Thursday, July 15, 2010

The Economy - Let someone smarter explain it

This post on the Economist.com Democracy in America space pretty much sums up the current economic situation and the current impotent political situation in this country better then I ever could.

Bottom line, Republicans are disingenuous and Democrats are chicken shit.

9 comments:

Colin said...

The post perhaps makes a good point or two, but there is a lot of nonsense as well.

Some observations:

Enter economic bizarro world. A proposed extension of unemployment benefits has hit a snag in Congress because Republican leaders, concerned about the deficit, want to see its $35 billion cost offset by cuts elsewhere. That doesn't make much sense if you're generally looking to pump money into the economy with the hope of stimulating it. But it makes even less sense if you're also touting a policy that would add $3.3 trillion to the deficit over the next decade, which is what a complete extension of the Bush tax cuts would accomplish.

Leaving aside whether unemployment benefits stimulate the economy (a recent paper linked here on DC Exile suggest such measures retard job creation), the solution here is simple: Republicans should cut $330 billion per year from the federal budget. Sounds good to me! Of course most of them could stomach no such thing, which is why I laugh when Democrats warn about how the GOP is dominated by radicals hell-bent on taking a buzzsaw to the government.

Republicans have tried to justify their actions by claiming that tax cuts pay for themselves, and that what is needed is a "starve the beast" strategy for smaller government. Unfortunately, the idea of deficit-neutral tax cuts has been debunked, even by Republican economists, and starve-the-beast never seems to work out as planned (see Reagan, Ronald; Bush, George W.).

Wait, really? What Republicans have claimed tax cuts pay for themselves? While the author provides links to back up some of his other assertions in this paragraph, he doesn't do so for this statement. Even if you can find a quote somewhere from some Republican to this effect, that is hardly conclusive evidence that a majority or even sizeable minoriy believe this. I call strawman.

So Republicans have little inclination to actually cut the deficit, but they have certainly stoked fears of it amongst the public.

I think the causation runs in the other direction. In any case, the author is more accurate when he says the public is not terribly serious about cutting government and it's true -- we're all hooked!

I'm not sure how drastic the cuts would have to be, however. Last year the government received over $1 trillion in income tax alone. If we simply returned to discretionary outlays of 2006, which were at just over $1 trillion, the budget would be balanced (I believe SS and Medicare are cash flow positive, although this will end shortly).

Colin said...

Any serious economist will tell you that the primary fiscal challenge facing America is its spending on health-care programmes, like Medicare and Medicaid, and Social Security.

This can't be true -- I distinctly recall that when Dubya proposed reforming SS that Democrats screamed he was simply demagoguing the issue and the program was actually on sound financial footing. Thank goodness we didn't listen to that dumb ole Shrub.

And the Republicans haven't made it easy for them, politicising their only significant attempt to deal with the issue, through health-care reform (which will eventually lower the deficit, Democrats might add).

This is either shockingly naive or dishonest. ObamaCare won't reduce the deficit by a single cent. Indeed, it will do the opposite. The assumptions behind calculations which show it to be deficit reducing were thoroughly gamed and laughable (among other things not accounting for the doc fix, setting benefits to take effect years after the taxes kick in).

Oh, and the temerity of Republicans to disagree -- I mean, politicize the issue! Don't they know they should simply roll over for the Hope and Change Express even though expanded government intervention goes against everything they at least profess to stand for?

And now that Republicans have ginned up public anger, they're pursuing policies that don't align with their rhetoric.

Not Rep. Paul Ryan.

http://www.americanroadmap.org/

Jason said...

Wait, really? What Republicans have claimed tax cuts pay for themselves?

In fact, they have. Minority Leader, Mitch McConnell said, "That there's no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue, because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject." (http://tpmdc.talkingpointsmemo.com/2010/07/its-unanimous-gop-says-pay-for-unemployment-benefits-not-tax-cuts-for-the-rich.php)

You have the Senate Republican leader saying his caucus agrees with Sen. Kyl on the matter. I think that's a strong indicator this isn't a minority view. If it's a strawman, it's a strawman propped up by Republicans.

Jason said...

Leaving aside whether unemployment benefits stimulate the economy (a recent paper linked here on DC Exile suggest such measures retard job creation)

This is tired ground that there is wide-spread agreement on. Unemployment benefits stimulate the economy by increasing spending, because the unemployed need to spend to survive.

Also, often times unemployment benefits can diminish job growth, but right there are 5 unemployed people for every job. As the post from Economist.com says, "It's pretty straightforward: the number of people looking for a job far surpasses the number of jobs available. As Mr Indiviglio says, 'It's pretty clear that millions of Americans remain unemployed because the jobs aren't there—not because they aren't trying hard enough to find them.'"

