change in trade rules which makes it both harder for American companies to outsource as well as makes it difficult for Chinese companies to export to us. At the moment, and for some time to come, free trade is believed in religiously, not only by economists, but by those who hold power--business leaders. That doesn’t preclude minor changes, of course, but meaningful changes that could help are not likely. Besides some economists manipulatively use the foolish attempt in 1930 to fix the deteriorating economy through the Smoot-Hawley tariff, which clearly worsened things. What I think this means is that trade changes have to be intelligently enacted—but when you look at the health care changes President Obama is proposing, and which are being attacked mercilessly as well as deceitfully, who really believes American politics can be fine-tuned to make reasonable trade changes?
A varient of this is that exchange rates change and life continues in a more normal fashion. (This is projected by my "optimistic" economist friend). But is it likely that the Chinese will let the Renminbi rise to a genuine market value, undermining Chinese exports? To ask is to answer. Moreover, as the dollar continues its likely descent--already visible against the Euro and Yen--it is possible that to some extent jobs might be saved, but at an enormous cost in living standards, as products from abroad will cost more. And, as the the Consumer Price Index rises, it is predictable that the Fed will step in to throttle increased inflation by raising rates, once again causing unemployment to rise.
Another possibility is that our productivity improves. In many areas, we still have an edge, although to read Friedman that will soon be undermined by a determined China. Productivity can be improved, and historically it always has. But I am not optimistic, partly because the world is now opened up to a degree no one would have predicted. And thus the Chinese might well succeed in competing with us in ways no one would have predicted a decade or two ago.
I remember an article I wrote and prepared for the New York Times Magazine—actually it was the cover story—the last issue of 1979. Twenty economists, mostly famous ones but I added a few less famous, as to what we should be prepared to do to improve the economy of the 1980’s. Not a single one mentioned the growing threat of Japanese imports—nor did I in my commentary—and therefore no one mentioned the rise of the “rust belt” caused by the Japanese sales of their automobiles. Economists failed as usual to predict what was to happen and thus earned their jocular reputation at being very good at predicting the past. Alas, the same might be said of my own predictions. But I mention this to make a point: I might nonetheless be right and most economists may be missing the biggest story of the 21st century.]
There are other worries. Paul Krugman is concerned about the aging of the American population and the hardships this will bring on programs like health care and social security. On this, he has a point, one that is not limited to the United States, but applies to other First World Countries.
But he is also less worried about stimuluses that increase indebtedness. On this, I am only half-way with him. We need a second stimulus. That is clear, given projections of double-digit unemployment for a number of years by informed economists and government agencies. Krugman asserts (October 2): More stimulus is "urgently needed. The question shouldn't be whether we can afford to do more to promote recovery. It should be whether we can afford not to. And the answer is no." I fully agree.
However, I believe Krugman believes that once normalcy is restored, the national debt as a percentage of the GDP will decline just as it did from about 1950 to 1975, and did so enormously. (Just after the war--World War II, that is--the national debt as a percentage of the GDP decreased because of a huge inflation. But then, after 1950, economic growth kept pushing GDP up, while deficits remained negligible, until Reagan irresponsibly cut taxes and quadrupled the national debt during his eight years in office. The conclusion might be that responsible fiscal policy--doing what Reagan didn't do (or what George W Bush, didn't do)--can restore our fiscal position over time. But what if "normalcy" never returns?
I think then we can simply live with a higher level of national debt and, if need be, a higher level of taxes (especially if we can capture the taxes from those who are rich and hide their incomes in Swiss banks and off-shore islands) and thus pay out-of-pocket for education and health, services truly worth spending more on, rather than much of what we are now spending our money on.
Simply put, it is not likely "normalcy" will return. Things are not likely to right themselves in 5, 10 or 20 years (Even the Federal Government is predicting high unemployment for a number of years and the Congressional Budget Office--a non-partisan group--is predicting a gap over the next years between what we actually produce and what we could be producing of more than 2 trillion dollars. Read Paul Krugman's column (of 10/2/09, just alluded to) on the negative implications that we all but know are going to happen.)
How will we compete with countries that pay their workers a fraction of what we pay ours? Partly, we may improve productivity, but the real answer is that it is all but inevitable that we will not be able to compete. Our wages and living standards, on average, will likely fall, and the only questions are on whom, when and by how much.
Thus I think the protracted and anemic recovery is going to be endless, something like the Lost Decade Japan suffered beginning in the early 1990’s (and to a degree continues). I don’t believe a Great Depression lies ahead, but I do believe high unemployment and lower living standards do.
Nor do I think this is primarily due to incompetence or political ineptitude. In effect, this is a readjustment to centuries of exploitation of one group (we are in this group) over others. There is no way one can make meaningful amends. Once the economic inabilities of those who were outcasts, and poor, was overcome--and more and more they have been overcome--there is no stopping the transformation. In the end, there is a kind of justice in what is happening. We are finally going to pay for what our forebears and ancestors caused. But, alas, it will undoubtedly be ugly.
Thursday, September 24, 2009
Small Correction
In the posting that follows, I discuss investment prospects. In haste, I omitted what was a key point.
One of the most important components of investment is investment in new housing. Needless to say, this is dead as a doornail and will be for a good number of years. It is yet another reason why the recovery will be weak or why a double dip is possible—still being predicted, in late 2010, though with greater tentativeness, by Dr Doom, Nuriel Roubini.
One of the most important components of investment is investment in new housing. Needless to say, this is dead as a doornail and will be for a good number of years. It is yet another reason why the recovery will be weak or why a double dip is possible—still being predicted, in late 2010, though with greater tentativeness, by Dr Doom, Nuriel Roubini.
Wednesday, September 23, 2009
Stiglitz and our Economic Prospects
On Wednesday, September 16, I went to a lecture by Joseph Stiglitz, who teaches at Columbia University. I hope readers have heard of him. He won the Nobel Prize in Economics not long ago, and what he did really deserves the Prize, unlike some of the other winners. He studied the fact that information is often asymmetrical. A can take advantage of B because A knows things that B does not. The economic explication of the advantages of perfect competition begins with the assumption of perfect knowledge (or it used to be so—I’m not always up to date.) By not only showing this is not true—not too difficult an assignment, he explores its implications, the principal one being we need government to intervene to obtain appropriate and beneficial solutions. Check it all out in Wikipedia.
