Say What You Will About Supply Side Economics, At Least it's an Ethos

Tom Levenson, over at Balloon Juice, read this article, written by Adam Davidson of Planet Money, at the New York Times and asked someone to do a thorough Fisking of it. Well, it looks like that someone is me. For the uninitiated Fisking is when a blogger copies over another writers work into their blog post while adding their own comments debunking the original writers points. Without any further ado, lets dig in: 

The current economic downturn has been called a housing crisis, a financial crisis and a debt crisis, but the simplifying logic of the political season has settled on what is really more a result than a cause. We are now, according to nearly everyone running for office, in a jobs crisis. Every politician currently has a “jobs plan,” very often a list of vague proposals filled with serious-sounding phrases like “budget framework” and “regulatory cap” that are designed, for the most part, to mean both everything and nothing at all.

So far nothing too crazy in here. I wish he would point out that the Democrats' job plan is actually a number of specific proposals which independent economists agree will create a large number of jobs in a very short period of time. He gets around charges of outright mendacity with the phrase "very often". He also seems to be dismissing the idea that the fact that unemployment is hovering around 9% by claiming the "simplifying logic of the political season has settled on what is really more a result than a cause." Here, Mr. Davidson misses the point. Right now, we know what caused the Great Recession, but the important thing now is to get unemployment back to a reasonable level. If the financial crisis was something that happened several years ago, but unemployment was low, no one would care about it. The important thing right now is the very real jobs crisis.

Starting this week, I’ll be writing a regular column in the magazine that tries to demystify complicated economic issues — like whether anyone (C.E.O.’s, politicians, people running for the presidency) can actually create jobs. The fact is that creating them in a far-too-sluggish economy is practically impossible in our current capitalist democracy. No corporate leader is rewarded for hiring people who aren’t absolutely required. Most companies hire only when its workforce can no longer keep up with the demand for its products.

Evidently Mr. Davidson will be get to put out a column every week filled with poor economic analysis. Oh goody! The most striking thing about this paragraph is that Mr. Davidson actually stumbles upon the problem with the current state of our economy with this sentence:

No corporate leader is rewarded for hiring people who aren’t absolutely required. Most companies hire only when its workforce can no longer keep up with the demand for its products.

Right now, no one wants to hire, because there isn't enough demand. This is actually a relatively simple problem to fix. A large enough actor, or group of actors, in the economy simply need to give people money to spend. That's all demand is, people spending money on various products. This is central to Keynesian economics and it's really not all that difficult a concept to grasp. The part of this paragraph which is so incredibly wrong is Mr. Davidson's assertion that creating jobs in a sluggish economy is "practically impossible". Nothing could be further from the truth. It's actually easier for an independent actor (like the government) to create jobs in a sluggish economy than it is in an economy which is already operating at full employment.

Even with all the attention on hiring, the government’s ability to create jobs is pretty dispiriting, no matter who is in charge. The most popular types of jobs programs involve state tax breaks or subsidies that seek to seduce a company from one state to another. While this can mean good news for “business-friendly” states like Texas, such policies don’t add to overall employment so much as they just shuffle jobs around. This helps explain Rick Perry’s claim that more than one million jobs were created under his watch in Texas while the rest of the country lost more than two million.

Here is where Mr. Davidson's article really goes off the rails. While it's probably true that the most common types of "jobs programs" today come from individual states, and they do involve the things he describes, Mr. Davidson ignores the largest, and most successful jobs program implemented in the past few years. I am, of course, referring to the famous stimulus package. This package came with a price tag of about $800 Billion. Maybe Mr. Davidson has heard of it? Contrary to what many Republican politicians would have you believe the stimulus actually did exactly what it was advertised to do; it created between 2 to 3 million jobs. That's pretty fantastic. Why Mr. Davidson doesn't mention the stimulus bill, I don't know. It was only the largest most successful job creation effort in recent memory. Surely that would have some bearing on his central argument that no one can do anything about jobs. As to the other jobs programs Mr. Davidson rightly dismisses, this is what economists refer to as chasing smokestacks, and it's generally regarded as a bad idea.

The federal government does something similar when it decides, for instance, to regulate oil drillers and subsidize windmill makers. Such a policy might help the environment but it just moves jobs from one sector to another without adding any. And while both Perry and Mitt Romney propose that further oil and gas drilling in the U.S. will transform the jobs picture, only 30,000 Americans work in oil and gas extraction, and about another 125,000 in support occupations. With more than 25 million Americans unemployed or underemployed, it’s unlikely that any changes in that part of the energy sector would make a real dent.

