Which Has the Greater Fiscal Impact: Tax Cuts or Defense Spending Increases?

Paul Krugman noted that Georgia’s Senator Saxby Chambliss has hypocritical views when it comes to the current fiscal policy debate:

"[W]hen it comes to stimulating the economy," Chambliss said, there's no better way to do it than to spend it in the defense community." On Sunday, Paul Krugman appeared on ABC's This Week, and picked up on the same thing, and called out Congressional Republicans for what one might call the "Chambliss hypocrisy". Here's Krugman: What's so wonderful is watching Republican congressmen saying, "But this will cost jobs!" The very same Republican congressmen who were denouncing the stimulus, saying government spending never creates jobs, but cutting defense spending costs jobs. It's wonderful.

It is also standard faire for Republicans to argue for more defense spending and less taxes at the same time. Earlier in this debate, we heard some Republicans telling us that tax cuts would lead to more bang for the buck than increases in domestic government spending as if the marginal propensity to consume were actually greater than unity. So why not argue that the direct impact on aggregate demand for spending a dollar on additional weapons would be greater than the direct impact on aggregate demand for spending a dollar on school buildings? Yes, the proposition is absurd but so is most of the rhetoric coming from the Washingtonian Republicans!

Zombie Banks

Zombie bank [it's a music video] goes something like this:

from my laboratory in the nation's east
comes zombies hungry for some bailout treats
just a little more flesh will keep them alive
they've got much bigger worries than how YOU'LL survive

Counter-narrative Flow Diagram

by the Sandwichman

I promised media I would post a flow diagram so here is it, ugly (and provisional) as it may be.
The blue green arrows running clockwise show the direction of influence for the Persona parsimoniae counter-narrative(Pp). From the top, it begins at leisure/disposable time, an increase in which results in an increase in Income/consumption, Production and, finally, Accumulation/investment. Because there is an inherent limit to accumulation, the excess not absorbed into further increases in leisure becomes superfluous consumption and overproduction. There could also be an arrow added from the superfluous box to indicate that today's excess could become tomorrow's standard.*

Conversely, the purple arrows running counter-clockwise indicate the flow for the traditional Economic Man model(EM). These start (hypothetically) at Investment/accumulation (the order of priority reversed) and proceed through Production, Consumption/income and back to Accumulation. In this direction of flow, leisure or disposable time is conceived of as a subtraction from the flow.

*As media suggested, such a chart may be thought of as representing a two-way flow, with elements of either Pp or EM coming into play depending on the circumstances. That two-way flow could obviate the need for an arrow leading back into consumption (or production) from the superfluous consumption node.

The organized campaign to suppress the truth and divert our attention continues...

by the Sandwichman

Rather than delete the 18,000 word Anonymous "comment" posted to the original entry previously located at this URL, I've reposted that original entry elsewhere and I'll leave the rant here for the benefit of researchers who might be interested in the phenomena of rant spamming. To view other locations where this rant was spammed, click on this Google link.

"SOMETIMES, I WONDER WHY I BOTHER FIGHTING SO HARD FOR THE LITTLE GUY!" (emphasis added)

Cafe Hack

by the Sandwichman

Riddle me this:

National income accounting was developed as tool for state economic planning.

No one fetishizes economic growth (of GDP) more than classical economic liberals.

What am I missing here?

On the Sanctity of Contracts

"As the Obama administration completes its examinations of the nation’s largest banks, industry executives are bracing for fights with the government over repayment of bailout money and forced sales of bad mortgages."

"Some of the healthier banks want to pay back their bailout loans to avoid executive pay and other restrictions that come with the money. But the banks are balking at the hefty premium they agreed to pay when they took the money."

"Both large and small banks have pressed the Obama administration to make it less costly for them to exit the bailout program by waiving the right to exercise stock warrants the banks had to grant the government in exchange for the loans. At a meeting last month, the chiefs of three of the largest banks separately asked Mr. Obama to direct the Treasury not to exercise the warrants..."

Labaton, Stephen and Edmund L. Andrews. 2009. "Showdown Seen Between Banks and Regulators." (11 April).
http://www.nytimes.com/2009/04/11/business/economy/11bank.html

A Tiny Step for Labor

In one of the more outrageous financial maneuvers, Sam Zell used the Tribune pension fund to help finance his takeover of the corporation, which let him beat down workers.


Tribune Co. Subpoenaed Over Employee Stock Plan
REUTERS
Published: April 10, 2009

The Labor Department subpoenaed the Tribune Company over its employee stock plan, which was crucial to the purchase of the company by the billionaire Sam Zell, left. The company disclosed the subpoena, issued in March, in a bankruptcy court filing and said it had handed over the documents. A Tribune spokesman was not available for comment.

