Recently, I attended my 55th year reunion at Amherst College. It is traditional to hold panels on topics of contemporary relevance. One of these, sponsored by my class, was entitled: Political Bipartisanship: Why and How It Has Failed in Current American Politics. I had wanted to be one of the panelists, but there wasn’t time. However, the chairman of the panel allowed me to make a four minute comment, using the mike (and I was grateful). Below, in capital letters is more or less what I said and then added, in regular type, are some of things I would have added, had I more time.
1. I POINTED OUT THAT CONTEMPORARY PARTISANSHIP, AND THE NASTINESS WHICH ACCOMPANIES IT, HAD A RECENT ANTECEDENT–1993. IN THAT YEAR, EVERY REPUBLICAN IN THE SENATE AND HOUSE VOTED AGAINST BILL CLINTON’S TAX INCREASE, DESIGNED TO REDUCE THE DEFICIT AND THEREBY LOWER INTEREST RATES AND INCREASE INVESTMENT. (The vote was 51-50 in the Senate–Al Gore–and 218 -216 in the House.) SOME OF THE NASTINESS INCLUDED ACCUSATIONS THAT BILL AND/OR HILLARY HAD KILLED VINCENT FOSTER.
There were also accusations about White Water and endless attempts to prove criminal behavior, but nothing criminal was ever found. Also, I admit the nastiness of that period doesn’t come near what it is today, but as one will see in one of my arguments as to why partisanship has triumphed, the causes of both 1993 and 2008-10 have similar roots.
I THEN GAVE 5 REASONS WHY WE HAVE THE SITUATION WE HAVE.
1. 9/11: IT GENERATED FEARS THAT DON’T GO AWAY AND FOR MANY ARE INCREASED BECAUSE WE HAVE A PRESIDENT NAMED BARRACK HUSSEIN OBAMA. (Perhaps, also playing a role in contemporary anger, fears and nastiness is the humiliation many still feel about losing the Vietnam War.)
2. ENTITLEMENT: CONSERVATIVE REPUBLICANS FOR YEARS WERE SHUT OUT OF POWER BY THE EASTERN MODERATES, SUCH AS THOMAS DEWEY (THE GOP CANDIDATE IN 1944 AND 1948) AND NELSON ROCKEFELLER. EVEN MR. REPUBLICAN, ROBERT TAFT, WAS KEPT FROM GETTING THE NOMINATION IN 1952. WHEN THEY DO GET POWER, IN 1980 (WITH REAGAN) AND AGAIN IN 2000 (WITH GEORGE W. BUSH), THEY FELT THEY WERE ENTITLED TO THE POWER THEY HAD FINALLY ACHIEVED. (MOSTLY, MODERATES WERE NO LONGER PART OF THE PARTY.) THE CONSERVATIVES FELT THAT NOW THEY WOULD HAVE A CHANCE TO RECONSTRUCT THE ECONOMY AND SOCIETY THE WAY THEY FELT IT SHOULD BE–MEANING, IN GENERAL, A REVERSAL OF THE NEW DEAL AND WHAT FOLLOWED (SUCH AS THE FAIR DEAL AND GREAT SOCIETY). DENIED THIS POWER, NOT ONCE BUT TWICE, THEY IN EFFECT THREW PUBLIC FITS. THE CURRENT LACK OF BIPARTISANSHIP AND NASTINESS REFLECTS THIS ENTITLEMENT DENIED. I might add that when, in 1964, Goldwater did receive the nomination, some of the epithets hurled at the Rockefeller-ites were as nasty as much of what are hearing these days, just different.
But also, in an article I read since reunion weekend, written by the respectable writer, Peter Beinert, in Time, to the above psychological argument we should add a situational factor. In the 1970's, the filibuster rule was adopted. This meant that aggressive Republicans, like Newt Gingrich, Tom DeLay, Trent Lott and Grover Norquist decided they could use the filibuster to discredit government, and the Democrats–in the first instance, the Clinton Administration–to position themselves for taking power again (except that under Gingrich, in 1994, it backfired). As Beinert points out, since 2009, the Republicans have increased their filibustering, increased their attacks on any waverers amongst them, crippled reforms in general and in part, health care, in particular. But, ultimately, it is because they feel entitled and have an unwavering view of their virtuosity.
Along different lines, two points: First, Democrats also changed, since after the Civil Rights Act of 1965, the “Solid (Democratic) South,” (essentially the segregationist South) turned Republican and more or less over time became the “Solid (Republican) South. Secondly, the ferment of the 1960's–the Free Speech Movement, the marijuana days–drugs and sex–(perhaps we could call this the Spirit of Woodstock–since I have a summer house there) led to an anti-government attitude among leftists, who thought the government had no right to tell them what to smoke and who thought the Great Society was being manipulated by liberal politicians who didn’t know what they were doing (or perhaps didn’t care and were in the pockets of corporations). This leftist critique of authority intriguingly led years later to a critical right wing view of governmental authority–examples being the belief that climate experts don’t know what they are talking about and school officials shouldn’t force evolution down student throats–leading, in part, to home schooling.