Here Mr. Davidson makes a good point. The government won't get us out of this problem by catering to any one particular industry. The problem with his analysis though lies in his first sentence. Why does he think that the regulation and subsidy have to be exactly equal to one another? Why can't we ignore the oil industry for now and just subsidize windmills? Wouldn't that create jobs? This is never addressed. It is just given as fact that regulations kill as many jobs as we can subsidize.... for some reason.

One reason we have so few ideas about job creation is that up until recently, the U.S. economy had been growing so well for so long that few economists spent much time studying it. (They’re trying to make up for it now. See this chart.) With no new theories, Democrats dusted off the big idea from the Great Depression, John Maynard Keynes’s view that government can create jobs by spending a lot of money. The stimulus, however, has to be borrowed, and it has to be really, truly huge — probably something like $1.5 or $2 trillion — to fill the gap between where the economy is and where it would be if everyone was spending at pre-recession levels. The goal is to goad consumers into spending again. And President Obama’s jettisoned $400 billion jobs package, hard-core Keynesians argue, is nowhere near what it would take to persuade them.

And now we reach the paragraph that convinced me to undertake this project in the first place. There are so many bad arguments in this paragraph it's hard to know where to start. First of all, Mr. Davidson dismisses Keynesian economics basically by saying it's too old to be any good. Seriously? That's an argument worthy of a column in the Times? That's like saying Einstein's Theory of Relativity doesn't hold up because he came up with it back before World War I. Just like the Theory of Relativity, Keynes's ideas have been expanded upon in the intervening years, but even so, the basic idea, that government can create jobs in a recession, is as true today as it was 80 years ago. In the next sentence, Mr. Davidson seems to be complaining that a Keynesian solution would be too expensive. Note that he doesn't actually claim it wouldn't work, just that it would cost lots and lots of money. Never mind that right now the US can borrow money at historically low rates, fixing this problem would cost too much. Sorry poor people! Guess you'll just have to suck it up. I would also like to point out that Mr. Davidson mentions that President Obama "jettisoned" his jobs plan. He didn't just give up on it. Republicans kept it from even coming up for a vote. There's a big difference.

Many Republicans follow the more fiscally conservative University of Chicago School, which argues that Keynesian stimulus can’t heal a sick economy — only time can. Chicagoans believe that economies can only truly recover on their own and that policy interventions only slow the recovery.

First of all, Mr. Davidson seems to be making the Chicago argument in his column. Remember earlier when he said it's "practically impossible" for anyone to create jobs? That's the Chicago School's position. The Chicago School is based in Austrian Economics, which is the nihilism of the economics profession. The Austrian way of thought, in a nutshell, is that everything must be deduced, and nothing can be proven by empirical evidence. Since no experiment or data set can ever hope to be comprehensive, no data can ever prove anything. In this way, Austrian Economics can be neither proved or disproved, and is therefore worthless. Say what you will about Supply Side Economics, at least it's an ethos (hey, that's the name of this post!). 

It’s a puzzle of modern politics that Republicans have had electoral success with a policy that fundamentally asserts there is nothing the government can do to create jobs any time soon.

It's not a puzzle. It's really, really not. In fact, modern political science predicted that Republicans would win this last election considering the fact that the Democrats were presiding over a period of poor economic growth. The explanation really is that simple. Also, the Republicans used Mediscare tactics that got seniors voting for them in bigger numbers than ever before. This really isn't a big mystery, and Mr. Davidson is wrong to make it seem like it is.

Of course, Romney, Perry, Herman Cain and the rest won’t come out and say, “If elected, I will tell you to wait this thing out.” Instead, Republican candidates fill their jobs plans with Chicagoan ideas that have nothing to do with the current crisis, like permanent cuts in taxes and regulation. These policies may (or may not) make the economy healthier in 5 years or 10, but the immediate impact would require firing a large number of America’s roughly 23 million government workers.

How bad might that be? The U.K., as part of its austerity measures, is in the process of firing about a half-million government workers under the notion that the private sector would be so thrilled by low taxes and less regulation that it will expand and snatch up all those laid-off public servants. But this plainly isn’t happening. The British economy continues to grow slowly, if at all, and few former government workers have found new jobs in the private sector.

Hey, these arguments are actually correct! And they're basically Keynesian economics! What a strange coincidence considering the fact that Mr. Davidson dismissed Keynesian economics just a few paragraphs ago... It's almost like he has no idea what he's talking about.