Stiglitz is an Amherst graduate but the talk was held in the Williams Club, since there is no Amherst Club in NYC. However, the audience was limited to Amherst graduates (or current students).
[Amherst aside.] I sat near the front and the person next to me started to introduce himself—I was wearing a name tag, with year of graduation (’55), when I noticed next to him was someone from the class of 1955 I hadn’t seen since graduation (and someone I was not particularly close to even then). His name was Walt Marks and he has made his fame as a Broadway writer and lyricist. We had a very enjoyable talk, one in which I urged him to attend the reunion which is coming up next spring. He said he would consider it. I think I flattered him by referring to a song from our Freshman show, the words and lyrics he had written (“With an “A” Letter on My Black Sweater”) and the dramatic entrance of Bob Eckardt onto the stage, doing some kind of leg split, yelling out “tennis anyone?” Googling, his most recent show was Langston (Hughes) in Harlem and his wife’s most recent show was “Larry Flint: the Right to be Left Alone,” which she also wrote a column on, in the Huffington Post (Joan Brooker Marks).]
Stiglitz had just finished a project for President Nicolas Sarkozy, of France, as chairman of a project evaluating the value of GDP as a measure of well-being. Also appointed to the Committee was Economic Nobelist, Amartya Sen, who teaches at Harvard (as well as in the United Kingdom). [Actually, as I write, there is nearby today’s Business Section, Wednesday, September 23, and on the first page there is an article entitled “Emphasis on Growth Is Called Misguided,” which is about the Sarcozy-Stiglitz-Sen project, with Stiglitz’s picture on page 5.]
Given this reality—this major unfolding story about Sarcozy and the GDP—Stiglitz felt he should devote about a third of his talk to what this was all about. Simplifying, GDP, and its similar predecessor (GNP), measures output, but is it of much value measuring well-being? For example, there is no subtraction from GDP for the harm done to the environment. Or, using my own examples, if you smash your car while texting, the cost of fixing the car (not to speak of dealing with injury and death) should not be considered additions to our well-being. Nor, if an arson wave breaks out, should we count as improvements the extra fire trucks we make or the greater numbers of fire personnel we hire. One could go on and on.
When asked, Stiglitz did not believe that there was a single measure of well-being, but when pushed, he suggested as a possibility, median income—half above, half below. (By this measure, GDP shows little improvement in the economy from 2001 to 2007, since median income was more or less flat, but GDP had risen, the lion’s share taken by the upper income groups.
By how much is truly astonishing. Recently, I saw newly calculated figures on inequality. 1929 was considered to be a peak year for inequality. A recent study, by a Professor at Berkeley, Emmanuel Saez (winner of the prestigious John Bates Clark award, given every other year to that economist under 40 who has made a distinguished theoretical contribution, often (or perhaps usually) a prelude to a Nobel) showed that the top 1/100th of 1%, received 5 % of total income in 1929. In the 1970’s, income was not as unequal and the figures were just over 1%, but by 2007, the top one hundredth of one percent garnered 6% of total income. To me, this is simply astounding. (It will play a role in my discussion of consumption and the future of the economy.) Clearly, if such vast amounts of GDP is going to 15,000 families, the relation of GDP to well-being is clearly undermined, even if you could stop the texting and the arson.
On the general economy, Stiglitz was anything but upbeat, although he speaks well and without any condescension whatever. One commentator remarked that his range was from “negative to hopeless.” Unlike a few, he feels we are not yet out of the recession. He did not indicate when the end would come—but I suspect he might say, like so many others, later in the year (or possibly early in 2010), but whenever, he obviously expects a slow recovery. (More on this shortly.)
Almost everyone in the know understands that the official unemployment rate—currently 9.7% as I write—is a bad measure, not because it is inaccurate, but because it doesn’t include “discouraged workers,” those who have given up looking for a job because they think there aren’t any out there. (Often, these are older workers in their 50’s or perhaps 60’s.) In addition, uncounted in the 9.7% are workers who are working part time—tending bar one night, say—but who would like to be working full time or maybe they call themselves “consultants,” but basically are without clients. If unemployment were measured this way (and it is, but not publicized)—it is undoubtedly a better measure than the 9.7% measure, which simply asks if you are looking for a job and eliminates you if you are not or if you have a 5 hour job but would like to work full time. By this measure, the unemployment rate would be about 16 or 17%.
What Stiglitz also mentioned is that the 9.7% figure is understated because of the seasonal adjustment. Every year, in May and June, there are high school and college graduates (as well as non-graduates) who enter the labor force, but most only find jobs after a few months. Rather than having the U rate go up every May and June and then down every August and September, a seasonal adjustment is made, based on history. History might show that on average the 50% unemployment of these newcomers every June drops to 20% every September, so it seasonally adjusts (i.e., lowers the unemployment rate for June. But if history is not working the same, as surely it isn’t, and the drop in September is only to 30%, then the seasonal adjustment leads to an understatement of unemployment. While the amounts might not be staggering, Stiglitz’s argument might mean that the real unemployment is already over 10%, simply because the seasonal adjustment has led to an understatement.
So on to our prospects. Back when I took economics in 1953 with Paul Samuelson’s third edition, the GDP (then it was the GNP) was the sum of C (Consumption expenditures) + I (Investment) + G (Government expenditures) plus adding in what we produce but export and subtracting what we consume but is produced elsewhere and is imported. (Or after G, you add [+X (exports) –M (imports)].
The most important of these, at least numerically, is C, Consumption. Most are pessimistic about our consumption prospects. First, there are more unemployed than usual, whether by the lower measure or by the higher measure. More important, people can’t overspend their incomes as easily as they could in the past, by borrowing on the value of their houses or the value of their stock holdings—in both cases the values are down and in the case of housing the loaners are more reluctant. Even credit card use is more difficult—higher rates and more careful management by the credit card companies.
But even more important is the Great Depression effect. It hit so hard it made people cautious for decades. The Great Recession has had a similar effect, although clearly not as strong an effect. People are anxious and are cautious. One measure of this is the savings rate. This is calculated by taking total personal income after income taxes and looking to see how much of this is spent. Over most of the years since WWII, the savings rate was about 8%. (This is a complex mix. Many saved not at all. Others, especially, the very well-to-do, saved large parts of their multi-million dollar income. While there may be a few who made 5 million dollars who saved not a penny, most probably saved a million or two or even more.)
