Glenn A Knight

Glenn A Knight
In my study

Sunday, February 21, 2010

The Anniversary of the Stimulus: Is It a Success?

Daniel Gross is in no doubt, and neither are a lot of economists. The stimulus has been successful, at least in averting the worst consequences of the financial crisis of 2007-2008.

Why are the Republicans so determined to portray the stimulus, the Recovery Act, as a failure? First, this is the Obama administration's only major legislative accomplishment of 2009. If this was a failure, then the administration has had no successes at all.

Second, these people are trying to reject the judgment of Richard Nixon that "we are all Keynesians now." John Maynard Keynes had a couple of profound and very useful insights, but the main idea for which he is both praised and condemned is that the government can become the spender of last resort. Some of the voices on the right are trying to destroy the concept of government as a useful tool for dealing with human problems. If the stimulus worked, then Keynes is somewhat vindicated, and the government role in the economy is legitimized. That's what they mean by "socialism," these people who have no idea what socialism might be, a system in which government activity is a vital part of the economic life of the country.

John H. Makin had a pretty good article in the October 2009 issue of Commentary, in which he concedes that Keynes was right, while asserting that there was something to the doctrine of efficient markets. It's a far more reasonable presentation than one usually sees from the right side of the aisle.

Current Reading

As you can see, I have a few books working now, and I finished a few in January and earlier this month. The most recent start was on the Library of American paperback Reporting World War II. This book was originally published in two hardcover volumes in 1995, and the current version is excerpted from that material. Over 800 pages, with all sorts of scholarly impedimenta, and including pieces by Ernie Pyle, Edward R. Murrow, William L. Shirer, and so on. I bought this book in 2007 at the Borders remainder store in the outlet mall in Castle Rock. That store is gone now, and there are many vacant storefronts in the mall. We went up there on Friday to shop for sheets, but the Wamsutta outlet store is gone, too.

A few years ago, on one of my trips to North Carolina, Dave Drake gave me a copy of The World Turned Upside Down. This anthology of science fiction stories was edited by Dave, along with Eric Flint and the late Jim Baen. Anyone into science fiction will recognize such stories as "A Pail of Air," "The Menace from Earth," "St. Dragon and the George," "The Cold Equations," and "Who Goes There?" Great stuff, and there have been, so far, a few stories I'd never read before. I'm loving this stuff!

The Monster Book of Zombies: Tales of the Walking Dead (2009, originally published in 1993 as The Mammoth Book of Zombies) is edited by Stephen Jones, and it contains some fine old classic horror stories by Lovecraft, Lumley, Poe, Manly Wade Wellman, and Karl Edward Wagner, as well as more recent stories. The most intriguing title belongs, of course, to the last story in the collection, "On the Far Side of the Cadillac Desert with Dead Folks," by Joe R. Lansdale. I read "A Warning to the Curious," by M. R. James, today, and it's interesting to contemplate how effective a story first published in 1925 can be.

Death and Taxes

Jackie Calmes has written a nice piece on the deficit situation. She discussed this matter on Washington Week last Friday, and she knows her stuff.

The key here is simple, in general outlines: There is a deficit because the government is spending more money than it is bringing in. This can be resolved by increasing the amount of revenue, by decreasing the amount being spent, or by a combination of the two. Those are the only options. There is no magical "third way."

Republicans refuse to countenance any tax increases. That's fine, under two conditions:

1) The Republicans are prepared to present a program of spending cuts that will bring total expenditures down to current revenues, and,
2) They are able to persuade enough Democrats to support these cuts to provide a majority in both the House and the Senate.

Even if I believed that the Republicans in Congress were finally ready to do away with farm subsidies, business subsidies, energy subsidies, and a big chunk of military spending, I don't see how even the most optimistic Republican could believe that a majority of Congress can possibly support program cuts sufficient to balance the budget. For one thing, I think you could only accomplish that result if you cut Social Security, Medicare and Medicaid benefits, and probably cut benefits for veterans and both military and civilian retirees, as well.

So some taxes, somewhere along the line, will have to be raised. And that means that a lot of Republicans in Congress are going to have to go back to their constituents and tell them the truth. Tough job! It might even be politically fatal.

The Conservative Manifesto

I have, somewhere on my bookshelves, a copy of The Communist Manifesto, penned by Karl Marx and Friedrich Engels and published in 1848. Who can forget the opening lines?

"A specter is haunting Europe - the specter of communism. All the powers of old Europe have entered into a holy alliance to exorcise this specter: Pope and Czar, Metternich and Guizot, French Radicals and German police spies.

"Where is the party in opposition that has not been decried as communistic by its opponents in power? Where the Opposition that has not hurled back the branding reproach of communism, against the more advanced opposition parties, as well as against its reactionary adversaries."

They don't make manifestoes like that any more, and I don't think the Mount Vernon manifesto is likely to make the kind of impression on our national politics that its sponsors would like. It's pretty tame stuff, in this day and age, to accuse your opposition of ignoring the Constitution, particularly when the right, in the persons of George W. Bush and Antonin Scalia, have found it convenient to re-write that venerable document at need.

By all means, let us have constitutional government. As a first step, rather than trotting out the tired old myth that Congressional powers are limited to the list in Article I, Section 8, how about noting that nothing in Article II gives the President the power to act in the stead of Congress?

A manifesto? I don't think the conservative bloc in this country has the energy to create anything like a manifesto. After all, they keep falling back on the 162-year-old trick of calling upon the specter of communism as a focus for their fears.

Mirror, Mirror, on the Wall

This is a very nice column from Richard Cohen. I don't think I've reprinted a Cohen piece before, and I think I used to read him in venues other than the Washington Post. (The Washington Monthly, maybe?)