Keynesians and Chicagoans, however, do agree on two important points. First, in economics, unlike politics, there’s no middle ground: You can’t simultaneously cut and increase government budgets. The only shot we have at truly transforming our economy is a one-party sweep in the 2012 elections that would lead to radical legislative changes. Still, either path — lots more debt or lots of fired government workers — will only inflame more Americans.

Somehow I doubt Americans will become inflamed if there's a lot more debt, but low unemployment. The deficit is only something Americans really only care about when times are tough and it's used as a scapegoat for the country's problems. Debt exploded throughout the first half of the '00s and no one seemed to care. As Dick Cheney famously said "...deficits don't matter."

The second area of agreement is the most important: an economy is truly healthy only when its people know how to make and do things that others will pay them a decent amount for. Jobs, in other words, are not the cause of a healthy economy; they’re the byproduct. And that’s another thing most national politicians know but will never say.

Ah, here we go. More Austrian arguments. You see, the problem right now is that not enough people know how to do anything useful. But five years ago they did I guess, since we were running at (or close to) full employment. What happened in the intervening time period? Mr. Davidson can't be bothered to say. But it was obviously very important if it left so many people completely useless!

So perhaps instead of (or, at least, in addition to) arguing over plans that aren’t going to happen, we should focus on what almost certainly will come true. 

And why aren't these plans going to happen? Oh yeah, Republicans. That really can't be said enough. The Keynesian plans which would actually work aren't happening because Republicans have created historic levels of obstruction. But Mr. Davidson never mentions that in his post. Not once.

The economy that emerges from this recession is going to be different. Without the distortion of a credit bubble, it is clear that far too many Americans don’t know how to do anything that the world is willing to pay them a living wage for. No economic theory offers them easy salvation.

Here's where Mr. Davidson gets really nihilistic. He is promoting the theory that the problem with our economy is structural rather than cyclical. The problem with the structural theory is that there was a massive change in unemployment in a very small period of time. What could have caused this change, which would leave so many workers with useless skills? This immense force is never really explained by the structuralists.

We don’t need to become a nation of app designers. An economic downturn is a great time to learn things — carpentry, say, or aerospace engineering — that others will eventually pay for: high-school dropouts should get their degrees and a year of specialized training; high-school grads who can’t afford a four-year school should get a community-college degree. Life will be tougher for liberal-arts majors if they don’t get training in how to apply a humanities education. Those who can’t find a job where they live should consider moving to places where there are more jobs than applicants — the Dakotas, Nebraska, Wyoming.

"An economic downturn is a great time to learn things"? Really? That must be very comforting advice to those who can't find work. "Hey, Adam, I haven't been able to find a job and I can't afford food for my kids. What should I do?" "Have you thought about learning how to carve a door frame?" **Blank Stare** I also like how he throws in a little hippie punching in the middle there, taking a shot at liberal arts majors. It's his last bit of advice that may be the worst though. You should just uproot your family and take them to some state where they have more jobs than applicants! Of course, how simple! What he never mentions though is that the populations of those states are tiny, and the number of jobs equally so. For instance, if everyone who's unemployed in Nevada took his advice and moved to those states, they would quickly be overwhelmed. Also, the job growth there comes largely from the petrochemical industry which he dismissed earlier in this very column. Way to do the research Davidson!

When this crisis ends, we’ll also be faced with other deep problems. Our tax code is a complex mess; we need a more effective education system; it’s hard to picture a healthy United States in 2050 without some major change in health care. Unlike the short-term jobs crisis, these are areas where we can find compromise. Let’s not do what we usually do by spending the bad times arguing over things that won’t happen and the good times ignoring the things that should.

Now Mr. Davidson is worried about 2050? Also, someone should tell him about the Affordable Care Act. It's something the Democrats pushed through a couple years back which starts to address the health care system. As he may (or may not) remember, there was a highly contentious fight around even simple reforms to Medicare, so his argument, that these are areas we can find compromise, is laughably wrong. Maybe he's been on vacation or something, but in the past few years the Republican party has gone so far off the deep end that compromise is no longer in their vocabulary.

[End Fisking]

It's disappointing that something of such low caliber was published in the New York Times. Nowhere can I see any substantial economic arguments. Mr. Davidson only dismisses both sides, which probably makes him feel good about himself, but does nothing to advance the actual conversation. His argument against Keynesian economics is that the founder is too old, and also it's very expensive. His argument against the Chicago School is that no one will like it (then he embraces the idea that there's nothing we can do to create jobs). All in all, this is a very poorly argued piece that does nothing but chide both sides about what they're doing wrong, while offering no actual solutions to the very real problems millions of Americans face.