As we went forth in the ’90’s and 00’s, the saving rate dropped to zero. People were able to do this since they could borrow against the soaring value of their homes (the bubble). But now the savings rate is about 6%, reflecting in part, the Great Recession caution. And while this will in time fade, it will not likely fade within the next few years. Caution is in. Extravagance is out. Moreover, the inequality factor, alluded to previously, tends to reduce consumption. If 15,000 families make $12 million each, we’re going to end up with more saving than if incomes were more equally distributed. Whatever the value of saving, during recessionary times it is something we need less of.
Finally, there are uninformed pundits who pleadingly ask that those who save the 6% simply spend the money, for its positive economic impact. What they don’t realize is that the 6% is not lying under the mattress or sitting in some low-interest savings account. Most of it is simply not there! That’s because the money was used to pay off debts. You may ask: and you call that saving? Well, yes. You owed money and now you owe less. You are dis-saving less, as you pay off your debts. This is another way of saying you are saving more, even if the money is not in your wallet or under the bedspread.
Exports are harder to evaluate. It depends on the state of the world economy and the state of particular countries and our ability to export to them. China seems to be doing better, but in the end we don’t export that much to them. In fact, exports, in the end, could double and it’s doubtful their impact on our economy would be that great. It would help some, but I wouldn’t push it. Meanwhile, the two major exporters among the advanced capitalist economies are having up and down rough periods—Germany and Japan. In short, I simply don’t expect exports to pull us out of the recessionary quagmire.
Investment is a different kettle of fish. First, no one ever knows in advance when it will be the pacemaker. But the continued weakness in the banking area makes it unlikely that investment can be the source of significant future strength. (More on this in a moment.)
Government could be the key. To some extent, in its bail-outs of the banks and its stimulus (along with the money created by the Federal Reserve) government—Republican bitching not withstanding—is what has kept us from falling even further into the depressionary morass. Had Obama not played the bipartisan game, but gone to the public with a $1.4 billion stimulus, we probably would have ended up with about $1.2 billion in stimulus, 50% more than we actually ended up with, with a much stronger economy, especially as most of this would have been appropriate for countering a recession—tax cuts for the poor, more aid to the unemployed, more directed aid (or loans)to states to hire teachers, librarians, police, and health and fire workers. Admittedly, water over the dam, but pressure must be exerted on Obama to mend his bipartisan ways or suffer a horrendous defeat.
Virtually, no one believes that a second stimulus—a booster—is possible at this point—neither Stiglitz nor Krugman do (the liberal alternatives to Summers and Geithner, both of whom were invited to dine at the White House, to what benefit it’s hard to evaluate, since both were sworn to secrecy). Perhaps, if the economy continues to slug along in 2010, a second stimulus might be possible. I think the consensus is that slug along is what we are going to get, with a second stumulus doubtful and therefore we may be in for disastrous political results.
Stiglitz was asked about manufacturing, which year by year is declining as a percentage of the GDP. To me, he was surprisingly optimistic. At some point—2012? (who knows when?)—he thought it might pick up. But why? To the extent, education is needed, it seems we’re in the soup, since every indicator on education is a bummer. But perhaps education is not needed, just smarts. Then we have another problem. What is to keep the manufacturer from moving the production to a site where labor costs are 10% of what he is paying here? Or a variant: what is to prevent Chinese entrepreneurs from copying what we do, maybe making a cosmetic change or two, then exporting to us what we had invented? I actually asked Stiglitz this but he deflected the question.
In short, therefore, I expect a long, slow recovery, perhaps one that will never reduce unemployment to the levels that existed in the late 1990’s. I also expect dangerous political reactions. We have them now and the fan has not really been hit yet. But there is still one more reason for pessimism.
There is yet another difficulty on the horizon and that is the money that debtors have collected, including the Chinese. It certainly is not in the interest of the Chinese to express their misgivings over tires or whatever new products the US decides to challenge them on by selling their dollars. Their losses would be astronomical. But things happen and panics occur. The dollar has fallen enormously since spring against the Euro. And it’s not doing well against the Yen.
At some point, the declining value of the dollar is going to be a big part of the deteriorating picture. The dollar might simply continue to fall slowly or panic might send it plummeting, like the 1987 crash of the stock market—about 23% in a single session. But one thing for sure, the dollar problem will not disappear. What it may do, however, is put Ben Bernanke,, chairman of the Federal Reserve, between a rock and a hard place. Rising prices because of a weakened dollar and, simultaneously, high levels of unemployment. This is a no win situation. Price controls could be an answer, but Nixon's needless and inappropriate use of them, make them currently unusuable.
Looking at the present as history, the last two or three centuries the first world dominated the third world. It did so by force and conquest. Imperialism was not just a Communist slogan—it was a capitalist reality. But in the late decades of the last century, things began to change, especially in China, its “Communist” dictatorship notwithstanding—the caps because the dictatorship is real but its Communist nature is not.
What I think we are experiencing is a reversal of history, so to speak. The 3rd World, or parts of it, is rising and this rise is at the expense of the 1st world. Just to get a small handle on it, look at the trade balance between the US and China—they export and we import (and they get our dollars)] To me, this suggests, that we are heading south (or downward). It will not be an overnight process, but it has already begun. Just look at our manufacturing. Our best chance to weather the storm is a slim one: We accept that our day in the sun is over and we adjust. We share the reduced production (and reduced goods that we will be able to buy) by having a shorter workweek.
We then have to make the seismic leap implicit in what Stiglitz has been writing about, and find a happiness in increased leisure that outweighs the loss of the value of the goods we are about to go without (or have a little less of). In an utterly sane world, this could happen, since more time to spend with friends and family is an obvious plus. But it will require changes we are not used to and worse, think we should not be obliged to adopt. If only we were less arrogant and more humble—if only!
Stiglitz is an Amherst graduate but the talk was held in the Williams Club, since there is no Amherst Club in NYC. However, the audience was limited to Amherst graduates (or current students).
