Rich people to the rescue! Taking apart Romney's tax plan

In the first two presidential debates, Mitt Romney -- without using that horrid word 'stimulus' -- has claimed that his 20% across-the-board cut in marginal tax rates will spark massive job growth AND reduce the deficit.  He has also claimed that the middle class will primarily benefit from these cuts, while the rich will not.

Deficit reduction would presumably occur because he would broaden the tax base by eliminating deductions and subsidies, and because the stimulative impact of the tax cuts would increase investment and demand, and effectively pay for itself through the increased tax revenue that the subsequent growth would provide.

None of these claims are backed up by the evidence.

Economist Laura D'Andrea Tyson gives us a really good breakdown in the NY Times Economix Blog today -- so let's go through it.

Romney proposes the following:
1.  an across-the-board 20% cut in marginal tax rates
2.  repeal of the estate tax (he conveniently didn't mention this in the debates)
3.  repeal of the alternative minimum tax
4.  cut the corporate income tax to 25%
5.  extension of the Bush tax cuts

These cuts would reduce federal tax revenue by an estimated $6 trillion over ten years -- $5 trillion for the first four listed above, $1 trillion for the extension of the Bush cuts.

In other words, his tax cuts would increase the deficit by that amount, all other things being equal.

It should be noted that 4 of the 5 proposals above would be heavily weighted toward tax cuts for the wealthiest Americans -- roughly 2/3rds of the $6 trillion would go to the top 5%, or those taxpayers making $200,000 a year or more.

Even if this $6 trillion could be made up through eliminating loopholes, deductions and subsidies (which it can't), is this really the most effective, efficient and just way to create jobs?

The answer is clearly no. 

More to the point, there is little evidence that cuts of this kind would actually create jobs.

Tyson:

If tax cuts for high-income earners generate substantial real economic activity and job creation, then we should expect to see two things in the data. First, employment growth should be stronger in the years after tax cuts for these earners. Second, parts of the country with a larger share of high-income earners should experience stronger employment growth after national tax cuts for these taxpayers, because the places where they live receive a larger share of the national tax cuts.

What do we actually see after combing through a half-century of economic data? Neither of these predictions is borne out.

Personally, I'm skeptical about relying upon massive tax cuts at all right now, for economic stimulus.  Given how low borrowing costs are at the moment, and given our need for massive infrastructure investments (and money for states and localities), I still strongly prefer to see a job creation program that leans more toward spending than tax cuts.  If we are going to temporarily have the federal government spend more than it takes in, we'll get more bang for our buck with investments.

That said, if the approach of both parties is going to lean heavily toward tax cuts, the evidence is clearly on the side of giving them to the bottom 95% - not the top 5%. 

While Tyson found no link historically between job creation and tax cuts for the wealthy, there is a clear link between job creation and tax cuts for everyone else: 

Almost all of the stimulative effect of income and payroll tax cuts on job creation in the short to medium run result from such cuts for the bottom 95 percent.

A recent report by the Congressional Research Service confirms this.

Remember that consumption -- regular people spending money -- still accounts for 70% of our economy.  Our recovery is slow because of insufficient demand.  It is not possible for the spending of the top 5% to spark sufficient demand to create jobs in large numbers.  Tax cuts for the bottom 95% are much more likely to be quickly spent.  And when they are spent, demand increases...which will lead to more hiring.

In survey after survey, employers have been abundantly clear:  they will hire more people, when demand increases.  Romney seems to think that if he is elected, his overall personal white guy awesomeness will somehow magically cause the confidence of wealthy white employers like himself to soar...inducing them to hire more people.

Does that sound like an economic policy to you?  Romney and his fellow 'job creators' may seek to trickle something down on the rest of us.  But whatever that something is, I'm pretty sure it won't be jobs.  And keep in mind that every tax cut dollar that is distributed in the way that Romney proposes is a dollar that cannot be spent on public investments that will benefit the vast majority of Americans in the coming decades -- public education, public health, infrastructure, etc.

A primer on Romney's VP, Paul Galt (er, Ryan)

Everything you always wanted to know about Paul Ryan, courtesy of The American Prospect's election newsletter, Ringside Seat!