Bobo Analysis

(picture from the New York Times)

Shorter David Brooks:

Republican policies no longer get me off and Democrats don't have decency to admit that the richest country in the history of the world can't afford to take care of its non-wealthy citizens. Here's a bunch of ideas that will never pass a Republican congress.

He spends half his column whining about his job and the other half giving bad political advice (claiming that the way to get things passed in Washington is via bipartisanship) and proposing a bunch of ideas liberals came up with ages ago. But on the plus side at least he seems to realize the Ryan plan is worthless.

The Perfect Example of Blame the Victim

Dan Rottenberg wrote an odious blog post today about how, when a woman gets raped, it was probably her fault. As a feminist I was incredibly repulsed by this article, and felt the need to write about just what's wrong with it. I'm tempted to avoid linking, but this is just such a perfect example of what's wrong with modern attitudes towards rape victims that I would recommend reading it, but only with puke buckets at the ready:

http://www.broadstreetreview.com/index.php/main/article/male_sex_abuse_and_female_naivete/

Rottenberg doesn't even wait to get to the actual post before wondering whether women might be asking to be raped when wearing low cut blouses:

What message was the TV journaiist Lara Logan sending here?

Rottenberg begins the actual post by informing women that some men might think that they wear revealing clothing because they "want to get laid". As if that weren't condescending enough, he begins this passage with the phrase "Earth to liberated women". Yeah, liberated women, how can you be so dumb as to think that men should be able to resist raping you when you wear a tank top? Jeez, it's like you expect equal rights or something. The whole post is written as though he's trying to help women, to keep them safe.

This is a pretty common response to rape. Women are expected to protect their vaginas, men aren't expected to control themselves. Just look at the language used when discussing sex. A woman "gives it up" as though sex was something she had and something a man took from her (h/t Amanda Marcotte) rather than something shared between two people. One of the most concrete examples of this is from America while controlled by the Spanish. A culture developed that encouraged men to gain Honor by taking a woman's Shame (by tricking her into bed, natch). If a woman went to bed with a man she wasn't married to she lost her Shame (hence the phrase shameless), and the man gained Honor. In many ways this dynamic exists today.

Later in his post Rottenberg implies that rape can be a sport claiming "[c]onquering an unwilling sex partner is about as much drama as a man can find without shooting a gun". This places all responsibility on the woman to avoid unwanted sex, while placing none of the responsibility on the man for, you know, raping the woman. It's just a sport to men! It's not their fault these women aroused them with their low cut blouses and miniskirts!


In his conclusion, Rottenberg uses the example of two women, Ann and Sarah, to prove his point that rapists are horrible women should be more careful of how they dress. Ann is a sensible woman who dresses conservatively and has a strong door and burglar alarm. Sarah, on the other hand, dresses like a slut "flower child" and leaves her front door unlocked. Over the course of a year Sarah is nearly raped and her daughter is molested. At a community meeting Rottenberg takes the opportunity to tell her it's her fault this is all happening to her and maybe she should "take a few precautions". At this point Sarah admirably stands up for herself and claims that it's not her that should change but "the creeps and muggers [should] change their lifestyle". 


Bravo for Sarah! It is here in the post (in the second to last sentence) that Rottenberg finally admits it would be better if men would stop raping women (no matter the reason), but this is attitude is short lived because he claims that " it’s usually easier to change your own behavior than to change someone else’s". This attitude, usually given as the reason for chastising women for "making themselves" victims, would be like telling a man who was wearing a Rolex watch or a nice suit that it's his fault he got mugged. I'm sure Rottenberg wouldn't agree with the logic there, so it's particularly mystifying that he uses it against women. I've never heard anyone say a man was asking for it. Men are always victims of aggressors if they're raped. It's this mindset, that women need to protect sex and men are expected to try to take it from them (by force if necessary) that needs to be changed, but it's this mindset that Dan Rottenberg shamelessly promotes in this post. Rather than being presenting a solution, he's just part of the problem.


P.S. I can assure Rottenberg that women are perfectly aware that they can be raped. The clothes they are wearing have no real effect on the likelihood of this happening and Rottenberg's "advice" just serves to make the victims of rape blame themselves and can cause severe depression.

Why do Republicans think spending cuts grow the economy?