[Amherst aside.] I sat near the front and the person next to me started to introduce himself—I was wearing a name tag, with year of graduation (’55), when I noticed next to him was someone from the class of 1955 I hadn’t seen since graduation (and someone I was not particularly close to even then). His name was Walt Marks and he has made his fame as a Broadway writer and lyricist. We had a very enjoyable talk, one in which I urged him to attend the reunion which is coming up next spring. He said he would consider it. I think I flattered him by referring to a song from our Freshman show, the words and lyrics he had written (“With an “A” Letter on My Black Sweater”) and the dramatic entrance of Bob Eckardt onto the stage, doing some kind of leg split, yelling out “tennis anyone?” Googling, his most recent show was Langston (Hughes) in Harlem and his wife’s most recent show was “Larry Flint: the Right to be Left Alone,” which she also wrote a column on, in the Huffington Post (Joan Brooker Marks).]
Stiglitz had just finished a project for President Nicolas Sarkozy, of France, as chairman of a project evaluating the value of GDP as a measure of well-being. Also appointed to the Committee was Economic Nobelist, Amartya Sen, who teaches at Harvard (as well as in the United Kingdom). [Actually, as I write, there is nearby today’s Business Section, Wednesday, September 23, and on the first page there is an article entitled “Emphasis on Growth Is Called Misguided,” which is about the Sarcozy-Stiglitz-Sen project, with Stiglitz’s picture on page 5.]
Given this reality—this major unfolding story about Sarcozy and the GDP—Stiglitz felt he should devote about a third of his talk to what this was all about. Simplifying, GDP, and its similar predecessor (GNP), measures output, but is it of much value measuring well-being? For example, there is no subtraction from GDP for the harm done to the environment. Or, using my own examples, if you smash your car while texting, the cost of fixing the car (not to speak of dealing with injury and death) should not be considered additions to our well-being. Nor, if an arson wave breaks out, should we count as improvements the extra fire trucks we make or the greater numbers of fire personnel we hire. One could go on and on.
When asked, Stiglitz did not believe that there was a single measure of well-being, but when pushed, he suggested as a possibility, median income—half above, half below. (By this measure, GDP shows little improvement in the economy from 2001 to 2007, since median income was more or less flat, but GDP had risen, the lion’s share taken by the upper income groups.
By how much is truly astonishing. Recently, I saw newly calculated figures on inequality. 1929 was considered to be a peak year for inequality. A recent study, by a Professor at Berkeley, Emmanuel Saez (winner of the prestigious John Bates Clark award, given every other year to that economist under 40 who has made a distinguished theoretical contribution, often (or perhaps usually) a prelude to a Nobel) showed that the top 1/100th of 1%, received 5 % of total income in 1929. In the 1970’s, income was not as unequal and the figures were just over 1%, but by 2007, the top one hundredth of one percent garnered 6% of total income. To me, this is simply astounding. (It will play a role in my discussion of consumption and the future of the economy.) Clearly, if such vast amounts of GDP is going to 15,000 families, the relation of GDP to well-being is clearly undermined, even if you could stop the texting and the arson.
On the general economy, Stiglitz was anything but upbeat, although he speaks well and without any condescension whatever. One commentator remarked that his range was from “negative to hopeless.” Unlike a few, he feels we are not yet out of the recession. He did not indicate when the end would come—but I suspect he might say, like so many others, later in the year (or possibly early in 2010), but whenever, he obviously expects a slow recovery. (More on this shortly.)
Almost everyone in the know understands that the official unemployment rate—currently 9.7% as I write—is a bad measure, not because it is inaccurate, but because it doesn’t include “discouraged workers,” those who have given up looking for a job because they think there aren’t any out there. (Often, these are older workers in their 50’s or perhaps 60’s.) In addition, uncounted in the 9.7% are workers who are working part time—tending bar one night, say—but who would like to be working full time or maybe they call themselves “consultants,” but basically are without clients. If unemployment were measured this way (and it is, but not publicized)—it is undoubtedly a better measure than the 9.7% measure, which simply asks if you are looking for a job and eliminates you if you are not or if you have a 5 hour job but would like to work full time. By this measure, the unemployment rate would be about 16 or 17%.
What Stiglitz also mentioned is that the 9.7% figure is understated because of the seasonal adjustment. Every year, in May and June, there are high school and college graduates (as well as non-graduates) who enter the labor force, but most only find jobs after a few months. Rather than having the U rate go up every May and June and then down every August and September, a seasonal adjustment is made, based on history. History might show that on average the 50% unemployment of these newcomers every June drops to 20% every September, so it seasonally adjusts (i.e., lowers the unemployment rate for June. But if history is not working the same, as surely it isn’t, and the drop in September is only to 30%, then the seasonal adjustment leads to an understatement of unemployment. While the amounts might not be staggering, Stiglitz’s argument might mean that the real unemployment is already over 10%, simply because the seasonal adjustment has led to an understatement.
So on to our prospects. Back when I took economics in 1953 with Paul Samuelson’s third edition, the GDP (then it was the GNP) was the sum of C (Consumption expenditures) + I (Investment) + G (Government expenditures) plus adding in what we produce but export and subtracting what we consume but is produced elsewhere and is imported. (Or after G, you add [+X (exports) –M (imports)].
The most important of these, at least numerically, is C, Consumption. Most are pessimistic about our consumption prospects. First, there are more unemployed than usual, whether by the lower measure or by the higher measure. More important, people can’t overspend their incomes as easily as they could in the past, by borrowing on the value of their houses or the value of their stock holdings—in both cases the values are down and in the case of housing the loaners are more reluctant. Even credit card use is more difficult—higher rates and more careful management by the credit card companies.
But even more important is the Great Depression effect. It hit so hard it made people cautious for decades. The Great Recession has had a similar effect, although clearly not as strong an effect. People are anxious and are cautious. One measure of this is the savings rate. This is calculated by taking total personal income after income taxes and looking to see how much of this is spent. Over most of the years since WWII, the savings rate was about 8%. (This is a complex mix. Many saved not at all. Others, especially, the very well-to-do, saved large parts of their multi-million dollar income. While there may be a few who made 5 million dollars who saved not a penny, most probably saved a million or two or even more.)
As we went forth in the ’90’s and 00’s, the saving rate dropped to zero. People were able to do this since they could borrow against the soaring value of their homes (the bubble). But now the savings rate is about 6%, reflecting in part, the Great Recession caution. And while this will in time fade, it will not likely fade within the next few years. Caution is in. Extravagance is out. Moreover, the inequality factor, alluded to previously, tends to reduce consumption. If 15,000 families make $12 million each, we’re going to end up with more saving than if incomes were more equally distributed. Whatever the value of saving, during recessionary times it is something we need less of.
