Economics & Politics

I honestly doubt that anyone really understands the economy well enough to discuss it. Here's an article on the weak points of the current economy by a Keynesian.
The US economy has not been working for most Americans, whose incomes have been stagnating – or worse – for decades. These adverse trends are reflected in declining life expectancy. The Trump tax bill made matters worse by compounding the problem of decaying infrastructure, weakening the ability of the more progressive states to support education, depriving millions more people of health insurance, and, when fully implemented, leading to an increase in taxes for middle-income Americans, worsening their plight.

Redistribution from the bottom to the top – the hallmark not only of Trump’s presidency, but also of preceding Republican administrations – reduces aggregate demand, because those at the top spend a smaller fraction of their income than those below. This weakens the economy in a way that cannot be offset even by a massive giveaway to corporations and billionaires.
Here's a simple report on conditions:
Monthly reports on the number of new jobs and the unemployment rate can drown out important trends like these two: After four decades of worsening, wage inequality has started shrinking. And in a twist, America’s blue-collar workers are playing the biggest role in driving that reversal.

This may come as a surprise, because education is classically seen as a ladder up the income scale. Despite blue-collar workers often lacking college degrees, their wages have been accelerating faster than those of their white-collar counterparts.
Now, if 'aggregate demand' is the problem, raising taxes on the rich and redistributing to the working class is taken to be the solution. But what about cutting taxes on the rich, combined with raising the wages of the working class? In principle that should lead to inflation, as there will be more dollars across the board. But these dollars aren't chasing the same things, which is what causes price inflation. The richer are going to spend their dollars chasing things they've been putting off; things like building a second home, or re-roofing their first home, or buying a luxury car, or higher-end foods. The working class are going to be spending their increased wealth on better used cars, mid-range foodstuffs, etc.

Meanwhile, the low unemployment levels mean that wages have to keep rising -- at least as long as we can avoid any new globalization agreements, or any amnesty deals that legalize vast sectors of new labor for domestic concerns. In other words, the Trump agenda seems to be arranged around attacking the same basic concern that the first article describes as undermining the economy.

The author of the first piece was "Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute." He's the kind of guy who should understand if anyone does, at least if credentials matter. Economics is so complex, though, I doubt that anyone does. I've touched on just one way in which the fundamentals seem to be shifting in defiance of theory; but that's only one small part of the economy as a whole. Trade wars with China, for example, pose another set of challenges. The national debt poses another, though exactly what sort of challenge it poses is a subject of fundamental disagreement even among theorists. Some seem to think we can print money past Doomsday; others, that debt is going to destroy the whole thing. Both have arguments. Which are right?

8 comments:

Christopher B said...

He's the kind of guy who should understand if anyone does, at least if credentials matter.

Maybe but he's also a University Professor at Columbia University and Chief Economist at the Roosevelt Institute.

How's that quip go, you can't make a man understand things if his job depends on not understanding them?

MikeD said...

You can't reason someone out of a position they never reasoned themselves into.

He's a Keynesian. Literally, his economic theories are "Republicans are bad, anything they do is bad for the economy, more government spending is good (unless Republicans do it, then it's bad)." I'd hardly take the word of someone whose last interaction with the real world economy was the summer job they worked in High School seriously on the topic.

E Hines said...

Even today's Keynesians (and too many of his contemporaries) don't understand Keynes' view--which was that, absent private sector demand, public sector demand could (re)stimulate the private sector with a spike in government spending, and then, once the stimulus had worked, the spike needed to be brought back down and the debt from the spike promptly paid off. That that much doesn't work is from two things: one is the zero-sum nature the public-private component of GDP and the fact that, even in the near term, government can't spike spending without first taking the money to be spent from the private sector--either by nearby tax increases or by borrowing, which is later-on tax increases.

The other thing is that, contra the Left's contempt for ordinary Americans, the private citizenry can plan ahead and adjust their own spending, saving, general economic behavior in anticipation of the government's economic behavior. Including their knowledge, at least sub rosa, that Government will omit those bits about reducing spending and paying off debt with their tax implications.

reduces aggregate demand, because those at the top spend a smaller fraction of their income than those below. This weakens the economy in a way that cannot be offset even by a massive giveaway to corporations and billionaires.

This is both breathtakingly ignorant and an appallingly cynical distortion of the tax cuts. The ignorance is from his idiotic claim that the stinking rich "spend a smaller fraction of their income...". That's plainly false; these guys aren't sitting on mounds of gold coins like ol' Scrooge McDuck. It's true they spend a smaller per centage of their income on consumption than the middle and poor. But yacht--or a Tesla--costs quite a bit and sends that quite a bit right back into the economy. But those stinking rich don't only spend on consumption. They spend on charity, on investment, on their businesses, on stocks, on...--a whole raft of things that puts their wealth right back into the private sector, immediately or through those other pathways. Oh, and quite a bit of hard dollars to Treasury as taxes.

The distortion includes, but is not limited to, the rich getting the bulk of the tax cuts. No. the middle class got the bulk both in terms of rate reductions and in terms of jobs from the reduction in corporate taxes (which shouldn't be paying any taxes at all for reasons I've been over before). The poor got a further significant benefit in the form of actual jobs coming available from those reduced tax rates--so, yes, they "suffer" a tax increase: they have actual jobs with actual taxable income. The distortion extends to ignoring the fact that the personal rate reductions are only temporary because Progressive-Democrats refuse to make them permanent, and that temporary nature impacts private, contemptible citizen spending.