3: IGNORANCE. IN THIS COUNTRY, POLITICS OPERATES IN A CULTURE OF EXTREME IGNORANCE. THE AVERAGE AMERICAN, FOR EXAMPLE, BELIEVES THAT 20 % OF OUR GDP GOES TO FOREIGN (ECONOMIC) AID, WHEN THE REAL PERCENTAGE IS LESS THAN ONE HALF OF 1 %. PEOPLE IN EFFECT BELIEVE THEY ARE BEING TAXED HEAVILY FOR SPENDING THAT IN REALITY DOESN’T EXIST.
4. COLOR. IN MY VIEW, THE SITUATION WOULD NOT BE SIGNIFICANTLY DIFFERENT HAD HILLARY CLINTON WON THE PRESIDENCY, RATHER THAN OBAMA. BUT THERE ARE MANY OLD-FASHIONED AMERICANS OUT THERE WHO, MORE OR LESS, LIVE IN THE PAST. THEY LIKED IT WHEN GAYS WERE IN THE CLOSET, BLACKS KNEW THEIR PLACE (AND IT WAS DEFINITELY NOT 1600PENNSYLVANIA AVENUE) AND WOMEN (OR AT LEAST ONE OF THEM) RULED THE HOME AND NOT THE HOUSE.
5. THE ECONOMY. EVERYONE KNOWS, OF COURSE, OF HOUSING FORECLOSURES AND HIGH LEVELS OF UNEMPLOYMENT. I WOULD ALSO FOCUS ON INCOME DISTRIBUTION. WE HAVE THE GREATEST INCOME INEQUALITY OF ANY IN THE DEVELOPED WORLD. AND IT IS WORSENING. FOR NEARLY 40YEARS, REAL WAGES–WAGES ADJUSTED FOR INFLATION–HAVEN’T INCREASED. MEANWHILE THE RICH ARE DOING SO MUCH BETTER. FOR EXAMPLE, THE TOP 1/100 OF 1 % “EARNED,” IN 1972
1 % OF OUR TOTAL INCOME. IN 2008, THIS HAD RISEN TO 6 %. (This statistic comes to us from a Berkeley professor named Emmanuel Saez, who was given the highest award the economic profession can give–the Nobel is given by others–the John Bates Clark award, given every other year (then) to that economist under 40 who makes the biggest contribution (and it is now given every year).
FEW, WHO ARE STRUGGLING, KNOW (OF COURSE) THIS STATISTIC, BUT I THINK THEY FEEL IT, FOR NOT ONLY DO THEY KNOW FRIENDS WHO ARE UNEMPLOYED (OR ARE THEMSELVES UNEMPLOYED) OR HAVE HAD THEIR HOMES TAKEN FROM THEM, OR LOST THEIR NEST EGGS, BUT THEY ALSO READ OF BANKERS TAKING HOME MILLIONS IN BONUSES. (Enough, even, to enrage me.) A friend points out that Tea Baggers have above average income. That they do, it appears. And most, I read, want to keep Medicare and Social Security, even though Big Government is of course bad, but not if it helps them. But many of the Tea Baggers do not earn above average income and many who are outraged about the bankers are not Tea Baggers. The impact of inequality is, I think, real.
What I did not have time for is any mention of what should be done. One panelist listed dozens of things, none of which were significant, in and of themselves, but could change things if adapted or made legal. I would have preferred that he acknowledge that while these proposals have little chance of having an immediate impact, they can provide a guide when the time for meaningful change is ripe.
From my perspective, the necessary condition, but not sufficient one, for lessening vitriol and restoring a greater degree of bipartisanship, is having a much improved economy. Unfortunately, the short term prospects are not good. Paul Krugman sees perhaps a Lost Decade here, similar to what Japan experienced in the 1990's (and to some degree experienced in the decade which followed). Robert Shiller, of Yale, who amazingly predicted both the dot-com bubble and the real estate bubble, is fearful that the economy will turn down before it gets above where it was in 2007 (what is typically called a double dip). And just a few days ago, the very much respected OECD (the Organization for Economic Cooperation and Development) forecasts that the unemployment rate in the fall of 2011–almost a year and a half from now–will be at 8.4 %. This is incredibly high, so many years after the cyclical peak, especially when one considers that in the late 1990's, the unemployment rate fell to 4 %.
But the long run prospects are also not good. In brief, what is needed is more infrastructure spending, more funding of lower level education, given what our international competition is doing in math and science, and more spending to cleanse our environment. And all of this implies greater taxation, not less. And, unfortunately, it is not something to be paid for by the upper 1/100 of 1 % (or even the upper 10 %). By emphasizing no new taxes on people making less than $250,000 (which is appropriate now), Obama is (unwittingly) undermining what will be needed in future years.
The upshot is that we are not likely to do what is economically needed. Thus, the future may give us a positive (but unhappy) answer to what was discussed in another panel: Is America in Decline?
Thursday, June 3, 2010
Economic Update
Every so often I put forth an economic update which essentially says the same thing and probably bores the hell out of the few who read it. So warning: there is more of the same. That is, in brief, the short run prospects are bad and the long term prospects even worse (probably). [Keep in mind that economists are known for being able to be excellent predictors of the past.]