(Image courtesy of FRED)

Almost every modern economist agrees that cutting spending in a recession will only make things worse. Austrian economists are the only real exception to this rule, but they're wrong about pretty much everything and have never made an accurate prediction so they can be safely ignored. So why do Republicans insist that cutting government will increase jobs? How on earth could firing a bunch of people (which cuts in government inevitably result in) help increase jobs?

The answer comes down to a simple formula. The first thing anyone taking a macroeconomics course learns is that Gross Domestic Product equals Consumer Spending plus Investment plus Government Spending or:

GDP = C+I+G

It's a simple formula that proves true time and again. The problem is that Republicans seem to think the formula reads something like this:

GDP = C+I

Conservative economists aren't actually working from a different textbook, but Republican policy makers tend to ignore government spending as it pertains to GDP. Once you understand that conservatives mangle an important building block of economic science the fact that they can't seem to get anything right makes a lot of sense. They're just trying to free up all that GDP trapped in the government!

Another Cartoon!

(Tom Toles via GoComics.com)

This comic is such a great illustration of what cutting the deficit would do to the economy right now that I just had to post it. Political cartoonists take a lot of flak, and most of them do seem to be political pundits who just can't seem to fill a whole 500 word column so they just draw a picture instead, but Tom Toles demonstrates the importance of great political cartoons. They can take a very complex idea and present it clearly via metaphor. I also always enjoy his little alt-text in the lower right hand corner.

What Yglesias Said

This is so good I'm just going to repost it in its entirety:

There’s a fair amount not to like about Washington Post editorial writer Ruth Marcus’ imagined dialogue between Barack Obama and Paul Ryan and certainly the imaginary reasonableness she attributes to Rep Ryan grates. But to me the worst thing about the column is a sentence she puts into Barack Obama’s mouth: “The current system can’t go on. I wouldn’t say this publicly, but my party’s wrong to pretend it can.”

When oh when will Democrats acknowledge the need for some changes to the Medicare status quo?

This is a great question to ask of the tiny minority of House Democrats who voted no on the Affordable Care Act back during the 111th congress. But it’s a terrible question to ask the vast majority of House Democrats who voted “yes” and also a terrible question to ask the Senate Democrats who all voted for it. The story about Republicans backing savage cuts while Democrats are in denial about the need for restraint is a comfortable one, but it bears no relationship to reality. Not only did the Affordable Care Act include specific cuts in Medicare subsidies to private insurers, it establishes a wide array of mechanisms that its authors believe will reduce the growth rate of health care spending, including in public sector programs. Hospitals were squealing about this just yesterday on the front page of The New York Times.

Back when the ACA was being debated, these measures were subjected to a lot of doubts and scrutiny from various quarters. Mostly this focused on the question of political sustainability. And that’s a fair concern. But the exact same concern has to be asked about Paul Ryan’s vouchers. You can’t slow the growth in health care spending without slowing the growth in health providers’ incomes. That’s just math and it’s a problem for everyone. But now we seem to have forgotten the sustainability concern when talking about Ryan, and forgotten the entire existence of the most important health reform in decades (except when we’re attributing magic economy-wrecking effects to it) and just pretending that Obama forgot to address the issue.

Of all the things that bother me about the way the Washington Press Corps handles Paul Ryan, the way they treat him like a serious policy wonk, the way they consider his plan to be a legitimate attempt to fix medicare, the way they just constantly praise him for no apparent reason whatsoever, the fact that they consider him to have been the only person to have put forth a plan to reign in Medicare costs is by far the most annoying. The Democrats haven't just suggested a plan to reign in Medicare cost growth, they expended a huge amount of political capital to do so. Still, the press claims that Democrats just want to demagogue the issue to win political points without, of course, noting that Republicans just won a huge election by scaring seniors.

How are we supposed to have the serious conversation the pundits say we need on Medicare when they're too busy praising the Republicans to notice when Democrats tangibly advance the ball on cost control?

Had to share this

Link

We Have to Kill Medicare in Order to Save It!

Paul Ryan released a video last week showing why he thinks it's essential that America kill Medicare adopt his budget. Now, I'm not going to point out how silly this video is, I'll leave that to other bloggers. I'd simply like to challenge Ryan's fundamental premise, that Medicare is going broke and the only way to save it is to make seniors pay for their own health care.