Finally, there are uninformed pundits who pleadingly ask that those who save the 6% simply spend the money, for its positive economic impact. What they don’t realize is that the 6% is not lying under the mattress or sitting in some low-interest savings account. Most of it is simply not there! That’s because the money was used to pay off debts. You may ask: and you call that saving? Well, yes. You owed money and now you owe less. You are dis-saving less, as you pay off your debts. This is another way of saying you are saving more, even if the money is not in your wallet or under the bedspread.
Exports are harder to evaluate. It depends on the state of the world economy and the state of particular countries and our ability to export to them. China seems to be doing better, but in the end we don’t export that much to them. In fact, exports, in the end, could double and it’s doubtful their impact on our economy would be that great. It would help some, but I wouldn’t push it. Meanwhile, the two major exporters among the advanced capitalist economies are having up and down rough periods—Germany and Japan. In short, I simply don’t expect exports to pull us out of the recessionary quagmire.
Investment is a different kettle of fish. First, no one ever knows in advance when it will be the pacemaker. But the continued weakness in the banking area makes it unlikely that investment can be the source of significant future strength. (More on this in a moment.)
Government could be the key. To some extent, in its bail-outs of the banks and its stimulus (along with the money created by the Federal Reserve) government—Republican bitching not withstanding—is what has kept us from falling even further into the depressionary morass. Had Obama not played the bipartisan game, but gone to the public with a $1.4 billion stimulus, we probably would have ended up with about $1.2 billion in stimulus, 50% more than we actually ended up with, with a much stronger economy, especially as most of this would have been appropriate for countering a recession—tax cuts for the poor, more aid to the unemployed, more directed aid (or loans)to states to hire teachers, librarians, police, and health and fire workers. Admittedly, water over the dam, but pressure must be exerted on Obama to mend his bipartisan ways or suffer a horrendous defeat.
Virtually, no one believes that a second stimulus—a booster—is possible at this point—neither Stiglitz nor Krugman do (the liberal alternatives to Summers and Geithner, both of whom were invited to dine at the White House, to what benefit it’s hard to evaluate, since both were sworn to secrecy). Perhaps, if the economy continues to slug along in 2010, a second stimulus might be possible. I think the consensus is that slug along is what we are going to get, with a second stumulus doubtful and therefore we may be in for disastrous political results.
Stiglitz was asked about manufacturing, which year by year is declining as a percentage of the GDP. To me, he was surprisingly optimistic. At some point—2012? (who knows when?)—he thought it might pick up. But why? To the extent, education is needed, it seems we’re in the soup, since every indicator on education is a bummer. But perhaps education is not needed, just smarts. Then we have another problem. What is to keep the manufacturer from moving the production to a site where labor costs are 10% of what he is paying here? Or a variant: what is to prevent Chinese entrepreneurs from copying what we do, maybe making a cosmetic change or two, then exporting to us what we had invented? I actually asked Stiglitz this but he deflected the question.
In short, therefore, I expect a long, slow recovery, perhaps one that will never reduce unemployment to the levels that existed in the late 1990’s. I also expect dangerous political reactions. We have them now and the fan has not really been hit yet. But there is still one more reason for pessimism.
There is yet another difficulty on the horizon and that is the money that debtors have collected, including the Chinese. It certainly is not in the interest of the Chinese to express their misgivings over tires or whatever new products the US decides to challenge them on by selling their dollars. Their losses would be astronomical. But things happen and panics occur. The dollar has fallen enormously since spring against the Euro. And it’s not doing well against the Yen.
At some point, the declining value of the dollar is going to be a big part of the deteriorating picture. The dollar might simply continue to fall slowly or panic might send it plummeting, like the 1987 crash of the stock market—about 23% in a single session. But one thing for sure, the dollar problem will not disappear. What it may do, however, is put Ben Bernanke,, chairman of the Federal Reserve, between a rock and a hard place. Rising prices because of a weakened dollar and, simultaneously, high levels of unemployment. This is a no win situation. Price controls could be an answer, but Nixon's needless and inappropriate use of them, make them currently unusuable.
Looking at the present as history, the last two or three centuries the first world dominated the third world. It did so by force and conquest. Imperialism was not just a Communist slogan—it was a capitalist reality. But in the late decades of the last century, things began to change, especially in China, its “Communist” dictatorship notwithstanding—the caps because the dictatorship is real but its Communist nature is not.
What I think we are experiencing is a reversal of history, so to speak. The 3rd World, or parts of it, is rising and this rise is at the expense of the 1st world. Just to get a small handle on it, look at the trade balance between the US and China—they export and we import (and they get our dollars)] To me, this suggests, that we are heading south (or downward). It will not be an overnight process, but it has already begun. Just look at our manufacturing. Our best chance to weather the storm is a slim one: We accept that our day in the sun is over and we adjust. We share the reduced production (and reduced goods that we will be able to buy) by having a shorter workweek.
We then have to make the seismic leap implicit in what Stiglitz has been writing about, and find a happiness in increased leisure that outweighs the loss of the value of the goods we are about to go without (or have a little less of). In an utterly sane world, this could happen, since more time to spend with friends and family is an obvious plus. But it will require changes we are not used to and worse, think we should not be obliged to adopt. If only we were less arrogant and more humble—if only!
Tuesday, September 22, 2009
Who are the Republicans?
1. First, there are those who say they are Republicans because they are for fiscal responsibility (and some add are moderate on social issues).
This is theoretically the best reason for being a Republican or voting for them. Except it is totally wrong. The single most irresponsible fiscal action took place in 1981, when Reagan cut taxes, mainly for the well-to-do. It was not done to counter the recession, which was yet to come. (And it did little to counter that recession—it was all left to Volcker who raised interest rates to the skies to stop inflation (17-18% mortgage rates and a prime rate that briefly reached 21½ %. These increases eventually brought inflation down from its double digits to a relatively low level. But because astronomical interest rates—and there seemed to be no alternative—led to double digit unemployment, Volcker was rewarded for his efforts by being fired (that is, not being reappointed)!