Short run: but how short is short? The interesting question is whether the recovery will continue long enough so that a new peak will be achieved, after which any downturn will be termed a new recession. If, however, the downturn occurs before the new peak, what we then have is a double dip. At the moment, we have at least two prominent economists predicting a possible double dip: Dr Doom, Nouriel Roubini, (who when I last read him a few weeks ago gave the possibility of a double dip at about 25 or 30 %. (Roubini was regarded by many as a crank in the late 1990's, because he was predicting dire straits after the bursting of what he saw as a dangerous bubble, but is now regarded as a prescient genius.) But there is also Robert Shiller, of Yale, who is giving hints he expects a double dip, but not in the very immediate future. Shiller, in my view, is at least Roubini’s equal as prescient genius–see his cleverly-named book, “Irrational Exuberance”--in that he not only predicted dangerous consequences from the bursting of the dot-com bubble, but also–early on–saw we were developing a dangerous housing bubble.
Paul Krugman (PK)is perhaps less daring but possibly more pessimistic. He fears we are in for a Lost Decade, the phrase used to describe the decade of the 1990's for the Japanese, one of stagnation after having more than forty years of fantastic growth. (And as PK notes the decade that followed was not that big an improvement.) For Krugman, it is a fear that the problem before us is not inflation, but its opposite, deflation. If prices actually fall, buyers hold out on their purchases in order to get whatever it is they want–cheaper.
People like Krugman, Roubini and Shiller see a frighteningly weak recovery. To be sure weak recoveries have been the recent pattern–there was one after the recession of 1990-91 and 2001. However, in time the first of these recessions led to a boom–in the late 1990's unemployment fell to 4 %--while the second did not. Playing into contemporary weakness are the basic factors: exports are not strong, in a world where our wages are high, as well as a European world that is literally shaking in its boots, even if the weakest–the PIIG’s (Portugal, Ireland, Italy and Greece) and Spain–do not buy that much of our exports. It is simply that a weak world economy is never good for economies in general and exports in particular.
Investment is low, not only because banks are reluctant to loan (or don’t have the funds), but also because one of its biggest components–construction (of houses and commercial real estate)–is in the doldrums and will undoubtedly remain there for a good while.
Most important is consumption, but here we have deep fears (though these rise and fall) along with less ability to borrow against houses or even borrow as much using credit cards. What is needed is a second stimulus, since the first was too small (even if it sounds big–at $787 billion it was far below what Christina Romer (the woman who heads Obama’s Council of Economic Advisers) was calling for, which was $1.2trillion. But politically a second stimulus is dead as a doornail.
Given all this, it is not surprising that the prestigious Organization for Economic Cooperation and Development (OECD) is predicting that a year and a half from now, approximately, unemployment will still be at 8.4 %. Krugman–whose blog I highly recommend–is unhappy with groups like the OECD, because they are calling for higher interest rates (fearful of an inflation that does not exist) and others are calling for a reduction of the deficit. If either monetary or fiscal policy (or both) veer towards tightness, then I think “1933–here we come.” Fortunately, so far, Bernanke is resisting this pressure, but good policies have a way of being driven out by bad thoughts.
Some think the economy has recovered more than it has because the stock market has recovered more than expected. Why it has done as well as it has I am not sure of (and don’t read stock market studies), although I suspect it ultimately relates to the fact that the corporations listed on the exchanges are able to substitute cheap labor from China and elsewhere for American labor and thereby end up making more profits, even if none of this shows up in improved unemployment rates, lessening of the length of time workers are unemployed or significant improvements in the hiring of workers entering the labor force, even those who graduated from college. In any event, one should always separate the financial data from the real economy, when one evaluates how an economy is doing (although in the end, of course, there is a correlation of sorts.)
The long run situation is of course fuzzier. Who knew there were automobiles before there were automobiles or computers before there were computers? Who knows what lies ahead? But I do think, even given this ignorance, there is still something to be said. We need a huge improvement in our infrastructure. We need a huge improvement in our pre-college education. We need a huge improvement in our environmental programs. We need, in short, a huge improvement in our Federal government at a point when politically people are more anti-government that they have been in decades–or perhaps in my lifetime (and like Jack Benny I am an older 39).
In short, we are becoming ungovernable (a national version of California) at a time when we need to be increasingly governable. To solve our future problems we will need to spend and tax. In the end, I think it could be argued that many who hate government have enough pet projects–earmarks in their states, disaster relief, farm supports, and so forth, that increased Federal spending remains a possibility–although I fear much of this sentiment can be Reagan-ish, in that he had no trouble saying government was the problem but increasing military spending by many billions and there’s where the increases may take place. But whatever possibilities exist on the spending front for infrastructure–bring back Ike and his highway program (concealed as a necessity for defense)–or education and the array of possible environmental programs–more wind power, more electric cars, more use of solar power, more conservation (including insulation and energy efficient public transportation), it is clear we are reluctant, as a culture, to give up gasoline and oil, coal, and the overuse of products that use energy. But even more upsetting, we are a something for nothing culture, like Greece. We want this and that but we don’t want to be taxed for what we get.
The possibility of a good economic future requires changing age-old habits. I suppose there will come a time when it is realized there are limitations of how we utilize our power to get what we want–Iraq and Afghanistan will help move us in the right direction, one hopes–but will there come a time when we are willing to transform ourselves into what we are not. That is, can we live more simply, live without gas-guzzling (or perhaps without cars at all in places like Manhattan), live without endless numbers of energy-using products? And on top of this are we willing to be taxed at higher rates to pay for what is needed–health and education.