PAUL RYAN: BEHIND BLUE EYES

After a campaign spent pandering slavishly to the right, Mitt Romney has finally inspired a giddy burst of bipartisan consensus: On the right and left, everyone’s jumping for joy about his new running mate. For conservatives who’ve always regarded the former “Massachusetts moderate” with flinty suspicion, it wasn’t enough for Romney to endorse and effusively praise Paul Ryan’s infamous budget—a plan that would give the richest Americans an average tax cut of at least $150,000 a year and cap Medicare benefits, meaning that seniors would fall further and further behind over time. They didn’t believe Romney. But now, with Ryan on the ticket, it’s clear that Mitt fully intends to bomb the social safety net back to the 19th century, and to turn America into a land of super-haves and 99 percent have-nots.

The Prospect’s Jamelle Bouie has long argued that Romney truly meant it when he embraced Ryan’s blend of Austrian economics. And if anyone still had a doubt who will be setting economic policy in a Romney administration, he did introduce his pick this morning on the USS Wisconsin as “the next president of the United States, Paul Ryan.” It was a slip of the tongue, but also a grim reminder: What Dick Cheney was to foreign policy, Ryan would be to domestic policy—terrifyingly running the show, albeit with a dash of homespun, blue-eyed charm.

But if the prospect of Ryan as economic commander-in-chief is enough to send any liberal (or moderate) into a depressive funk, the idea of running against him gets the blood up. It’s guaranteed to have that effect on President Obama, who in many ways has already been running against Ryan. The single most rip-roaring speech of the 2012 Obama campaign was back in April, when the president picked apart the Ryan budget in devastating detail and memorably described it as “thinly veiled social Darwinism.” Ryan was in the audience that day, sitting right on the front row, and was reported to have been visibly fuming as the president eviscerated his plan, saying that it “paints a picture of our future that is deeply pessimistic." 
The president has been trying all along to persuade his somewhat dispirited supporters that this is a high-stakes election—a referendum on the country’s future economic direction. Now, thanks to Romney’s risky choice of a light-on-experience economic extremist as his Cheney, Obama won’t have to do any more convincing. But he still has to sell the dangers of the Romney/Ryan plan to the rest of the country. 
SO THEY SAY 

“We don’t need a president to tell us in what direction to go. We know what direction to go. We want the Ryan budget.”

—Grover Norquist 

DAILY MEME: A PAUL RYAN PRIMER

• Although Paul Ryan has been one of the most polarizing and oft-debated figures in government among pundits and politicos, he's an unknown quantity for most of America. 
• Ryan got his start as a staffer on the Hill, making ends meet slinging margaritas and whipping Washingtonians into shape. He was even trusted to drive theWienermobile during his tenure as an Oscar Meyer salesperson.
• But that salesperson background could backfire. Ryan might come across to many Americans as robotic as his running mate. 
• After all, he was voted "Biggest Brown-Noser" in high school. 
• He was first elected to Congress at age 28, and he's only 42 now. That means Ryan is going to be around for a loooooooooooooong time, regardless of whether the Republican tickets wins this White House tug-of-war. That is, unless he turns into campaign kryptonite like Sarah Palin. 
• Ryan also has some Ryan Gosling cred. Just check out his "Hey Girl" Tumblr. 
• Apparently the House Budget Committee chair loves noodling. Here is thedefinitive primer on noodling. 
• He also has very serious hair. Here are 21 pictures of it being oh so serious. 
• Ryan is Catholic, which means this is the first time a Protestant hasn't been on a presidential ticket ever. 
• When asked why he didn't choose to articulate his positions by running for president this year, he said, "Well, that's because I like myself too much." 
• Remember what Newt Gingrich said about the Ryan Plan? "I don't think right wing social engineering is any more desirable than left wing social engineering. I don't think imposing radical change from the right or the left is a very good way for a free society to operate." 
• He also has a history of trying to spread the objectivist gospel: “I give out ‘Atlas Shrugged’ [by Ayn Rand] as Christmas presents, and I make all my interns read it. Well … I try to make my interns read it."
• Not everyone is scared of Ryan's vaunted intellectual prowess. Paul Krugman said of the Ryan budget in 2010: "it’s the audacity of dopes. Mr. Ryan isn’t offering fresh food for thought; he’s serving up leftovers from the 1990s, drenched in flimflam sauce." 