The agency’s questions relate to the Employee Retirement Income Security Act, a law intended to protect people in employee retirement plans. The stock plan was an important piece of Mr. Zell’s plan to acquire the company in an $8.2 billion deal that involved $13 billion in debt. He intended for the stock plan to become the largest owner of the company, which would let it avoid corporate taxes. That, in turn, was supposed to help a company turnaround.

Introducing the Obamawatch Lottery

I am offering a prize of $1 to the person who comes closest to guessing the date at which BHO first takes a courageous action that significantly challenges the ridh and powerful. I will begin with the date 2020.

The origins of the crisis in the concentration of wealth

In the 1970s the wealth of a select group of rich (in a few places such as Saudi Arabia and Texas in the USA) "swelled so hugely that the English language was scarcely capable of defining it." So said author Stephen Fay in his book on the Hunt brothers and Saudi silver bubble of the late 1970s entitled 'Beyond Greed'.

This new wealth was largely paid for by consumers of oil after OPEC and the oil corporations quadrupled the price of this commodity in 1973. As John Kenneth Galbraith warned at the time, the wealth did not 'trickle down' to the rest of us but instead created what he had feared: inflation, severe recession and unemployment around the world. The international economy became more vulnerable to unexpected shocks than at anytime since the 1930s.

The new super-rich were afraid - not so much of recession - but of inflation and taxation. They preferred therefore to gamble rather than to save. This new attitude reflected the problem money was having as a store of value as the US dollar (the world's reserve currency) lost its value and was no longer backed by gold. [2]

Importantly, the new rich of the 1970s could buy on a scale that had never been contemplated before. C Wright Mills had warned a good decade earlier that the social theories and values of 'liberalism' assumed "a world of small entrepreneurs. But it is quite clear that one of the most decisive changes over the last hundred years is the enormous increase in the scale of property units." [3]

The oil and corporate rich of the 1970s had impeccable credit credentials and they began to focus their purchase on things they believed would increase in value such as other corporations and precious metals; to be purchased with other people's money. They used loans from the world's biggest banks and brokerage houses.

Financialisation was reborn. The global invasion of petro and monopoly dollars on the world economy meant too much cash chased too few goods. Then US Presidents Carter and Reagan administrations made matters even worse when they addressed inflation by hiking interest rates. "The emerging-market borrowers began to suffer..." A strong US banking cartel ensured the loans of these weak and vulnerable nations were denominated in US dollars. "Zaire and Turkey had already defaulted in 1976 and 1977. After 1980 the high interest rates, close to 20% for six-month Libor, shook country after country off its perch." [4]

As we all appear to know now, the global economy continued to deteriorate from there. One public bailout of private concentrated wealth followed another.

The words of C Wright Mills written in the early 1960s resonate with a great deal of urgency today:

The meaning of freedom, positively put" has to be restated now, not as independence, but as control over that upon which the individual is dependent. Security, once resting on the small holding, has become, in the world of large property, anxiety - anxiety produced by the concentration process and by the manner of living without expectation of owning. Positively, security must be group-guaranteed; individual men can no longer provide for their own futures.

."

Should we be content to continue to assume 'the dominance of huge scale property'? If so, where is the counterveiling power to create our new 'group guarantee' of freedom and security?

[1] 'Beyond Greed' by Stephen Fay. Prologue, page 1. ISBN 0-670-644497-8. Viking Press, 1980.

[2] The US had developed a consistent balance of payments deficit due to that nation's pursuance of the Vietnam War as well as other factors such as the flawed nature of the Bretton Woods system and the dominance of US transnational corporations in world banking and trade that left most of the world short of reserve currency.

[3] The essay entitled 'Liberal values in the modern world' from 'Power, Politics & People - The collected essays of C Wright Mills' edited by Irving Louis Horowitz.
Oxford University Press, 1967 (reprint 1969)

[4] Oil, inflation, default
http://marcosaba.tripod.com/30annidiscandali.html

Best Paragraph of the Day

110: "If a period of growth is followed by a period of depression, there are two possibilities: either the ruling group will modify its attitudes and behavior, or it will be replaced by another group. The aristocrat, Tancredi, tells an older-generation aristocrat, Fabrizio, 'we have to change everything in order to keep everything as it is'."

Burke, Peter. 1974. Venice and Amsterdam, A Study of Seventeenth Century Elites (London: Temple Smith).