If your answer to these questions is that we can make the changes needed, then we have a potentially successful economic future. If, however, you think, like me, this is a transition we cannot make (or cannot make in the degree needed), then our long term future is weak, if not grim.
Short run: but how short is short? The interesting question is whether the recovery will continue long enough so that a new peak will be achieved, after which any downturn will be termed a new recession. If, however, the downturn occurs before the new peak, what we then have is a double dip. At the moment, we have at least two prominent economists predicting a possible double dip: Dr Doom, Nouriel Roubini, (who when I last read him a few weeks ago gave the possibility of a double dip at about 25 or 30 %. (Roubini was regarded by many as a crank in the late 1990's, because he was predicting dire straits after the bursting of what he saw as a dangerous bubble, but is now regarded as a prescient genius.) But there is also Robert Shiller, of Yale, who is giving hints he expects a double dip, but not in the very immediate future. Shiller, in my view, is at least Roubini’s equal as prescient genius–see his cleverly-named book, “Irrational Exuberance”--in that he not only predicted dangerous consequences from the bursting of the dot-com bubble, but also–early on–saw we were developing a dangerous housing bubble.
Paul Krugman (PK)is perhaps less daring but possibly more pessimistic. He fears we are in for a Lost Decade, the phrase used to describe the decade of the 1990's for the Japanese, one of stagnation after having more than forty years of fantastic growth. (And as PK notes the decade that followed was not that big an improvement.) For Krugman, it is a fear that the problem before us is not inflation, but its opposite, deflation. If prices actually fall, buyers hold out on their purchases in order to get whatever it is they want–cheaper.
People like Krugman, Roubini and Shiller see a frighteningly weak recovery. To be sure weak recoveries have been the recent pattern–there was one after the recession of 1990-91 and 2001. However, in time the first of these recessions led to a boom–in the late 1990's unemployment fell to 4 %--while the second did not. Playing into contemporary weakness are the basic factors: exports are not strong, in a world where our wages are high, as well as a European world that is literally shaking in its boots, even if the weakest–the PIIG’s (Portugal, Ireland, Italy and Greece) and Spain–do not buy that much of our exports. It is simply that a weak world economy is never good for economies in general and exports in particular.
Investment is low, not only because banks are reluctant to loan (or don’t have the funds), but also because one of its biggest components–construction (of houses and commercial real estate)–is in the doldrums and will undoubtedly remain there for a good while.
Most important is consumption, but here we have deep fears (though these rise and fall) along with less ability to borrow against houses or even borrow as much using credit cards. What is needed is a second stimulus, since the first was too small (even if it sounds big–at $787 billion it was far below what Christina Romer (the woman who heads Obama’s Council of Economic Advisers) was calling for, which was $1.2trillion. But politically a second stimulus is dead as a doornail.
Given all this, it is not surprising that the prestigious Organization for Economic Cooperation and Development (OECD) is predicting that a year and a half from now, approximately, unemployment will still be at 8.4 %. Krugman–whose blog I highly recommend–is unhappy with groups like the OECD, because they are calling for higher interest rates (fearful of an inflation that does not exist) and others are calling for a reduction of the deficit. If either monetary or fiscal policy (or both) veer towards tightness, then I think “1933–here we come.” Fortunately, so far, Bernanke is resisting this pressure, but good policies have a way of being driven out by bad thoughts.
Some think the economy has recovered more than it has because the stock market has recovered more than expected. Why it has done as well as it has I am not sure of (and don’t read stock market studies), although I suspect it ultimately relates to the fact that the corporations listed on the exchanges are able to substitute cheap labor from China and elsewhere for American labor and thereby end up making more profits, even if none of this shows up in improved unemployment rates, lessening of the length of time workers are unemployed or significant improvements in the hiring of workers entering the labor force, even those who graduated from college. In any event, one should always separate the financial data from the real economy, when one evaluates how an economy is doing (although in the end, of course, there is a correlation of sorts.)
The long run situation is of course fuzzier. Who knew there were automobiles before there were automobiles or computers before there were computers? Who knows what lies ahead? But I do think, even given this ignorance, there is still something to be said. We need a huge improvement in our infrastructure. We need a huge improvement in our pre-college education. We need a huge improvement in our environmental programs. We need, in short, a huge improvement in our Federal government at a point when politically people are more anti-government that they have been in decades–or perhaps in my lifetime (and like Jack Benny I am an older 39).
In short, we are becoming ungovernable (a national version of California) at a time when we need to be increasingly governable. To solve our future problems we will need to spend and tax. In the end, I think it could be argued that many who hate government have enough pet projects–earmarks in their states, disaster relief, farm supports, and so forth, that increased Federal spending remains a possibility–although I fear much of this sentiment can be Reagan-ish, in that he had no trouble saying government was the problem but increasing military spending by many billions and there’s where the increases may take place. But whatever possibilities exist on the spending front for infrastructure–bring back Ike and his highway program (concealed as a necessity for defense)–or education and the array of possible environmental programs–more wind power, more electric cars, more use of solar power, more conservation (including insulation and energy efficient public transportation), it is clear we are reluctant, as a culture, to give up gasoline and oil, coal, and the overuse of products that use energy. But even more upsetting, we are a something for nothing culture, like Greece. We want this and that but we don’t want to be taxed for what we get.
