Monday, July 26, 2010

Bruce Bartlett on Republican Intellectual Emptiness

I read this post on the Democracy in America blog at Economist.com. They posed 6 questions to Bruce Bartlett about the economy and the deficit. I don't think one can call Bruce a liberal, (though maybe a European conservative) but his comments parallel what Paul Krugman, who is unapologetically a liberal, has been saying. Here are some selected passages:

"Which Should be a higher priority for the federal government at the moment, deficit reduction or economic stimulus?"
"Clearly, economic stimulus."

On Taxation
"I would add that I do disagree with the Republican fixation on taxation. Federal taxes as a share of GDP are at their lowest level in two or more generations—14.9% versus a postwar average of 18.2%. There is not one iota of evidence that the economy is suffering from excessive taxation and no evidence that the sorts of tax cuts favoured by Republicans—mainly tax cuts for the wealthy—would do any good given the nature of the economy’s problems. Tax cuts don’t help those with no incomes because they are unemployed, businesses running at a loss, or investors with a large stock of capital losses. In my view, the Republican obsession with taxes is based on pure dogma, not analysis."

On which party has credibility on fiscal issues:
"The Republicans don’t have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama’s health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office...The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won’t say so...Consequently, I have far more hope that Democrats will do what has do be done. The Democratic Party is now the “adult” party in American politics, willing to do what has to be done for the good of the country. The same cannot be said of Republicans."

It's been clear for a while that President Obama and the Democratic leadership have not had a good faith partner across the aisle and it's refreshing that someone with the conservative credentials of Bruce Barlett is helping to call a spade a spade.

8 comments:

Colin said...

Considering that Bruce Bartlett has made bashing Republicans a cottage industry over the last 5 years or so, this strikes me as not at all remarkable. Indeed, if you read his blog it's pretty much non-stop GOP-bashing.

That doesn't, however, mean it is entirely inaccurate. I think Bartlett is at least partially on target with his criticism of Republicans on tax policy, where they typically believe that any measure which deprives the government of revenue is worthwhile. Energy would be much better spent on measures such as tax reform which overhauls the tax code itself, eliminating the countless deductions and loopholes which distort economic decision making. The revenue this produces could more than pay for a slight reduction in tax rates.

Bartlett is on less firm ground with health care. If he believes the CBO scores, which were thoroughly gamed (benefits starting 4 years after tax increases to show a revenue neutral 10 year projection) then he is either dreadfully naive or dishonest. And while the GOP should be ashamed for passing the prescription drug plan, it's not as though Democrats were any better on the issue. As I recall their main criticism was that it didn't spend more and was some kind of "giveaway" to drug companies.

But yes, Republicans are great on talking about reducing government while in reality they increase spending.

This illustrates at least two key points, however:

1. When the left warns that Republicans are hell-bent on shrinking government to a size where it can be drowned in a bathtub -- as Grover Norquist elegantly stated -- you have to laugh. Republicans have consistently grown government, which is why descriptions of the Bush era as an anti-government jihad are utter nonsense.

2. Democrats have had a pretty low bar to clear in terms of fiscal responsibility.

This then brings us to Bartlett's absurd description of the Democrats as the adult party, particularly coming fresh on the Obama administration's disclosure we are facing another $1.4 trillion deficit.

The WSJ picks this apart quite easily here:

http://online.wsj.com/article/SB10001424052748703995104575389430430274968.html

The Democrats have controlled Congress for 4 years and the White House for 1.5 years. For all the talk of responsibility and a net spending cut we have been given gaping deficits as far as the eye can see, more and bigger government, corporate bailouts (with a big assist from the Bush Admin), and various economic idiocies such as Cash for Clunkers. How does any of this count as doing what has to be done?

Jason said...

As to your last couple paragraphs I will simply say it's the difference between short-run and long-run economics.

And I'll reiterate again, in a recession the government can and should spend when others will not. This leads to an increase in the deficit in the short-run. The deficit numbers are unsurprising and unalarming.

I'd also point out the markets don't seem too alarmed since 10 year treasury bonds are currently at 3.02%.

Colin said...

And I'll reiterate again, in a recession the government can and should spend when others will not. This leads to an increase in the deficit in the short-run.

What is this based on? What is the evidence to support this school of thought? It didn't work during the New Deal, it didn't work for Japan, and it certainly doesn't seem to be working out now.

In contrast I can think of numerous examples in which economic recovery occurred without increases in government spending.

Keynesian demand-side stimulus strikes me as extremely faith-based.