WHAT WE'VE WRITTEN ABOUT RYAN

• Paul Ryan might be as disastrous for the GOP as Sarah Palin was four years ago...
• ...which may mean that Barack Obama is the politician looking most forward to his place on the GOP ballot. 
• Especially since this means the GOP ticket seems driven to relive the Bush years...
• ... a time that the current administration gleefully jumps to deride at every opportunity. 
• Even in 2011, we were saying that Paul Ryan would be crushed if he ever ran for higher office.
• But he's clearly been thinking "about how the words 'Vice President Ryan' sound" for quite some time. 
• As far as party battles go, where one falls on the Ryan budget "is about as clean and plain as an ideological dispute gets."
• And now is the time for reporters and pundits to seriously delve into Paul Ryan's political vision, and not be led astray by his wonky charm as they have been before.

WHAT WE'RE READING ABOUT RYAN

• Jonathan Chait: “The Legendary Paul Ryan.”
• Ryan Lizza: “Fussbudget: How Paul Ryan Captured the GOP.”
• Derek Thompson: “Paul Ryan's budget takes us back to 1950. That's not a metaphor. That's a statistic.”
• David Corn also picked apart the deep “unseriousness” of the Ryan budget—which Republicans, of course, take very seriously indeed.
• The economic hardships of Ryan’s hometown, Janesville, Wisconsin, were featured in Mother Jones.
• And if you want to know why conservatives are so ga-ga over Ryan, check out this homage in the Weekly Standard.

POLL OF THE DAY

Here’s one measure of how risky Romney’s vice-presidential choice could prove. Last year, CNN polled the country on Paul Ryan’s radical plan for “reforming” Medicare. Fifty-eight percent opposed it; just 35 percent liked it. 

Why won't they act in Washington?

I don't normally like to just directly cut and paste text from someone else's blog, but I'm going to do so this morning.

Ezra Klein (and Kevin Drum) have succinctly summed up my frustration with the present state of things in Washington, below.  It is one thing, as Klein indicates, for us to face a crisis that could not have been anticipated, and for which there is no reasonable remedy.

But that is not the case here.  The further decline in the American standard of living that we are about to face over the next decade (and which may occur in Europe too, for the same reasons) can only be attributed to political short-sightedness and economic illiteracy on the part of the GOP, and rank cowardice on the part of the Obama Administration.

At least Elizabeth Warren is running for the US Senate seat in Massachusetts.  I know Warren a little bit -- she blurbed my book a few years back -- and she will speak truth to power.

Read all of it, from Ezra Klein today:

"Over the last month, the Dow has lost more than 1,500 points. That's, well, a lot. And it's not because a hedge fund blew up or an earthquake cracked California off into the Pacific or because esoteric trading algorithms went haywire. The stock market has suffered big losses because of real fears about the real economy: concerns that growth is grinding to a halt and that the American political system isn't trustworthy and that the Europeans can't get their act together and that austerity is going to start too soon and that the unemployed are simply going to remain that way. Concerns that we're facing, in Morgan Stanley'selegant phrase, a "policy-induced slowdown."

So there is plenty for Congress to do, and plenty that has happened in recent months to shock them into action. But they are not acting. There is no evidence that slowing growth, stagnant joblessness, or market turmoil has moved anyone on the Hill into thinking the economy needs even a whisper of added support. If anything, positions are hardening. House Majority Leader Eric Cantor sent his members a memo arguing they could help end policy uncertainty by “stopping the discussions of new stimulus spending.” This is what Morgan Stanley was worrying about when it worried that America might tip back into recession because of “an automatic tightening fiscal policy if, as our US team currently assumes, this year’s fiscal stimulus measures will expire.”