The possibility of a good economic future requires changing age-old habits. I suppose there will come a time when it is realized there are limitations of how we utilize our power to get what we want–Iraq and Afghanistan will help move us in the right direction, one hopes–but will there come a time when we are willing to transform ourselves into what we are not. That is, can we live more simply, live without gas-guzzling (or perhaps without cars at all in places like Manhattan), live without endless numbers of energy-using products? And on top of this are we willing to be taxed at higher rates to pay for what is needed–health and education.
If your answer to these questions is that we can make the changes needed, then we have a potentially successful economic future. If, however, you think, like me, this is a transition we cannot make (or cannot make in the degree needed), then our long term future is weak, if not grim.
Fiscally Conservative; Socially Moderate
Often, we hear of moderate Republicans saying they are fiscally conservative and socially moderate. A contemporary example is Tom Campbell, who is running in the California primary for Senator, to be held on June 22. In his case, being socially moderate means he favors allowing abortions.
But there is an assumption made by these moderate Republicans that I think is untrue. And that is that the Republican Party is the party of fiscal responsibility. Perhaps, once, when Eisenhower was President a case could be made, although in making it you come up against the problem that he was fiscally “responsible” when he should have been “irresponsible.” That is, during the serious recession of 1957-58, he refused to allow a tax cut to take place (in the name of fiscal responsibility) but it would have been a needed stimulus. The result was a weak recovery which soon thereafter led to another recession in 1960. (Politically, it probably led to the victory of Kennedy over Nixon in the election of that year.)
I suspect a good case can be made that in the last one hundred and ten years–yes,
110, starting in 1900–the most fiscally irresponsible President was the conservative hero, Ronald Reagan. He cut taxes while we were in the midst of double digit inflation, leading the Federal Reserve under Paul Volcker to raise interest rates astronomically–the prime rate briefly rose to 21 1/2 percent (it is now just above
3 %) and mortgage rates for financially stable borrowers were about 17-18 %. As a result of the weak economy tight money produced, which almost automatically leads to less revenue coming into the Federal government, along with the tax cut, the national debt quadrupled under Reagan during his eight years, from approximately $1 trillion to $4 trillion. This takes the cake.
But probably the second most fiscally irresponsible President was George W. Bush, who inherited from the Clinton Administration an enormous and unprecedented fiscal surplus. This led Bush to propose a huge tax cut, extremely favorable to the wealthy, that led shortly to a monumental deficit. Yes, there were other factors–namely the brief recession of 2001–but the surplus itself was considered by people like Alan Greenspan (and presumably Bush) to be bad in and of itself. (Greenspan feared, for reasons only he knows and can explain, that a continued surplus would eliminate the national debt.) Heavens to Betsy!
On the other hand, it can be argued that the most fiscally responsible President was none other than Bill Clinton, who increased tax rates (almost totally on the upper incomes) in 1993. And while other factors were involved–namely the increased taxes on capital gains during dot-com bubble–this tax increase helped generate at the end of the decade unprecedented surpluses.
What Republican politicians are really interested in is tax cuts and these inevitably create deficits, though (out of power) they may decry deficits. In justifying their votes, it would seem to me that Republican voters need another explanation for their choices than “fiscal responsibility.”
But there is an assumption made by these moderate Republicans that I think is untrue. And that is that the Republican Party is the party of fiscal responsibility. Perhaps, once, when Eisenhower was President a case could be made, although in making it you come up against the problem that he was fiscally “responsible” when he should have been “irresponsible.” That is, during the serious recession of 1957-58, he refused to allow a tax cut to take place (in the name of fiscal responsibility) but it would have been a needed stimulus. The result was a weak recovery which soon thereafter led to another recession in 1960. (Politically, it probably led to the victory of Kennedy over Nixon in the election of that year.)
I suspect a good case can be made that in the last one hundred and ten years–yes,
110, starting in 1900–the most fiscally irresponsible President was the conservative hero, Ronald Reagan. He cut taxes while we were in the midst of double digit inflation, leading the Federal Reserve under Paul Volcker to raise interest rates astronomically–the prime rate briefly rose to 21 1/2 percent (it is now just above
3 %) and mortgage rates for financially stable borrowers were about 17-18 %. As a result of the weak economy tight money produced, which almost automatically leads to less revenue coming into the Federal government, along with the tax cut, the national debt quadrupled under Reagan during his eight years, from approximately $1 trillion to $4 trillion. This takes the cake.
But probably the second most fiscally irresponsible President was George W. Bush, who inherited from the Clinton Administration an enormous and unprecedented fiscal surplus. This led Bush to propose a huge tax cut, extremely favorable to the wealthy, that led shortly to a monumental deficit. Yes, there were other factors–namely the brief recession of 2001–but the surplus itself was considered by people like Alan Greenspan (and presumably Bush) to be bad in and of itself. (Greenspan feared, for reasons only he knows and can explain, that a continued surplus would eliminate the national debt.) Heavens to Betsy!