Academic Repression at Bowdoin College

URPE reports on a case at Bowdoin College where longtime URPE member and 29 year member of the economics department, Jonathan Goldstein, is under investigation for alleged academic misconduct in his research. Reports are now surfacing on the details, which some are comparing to the case of Ward Churchill, although this is a lower key case, with Goldstein's position substantially superior to that of Churchill's. Nevertheless, he has an angry dean out to get him for exposing Bowdoin's to potential incoming students Bowdoin's recent tilt toward athletics and away from academics. The paper he wrote has not been published, and the errors are very minor and would be corrected prior to any publication that the investigative committee are focusing on to charge misconduct. This is simply arbitrary academic repression.

One can access the details through several sources. Inside Higher Education (IHE) has a pretty detailed account at http://www.insidehighered.com/news, and the Foundation for Individual Rights in Education (FIRE) has a column up that its VP has just published in the Boston Globe at http://www.thefire.org. For anyone wishing to protest what is happening there, the email address for Bowdoin's president, Barry Mills, is bmills@bowdoin.edu.

An Ecological Future: Marx and Wu Wei

I have just written a short paper that I will be presenting in China. Any comments would be appreciated.

Thank you very much

http://michaelperelman.wordpress.com/2009/04/10/an-ecological-future-marx-and-wu-wei/

Prosperity without growth

by the Sandwichman

Prosperity without growth, a report of the UK Sustainable Development Commission (March 30, 2009) concludes:

The clearest message from the financial crisis is that our current model of economic success is fundamentally flawed. For the advanced economies of the western world, prosperity without growth is no longer a utopian dream. It is a financial and ecological necessity.

Step 5 of the report's "12 Steps to a Sustainable Economy":

In a declining or non-increasing economy, working time policies are essential for two main reasons: 1) to achieve macro-economic stability; 2) to protect people’s jobs and livelihoods. But in addition, reduced working hours can increase flourishing by improving the work-life balance. Specific policies need to include: reductions in working hours; greater choice for employees on working time; measures to combat discrimination against parttime work as regards grading, promotion, training, security of employment, rate of pay and so on; better incentives to employees (and flexibility for employers) for family time, parental leave, and sabbatical breaks.

The report's forward:

Every society clings to a myth by which it lives. Ours is the myth of economic growth. For the last five decades the pursuit of growth has been the single most important policy goal across the world. The global economy is almost five times the size it was half a century ago. If it continues to grow at the same rate the economy will be 80 times that size by the year 2100.

This extraordinary ramping up of global economic activity has no historical precedent. It’s totally at odds with our scientific knowledge of the finite resource base and the fragile ecology on which we depend for survival. And it has already been accompanied by the degradation of an estimated 60% of the world’s ecosystems.

For the most part, we avoid the stark reality of these numbers. The default assumption is that – financial crises aside – growth will continue indefinitely. Not just for the poorest countries, where a better quality of life is undeniably needed, but even for the richest nations where the cornucopia of material wealth adds little to happiness and is beginning to threaten the foundations of our wellbeing.

The reasons for this collective blindness are easy enough to find. The modern economy is structurally reliant on economic growth for its stability. When growth falters – as it has done recently – politicians panic. Businesses struggle to survive. People lose their jobs and sometimes their homes. A spiral of recession looms. Questioning growth is deemed to be the act of lunatics, idealists and revolutionaries. But question it we must. The myth of growth has failed us. It has failed the two billion people who still live on less than $2 a day. It has failed the fragile ecological systems on which we depend for survival. It has failed, spectacularly, in its own terms, to provide economic stability and secure people’s livelihoods.

Today we find ourselves faced with the imminent end of the era of cheap oil, the prospect (beyond the recent bubble) of steadily rising commodity prices, the degradation of forests, lakes and soils, conflicts over land use, water quality, fishing rights and the momentous challenge of stabilising concentrations of carbon in the global atmosphere. And we face these tasks with an economy that is fundamentally broken, in desperate need of renewal.

In these circumstances, a return to business as usual is not an option. Prosperity for the few founded on ecological destruction and persistent social injustice is no foundation for a civilised society. Economic recovery is vital. Protecting people’s jobs – and creating new ones – is absolutely essential. But we also stand in urgent need of a renewed sense of shared prosperity. A commitment to fairness and flourishing in a finite world.

Delivering these goals may seem an unfamiliar or even incongruous task to policy in the modern age. The role of government has been framed so narrowly by material aims, and hollowed out by a misguided vision of unbounded consumer freedoms. The concept of governance itself stands in urgent need of renewal.

But the current economic crisis presents us with a unique opportunity to invest in change. To sweep away the short-term thinking that has plagued society for decades. To replace it with considered policy capable of addressing the enormous challenge of delivering a lasting prosperity.

For at the end of the day, prosperity goes beyond material pleasures. It transcends material concerns. It resides in the quality of our lives and in the health and happiness of our families. It is present in the strength of our relationships and our trust in the community. It is evidenced by our satisfaction at work and our sense of shared meaning and purpose. It hangs on our potential to participate fully in the life of society.

