Friday, December 30, 2011

Thursday, December 29, 2011

Does Not Compute

The other day I was in the main office, overhearing a political discussion among a few coworkers. They were complaining about Obama, and how he was responsible for all the evils in the world, and how he would be passing even more harmful legislation. Yes, said one, from Nantucket or Hawaii, while on another vacation!

I jumped in: "Or while cutting brush!" Blank look. "He could do it while clearing brush," I repeated.

"What do you mean?" the fellow asked.

Another explained to him, "Bush cleared brush a lot while he was on vacation."

"I don't get it," the clearly puzzled man said. "What are you talking about?"

He absolutely could not fathom what I meant, because that was *Bush*, and therefore he was entitled to vacations. *Obama* was clearly abdicating his responsibilities. I doubt he was even thinking in any terms other than: if Obama does it, it's bad-- just check with Rush!

I didn't want to get into it; life's too short to argue with someone who's unpersuadable. Leave aside the comparison of time spent on vacation, how about a little memo entitled, "Bin Laden Determined To Strike In US"? All right, you've covered your ass, now.

Saturday, February 5, 2011

Economics Post - Part 3

WHAT NOT TO DO

What would hurt rather then help expand the economy?

The federal government can operate in the red, borrowing money to pay the bills and finance the recovery. State and local governments cannot run a deficit, and so when they run out of money they must raise taxes, cut spending, or both. Either of those options are bad in a recession: raising taxes takes money from people who would otherwise spend it. Cutting spending is the opposite of what you want to do-- you want to put more money into the economy. Spending cuts take the form of layoffs of teachers, firemen, police, public works employees. Not only are you directly creating additional unemployed with their attendant costs, you are losing the services they provide. Reducing other spending falls right into the vicious circle from Part 1. In order to sustain the state and local budgets, the federal government must supply funding by direct grants, funds tied to specific projects, or some other mechanism. This results less in a growing economy than a not-shrinking economy, but one need only look to California to see the consequences of a crippling state budget deficit.

The key is federal government spending. In the Great Depression the economist John Maynard Keynes said putting money in bottles and burying it, and requiring people to dig it back up, would help. Any spending would get money into the economy, but of course you want to get something useful in return, not just engage in a "helicopter drop." Hence the investment in infrastructure. Invest in green energy: something we KNOW is going to be essential in the future. Invest in an electric grid that won't be subject to brownouts and blackouts in the summer. Cars that require less or no oil-based fuel. This is coming. The money is going to be spent someday: spend it NOW, when it will provide an economic boost.

Inflation: another bugaboo. The concern now is DEflation. Interests rates are rock-bottom. A moderate inflation now would be a GOOD thing. The Fed has an inflation target: it is well below that with no signs of reaching it for years. Scare-mongers are jumping at short-term fluctuations in the numbers and ignoring the longer trends.

Balancing the Budget: If a family is not able to pay their bills, they economize: cut back their spending, tighten their belts, live within their means. Well, surprise: the government is not like a family. It has obligations to be met, and deficit spending is a tool to use to help control the economy. These are absolutely the times to borrow and spend: a rapid recovery is the one means to ensure future prosperity and reduce the burden on the coming generations. Shutting down the recovery now because of budget concerns will drag out the high unemployment, causing needless human suffering. It will cripple our future economy because of infrastructure requirements not met, or met later at higher cost. It will shove the United States back into the pack as China, India, and others take the lead in energy and manufacturing.

The gold standard. Come on-- this isn't even remotely credible. Nineteenth-century stuff. And "strong" and "weak" dollars are economic terms of convenience; it doesn't follow that "strong"="good" and "weak"="bad". In fact, right now in the world economy a weak dollar is desirable. Scare-mongers are counting on the public's ignorance to push bumper-sticker sound-bite slogans that sound good but are wrong. If economics were so easy and common-sense, there wouldn't be such disputes over what is right.