On the other hand, it can be argued that the most fiscally responsible President was none other than Bill Clinton, who increased tax rates (almost totally on the upper incomes) in 1993. And while other factors were involved–namely the increased taxes on capital gains during dot-com bubble–this tax increase helped generate at the end of the decade unprecedented surpluses.
What Republican politicians are really interested in is tax cuts and these inevitably create deficits, though (out of power) they may decry deficits. In justifying their votes, it would seem to me that Republican voters need another explanation for their choices than “fiscal responsibility.”
The National Debt
[May I suggest Paul Krugman’s blog site, June 3 posting, entitled Rashomon in the OECD (just Google Paul Krugman’s blog).]
At this point, Krugman shows that gross debt as a percentage of GDP at the end of 2009 was about 80 percent. He acknowledges this is high (and we are near the percentages of countries like Portugal and Italy, but also near are countries like the UK and we are all well below Japan’s percentage). But as he points out, interest rates right now on 10 year bonds are 3.59 in the UK; 3.36 % in the US; (and 1.29 % in Japan). These rates are incredibly low and tend to mean that holders of our debt are not worried about being paid off. He ends by offering two conclusions: (a) there will be a Wile E. Coyote moment, when the markets will realize that America is Greece and all hell will break loose. Or (b), the crisis countries are in the eurozone, while the US, UK and Japan are not and that makes all the difference. By saying this, he chooses (b).
These figures show gross debt, so I assume they include the $2 trillion or so owed by the US Government to the Social Security fund. (Sometimes, debt comparisons subtract this amount.)
So are we staring at the end of the world? Historically, one might say no, since just after WW II, our gross debt was higher than our GDP (and today, Japan’s national debt is far higher than its GDP). Ours was reduced to less than 30 % of our GDP by the mid-1970's. This was partially due to the inflation that followed the war–1946-1948–which in effect meant that holders of the debt ended up holding bonds that in real terms were much lower in value. But mostly, the reduction of our debt to GDP over time was due to our economic growth being high enough to shrink the debt/GDP percentage, even though during this period we almost always ran small deficits. What also existed was relatively low interest payments.
Can this happen again? None of the three factors that reduced the debt/GDP percentage are operating or likely to operate. Inflation is not on the horizon and should it even appear, it is likely the Fed would raise rates high enough to stop it (for many reasons it was difficult for the Fed to do this after the war). Second, it is likely, in time, that we will have a deterioration in the value of the dollar and this will mean that interest rates will rise and probably be too high to enable us to reduce the debt/GDP percentage. But it should be noted that the likelihood of a declining dollar is probably a number of years away. But most important, it is unlikely that we will have, in the world we now live in–with China on the rise–the growth rates we had in the decades following the 2nd World War. (On this, see my other posting–Economic Update.)
It is possible, however, that the debt/GDP percentage could level off, not much higher than where it is now. But, But, But. To re-establish our economic vitality, we need to spend on infrastructure, education and the environment. This may or may not be done. If it is done through tax increases then there is no debt problem. If it is not done through tax increases, but is done, the debt problem will be serious. But the third alternative is that it will not be done at all. Then the debt problem might be serious, because what reduced it so after the war–rapid economic growth–will not likely take place.
In the short run, nothing–BUT NOTHING–should be done to reduce the deficit, since doing so will choke off the recovery. On this, read the last year of so of Krugman’s blogs. He thinks raising interest rates today is sheer insanity and I agree.
One final note: those who believe that the government is the source of our problems should reconsider their positions. (Unless you are, like me, critical of the government for not doing more to regulate drilling and regulate derivatives, banking and financial manipulations.) Not only was government always key to our development–from canals to railroads; highways; deposit security; and the off-shoots of war spending, like airplanes and the like–it is all but inconceivable in the complex world we now live in that an economy like ours can thrive without a considerable government input. Libertarianism might sound right, to some, but in practice, it can’t work. Debate over what the mix should be, of private enterprise and government, is desperately needed. But there is no sign of this. Only partisanship and nastiness. All this leaves me fearful and pessimistic, not only of our economic prospects but of our ability to maintain a meaningful democracy.
At this point, Krugman shows that gross debt as a percentage of GDP at the end of 2009 was about 80 percent. He acknowledges this is high (and we are near the percentages of countries like Portugal and Italy, but also near are countries like the UK and we are all well below Japan’s percentage). But as he points out, interest rates right now on 10 year bonds are 3.59 in the UK; 3.36 % in the US; (and 1.29 % in Japan). These rates are incredibly low and tend to mean that holders of our debt are not worried about being paid off. He ends by offering two conclusions: (a) there will be a Wile E. Coyote moment, when the markets will realize that America is Greece and all hell will break loose. Or (b), the crisis countries are in the eurozone, while the US, UK and Japan are not and that makes all the difference. By saying this, he chooses (b).
These figures show gross debt, so I assume they include the $2 trillion or so owed by the US Government to the Social Security fund. (Sometimes, debt comparisons subtract this amount.)
So are we staring at the end of the world? Historically, one might say no, since just after WW II, our gross debt was higher than our GDP (and today, Japan’s national debt is far higher than its GDP). Ours was reduced to less than 30 % of our GDP by the mid-1970's. This was partially due to the inflation that followed the war–1946-1948–which in effect meant that holders of the debt ended up holding bonds that in real terms were much lower in value. But mostly, the reduction of our debt to GDP over time was due to our economic growth being high enough to shrink the debt/GDP percentage, even though during this period we almost always ran small deficits. What also existed was relatively low interest payments.
