Well. So
that year sucked, didn't it? (Here's
a European perspective.)
Over in
Salon, Andrew Leonard
optimistically opines that at least the world has learned its lesson. "For the foreseeable future it's going to be very difficult for a politician to argue that markets work best when the government stays off the playing field." Oh Andrew, if only it were so.
I try and keep up with opinions on both sides of the ideological divide. Bernard Shaw was famous for always subscribing to multiple newspapers, representing both the Labour and Tory points of view, because he never wanted to just be a member of the choir, endlessly preached to by people he already agreed with, instead he wanted as many different opinions as he could find, so that he could then make up his own mind. (It is, then, no surprise that he turned out to be one of the great contrarians, constantly defying people's attempts to stuff him in one ideological box or another.)
I can't be as consistent as Shaw was, mostly because the right-wing opinionators just make me mad, and I don't enjoy being in a state of perpetual dudgeon. But it's a new year, so I thought I'd take a look at what the other guys are saying about our cheery economy and what we need to do about it. Turns out Andrew Leonard can't get no satisfaction: the same voices are still repeating the same opinions, ad infinitum.
Larry Kudlow has always been
unbearably smug, one of what historian Jacob Burkhardt called "the terrible simplifiers." Kudlow is particularly fond of circular arguments: proving his supply-side theories ("supply-side" being what we used to call "trickle-down economics") by referencing as proof the writings of the very people who pushed the whole supply-side theory in the first place:
Social historian and early supply-side activist Irving Kristol taught us three decades ago that the top earners are the economic activists. They’re the ones with the highest propensity to consume and invest. They’re the ones who buy the yachts, which are built by blue-collar workers. And they’re the ones who run the small businesses and provide the capital for the new entrepreneurial start-ups that are the lifeblood of the economy. It is they who energize free-market capitalism.
He does the same thing later in the same article with a mention of both
Arthur Laffer and
Alan Reynolds in one sentence:
In fact, lower capital-gains tax rates will raise revenues, since this is the single most sensitive tax on the Laffer curve. Indeed, many economists — including Alan Reynolds at the Cato Institute — argue that the growth and simplification effects of reducing the corporate tax rate would be revenue positive.
By only referencing as proof those who already agree with his argument, Mr. Kudlow thus presents what are really unsupported conjectures as if they were proven facts. And in sharp contrast to Andrew Leonard's optimistic hope, people like Kudlow haven't changed their tune one bit:
In fact, the GOP has a great opportunity to challenge Obama’s Keynesian pump-priming by insisting there be a major tax-cut component in any new fiscal package. Republicans shouldn’t merely push for somewhat less government spending. They have to make a bold case that tax rates matter for economic growth and job creation. They must insist that any recovery package includes this key element. Shift the debate. Say clearly that a reenergized economy cannot occur without lower marginal tax rates.
Note the constant use of italics for emphasis. This is a guy whose reckless certainty will never be challenged because his own sense of infallible rightness can never be shaken.
But even worse is
Lawrence Lindsey, a former governor of the Federal Reserve who really ought to know better. Mr. Lindsey correctly predicted the stock market's tech bubble in 1996, and tried to warn the Bush administration that the Irag war would cost more than they were anticipating--a lot more. (He was fired from the National Economic Council for his efforts.)
In discussing the incoming Obama administrations plans for economic stimulus, largely through investments in infrastructure, Mr. Lindsey
writes in the Weekly Standard that:
These programs also generally fail the test of timeliness. Consider the phrase "shovel ready" being used to describe many of these programs. By definition a shovel-ready project is one that state or local government has already spent a good deal of money developing and is likely to continue spending on. On the other hand, infrastructure projects that actually will produce net new spending are never shovel-ready. Most of the spending will end up occurring at the peak of the business cycle when it is not needed, not at the bottom.
Okay, an interesting point. But apparently, the only reason he said that was so that he could then say this: "By contrast, there are some ongoing federal spending programs that can be quickly ramped up during a recession. Most notable is defense procurement."