The bottom line is that spending by the federal government is the key. The Obama stimulus didn't fail: it wasn't large enough. Knowledgable people (such as Paul Krugman) said so from the beginning. Some of the stimulus was pissed away in tax breaks: better than nothing, but the least bang for the buck. Some of it went to state and local aid: necessary; not improving the economy but rather preventing it from getting worse. And yet the bit that did make it through as straight spending did have a measurable effect: it reduced the unemployment rate by one or two percent from what it could have been. Without a stimulus plan at all, we would be looking at Great Depression II: Santayana Was Right ("Those who cannot remember the past are condemned to repeat it.").

Economics Post, Part 2

EXPANDING THE ECONOMY

So how do we expand the economy? Referring to the vicious circle, the primary issue is that people do not have money to spend. If they had money they would buy things, and businesses would produce more, hiring workers to do so, giving people more money to spend...

In order to kick it off, the only available actor is the government. It can pay workers, putting money in their pockets. There are several mechanisms available. Monetary policy is ineffective in the current circumstance; the normal corrective of lowering the interest rate has been taken to its end: the rate is effectively zero. It can't go any lower.

The goal is to get money into the economy; it should be given to the people most likely to spend it: the poor. The worst option is tax breaks. If people are not paying taxes already, this won't help them. If they already have a steady income, the tax breaks would go to paying down their debt (i.e., money already spent), or put into savings, taking it out of the economy. Efforts to increase available credit, or boost investments, are useless: businesses are not expanding when they can't use the capacity they already have. Unemployment payments are better: it puts money where it is needed: the recipients are likely to spend it to meet basic needs, and not incidentally reduces real suffering.

Even better is to give people something to do in return for their money: a job. We are still driving on roads and playing in parks dating from the WPA in the Great Depression. It is openly acknowledged that the country's infrastructure is degrading rapidly. Ask any trucker how important the transportation industry is to the economy. Ask the folks in Middletown, CT, how they enjoy the water main breaks I hear about several times a year. Or, how about the railroad tracks in Massachusetts that are in such poor condition that the trains are limited to ten mph-- Yankee Candle gets its wax shipments from another branch and trucks it to its site rather than use the rail that passes right by its plant.

There are many things that can and should be built, replaced, improved. That produces several results: first, people are gainfully employed, with their new-found income passing in turn to grocers, service industries, retailers, manufacturers; second, this in turn stimulates further job growth, as business grows to serve increased demand; and third, the country as a whole gains tangible works that will help sustain the economy into the future. The roads will have to be repaired, bridges built, water mains upgraded someday: we may as well pay for it now and profit from the side benefits.

Economics Post, Part 1

JOBS AND THE DEFICIT

In which I set out in a basic way the economic issues facing the country. No numbers or links, but they are out there; Nobel Prize-winning economist Paul Krugman's blog is a good source. Read this with an open mind.

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Unemployment and the depressed economy is a problem *now*; the deficit is a problem for the future, and fixing the former will reduce the latter.

Here is the basic vicious circle we are in:

1. Businesses are unable to sell existing products.
2. Therefore they are not making as many widgets-- they have excess capacity.
3. Not as many employees are required to make fewer widgets, so no hiring, and layoffs.
4. Unemployed people have less money to spend; the employed are playing it safe, and saving more.
5. Therefore they are not buying existing products.
Back to: 1. Businesses are unable to sell existing products.

On the fiscal side of the issue, because there is less production and less income, less money is being taken in as taxes, and more money is being paid out in automatic compensators: unemployment, welfare, Medicaid. The government is not making as much money because of the depressed economy, and is spending more. This will increase the deficit.

The obvious corollary is, if the economy were not depressed, and there were more production and more employment and more income, less money would be spent by the government on unemployment/welfare/Medicaid, and more money would be taken in, decreasing the future deficit.

Therefore, the goal should be to improve the economy and lower unemployment. In addition to being a good thing in its own right, this would automatically tend to decrease the deficit without raising taxes: an expanding economy would mean more tax revenue.