The deficit numbers are unsurprising and unalarming.

Given who's running the government you can certainly make a case for not being surprised, but I am certainly alarmed. The fact that we have a deficit well over a trillion dollars is absolutely mind-boggling.

As for T-bond yields, I would point out that Greek bonds were probably a lot cheaper a year ago than they are today while Japanese bonds are pretty cheap even though the country's debt is approaching 200% of GDP. That doesn't mean Japan's debt isn't a problem.

Jason said...

New Deal Evidence:
Unemployment in 1932 was 23.6%, but 1940 it had dropped to 14.6%, and by 1941 to 9.6%. -BLS

I'd also point out that the 14.6% in 1940 could have been avoided if not for the double-dip in 1938 brought on it part because of the phasing out of New Deal projects.

GDP was (in current dollars) 103.6 billion in 1929, dropped to 56.4 in 1933, but went back up to 101.4 by 1940. -BEA

You have said multiple times GDP and unemployment are how to gauge if stimulus is "working." Now there are many reasons for these bounces and some are function of the business cycle, but it's striking how things stopped sliding after 1933, the year FDR took office.

Was the New Deal the only thing? No. Did it help? Yes. I can't understand why that's a hard point to concede.

Bond Yields:
A year ago Greek 10 year bonds stood at 4.87%. They are now at 10.3%.

Interestingly enough a year ago US 10 year bonds were at 4.01%. In that time debt to GDP ratio went from 83.3% to 94.2%. So in a year when the debt to GDP ratio grew 10% the bond market has knocked a full point off the price of holding a US 10 year bond.

Colin, you believe in the markets. If the markets don't have a problem with the deficit, why should you?

Note: I'm not saying we shouldn't address the debt, and I agree that eventually this debt will catch up with us. However, the cries for fiscal austerity are very misguided in the short-run.

Colin said...

The New Deal figures are not evidence of success. Let's compare its record to that of Australia, which did not have a program equivalent to the New Deal:

http://en.wikipedia.org/wiki/Great_Depression_in_Australia#1932-1939:_A_slow_recovery

Unlike the United States, where Franklin Roosevelt's New Deal stimulated the American economy, New Zealand where Michael Savage's pioneering welfare state rapidly reduced hardship, or the United Kingdom where rearmament (from 1936) reduced unemployment, there was no significant mechanism for economic recovery in Australia.

...Unemployment, which peaked at 29% in 1932, was 11% at the start of the Second World War.


Thus, Australia had a higher unemployment rate than us and yet recovered faster. I also checked around for stats on Australian government spending during that time and didn't find much, but did notice this:

http://www.slwa.wa.gov.au/federation/sec/046_depr.htm

While the Commonwealth Government did look to increased gold production as one way of boosting the economy, governments throughout Australia followed orthodox economic policy and reduced their spending.

Also note the response of President Harding to the recession/depression of 1920:

http://en.wikipedia.org/wiki/Warren_G._Harding#Depression_of_1920-1921

When President Harding assumed office on March 4, 1921 the United States was in the midst of a post war economic depression. By 1920, unemployment had jumped up to 12 percent and the GNP had dropped by 17 percent. Harding ignored Secretary of Commerce Herbert Hoover's recommendation for proactive federal intervention; rather Harding cut tax rates for all groups, including the reduction of the top rate from 75% to 25%. His efforts to reduce the national debt also involved cutting Government spending by 50% over the next 2 years. The resultant climate of low Government spending and low taxes allowed the private sector the room it needed to add jobs at a rate not seen in modern times. Recovery began to take place in summer of 1921; by 1922 unemployment receded to 6.4 percent; by 1923 the unemployment rate was 2.4 percent. The continuation of his policies by his Vice President, after his death (only 2 years into his Presidency) laid the foundation for the era known as the "Roaring Twenty's", and by 1926 unemployment had reached a record low of 1.8%, the lowest ever recorded in peacetime.

It's a stunning contrast with the New Deal, achieving much better results.

Now there are many reasons for these bounces and some are function of the business cycle, but it's striking how things stopped sliding after 1933, the year FDR took office.

I don't find it that striking at all. If you look around the world you tend to find Great Depression unemployment peaking in 1932-33 in Australia, Canada and the UK. Offhand I can't think of a single country where the Depression peaked before 1930 or after 1935.

Colin, you believe in the markets. If the markets don't have a problem with the deficit, why should you?


Because I don't think that markets can guarantee the future. Stock market valuations in August 1929 suggested a good economic environment. In October the market crashed. As you yourself note, a year ago Greek bonds were under 5% and have since doubled.