Can this happen again? None of the three factors that reduced the debt/GDP percentage are operating or likely to operate. Inflation is not on the horizon and should it even appear, it is likely the Fed would raise rates high enough to stop it (for many reasons it was difficult for the Fed to do this after the war). Second, it is likely, in time, that we will have a deterioration in the value of the dollar and this will mean that interest rates will rise and probably be too high to enable us to reduce the debt/GDP percentage. But it should be noted that the likelihood of a declining dollar is probably a number of years away. But most important, it is unlikely that we will have, in the world we now live in–with China on the rise–the growth rates we had in the decades following the 2nd World War. (On this, see my other posting–Economic Update.)
It is possible, however, that the debt/GDP percentage could level off, not much higher than where it is now. But, But, But. To re-establish our economic vitality, we need to spend on infrastructure, education and the environment. This may or may not be done. If it is done through tax increases then there is no debt problem. If it is not done through tax increases, but is done, the debt problem will be serious. But the third alternative is that it will not be done at all. Then the debt problem might be serious, because what reduced it so after the war–rapid economic growth–will not likely take place.
In the short run, nothing–BUT NOTHING–should be done to reduce the deficit, since doing so will choke off the recovery. On this, read the last year of so of Krugman’s blogs. He thinks raising interest rates today is sheer insanity and I agree.
One final note: those who believe that the government is the source of our problems should reconsider their positions. (Unless you are, like me, critical of the government for not doing more to regulate drilling and regulate derivatives, banking and financial manipulations.) Not only was government always key to our development–from canals to railroads; highways; deposit security; and the off-shoots of war spending, like airplanes and the like–it is all but inconceivable in the complex world we now live in that an economy like ours can thrive without a considerable government input. Libertarianism might sound right, to some, but in practice, it can’t work. Debate over what the mix should be, of private enterprise and government, is desperately needed. But there is no sign of this. Only partisanship and nastiness. All this leaves me fearful and pessimistic, not only of our economic prospects but of our ability to maintain a meaningful democracy.
Obama and Afghanistan
At my Amherst reunion, Robert McCartney, a columnist from the Washington Post, delivered a talk entitled, “America in Decline.” He was excellent. If I get a chance in the not-too-distant future, I will try to summarize his arguments and indicate why I think his “no, we are not in decline” is less convincing than his “yes, we are in decline.”
But after the session, I briefly met with him and asked if Obama’s Afghanistan position reflected his real views or whether he has made such a big deal of Afghanistan because he was arguing that we have to take the troops out of Iraq and wanted to avoid being seen as a wimp. McCartney’s immediate response was: the second. But then he qualified it by saying that he is not doing anything other than what he indicated he would do when he campaigned. On that, I agree. But I also think that by indicating during the campaign he was taking our troops out of Iraq–and I think you had to listen carefully, because maybe he said he was taking our “combat” troops out of Iraq, which leaves a lot of troops still there–he probably needed to show his “masculinity,”–i.e., indicate he was not a coward (or wimp) and able to lead America bravely into wars, when needed. (If true, the problem is less Obama’s but our culture.)
But then, which do I consider worse? Is it worse that he feels that we can actually “win” in Afghanistan and even be taking troops out by next year or that he knows it is all pretense, but is doing it anyway because that is what is politically needed. I haven’t made up my mind on this.
McCartney did say that the chickens will come home to roost–my phrasing–next year when the troops will either have to be withdrawn, with nothing accomplished (or very little) or Obama will have to backtrack on his pledge to begin withdrawal. (I suspect there will be a withdrawal, but it will be so insignificant it will hardly be noticed.)
But after the session, I briefly met with him and asked if Obama’s Afghanistan position reflected his real views or whether he has made such a big deal of Afghanistan because he was arguing that we have to take the troops out of Iraq and wanted to avoid being seen as a wimp. McCartney’s immediate response was: the second. But then he qualified it by saying that he is not doing anything other than what he indicated he would do when he campaigned. On that, I agree. But I also think that by indicating during the campaign he was taking our troops out of Iraq–and I think you had to listen carefully, because maybe he said he was taking our “combat” troops out of Iraq, which leaves a lot of troops still there–he probably needed to show his “masculinity,”–i.e., indicate he was not a coward (or wimp) and able to lead America bravely into wars, when needed. (If true, the problem is less Obama’s but our culture.)
But then, which do I consider worse? Is it worse that he feels that we can actually “win” in Afghanistan and even be taking troops out by next year or that he knows it is all pretense, but is doing it anyway because that is what is politically needed. I haven’t made up my mind on this.
McCartney did say that the chickens will come home to roost–my phrasing–next year when the troops will either have to be withdrawn, with nothing accomplished (or very little) or Obama will have to backtrack on his pledge to begin withdrawal. (I suspect there will be a withdrawal, but it will be so insignificant it will hardly be noticed.)