What should happen next is not that hard: Congress should pass legislation greatly increasing support for the economy now and reducing the deficit by about $4 trillion over the next 10 years ($3 trillion once you include the discretionary cuts in the debt deal). It's not rocket science, and it shouldn't be partisan. Ask ex-Reagan adviser Martin Feldstein, or ex-Bush Treasury Secretary Henry Paulson -- or read Jackie Calmes asking them -- and you'll hear the same thing. This is just standard economic theory. But Republicans in Washington are not going to apply it.

If this isn't driving you to despair, you're not paying attention. Unfortunately for him, Kevin Drum is paying attention: "Watching the world slide slowly back into recession without a fight, even though we know perfectly well how to prevent it, is just depressing beyond words. Our descendents will view the grasping politicians and cowardly bankers responsible for this about as uncomprehendingly as we now view the world leaders who cavalierly allowed World War I to unfold even though they could have stopped it at any time."

Wisdom on inequality from the belly of the beast

This, from Bloomberg today:


Federal Reserve Governor Sarah Bloom Raskin told the New America Foundation that economic inequality, caused by stagnating incomes for most Americans and rapid growth in wealth for the richest 1 percent, is hindering the U.S. economic recovery. She described income inequality as "destabilizing," because it "undermines the ability of the economy to grow sustainably and efficiently." “Finding ways to help more Americans safely grow their incomes and net worth in real terms arguably diminishes the destructive influence of income inequality by giving everyone a more secure footing in the economy and the same kind of flexibility and choice available to the more affluent,” Raskin said.


Raskin is hardly the first mainstream economist to see a connection between inequality and today's economic stagnation (Raghuram Rajan got there first) but she is the first one in a policy-making position that I've seen. Wage stagnation, income inequality and economic insecurity have of course dominated the lives of most American families for decades now, long before the Great Recession.  Indeed, one could argue (as Rajan and Robert Reich have) that the inequality may have played a major role in causing the economic downturn.  There is little doubt, however, that it continues to hamper our ability to get out of it.


Unfortunately, the best responses to the effects of inequality and income stagnation on economic demand -- Keynesian fiscal policy, a strengthened safety net, a revived labor movement, and so forth -- are unavailable in the present political environment.  The Fed can do little on its own, though one hopes that Raskin's clarion call is heard over on Capitol Hill...and in the White House, as the days tick down toward debt ceiling day.

Conservatism, taxes and the defense of inequality

As Ezra Klein points out today, GOP leadership in Congress continues to stubbornly resist tax increases as a legitimate part of any bi-partisan deficit reduction package.  "President Obama needs to decide between his goal of raising taxes, or a bipartisan plan to address our deficit," said Senators McConnell and Kyl in a joint statement. 


One wonder where all of this will wind up.  The GOP appears to be wrong on both the politics and policy. Polls consistently show that most Americans accept that any deficit reduction package will have to include cuts and revenue increases -- with the overwhelmingly majority of them favoring increased taxes on the wealthy.  It is hard not to think that the GOP's baseline position is defined not by fiscal austerity or a philosophical commitment to small government, but by opposition to wealth redistribution and the desire to protect the economics interests of the privileged.  


In a must read article in Democracy, Jonathan Chait dug deeply into the 'taxophobia' that seems to uniquely define American conservatism in this historical moment.  The conservative movement's 

embrace of taxophobia is probably the most important development in American political life over the last three decades. It is the one quality that most distinguishes American conservative elites from conservative elites in other countries. They’re more likely to question climate science, more sanguine about people dying for lack of health insurance, and less xenophobic (which is rather nice). But above all—far above all—they hate taxes.

Political science research indicates that this taxophobia has been the prime driver of the growing partisanship on economic and redistribution issues among our political elites.  More profoundly, Chait argues, conservative taxophobia has redefined the terms of the political debate.  Democrats are the new fiscal conservatives, while the old fiscal (Keynesian) liberalism stands at the fringes of our economic discourse.  Despite three decades of evidence contradicting supply-side economics, its hold on the Republican Party has only strengthened.