The main thrust of the video is Ryan's claim that consumers, given the opportunity, will hold down the price of healthcare. This is wrong, mainly because the healthcare system in America is a classic case of market failure. To illustrate this point, read this story about a woman going through hell just to find out that a lump in her breast was not cancer. The problem with the Ryan plan is that this woman would be expected to shop around for healthcare, maybe find a doctor doing biopsies half price, or offering a free cat scan with every surgery. The problem is that no one would turn down a doctors recommendation to get a procedure ASAP. The economic reason is Information Asymmetry. The doctor knows so much more than the patient that the patient is inclined to trust the doctor implicitly. If a doctor recommends an unnecessary procedure, how is the patient to know that said procedure is unnecessary? Any time there is Information Asymmetry markets tend to fail, and in the healthcare sector Information Asymmetry is incredible. Doctors spend years studying their field, far more than any patient could hope to do. This causes a huge increase in cost. Imagine if a used car salesman could tell you that if you don't get the rustproof undercoating your car might explode. This is the kind of power a doctor has, and it's a power which has distorted healthcare markets immensely.

Karl Smith, writing in the Washington Post, is correct to diagnose this as a supply side problem, but he's wrong in saying that it's a problem caused by regulations and licensing. Smith is a great economist, but here I think he places too much stock in the power of the market to price goods correctly. Basically, he misses one of the main problems of medicine; it's incredibly difficult to look inside someone without killing them. If a computer tech had to diagnose problems with a PC without cracking open the case the cost of owning a computer would skyrocket. In his post, Smith claims that if people could just point their iPhones at themselves and get a diagnosis healthcare would be a lot cheaper, and he's right! But his is a world of science fiction. It's a world we may inhabit someday, but it's certainly not the world of today. To look inside the human body, and find the microscopic organisms causing problems, is an incredibly difficult thing to do. Unnecessary tests are a huge part of healthcare inflation. An increase in the number of expensive MRI machines and CAT scan technologies is driving costs ever upward. The US is number one in availability of technology, but it hasn't seemed to increase our life expectancy faster than less well equipped countries.

To get back to the Ryan plan, it's important to realize that his plan doesn't actually control healthcare costs, it just controls how much the government spends on healthcare. He claims that this will make the consumer more powerful, and able to demand healthcare that's cost effective. Even ignoring the massive market failure involved in healthcare, look at the consumer in the video at 3:53. A single individual dwarfs healthcare providers. But is that very realistic? After all, can a single person really dictate terms to a hospital? Especially one run by a large corporation? The very idea is absurd. There is strength in numbers, which is how companies are able to get healthcare for their employees. It's how Medicare, which is nearly a monopsony, is able to save so much money compared to other insurance providers. Hospitals can't afford to ignore Medicare, so they have to listen when Medicare tells them that it will no longer pay for hospital caused infections it forces hospitals to find new ways to stop those infections from happening  in the first place. This is the best way to control costs, as other countries have shown, by having a large actor able to negotiate on equal footing with healthcare providers. As DougJ over at Balloon-Juice likes to say, Medicare is the only properly functioning part of a broken healthcare system.

The reason Paul Ryan wants to end Medicare isn't to make sure there are some protections later, or to balance the books. If balancing the books was all he was after he would be willing to consider tax increases, rather than taking a bunch of money away from Medicare to pay for massive tax cuts for the rich. This move is Republican doctrine pure and simple, something they've been trying to do for decades.  Of course it's a part of Republican doctrine that if you take the government out of the system the system will improve, but that's not the case with the healthcare market. If you take away the safety net you'll just end up with a lot of sick people. Or worse.

Road to Nowhere

Brad DeLong (via Paul Krugman) points out that for the past six quarters our economy has just been treading water. Considering the incredible plunge we had in 2008 treading water just isn't good enough. DeLong gives a few good options for closing the output gap, and all of them would probably work to varying degrees. If I were Emperor of America I would start putting people to work fixing roads and building new high speed rail. The fact that we aren't doing this is just baffling to me. Even if we weren't in the middle of a possible depression, fixing our infrastructure would be a good idea. Right now US borrowing costs are at record lows, and at the same time our rail system is hopelessly out of date (we're trying to play catch up to 1960's Japan) and our roads and bridges are literally falling apart. Since the Republicans who are blocking additional spending on infrastructure are so fond of trying to run government like a business, I'll use a business as an analogy. Ignoring our infrastructure right now would be like a factory with rusting machines refusing to borrow money at 2% interest because they refuse to go into debt. Even if you hate Keynesian economics refusing to borrow to strengthen the backbone of America is absurd.