My Doctor's View of Health Legislation
Recently, I had a doctor’s appointment. I told him that one of the panels at my
55th reunion was entitled: “Is America in Decline?” The lecturer, journalist Robert McCartney of the Washington Post, argued that the health bill offered half a loaf, since it totally left out how it was all to be financed. My doctor shut the door and then spent almost ten minutes arguing the following.
He began by talking about oil. He argued that American needs to end its dependency on foreign oil (although the rest of his remarks indicated that he had a wider view, in that we must end our dependency on oil, in general). It’s not whether we should adjust this safety procedure, or that. Or drill here but not there. It’s that we need to completely revamp the way we think and live. He would love it if Obama would say: “Folks, we’re all upset by the oil spill. But what we need is not better drilling, but discontinuation of being an oil-using society. My goal is to finance new technologies so that in 5 years 50 % of our automobiles will be run electrically.”
If you are wondering why he was talking about oil and not medicine, so was I. But then he turned to medicine and essentially argued that here too, we have to stop tinkering. We have to fact up to the fact that minor changes at the margin are not going to do much. He mentioned that every year some Congressional committee, involved with health, has hearings and these are attended by pharmaceuticals, private hospital people, insurers and many others who have a financial stake in what already exists. They don’t want changes. He even mentioned that someone from the pork industry argued what a good buy pork is, especially for high school students.
His point is that it is all well and good to give bypasses–which incidentally I had in 1993 and is undoubtedly why I am still alive–and stents and use all the great medical techniques at our disposal, but what is ultimately needed is a different and healthier way of living. He of course has in mind, among other things, the enormous obesity problem we now have and specifically mentioned that it’s well and good that McDonald’s now offers a salad, but we have to go far beyond where we are now to attain a healthier intake of food. (Recently, at one of the stops on the NY Throughway, I looked at the enormous vending machine offerings, all “delightful,” but not one of which was healthy.)
Implicitly, finding a way to pay for what we get medically is not the right approach. What is, is changing our living patterns so that we need less medical help, thus reducing medical costs. I realize this is ultimately obvious, but often people overlook the obvious–I think Robert McCartney did–and I thought my doctor told me this with great eloquence (which alas I cannot capture).
55th reunion was entitled: “Is America in Decline?” The lecturer, journalist Robert McCartney of the Washington Post, argued that the health bill offered half a loaf, since it totally left out how it was all to be financed. My doctor shut the door and then spent almost ten minutes arguing the following.
He began by talking about oil. He argued that American needs to end its dependency on foreign oil (although the rest of his remarks indicated that he had a wider view, in that we must end our dependency on oil, in general). It’s not whether we should adjust this safety procedure, or that. Or drill here but not there. It’s that we need to completely revamp the way we think and live. He would love it if Obama would say: “Folks, we’re all upset by the oil spill. But what we need is not better drilling, but discontinuation of being an oil-using society. My goal is to finance new technologies so that in 5 years 50 % of our automobiles will be run electrically.”
If you are wondering why he was talking about oil and not medicine, so was I. But then he turned to medicine and essentially argued that here too, we have to stop tinkering. We have to fact up to the fact that minor changes at the margin are not going to do much. He mentioned that every year some Congressional committee, involved with health, has hearings and these are attended by pharmaceuticals, private hospital people, insurers and many others who have a financial stake in what already exists. They don’t want changes. He even mentioned that someone from the pork industry argued what a good buy pork is, especially for high school students.
His point is that it is all well and good to give bypasses–which incidentally I had in 1993 and is undoubtedly why I am still alive–and stents and use all the great medical techniques at our disposal, but what is ultimately needed is a different and healthier way of living. He of course has in mind, among other things, the enormous obesity problem we now have and specifically mentioned that it’s well and good that McDonald’s now offers a salad, but we have to go far beyond where we are now to attain a healthier intake of food. (Recently, at one of the stops on the NY Throughway, I looked at the enormous vending machine offerings, all “delightful,” but not one of which was healthy.)
Implicitly, finding a way to pay for what we get medically is not the right approach. What is, is changing our living patterns so that we need less medical help, thus reducing medical costs. I realize this is ultimately obvious, but often people overlook the obvious–I think Robert McCartney did–and I thought my doctor told me this with great eloquence (which alas I cannot capture).
Health Note
About three months ago, my glucose count rose to 110 (in units I am not clear about, but in my lab report it is listed as mg/dL). This was somewhat higher than the recommended range and higher than what it had been. Recently, it was recorded at
90, which is just fine. High levels of glucose come about, in good part, from excessive intake of sugar. The excessive intake I ingested came about because I had started drinking a lot of fruit juice. This was a mistake. As soon as I learned of the excessive level of my glucose, I stopped drinking fruit juice and my glucose count came down. As my doctor says, eat apples but don’t drink apple juice. And ultimately, less sugar intake will help prevent diabetes. Or in short, as my doctor stressed, eat less sugar and try to avoid white flower.
90, which is just fine. High levels of glucose come about, in good part, from excessive intake of sugar. The excessive intake I ingested came about because I had started drinking a lot of fruit juice. This was a mistake. As soon as I learned of the excessive level of my glucose, I stopped drinking fruit juice and my glucose count came down. As my doctor says, eat apples but don’t drink apple juice. And ultimately, less sugar intake will help prevent diabetes. Or in short, as my doctor stressed, eat less sugar and try to avoid white flower.
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