Chait again:

The Republican Party inhabits an otherworldly new realm that even the staunchest right-wingers of a generation before could scarcely have imagined. As the two parties trade power back and forth, the ideological basis for economic policy ping-pongs between the old right and a loopy kind of far-right. Periods of Republican governance have grown increasingly disastrous, while periods of Democratic governance are largely consumed with staving off fiscal collapse.

Clearly taxophobia in the GOP persists despite the empirical evidence.  Outside the rarified air of the Republican leadership, there is little questioning of the role that tax cuts have played in getting us to this point.  As Lori Montgomery wrote when analyzing the component parts of our shift from surpluses to deficits, "the biggest culprit, by far, has been an erosion of tax revenue triggered largely by two recessions and multiple rounds of tax cuts. Together, the economy and the tax bills enacted under former president George W. Bush, and to a lesser extent by President Obama, wiped out $6.3 trillion in anticipated revenue."  Simply letting the Bush tax cuts expire on schedule (or paying for any portions that policymakers decide to extend) would stabilize the debt-to-GDP ratio for the next decade.  The Center for Budget and Policy Priorities provides us with this useful chart:

 


Clearly, there is a political and ideological commitment to taxophobia in today's GOP, quite distinct from whether there is any evidence for its effectiveness as policy -- indeed, policy may very be irrelevant.  It is hard for anyone with even a basic knowledge of the economic history of the US in the past 3 decades to maintain -- as the GOP does today -- that tax cuts will both generate revenue and put a cap on government expenditures.  So why the taxophobia?  Other than in the early 80s, perhaps, one cannot argue that pure vote pandering is the cause, particularly because the sorts of tax cuts the Republicans have consistently favored (and enacted) have been heavily skewed toward the top of the income ladder. 

30 years of stagnation in 2 minutes

Former Labor Secretary Robert Reich sums up the implosion of the American Dream in two minutes...

Crowding out the Confidence Fairies

David Dayen wrote a nice -- and depressing -- piece on the state of our national economic discourse this past Monday in the American Prospect, I Ruined the Economy and All I Got Were These Lousy Tax Cuts.


The takeaway:
“Curtailing the one major consumer [the federal government] that is continuing to consume—it’s just a terrible idea, especially when you have a major demand gap,” says Michael Linden of the Center for American Progress.  Unfortunately, Dayen concludes, the Obama administration seems to have conceded that terrible idea; what remains is a negotiation over how 'terrible' to make it.


When the debt ceiling deal is done (or even if it isn't), it appears we are about to disappear into a Japan-style economic black hole.  One possible result of this might be a political re-alignment that brings to the foreground all the critical issues about our political economy that we have neglected for so long -- sustainability, inequality, etc.  A more likely outcome is that the American voters will respond by giving more power to those portions of the GOP that dug the hole in the first place, and who promise to keep digging.  The Democrats will promise to dig with a smaller shovel.  The shovel will be sold by an American corporation, but manufactured abroad.  We will buy it with a credit card.


The GOP leadership routinely uses the phrase 'job-killing government spending,' claiming that that spending crowds out private investment, thus destroying jobs.  Obviously the flip-side of this argument is that employment will soar with massive cuts in public spending -- essentially giving us the Republican position on the debt and deficit at the moment.  Of course, it is entirely reasonable for conservatives to question the size of government.  They believe that there is an inverse relationship between big government and individual freedom (and a robust civil society).  While I think this view is ill-informed in a modern economy -- it misunderstands the material preconditions of both individual liberty and community viability -- I don't want to dispute it here.  Clearly the conservative view creates a predisposition against public spending.  That predisposition plays a valuable role in public discourse.  Indeed, one hopes that people from all parts of the political spectrum desire government intervention to be efficient, effective, and only as big and enduring as is necessary.


But what is going on right now is not a debate about the size of government.  It has been said many times that budgets are philosophical documents; embedded within them are assumptions about both 'is' and 'ought,' and a path from one to the other.  David Leonhardt puts it well:

The goal of deficit reduction can’t simply be arithmetic. It has to be philosophical, as well. In what ways is the private sector incapable of planting the seeds of future economic growth — and what, therefore, must the government do? What’s the least amount of spending needed to ensure a decent life for even the most vulnerable citizens? Who is in the best position to pay that money? 