Economics isn't at all complicated; it's completely described by a simple graph of supply/demand curves drawn against price/output axes. This is a graph that's introduced (or used to be) in a Freshman Introductory Survey of Economics class. All else is just complexifying gussying up not too far akin from calculus being a complexifying up of geometry and algebra.

Contemptible ordinary Americans understand economics just fine, even if we don't have the pretty words which pundits and Nobel-ish laureates (Economics is not in the Nobel pantheon of prizes) use to disguise their ignorance.

Eric

David Foster said...

"The Trump tax bill made matters worse by compounding the problem of decaying infrastructure, weakening the ability of the more progressive states to support education..."

Just the second item on his list, taken by himself, discredits the man completely. Vast increases in the funding applied to education--federal, state, and local---have scarcely resulted in improvement, and there is no evidence that further increases would do so, either.

I remember a presentation from a manager I had just inherited, on the status and future of the business initiative she was running. Her idea of a strategy was apparently limited to 'I need more resources.' The remainder of her tenure with me was quite short. The same approach should be taken to politicians and policy advisors.

Regarding infrastructure: it is a fallacy to equate 'infrastructure' with 'government program.' America's freight railroads are vital infrastructure, as are our oil and gas pipelines...without either of these, we would soon be freezing in the dark. Both these types of infrastructure are privately-owned. Ditto for the majority of electrical generation and much electrical distribution.


Assistant Village Idiot said...

I agree there is much I do not know, and perhaps none of us can know. However, I can look at the few things I do know and see how well someone does on those. Wage stagnation is an interesting comment. We constantly admit immigrants, some with poor education and training. That is not true of all nations, and we should be alert what it does to the lower quintiles of our residents. Stagnation would seem like a good thing in that scenario, holding our own despite a constant influx of the poor and increased competition from poor nations because of improved transport and lower transaction costs.

The individuals measure fifty years ago are not the individuals measured today, and they are not even working at the same jobs. Additionally, cheaper and cheaper versions of luxuries become available every year. Vegetables year 'round. Cell phones. Cars that can go 200,000 miles. International travel. Medical care that actual fixes things. The wage-earners fifty years ago did not have them, the wage-earners now do.

Because of that major oversight, I have to suspect everything else.

Gringo said...

The author of the first piece was "Joseph E. Stiglitz, a Nobel laureate in economics, is University Professor at Columbia University and Chief Economist at the Roosevelt Institute." He's the kind of guy who should understand if anyone does, at least if credentials matter.

After what Stiglitz said in 2007 about Venezuela, Dr. Nobel Laureate Stiglitz has zero credibility with me.Joseph Stiglitz, in Caracas, Praises Venezuela’s Economic Policies(2007.
"Venezuela's economic growth has been very impressive in the last few years," Stiglitz said during his speech at a forum on Strategies for Emerging Markets sponsored by the Bank of Venezuela.
He added that while Venezuela's economic growth has largely been driven by high oil prices, unlike other oil producing countries, Venezuela has taken advantage of the boom in world oil prices to implement policies that benefit its citizens and promote economic development.

"Venezuelan President Hugo Chavez appears to have had
success in bringing health and education to the people in the poor
neighborhoods of Caracas,to those who previously saw few benefits of the countries oil wealth," he said.
While Stigtlitz was correct that Venezuela had good economic growth from 2003-2007 , choosing those years involved some cherry picking. Venezuela's economic growth from 1998- the year Chavez was elected- through 2007 was below average. From 1998-2007, Venezuela's per capita growth in constant dollars was 12.4%, which was far from exceptional. (The 2002-3 PDVSA strike- a strike which Chavez later admitted he deliberately provoked- crashed the economy,making the 2003 baseline much lower

1998 $15360
2003 $11,861
2007 $17,275
From 2007-2013, which for most of the time had $100 oil, per capita growth was only 3%. (for 6 years.

By 2007, it was also obvious that the alleged health and education advances from the Missions er al were, for the most part, smoke and mirrors. Chavista propaganda claimed that UNESCO had declared Venezuela an illiteracy-free zone- a claim that was readily refuted. Judging health care advances by Life Expectancy and Infant Mortality, Venezuela's improvements from 1998-2007 were slightly below average compared to improvements in Latin America.

All this data was readily available in 2007,when Stiglitz made those claims about Venezuela.
Conclusion: Stiglitz is a fool who doesn't deserved to be listened to. No better than Nobel Laureate Paul Krugman.

Grim said...

I'm old enough to have taken a High School class called "Economics," Mr. Hines, in which we were actually taught to graph supply and demand curves. I agree that captures much of it. There is a degree of complexity that is hard to model, though, once you get beyond a single market and begin looking at how all the markets affect each other; and of course, when you begin to try to work out how the externalities, especially political ones, affect what might otherwise be a straightforward market or collection of markets.

douglas said...

"I honestly doubt that anyone really understands the economy well enough to discuss it."

My gut feeling is to agree with this. That's also a big reason why I favor capitalistic markets for an economic system, as it's so widely distributed in it's decision making that the issue of understanding the big picture is greatly diminished in having effect on the operations of the system.