Yes, that's what we need. Apparently
$507 billion (and counting) last year wasn't nearly enough. Forget all this bridge-building and road-making, things that have a long-term impact that both helps us now by creating jobs and helps us later by giving us, for example, bridges that won't fall down and kill people. Instead, we should spend yet more on bombs and bullets. Things that get expended quickly and mostly just, you know, kill people.
But Mr. Lindsey is only just warming up:
The question to ask about any infrastructure project being sold as "stimulus" is why the project hasn't been done already. The most common answer is that the state and local political process didn't find that the benefits met the costs--a sure sign that the project is not likely to pay for itself during the expansion phase of the business cycle.
No, the real reason why state and local governments shy away from infrastructure projects is because they're afraid of anything whose benefits come later than two weeks from now. And in normal economic times, when there isn't such a pressing need to create jobs, the idea of, for example, the very national energy grid that Mr. Lindsey advocates in his article is shunned because it will cost a lot of money up front but won't pay dividends until years (and several elections) in the future.
(And why do we need to create jobs so badly? There was an article in
USA Today a couple weeks ago that noted that results are in for the first wave of mortgages that have already been restructured, in order to make their terms more palatable and affordable to imperiled homeowners: 55% of those restructured mortgages have also failed. Of course they have. If you don't have a job, it doesn't matter how much your mortgage bill gets lowered, you still can't pay for it.)
Mr. Lindsey, no surprise from a principal architect of Mr. Bush's tax cuts, asserts that "Permanent tax cuts offer a much better option." (And by the way: tax cuts are in fact part of Obama's total plan, but not the entirety of it. He recognizes that you can't just rely on one idea to the exclusion of all others. He is not a terrible simplifier.)
But then Mr. Lindsey completely floored me with this:
But the centerpiece of any tax cut should be employment taxes: in particular, a permanent halving of the current 12.4 percent Social Security payroll tax on the first $106,800 of wages, split evenly between workers and employers. The direct revenue effect of that would be a bit under $400 billion per year, roughly in line with the present quantitative needs of the economy.
You're kidding, right? At a time when we already know Social Security is underfunded and can't possibly meet its obligations, you want to cut the Social Security payroll tax in half? But don't worry, Mr. Lindsey knows how to fix Social Security's underfunding problem: bookkeeping. Oh yes. Enjoy the following:
Since the tax cut should be permanent to have maximum effect, the biggest challenge would be how to make up for the lost revenue once the macroeconomic need for fiscal stimulus had passed. In the short run, effective fiscal stimulus requires that government revenue drop, thereby enriching the private sector, and with the Treasury making the Social Security trust fund whole by way of intergovernmental bookkeeping. Longer term, however, spending cuts or a new source of revenue would be needed.
Now look. I recognize the problems with Obama's massive stimulus/infrastructure program, most notably the inevitability of inflation somewhere down the road. And I've seen the arguments of Republicans who claim that the New Deal in fact made the Great Depression last longer, but I think David Sirota dispenses with that notion
pretty effectively. But take a look at this
video from Fred Thompson, in which he amusingly nitpicks at liberal stimulus plans without ever bothering to offer any alternative ideas of his own--all the while sitting in a plus leather chair in a beautiful office, paunchy and jowly, and smoking a stogie, looking like exactly the sort of fat cat who got us here in the first place.
We've got to try something, preferably a lot of somethings. Doing nothing ain't an option. (There's
another round of mortgage failures coming, we know when they'll hit and we can't do anything to stop them. In other words: there's more clobbering still to come.) And doing more of the same supply-side nonsense we've been doing for the past thirty years sounds like the old definition of insanity: doing the same thing over and over, but expecting different results.
FDR was famous for just trying stuff. Anything he could think of to stimulate the economy, he did. If it didn't work, he dumped it and tried something else. So far, Obama sounds like he's doing his level best to put together a carefully-calibrated stimulus package that he can implement in one massive swoop of activity. Here's hoping that he will then have the wisdom to know when some element of that plan isn't working, and the political courage to dump that element and try something else.