If increased spending is off the table my second favorite alternative would be for Ben Bernanke to walk down streets throughout the country stuffing huge wodges of cash into mailboxes. Or maybe he could live up to his nickname, Helicopter Ben, and actually airlift palettes of money into town squares everywhere.

Right now America is on the road to nowhere (and it's crumbling fast), but no one in power wants to do anything about it. I guess it's because rich people don't like inflation and hate deficit spending (unless it's on tax cuts, natch) so the politicians aren't acting on anything but grand bargains. It's a real tragedy, especially since we have the power to stop it.

Thoughts on Rationing

Today I've been seeing some articles about how Republicans are planning to filibuster the confirmations of Obama's appointments to the Independent Payment Advisory Board, the Medicare board which will determine which treatments are most effective and which are unnecessary. This board is one of the "Death Panels" which Republicans lied about during the healthcare debate, and what most opponents of the ACA point to when claiming the law will ration healthcare.

This board is actually one of the most important aspects of the law, as this is the Democrats' first salvo in the war on healthcare costs. The Democrats think that there's a lot of waste in the medical system right now and the best way to trim the fat is to have a government agency perform detailed studies to determine which treatments work and which don't. This agency can then make recommendations to Medicare about which treatments to pay for. In this way spending can be kept down without affecting seniors' overall health. If not for the scary name (Death Panels) I doubt this provision of the bill would be particularly controversial to the public. In fact, I wouldn't be surprised to learn plenty of people think that Medicare already does this, or something like this. After all, it makes a lot of sense. Why should our tax dollars go to procedures which have no real benefits?

So why are Republicans attacking this board? Simple. If it works, it makes them look bad and it makes Democrats look good. Anything that makes Medicare work better is a problem for Republicans. Also, it's the part of the ACA that looks most like rationing, and that's the part of their argument that I find most ridiculous.

Republicans claim that by cutting Medicare or by trying to determine which procedures the system will or won't pay for is rationing. They say that people and their doctors should be able to decide which treatments are right for them. That the government has no business telling people what treatments they can or can't have. And they're right! The problem for them is that this board doesn't actually get between a person and their doctor. What this board is doing is determining where best to spend government money. If the board determines a treatment is useless there's nothing in the law saying a person can't spend their own private money on the treatment. If the board decided tomorrow that the only thing Medicare should pay for is visits to the doctor's office then that still wouldn't be rationing.

Rationing is when a government forces a person to consume less of something. In World War 2 people were issued coupons  which they needed to use to buy food. If they ran out of coupons it was illegal for them to buy more food. They had to make do with what they got, because much of the food was needed for the war effort.

The fact of the matter is that Republicans can't win this debate without resorting to emotionally charged words like "Rationing" and "Death Panels", so that's exactly what they do. They imply that some soulless bureaucrat will stand between you and your doctor, but nothing of the kind will happen here. The IPAB is a common sense solution to the problem of the rising cost of Medicare, and I think the reason the Republicans are opposing it so strenuously is because they're afraid it might work. After all, if we can control Medicare costs without reducing the effectiveness of the program then what excuse could Republicans use to destroy it?

Related: For more on why the Republican reasoning behind killing Medicare to control healthcare costs is absurd I'd recommend this excellent post by Jared Bernstein.

Nancy Pelosi: Being the first female Speaker among her lesser accomplishments

 (picture from Nancy Pelosi's Flickr)

After reading a few articles this week about how Nancy Pelosi is taking Medicare off the table in budget negotiations I was reminded of how important she was as minority leader in 2005 when the Republicans tried to kill "privatize" Social Security. To set this point up I think it's important to point out that back in 2005 all the pundits claimed that electing Pelosi as minority leader was a huge mistake. She was obviously too liberal for middle America, and by electing her the Dems had consigned themselves to losing in the 2006 midterms. Obviously that didn't happen, but it's what happened between the 2004 election and the 2006 midterms that this post is about. In 2005, having won reelection Bush decided it was time to fulfill a major conservative dream: the privatization of Social Security. Bush's proposal was incredibly bad, as most proposals to fix the "Social Security crisis" seem to be (whether something can be called a crisis if literally doing nothing is a reasonable proposal is up for debate. See also: deficit crisis). Bush's proposal cut benefits in order to put the money in the hands of Wall Street where rich people would do that thing they do where the turn money into more money and everyone would be happy. The problem is that, right now, almost every dollar which goes into Social Security goes to a recipient and gets spent. That means that to give everyone their own account to invest, either benefits have to be cut or taxes have to be raised. Naturally, the Republicans decided to cut benefits.