Prosperity consists in our ability to flourish as human beings – within the ecological limits of a finite planet. The challenge for our society is to create the conditions under which this is possible. It is the most urgent task of our times.

Tim Jackson Economics Commissioner Sustainable Development Commission, March 2009

Not everyone agrees that the unambiguous goodness of economic growth is a myth. Amity Shlaes (with elocution rivaling George W. Bush's):

"One of the things that we started out this conversation about -- growth with -- was what is humane? So really, being humane and having growth go together -- growth is humane. It's one of the ways -- the most efficient ways to be humane. We all agree on that."

It’s 2009: Why Are We Still Dealing with Voodoo Climate Economics?

You would think the basic facts would be clear by now, but you would be wrong. A New York Times article this morning on Missouri’s fear of higher electricity prices under carbon regulation had lines like:

[Politicians from Missouri] are concerned that the new costs would get passed on to consumers...., to farmers from rural Missouri and to employers like the energy-hungry Noranda aluminum plant in New Madrid in the southeast of the state, which has 1,000 workers. And they worry that in an already wounded economy, increased costs could turn one of the relatively few economic blessings into a blight.

Where to begin? The whole point of issuing permits for carbon is to dramatically raise the cost of burning these fuels; people are supposed to cut back on goods and services that use them, thereby preserving a liveable planet. There is no “would” or “could” about it: if we want to limit climate change we have to get hundreds of millions of people to change their consumption habits (and firms to change their production methods). Since we don’t want to do that with regulations, police and prisons, we will do it with prices.

Given that, the core economic problem is how to carry out this program with the minimum cost to the well-being of our fellow humans. Part of this is about efficiency, getting the most carbon reduction for the lowest cost. Another part is about investment and innovation, building a low-carbon economy that produces a high quality of life for all of us. But front and center are those higher prices that we will have to pay for goods that continue to require carbon fuels.

In the voodoo view of the world, money just disappears down a black hole. Consumers pay higher prices, the economy suffers, and that’s the end of the story. It doesn’t take much economic sophistication, however, to notice that the money has to go somewhere—specifically, it finds its way to the companies that acquire carbon permits in the first place, and that’s why the permits are valuable. Now, either those companies get the permits for free and make out like bandits, or the permits are auctioned. If they’re auctioned, the money from those hard-pressed Missourians is now in the hands of the government agency that ran the auction. At this point we have a new sales tax. But we don’t want a new sales tax. So the government agency can simply rebate all the money back to the public, ideally on a simple, equal per capita basis. This means that the folks from Missouri highlighted in the Times article would be earning carbon revenues and not just paying them. They can stimulate their economy by spending this loot on other items that don’t pump carbon into the atmosphere and whose prices haven’t gone up.

True, on average people in some regions will come out somewhat ahead or behind on the deal, based on the sort of energy infrastructure that’s currently in place, current commuting patterns, climate and such. No doubt a carefully constructed policy package would offer sweeteners to the more impacted areas, like extra investment funds. But these considerations are second-order compared to the voodoo vision of higher prices that just vanish into thin air.

Orthodoxy Entrenching Itself Against Reality At Notre Dame

Mark Thoma at economists view links to a posting at Open Economics about the latest situation at Notre Dame University regarding its economic departments, http://openeconomicsnd.wordpress.com/2009/04/08/the-state-of-heterodox-economics-at-notre-dame. As most know, the original economics department (now called "ECOP") there had many heterodox people in it, and the administration set up a new "econometrics" department to run the econ grad program in an explicitly "neoclassical" way. There was much protest by many, with basically nobody outside of there defending this, and the critics including many prominent conventional economists, such as Robert Solow, who declared, "the last thing we need in economics is another third-rate MIT graduate program." But the Notre Dame people proceeded with this, although the new department's chairman, Robert Jensen, declared a goal of "equality" between the two departments.

This latest posting reports that the goal of equality is being seriously tossed under the bus, with a collapse in teaching for the coming fall by ECOP. Lying behind this is total inequality in staffing. Four people were hired for the coming year for the econometrics department, bringing it to 19 faculty, whereas there are two retiring from ECOP without any replacements being hired, bringing their numbers down to 7. The poster, nkrafft, reports that these decisions are "being made somewhere between the dean's office and the provost's office." But the outcome has been denounced widely, with 200 people showing up for a talk by "Wolff" (probably Robert, but...?), and him denouncing this as ridiculous in the face of how the credibility of the orthodox approach has collapsed during the current crisis situation. Dumping heterodox and hiring orthodox looks very silly indeed, especially for an institution that is supposedly concerned with its social conscience.