Reagan’s tax cut, which was not appropriate as a stimulus, was the single most irresponsible fiscal action of any post-war (WWII) president. Occurring at a time of great inflation--just when you should not be cutting taxes--it quadrupled the national debt from $1 trillion to $4 trillion over the eight Reagan years. The second most irresponsible fiscal act was George W Bush’s tax cut in 2001, originally designed to reduce the fiscal surplus which was being used to reduce our national debt—Bush and Alan Greenspan, for reasons never made clear, agreed we should not be reducing our national debt. Then later, in 2001, Bush argued for his cut as a fiscal stimulus. As a stimulus, it was a failure since far too much went into the pockets of the rich who did not spend it. The result: not only an eradication of our fiscal surplus but a huge increase in our national debt. Republicans are NOT the party of fiscal responsibility and those who say they are voting for them for this reason either are (willfully?) ignorant or they have other hidden reasons.
2. Some are Republicans because they are outright racists, although this is not true of the few Republicans I happen to know. In Bob Herbert’s column, as I write this on 9/19/09, he mentions an aide to a Republican state senator in Tennessee showing dignified portraits of the first 43 presidents, then one of Obama “as a spook, a cartoonish pair of white eyes against a black background.” Or a longtime GOP activist referring to a gorilla, which escaped from a Columbia S.C. zoo, “as one of Michelle Obama’s ancestors.” Or dear old Glenn Beck assuring us that Obama” has a deep-seated hatred for white people.” And so on.
3. Arguments lurking near, explaining why some are Republicans, include those who hate Hispanics or immigrants or Muslims or possibly Jews (help me--add to the list.)
4. Perhaps, a semi-legitimate reason to be a Republican is that Democrats, in general, are for abortion. (But so are many Republicans, including their politicians, or they used to be, until they knew they had to face sectarian primary opponents.) The argument is based on a belief I do not share—that abortion is murder. But, c’mon, abortion is just one issue and probably more people die because of Republican opposition to a reasonable health plan which should outweigh this issue, unless somehow abortion is more immoral, in some way—what other way would that be?—than someone who dies because they can’t get medical treatment. And we won’t go into the millions who have died in Iraq because George W. Bush lied us into that war—the non-existent WMD and the nonexistent ties of Saddam with Osama. Probably, even if you included all those aborted as people murdered, which I strenuously disagree with, a case may exist that Republican rule has lead to more deaths. Voting and being Republican because of abortion seems to me a weak reed.
5. Let’s lump together, then, a lot of other nonsense arguments: Democrats are Socialists. Democrats are Fascists! Democrats are for big cities. Democrats are against gun control. Democrats are too intellectual—they’re favored on campuses. One could go on endlessly, but in short all of these are emotional reasons camouflaging real issues (including the hate issues, under 3)
6. Democrats ARE more pro-labor than Republicans. This is true. But I think what’s more important is that Republicans are pro-big-business, either because they ARE big-business or because people admire the rich for some crazy reason. They think the rich made us into a great nation, even as they now offshore their manufacturing jobs, offshore their incomes to avoid taxes, oppose health and other reforms and treat the needs of the poor and middle class despicably.
7. But related to this, and very important, is the view that government is the problem, as Reagan expressed it, and Democrats always seek to expand it (which they don’t). But while government does dumb things and often is inefficient, often it is ultimately our savior. Without the super-dooper actions of the Fed, we’d be in the 2nd Great Depression. Without the stimulus, we’d also be in the 2nd Great Depression, although it is much weaker than it could have been because Barrack Obama tried too hard to make it bi-partisan, when the numbers of Republicans in national office, who are possibly bi-partisan, mostly or totally live in Maine. And meanwhile ignorance is astounding: “keep the government out of my Medicare”! Or “had Stephen Hawking lived in England he would have died,” (except that’s where he does live)! And everyone wants federal tornado relief and hurricane relief. And big business wants farm supports. And more money is always needed for “defense” and foreign adventures. In fact, I think it an almost iron-cast truism that most people want government for many things, but they just don’t want to pay for it.
A side excursion are the libertarians and Ayn Rand-ists. They think everyone is responsible for his or her own condition, bar none. If you’re poor, it’s your own fault. If you’re rich—even if you inherited it all—you deserve it. If you’re unemployed, it’s also your own fault. (Actually, a few Republican economists literally believe there is no unemployment. What we have is more people just choosing not to work. I’m serious. See, on this, Paul Krugman’s recent article in the New York Times Magazine, September 6, 2009, ”How Did Economists Get It So Wrong?,” criticizing an important wing of macro-economics—it’s an eye opener. Also, check Brad DeLong’s blog—he’s a distinguished Berkeley economist.) I suppose Rand-ists might vote Republican as a lesser evil, but I think Republican religiosity would drive most Rand-ists crazy. Personally, I think they’re crazy to begin with!
8. I guess fervid religious belief deserves a separate number. To the extent that one party is closer to being “creationists,” it’s the Republican Party. At least, it tries to act as though they are more appropriately religious. But who knows? It seems there are an awful lot of them conducting extra-marital affairs (or gay affairs), even as they publicly condemn what they themselves are doing. Whether Republicans are legitimately more religious is, I think, an open question. Of course, to the extent they are, it makes me ever more Democratic. I don’t want to live in a Christianized America and it’s possible, if it ever went that far, I wouldn’t be allowed to stay here. But maybe these are unreasonable fears, but ones you inevitably feel after listening to some of the religious fundamentalists.
9. Perhaps people are (and vote) Republican because they believe in more aggressive foreign policies. If so, it would seem they have learned nothing from Vietnam and Iraq. I believe Obama is pursuing the Afghanistan War with such force out of a fear that if he doesn’t he will be perceived as weak in the foreign policy realm. Whatever the appearances, however, unless there is a significant diminishment of the Afghanistan commitment, what is shaping up is a political catastrophe. But this is hardly a reason to vote Republican, or be one, in that Republicans began the Afghanistan adventure and no doubt McCain or any other Republican president would be doing pretty much what Obama is doing, if not worse.
9. There are, I’m sure, other reasons why people are Republicans, but probably the most important is simply tradition. Born Republican, remain Republican. I have a friend whose mother was Republican but she loved the Democratic governor of Connecticut, Ella Grasso. But love cannot transcend tradition. She simply could not vote for a Democrat.
My spouse’s mother is a moderate and by Arkansas standards not a racist. But she can only vote for (what are often racist) Republicans, since that’s the way she was brought up. I find this sad. I wish thought and logic and knowledge played a larger role in America in general and its politics in particular. But, alas, people do not behave as informed citizens, to employ a phrase often used but seldom realized. In short, many Republicans vote Republican simply because they were brought up that way. (I’m sure the same is true of Democrats, although frankly I think Democratic voters can find many more reasons to justify their Democratic votes than Republicans can find to justify their Republican votes.