At this point many Democrats in the house were ready to negotiate, and wanted to come up with their own proposal to fix Social Security. Fortunately, Nancy Pelosi came up with an alternative brilliant in its simplicity: nothing. When asked when the Democrats would be putting out their alternative she would respond with never. Naturally this shocked many people, but the plan worked. Pelosi was able to attack the Republican plan relentlessly. Her strategy turned a common Frank Lutz Approved Republican term into political poison. One libertarian website actually rewrote several of its articles to remove any reference to privatizing.

Today it seems that Pelosi is poised to repeat this success. With the Republican majority in the house anxious to put Medicare on the chopping block Pelosi is standing firm. As well she should. If there's any program in America more popular than Social Security it's Medicare. Right now, the Democrats are poised to pick up a seat in NY-26 all because the Republican nominee supported Paul Ryan's plan to end Medicare. Pelosi is poised to attack, and I'm sure all the pundits will claim she's moving her party too far to the left, or that we have to kill Medicare in order to save it. But I'll bet that by 2013 Pelosi will be Speaker again if the Republicans keep on attacking Medicare, and she will have had a huge hand in saving two of the most important strands of the American safety net.

On the Free Market

I'm generally a fan of the Free Market. To put it simply, I think that there is no better mechanism for allocating scarce resources. This is why I'm in favor of market based options to control carbon (a carbon tax or cap and trade) over command and control regulation. Ultimately consumers would be able to decide whether transportation or power generation via fossil fuels would be more valuable to them without government interference. At the same time I'm in favor of reducing or eliminating zoning regulations in most areas. That way people can decide what use of space, whether it's apartments or single family homes, works best for them.

But then, why am I so against privatization of things like schools or prisons? The simple answer is I'm against those things because they don't work. But if those things don't work why should a carbon tax? This is actually something I puzzled over. It seemed self evident that the magic of the market would work on things like reducing carbon, but not on reducing recidivism rates.

Finally, Matt Yglesias pointed out the answer. For those of you who didn't follow the link, he says that there's no "private sector fairy dust". The reason a carbon tax would work is that firms which provided undesirable uses of carbon (i.e. transportation via Hummers) would go out of business. When you privatize schools or prisons there's no guarantee that the firms which operate these facilities will go out of business if they're bad at it. These firms have an incentive to teach or imprison the most people they can as cheap as they can. Further, lobbying can be an effective way to increase your bottom line without increasing the quality of the product. This results in worse prisons or schools which cost more money. There's nothing magical about the free market, no "pixie dust".

Putting a private firm in charge of something rather than the government won't suddenly make it more efficient, and that's something a lot of policy makers, sadly don't realize. They think privatizing will make everything better, perhaps since schools will suddenly be run by Galtian Supermen. But that's just not the way the world works.

First!

I wasn't sure what to do for my first post. An introduction? An explanation of what I hope this blog will be? Since I'm not entirely sure what I want this blog to be I figured I'd just write a post about something that's on my mind, and is slightly related to the title of this blog.

Paul Ryan is currently attempting to defend his indefensible budget plan. He recently held a speech not too far from where I live trying to reboot his plan (and I thought the new Spider-man movie was a quick turnaround on a reboot). Basically, as Jon Chait pointed out, Paul Ryan has gone full voodoo. I guess he thinks he isn't getting enough support from the crazy wing of his party? He's mocking people who think that maybe we could increase revenues to close this deficit hole. Since this includes the majority of Americans I'm not sure what he's thinking here. I think he's probably lashing out at those who have criticized his plan by going full Randain on us.

As a part of his reboot he's trotting out some class warfare rhetoric, claiming Obama and the democrats are waging "class warfare" against the rich. Obviously, any assault on the rich is an affront to America and all she stands for, but the problem I have with this rhetoric is if Paul Ryan wants people to stop waging class warfare maybe he and his buddies should stop attacking the poor and middle class! The budget Ryan is trying to defend is a major salvo against those of us who don't own vacation property in the Hamptons. It ends Medicare and basically throws seniors to the wolves, at the same time it gives a massive tax cut to the wealthy. This is an old argument by now, and I won't rehash it here, suffice to point out that while Ryan is complaining that the wealthy are too hard done by in this country, we have the same level of inequality as Uganda:



For Paul Ryan to be upset that the Democrats are waging class warfare would be like Japan being upset with FDR for his harsh rhetoric on December 7, 1941.