As I argue below, I think the present emphasis of our political elite on reducing the deficit is misplaced, particularly if we refuse to understand its sources, the logical remedies, and the vital role that addressing the present downturn aggressively must play in future deficit reduction.  Republicans are making a series of empirical claims that are demonstrably false.  Democrats -- the White House in particular -- has failed to challenge these claims.  Leonhardt makes a useful distinction between the "deficit we have" and the "deficit we imagine."  The one we 'imagine' is a deficit caused by "waste, fraud, abuse, foreign aid, oil industry subsidies and vague out-of-control public spending."  This view is fueled by the hyperbolic (and false) claims of the Tea Party wing of the GOP that President Obama has massively expanded the size of government, threatening the very existence of American capitalism.  The 'deficit we have' is caused by the world’s highest health costs (by far), the world’s largest military (by far), irresponsible tax cuts — and "to pay for it all, the lowest tax rates in decades."  One might also add in decades of wage stagnation for most American families.


The end result is that we continue to avoid the philosophical issues raised above, relying instead on demonstrably false assumptions about government spending, taxation, job growth, and the relationships between them.


Of course, we could just do nothing, too, couldn't we?  Take a look at the CBO's long-term budget outlook, below:





If Congress lets the Bush tax cuts expire (or offsets their extension in some way), implements the Affordable Care Act as scheduled, and makes or offset the Medicare cuts prescribed by the 1997 Balanced Budget Act — which CBO calls the “extended baseline scenario” — the national debt will be totally manageable, as Ezra Klein points out.  If Congress extends the Bush tax cuts with no offsets, repeals ACA and its cost controls, and protects doctors from Medicare cuts without making up the savings elsewhere (the 'alternative fiscal scenario'), then the national debt goes out of control.


Is government spending killing jobs, as Rep. Boehner and others assert?   If public spending were financed by large tax increases or high interest rates, this position might be reasonable.  But the Obama stimuli have involved deficit spending, with interest rates up against the zero-bound.  Given that, there is no reason to think that government purchases of equipment (or labor) destroy jobs, while private purchases don't.  As Alan Blinder has recently pointed out, business investment in equipment and software has been booming, not sagging.  While real GDP grew only 2.3% over the last 4 quarters, business spending on equipment and software jumped 14.7%.  There is no 'crowding out.'  Indeed, the more reasonable position -- take a look at the retraction of spending at the state and local level -- is that in the present environment, budget cuts are killing jobs.  In this environment, the 'crowding out' argument isn't relevant; it seems to be based on ideology rather than evidence.  Worse, the budget cuts open for discussion at the moment tend be from those (discretionary) parts of the government with the best track record of "turning today’s spending into tomorrow’s economic growth," as Leonhardt puts it.  But if one assumes that all public spending is wasteful, we force ourselves to wait (how long?) for some other force to magically generate economic growth.


Republicans argue that cutting the deficit in the near term (exclusively through budget cuts, it appears) will cue the Confidence Fairies, spurring investment, economic growth and job creation all by itself.  Of course, there are plenty of good reasons to doubt this ”expanding by contracting” theory.  David Cameron's Britain cut $180 billion from its budget last year; the economy shrank, and real household income dipped to its lowest level since the 1930s.  We don't have to cross the Atlantic for case studies, however.  Just take a look at our state governments, most of which are forced by their constitutions to maintain balanced budgets.  As study after study has indicated, state-level layoffs and cuts have deepened and prolonged the recession, overwhelming Obama's inadequate stimulus.  At a time when government at all levels needs to jump into the demand breach -- or at least not exacerbate it -- we have seen nothing of the kind.  Dubious GOP complaints of a massive expansion of government under Obama notwithstanding, our problem is very much the opposite.