********
Personal Addenda: my father voted for Dewey, one of the only Jews I knew of who did so, although his reasons were not clear. (We were lower middle class—I didn’t learn my tennis at the country club, which many of my friends and opponents did!) My mother voted Democratic in general and for Roosevelt in particular, since that was the Jewish thing to do (and to a considerable degree, still is.) I voted for third parties during my radical phase, but finally (influenced by my spouse at the time) held my nose and voted for Carter because I really didn’t want to see Reagan elected. I once voted for someone I now consider a civil liberties menace, Rudy Giuliani, since I thought Dinkins was so incompetent. That was a major mistake—Giuliani is a dangerous man, although as mayor his harm was limited. And besides, Dinkins did one thing that makes him forever a hero in my eyes. He diverted planes from LaGuardia away from the tennis center so that the games during the Open can be played in peace.
This is theoretically the best reason for being a Republican or voting for them. Except it is totally wrong. The single most irresponsible fiscal action took place in 1981, when Reagan cut taxes, mainly for the well-to-do. It was not done to counter the recession, which was yet to come. (And it did little to counter that recession—it was all left to Volcker who raised interest rates to the skies to stop inflation (17-18% mortgage rates and a prime rate that briefly reached 21½ %. These increases eventually brought inflation down from its double digits to a relatively low level. But because astronomical interest rates—and there seemed to be no alternative—led to double digit unemployment, Volcker was rewarded for his efforts by being fired (that is, not being reappointed)!
Reagan’s tax cut, which was not appropriate as a stimulus, was the single most irresponsible fiscal action of any post-war (WWII) president. Occurring at a time of great inflation--just when you should not be cutting taxes--it quadrupled the national debt from $1 trillion to $4 trillion over the eight Reagan years. The second most irresponsible fiscal act was George W Bush’s tax cut in 2001, originally designed to reduce the fiscal surplus which was being used to reduce our national debt—Bush and Alan Greenspan, for reasons never made clear, agreed we should not be reducing our national debt. Then later, in 2001, Bush argued for his cut as a fiscal stimulus. As a stimulus, it was a failure since far too much went into the pockets of the rich who did not spend it. The result: not only an eradication of our fiscal surplus but a huge increase in our national debt. Republicans are NOT the party of fiscal responsibility and those who say they are voting for them for this reason either are (willfully?) ignorant or they have other hidden reasons.
2. Some are Republicans because they are outright racists, although this is not true of the few Republicans I happen to know. In Bob Herbert’s column, as I write this on 9/19/09, he mentions an aide to a Republican state senator in Tennessee showing dignified portraits of the first 43 presidents, then one of Obama “as a spook, a cartoonish pair of white eyes against a black background.” Or a longtime GOP activist referring to a gorilla, which escaped from a Columbia S.C. zoo, “as one of Michelle Obama’s ancestors.” Or dear old Glenn Beck assuring us that Obama” has a deep-seated hatred for white people.” And so on.
3. Arguments lurking near, explaining why some are Republicans, include those who hate Hispanics or immigrants or Muslims or possibly Jews (help me--add to the list.)
4. Perhaps, a semi-legitimate reason to be a Republican is that Democrats, in general, are for abortion. (But so are many Republicans, including their politicians, or they used to be, until they knew they had to face sectarian primary opponents.) The argument is based on a belief I do not share—that abortion is murder. But, c’mon, abortion is just one issue and probably more people die because of Republican opposition to a reasonable health plan which should outweigh this issue, unless somehow abortion is more immoral, in some way—what other way would that be?—than someone who dies because they can’t get medical treatment. And we won’t go into the millions who have died in Iraq because George W. Bush lied us into that war—the non-existent WMD and the nonexistent ties of Saddam with Osama. Probably, even if you included all those aborted as people murdered, which I strenuously disagree with, a case may exist that Republican rule has lead to more deaths. Voting and being Republican because of abortion seems to me a weak reed.
5. Let’s lump together, then, a lot of other nonsense arguments: Democrats are Socialists. Democrats are Fascists! Democrats are for big cities. Democrats are against gun control. Democrats are too intellectual—they’re favored on campuses. One could go on endlessly, but in short all of these are emotional reasons camouflaging real issues (including the hate issues, under 3)
6. Democrats ARE more pro-labor than Republicans. This is true. But I think what’s more important is that Republicans are pro-big-business, either because they ARE big-business or because people admire the rich for some crazy reason. They think the rich made us into a great nation, even as they now offshore their manufacturing jobs, offshore their incomes to avoid taxes, oppose health and other reforms and treat the needs of the poor and middle class despicably.
7. But related to this, and very important, is the view that government is the problem, as Reagan expressed it, and Democrats always seek to expand it (which they don’t). But while government does dumb things and often is inefficient, often it is ultimately our savior. Without the super-dooper actions of the Fed, we’d be in the 2nd Great Depression. Without the stimulus, we’d also be in the 2nd Great Depression, although it is much weaker than it could have been because Barrack Obama tried too hard to make it bi-partisan, when the numbers of Republicans in national office, who are possibly bi-partisan, mostly or totally live in Maine. And meanwhile ignorance is astounding: “keep the government out of my Medicare”! Or “had Stephen Hawking lived in England he would have died,” (except that’s where he does live)! And everyone wants federal tornado relief and hurricane relief. And big business wants farm supports. And more money is always needed for “defense” and foreign adventures. In fact, I think it an almost iron-cast truism that most people want government for many things, but they just don’t want to pay for it.
A side excursion are the libertarians and Ayn Rand-ists. They think everyone is responsible for his or her own condition, bar none. If you’re poor, it’s your own fault. If you’re rich—even if you inherited it all—you deserve it. If you’re unemployed, it’s also your own fault. (Actually, a few Republican economists literally believe there is no unemployment. What we have is more people just choosing not to work. I’m serious. See, on this, Paul Krugman’s recent article in the New York Times Magazine, September 6, 2009, ”How Did Economists Get It So Wrong?,” criticizing an important wing of macro-economics—it’s an eye opener. Also, check Brad DeLong’s blog—he’s a distinguished Berkeley economist.) I suppose Rand-ists might vote Republican as a lesser evil, but I think Republican religiosity would drive most Rand-ists crazy. Personally, I think they’re crazy to begin with!