In the short-run these outlays need not be deficit-neutral.

Colin said...

You have the Senate Republican leader saying his caucus agrees with Sen. Kyl on the matter.

No, go back and re-read the article. McConnell states that the caucus is in agreement with Kyl's stance that unemployment insurance extensions should be offset with spending reductions elsewhere while stating that tax cuts should not be offset through spending reductions. Indeed, as Kyl states:

The money belongs to the taxpayer, to the people. The money does not belong to the government, and yet that's what this kind of a rigid paygo rule would assume: that the money belongs to the government, and therefore if you're going to deny the government some of that revenue through a tax cut, you have to make the government whole, because the government can never lose any money. That would mean that you could never reduce the size of government. Each year, when it gets bigger, it stays at that level or it gets bigger yet, but you can never reduce it."

He never claims that tax cuts actually increase government revenues, and the part of the quote I bolded acknowledges they are revenue-negative.

I also noticed in the article you linked to that Sen. Coburn doesn't subscribe to this view of tax cuts as a revenue generator either.

But I will concede this is further evidence of McConnell's idiocy and a quote I wasn't previously aware of (perhaps I should start reading those TPM Muckraker emails I receive a bit closer). But I still disagree this reflects broad Republican thinking.

Colin said...

This is tired ground that there is wide-spread agreement on. Unemployment benefits stimulate the economy by increasing spending, because the unemployed need to spend to survive.

Asserting there is wide-spread agreement doesn't make it so. While I may concede for the sake of argument that unemployment insurance spending helps boost GDP figures, aren't those simply a means to an end -- that end being jobs? Again, the Fed paper DC Exile linked to flatly states:

Across different
types of spending, the results strongly suggest that infrastructure and other general spending have
large, positive multipliers while spending on safety-net type of programs may actually reduce
employment.


And remember, this wasn't a general evaluation of unemployment insurance over history, it was examination of the impact of unemployment insurance within the specific context of the ARRA.

In the short-run these outlays need not be deficit-neutral.

I'm not sure they need to be anything, but if President (Candidate?) Net Spending Cut were serious about getting our fiscal house in order he should be able to come up with a few billion among the trillions currently being shoveled out by the government that can be cut to make room for the extension of unemployment benefits. It would be nice to see our politicians, rather than just American families and businesses, be forced to sacrifice and make some trade-offs for once.

Ben said...

Colin, if you read the paper itself you'll notice this statement:
The estimated ARRA spending
impact is negative – i.e., spending reduced the unemployment rate – but it is imprecisely
estimated and statistically insignificant. This imprecision is likely due to the relatively large
measurement error in state-level unemployment rates, which are based on a smaller-scale
household survey rather than the large-scale employer survey used for the payroll employment
data.10
To sum up these baseline results, there is little evidence that total ARRA spending has
had a statistically significant impact on employment, as of May 2010, in the total nonfarm sector
or in the subcategories of private nonfarm or state and local government, though it has had a
positive and significant impact on construction employment.
Wilson, 19-20.

Jason said...

While I may concede for the sake of argument that unemployment insurance spending helps boost GDP figures, aren't those simply a means to an end -- that end being jobs?

It has been widely proven that unemployment insurance boosts consumer spending, so you don't have to concede it for the sake of argument. It's a fact.

And the end -- as it relates to unemployment insurance -- is to make sure people don't slip into poverty. That it increases consumer spending is a great side benefit.

Colin said...

Ben,

That quote seems about right to me. My point is not that unemployment benefits prevent large numbers of people from seeking employment (at least in the present economy) or that it is leading to widespread job destruction, but rather that it certainly can't be viewed as a job creator.

Jason,

With regard to this statement:

It has been widely proven that unemployment insurance boosts consumer spending, so you don't have to concede it for the sake of argument. It's a fact.

While it may boost consumer spending, there is more to economic health than people spending money. If unemployment extensions and government spending were the key to prosperity, it stands to reason the economy should be in rip-roaring shape right now.

I'll also note this:

http://www.heritage.org/Research/Reports/2008/11/Extended-Unemployment-Insurance-No-Economic-Stimulus

Now, the study might be completely wrong and I'm sure you can find others which conclude the opposite -- but please don't say this is "tired ground there is widespread agreement on."

And the end -- as it relates to unemployment insurance -- is to make sure people don't slip into poverty. That it increases consumer spending is a great side benefit.

If you want to sell unemployment benefits as an anti-poverty mechanism, then go ahead and do so. But please spare us about how great it is for the economy.