Bond trader Bill Gross of PIMCO -- hardly a liberal -- essentially made the same case the other day, in a mid-month note to his investors.  Gross criticized the “anti-Keynesians” in both parties who believe “that fiscal conservatism equates to job growth.”  The truth, he says, is just the opposite. “Fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth.”  What is needed, rather, is for government to "temporarily assume a bigger, not a smaller, role in this economy, if only because other countries are dominating job creation with kick-start policies that eventually dominate global markets.”  Deficit reduction "can wait for a stronger economy and lower unemployment. Jobs are today’s and tomorrow’s immediate problem.”


Deficits matter in the long run, but first we must survive the short run.  As Keynes once put it, "in the long run, we are all dead."


One wonders where the GOP thinks employment will come from?  Presumably we can all find work drowning the government in Grover Norquist's bathtub?  Perhaps this is what Schumpeter meant by 'creative destruction.'  Let's burn down the house, and groove on the ruins, man.  Sometime I wonder if they hope that the economic apocalypse that may result from debt default will itself stimulate demand, by causing all of us to party like there is no tomorrow in anticipation of the impending (Ayn) Randian rapture...


Sadly, the Obama Administration appears to have swallowed the idea that the Austerity Angels will soon descend, if only we give them the proper burnt offering.  Last week, several White House officials, including Director of the National Economic Council Gene Sperling, stressed deficit reduction as the primary component of their economic-growth strategy, and repeatedly claimed that reducing the deficit would generate “confidence."


It isn't entirely clear how 'confidence' is supposed to lead to job creation -- particularly when business surveys leave little doubt that hiring is presently limited by a lack of demand, not fears of regulation, taxation, and government spending.  The most recent National Federation of Small Business Confidence Survey starts out like this:

“The proximate cause [of the decline in small biz optimism] is the fact that 1 in 4 owners still reports weak sales as their top business problem. Consumer spending is weak, especially for “services,” a sector dominated by small businesses.”

Dayen usefully points out that since Larry Summers left, Obama's economic team is now fully controlled by financiers and political operatives.  The former, not surprisingly, fear bondholders more than they fear voters; the latter seem to view debt and deficits through a moral lens (rather than an empirical and long-term one), and believe that independents will only respect Democratic administrations that model 'toughness.'  I believe it was Groucho Marx who once described politics as "the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies."  Obviously we have profound long-term deficit and debt issues.  It is unclear to me how near-term austerity -- which will assure us anemic economic growth for years, while limiting our ability to investment in infrastructure and human capital -- can address this.  Indeed, cuts now will make it harder for us to address these issues, not easier.


I still maintain that this crisis has presented us with a great opportunity, a chance to plant the seeds for a new political economy, one that is sustainable in every sense (economically, political, ecologically, morally).  There’s a lot of slack in the economy and borrowing costs are historically low -- if the government financed this borrowing at the 30-year TIPS rates, we’d be looking at an interest rate of 1.79% as of last Friday!


What would those 'seeds' look like?  I'll say a lot more about this in a future post, but for starters:


*  Massive investment in public, universal and high quality early childhood education
*  An infrastructure bank, as Senator John Kerry has proposed
*  Investment in and modernization of our public health infrastructure
*  Real financial reform (see Simon Johnson and Elizabeth Warren)
*  Using tax incentives, regulations and the federal purse to expand the rental and cooperative sectors of the housing market
*  Moving away from sprawl, and racial/economic segregation in our metropolitan areas 


Do you hear that crunching?  That's your political elite, eating your seed corn.

FDR and the moneychangers

For my first blog post in 7 years, I am more than happy to give the first word to Franklin Roosevelt.  Above you will find an excerpt from a speech given at Madison Square Garden on the eve of his landslide 1936 re-election.  That year (and in his 1944 2nd Bill of Rights speech), FDR came as close as any major presidential candidate ever has to articulating social democracy in an American idiom.  Of course, he then followed it up with the austerity measures and budget cutting that caused the 1937 'Roosevelt recession,' a mistake President Obama appears to be making too.  FDR then learned his lesson.  Will Obama?

You might also enjoy FDR's June 27th, 1936 speech accepting the Democratic nomination.  It was given at Franklin Field in Philadelphia, just a block or two away from my old digs at Penn:
FDR, Acceptance Speech, June 27th 1936, Philadelphia PA