The markets say things are fine -- until suddenly they are not.

Colin said...

A couple of more things to consider. First is this quote from Treasury Secretary Henry Morgenthau Jr. in 1939:

We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong…somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises…I say after eight years of this administration we have just as much unemployment as when we started…And an enormous debt to boot!”

Source: Morgenthau Diary, May 9, 1939, Franklin Roosevelt Presidential Library

Also here is a paper you might want to read:

http://www.milkeninstitute.org/publications/mirsp/16-25mr43.pdf

Jason said...

RE: Australia
What was GDP during that period?

And Australia is not the United States, which is worth pointing out.

Also, you conveniently neglect the following from your source:
During the Second World War, the Australian Labor Party formed a government in the House of Representatives, led by two socialist prime ministers: John Curtin (1941–1945) and Ben Chifley (1945–1949). Curtin and Chifley, who often used the spectre of another depression in his campaign rhetoric, used emergency wartime powers to introduce a command economy in Australia based on Keynesian principles. Unemployment was virtually eliminated in this period, being reduced below 2 percent.

Chifley's government was soundly defeated by the Liberal-Country Party Coalition led by Robert Menzies in 1949. Though Menzies was a conservative, his sixteen subsequent years in power saw the government continue the use of Keynesian methods in economic policy as well as further expansion of the welfare state and public services such as higher education, research and development and public housing. Public support for these may have been a legacy of mass experiences of poverty during the Great Depression.


As for citing Harding, I would simply point out it's hard to say the economic policies which led to the Great Depression are the policies to be modeled.

RE: Markets
If the markets can't "guarantee the future," then isn't it folly to assume the markets can solve all problems without government intervention or regulation?

You can't have it both ways. It's not logical. You consistently espouse that market freedom and market choice should be unfettered by government regulations, but if the markets can't be trusted to guarantee the future or in other words be trusted to act rationally to maximize profit, what then?

Colin said...

What was GDP during that period?

And Australia is not the United States, which is worth pointing out..


Well, no, nothing is, but it is one of the better proxies you are likely to find given it is an immigrant-based English speaking country. Do you think cross-country comparisons have no value?

I can't find GDP stats for Australia but I fail to see their relevance either. Do you think that is a superior metric to unemployment (the original metric you cited regarding the success of the New Deal)?

Also, you conveniently neglect the following from your source:

Conveniently neglected? Why would I have included something utterly irrelevant to the subject at hand, which was a comparison of government responses to the Great Depression?

I am fully aware of Australia's post-war embrace of Keynesianism. I'm also aware that this shift produced terrible results, and the country later embraced economic reform based on less government intervention(similar to New Zealand) during the 1980s:

http://www.imf.org/external/pubs/cat/longres.cfm?sk=2789.0

Australia's recent economic performance has been impressive. It has experienced steady growth since the early 1990s and inflation has averaged just 2 percent over the same period. This strong showing marks a departure from the performance of the postwar years, when falling productivity and rising inflation caused Australia's per capita income to slip from one of the highest among OECD countries to merely average.

The fact that Australians demanded bigger government after the Great Depression is irrelevant. After all, the UK electorate also demanded more government after WWII, mistakenly believing that the government had shown itself capable of managing the economy due to its wartime performance. The result was a prolonged decline in its economic fortunes.

As for citing Harding, I would simply point out it's hard to say the economic policies which led to the Great Depression are the policies to be modeled.

Huh? How did Harding's policies lead to the Great Depression (which was, let us remember, a global phenomenon)? Was Harding responsible for the Smoot-Hawley tariff? Bad monetary policy? Or is your logic simply that one proceeded the other, therefore Harding must be responsible?

If the markets can't "guarantee the future," then isn't it folly to assume the markets can solve all problems without government intervention or regulation?

You can't have it both ways. It's not logical. You consistently espouse that market freedom and market choice should be unfettered by government regulations, but if the markets can't be trusted to guarantee the future or in other words be trusted to act rationally to maximize profit, what then?


"If the markets can't be trusted to guarantee the future..." -- is that real the standard? Guaranteeing the future?

Markets set prices, and prices are used to allocate goods. It is superior to central planning. But markets can't provide a guarantee of the future because the future is unknown!

Markets only work perfectly when they have perfect information, which suffice to say is almost never the case -- especially for the future. If markets knew the future, knew exactly what US deficit and debt levels would be over the coming decades I would absolutely go by whatever they indicated. Plainly this is not the case.