8. I guess fervid religious belief deserves a separate number. To the extent that one party is closer to being “creationists,” it’s the Republican Party. At least, it tries to act as though they are more appropriately religious. But who knows? It seems there are an awful lot of them conducting extra-marital affairs (or gay affairs), even as they publicly condemn what they themselves are doing. Whether Republicans are legitimately more religious is, I think, an open question. Of course, to the extent they are, it makes me ever more Democratic. I don’t want to live in a Christianized America and it’s possible, if it ever went that far, I wouldn’t be allowed to stay here. But maybe these are unreasonable fears, but ones you inevitably feel after listening to some of the religious fundamentalists.
9. Perhaps people are (and vote) Republican because they believe in more aggressive foreign policies. If so, it would seem they have learned nothing from Vietnam and Iraq. I believe Obama is pursuing the Afghanistan War with such force out of a fear that if he doesn’t he will be perceived as weak in the foreign policy realm. Whatever the appearances, however, unless there is a significant diminishment of the Afghanistan commitment, what is shaping up is a political catastrophe. But this is hardly a reason to vote Republican, or be one, in that Republicans began the Afghanistan adventure and no doubt McCain or any other Republican president would be doing pretty much what Obama is doing, if not worse.
9. There are, I’m sure, other reasons why people are Republicans, but probably the most important is simply tradition. Born Republican, remain Republican. I have a friend whose mother was Republican but she loved the Democratic governor of Connecticut, Ella Grasso. But love cannot transcend tradition. She simply could not vote for a Democrat.
My spouse’s mother is a moderate and by Arkansas standards not a racist. But she can only vote for (what are often racist) Republicans, since that’s the way she was brought up. I find this sad. I wish thought and logic and knowledge played a larger role in America in general and its politics in particular. But, alas, people do not behave as informed citizens, to employ a phrase often used but seldom realized. In short, many Republicans vote Republican simply because they were brought up that way. (I’m sure the same is true of Democrats, although frankly I think Democratic voters can find many more reasons to justify their Democratic votes than Republicans can find to justify their Republican votes.
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Personal Addenda: my father voted for Dewey, one of the only Jews I knew of who did so, although his reasons were not clear. (We were lower middle class—I didn’t learn my tennis at the country club, which many of my friends and opponents did!) My mother voted Democratic in general and for Roosevelt in particular, since that was the Jewish thing to do (and to a considerable degree, still is.) I voted for third parties during my radical phase, but finally (influenced by my spouse at the time) held my nose and voted for Carter because I really didn’t want to see Reagan elected. I once voted for someone I now consider a civil liberties menace, Rudy Giuliani, since I thought Dinkins was so incompetent. That was a major mistake—Giuliani is a dangerous man, although as mayor his harm was limited. And besides, Dinkins did one thing that makes him forever a hero in my eyes. He diverted planes from LaGuardia away from the tennis center so that the games during the Open can be played in peace.
Lettered Recessions
Of recent there has been fearful talk of an L, a long period of stagnation. The best-known example of this is Japan, which suffered what is known as the “lost decade,” following the collapse of its real estate and stock market bubbles, at the beginning of the ‘90’s. Even 20 years later the Nikkei 225 (the Japanese stock market) is only about 25% of what it was worth at its peak, just as the NASDAQ Composite is only just above 40 % of its 2000 peak.
Perhaps more pertinent in the current discussion is the possibility of a W, a double dip recession, and one does not have in mind the delicious use of that term from another era (a chocolate scoop on top of a vanilla one in a cone). A variety of economists have expressed fears of a double dip, including Martin Feldstein, a Reagan adviser, Martin Regalia of the US Chamber of Commerce and Dr. Doom, Nouriel Roubini, who sees more yellow weeds than green shoots in the current economic situation. Roubini, whose pessimistic forecasts of a few years ago, in 2005-06, were dismissed (and even made fun of) but when almost all came true, he has since been honored as a distinguished economist and forecaster.
Usually, double dippers refer to a recession followed by a short recovery, which peters out, followed by a second recession. A precedent, perhaps, is the short 1980 recession followed by the long and devastating 1981-2 recession. This made for a peculiar shaped W, in which the second downward slope of the W far exceeds the first downward slope. Letters are at best symbolic projections and not to be taken literally.
But a different version of the W is examined, and perhaps feared, by Christina Romer, chairwoman of President Obama’s Council of Economic Advisers and a scholar of the Great Depression. In 1937 we went into what is called a recession within a depression, with unemployment which had fallen, since 1933, from 25% to 14%, rising again to 19%. While perverse fiscal policies were involved—increased taxes on Social Security, for example—the main problem was tighter monetary policy, driven by fear of a potential inflation.
Contemporary anxieties about future inflation have ignited worries that policies will be created that will lead to a repeat of 1937, in spite of very detailed and thoughtful explanations by Fed chairman, Ben Bernanke, as to how inflation can be avoided, if and when it rears its ugly head. But the threat of inflation, and tighter money, may help doom what is desperately needed to reverse permanently the downslide and overcome what many if not most economists foresee—a painfully slow recovery that could last years.
The most visible sign of economic weakness, apart from the near-death experiences we may be seeing of the automobile industry, is the vast amount of unemployment, actually understated by the official rate, as I write, of 9.7%. Using a broader definition, one which includes workers who no longer look for a job because they think there is none to be found as well as huge numbers working part time, who would like to work full time, the unemployment figure is about 17 %.
The implication, as notable Nobelists like Joseph Stiglitz and Paul Krugman have argued, is that we desperately need a second stimulus, a booster shot, as it were. But, unfortunately, the politics makes this unlikely. Perhaps, in time, we can learn from the Alphabet Soup of the 1930’s—and re-create the WPA and CCC. In addition, simple humanitarian reasons (as well as fiscal considerations) beg for an increase in the period the unemployed get unemployment compensation, as well as an increase in the levels, and that we provide low interest loans to states earmarked to employ teachers, librarians, medical personnel, police and fire fighters.
If actions likes this are undertaken, maybe, we can read of a new recession letter, one which encapsulates the positive improvements these measure can create—a “J”—a letter describing a recovery that takes us to new heights and describes a genuine return to prosperity
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