The gist here is that Sarah Palin is neither the demon feared by the left, nor the savior awaited by the right. She's an empty suit, a vessel into which people pour their fears and longing, a distorting mirror in which one sees what one desires, expects, or most wishes not to see. (I think the tendency on the left to see these characters as threatening is due in large part to a desire for validation. "See, I told you there was a fascist in that closet!")

What do you think? Is Sarah Palin a political phenomenon, or just another gold-digger from Sandpoint?

Tuesday, February 16, 2010

O! Canada!

It's Daniel Gross, again, and this time he's found another Daniel who makes predictions on Olympic medals based on economic factors. Daniel Johnson predicts that Canada will take home the most medals from this Winter Olympic Games, just ahead of the United States and Norway. We'll see how it turns out, but I think it's interesting that the predictive factors Johnson uses - population, GDP per capita, climate - are also predictive of success in other fields.

Monday, February 15, 2010

Good News or Schadenfreude?

It's another column by Daniel Gross. I really need to start adding more original content. For one thing, I'd like to take off on Agim Zabeli's comment on an earlier post and get into questions about taxes and deficits. But, for the moment, Gross has some good comments about how the Japanese superiority in quality manufacturing, and the European superiority in social solidarity may have been just as illusory as the American economy that could grow forever. I'm not sure this is so much good news for the United States as it is glorying in the misfortunes of others.

The thing is, the EU is doing to the profligate nations in its ambit what the U.S. probably ought to be doing to profligate institutions: cutting them off and forcing them to make hard choices. But the EU has the advantage of national boundaries. For all the work that's been done on unification, they can still force Greece into an austerity program and limit the damage to other countries in the union. If the U.S. gets too tough with California or General Motors, the effects will come around and bite the rest of us in the ass.

Sunday, February 14, 2010

Tea Parties and Flat Taxes

E. J. Dionne spends this column talking about why the Tea Party movement has arisen, why these people insist on seeing the distinctly moderate President Obama as a "socialist," and what is the source of all this rage. I think he quite rightly puts his finger on the anti-government sentiment that goes all the way back to the Anti-Federalists. Some years ago, the Library of America published a two-volume set on The Debate on the Constitution. It can be a real eye-opener in terms of how many people were very suspicious of the power of centralized government.

This leads me to another, related, topic: the flat tax proposals of such conservatives as Steve Forbes. Let's not dismiss these proposals as impractical, fiscally ruinous, or the product of the lust of the rich to keep their ill-gotten gains. The flat tax idea is, at least in part, an aspect of the "starve the beast" concept. Ronald Reagan earned a lot of criticism for his assertions that he could increase defense spending, cut taxes, and reduce the deficit, all at once. Sure enough, that didn't happen, and he had to raise taxes again to keep the deficit under control. But the idea wasn't as ridiculous as it might have sounded, if, that is, you accept a couple of premises.

Premise One is that government spending is essentially non-productive, and that, because of this, it doesn't generate further economic activity. A dollar spent by the government is spent once; a dollar spent by private business is spent many times as it works its way through the economy. This is nonsense, of course. While government spending is, generally, non-productive - from an economic point of view, the military is a complete nullity, it isn't, on that account, tagged with a lower velocity than private spending. A billion dollars spent on a new government building has the same impact on the economy as a billion dollars spent on a new automobile factory.

But this premise leads one to suppose that cutting taxes always allows the money to be spent in some more productive way, thus boosting the economy, and, yes!, raising tax revenues.

Premise Two is that the government will limit its activities according to the amount of money it has, i.e., that there will be no deficit spending. Therefore, tax cuts serve to "starve the beast" by depriving it of its sustenance. This, too, is utter nonsense. Both Republicans and Democrats happily plunge into deficit spending rather than either raise taxes or cut programs that are dear to their constituents' hearts. And every program, no matter how useless, is dear to some constituent's heart.

The flat tax has to bring in less money than a graduated ("progressive") income tax, even if, as Forbes has suggested, we do away with such shibboleths as the home mortgage interest deduction. That's because people making $30,000 per year can only afford so much in taxes. You might get $4,500 (15%) from them, and that would then become the limit for everyone. At a flat 15%, the government would take in a lot less than it does now, and it would have to shrink. QED. Except that it won't shrink; it'll borrow instead.

The only way to shrink the government is to cancel expensive programs. Cancel all farm subsidies. Cancel all business subsidies. Cancel subsidies for energy programs. Cancel subsidies for home heating expenses. Cancel subsidies for small business loans. Cancel subsidies for student loans. Cancel the tax breaks on home mortgage interest, capital gains, and anything else that effectively subsidizes an activity. Cut the military in half and close two-thirds of the military bases in the country. Raise the co-pays on Medicare and Medicaid so that the insurance only covers serious medical conditions and treatments. Give all Federal employees, including the military 20% pay cuts. Give all Federal pensioners, including the military and Social Security recipients 10% pay cuts. Do all that, and you might balance the budget. Watch for that proposal in your local newspaper! Not!

Speaking of Ignorant Yahoos ...

In my previous post, I mentioned that a lot of liberals believe that conservatives are all ignorant yahoos. I think a lot of this goes back to the two Georges: George Wallace, who inveighed against "pointy-headed intellectuals," and George W. Bush, who concealed any intellectual curiosity he might have had behind that annoyed frat-boy smirk. Among those often nominated for yahoo status is Sarah Palin. But David S. Broder thinks we need to take the lady from Wasilla seriously. No, really.

It's very easy to underestimate someone like Sarah Palin. She's from North Idaho, the only part of the northern United States to regularly rank behind Arkansas in statistics on education, income, and healthcare. You always knew when you drove into Idaho from Washington; the broken pavement and potholes proliferated. So, Sarah Palin is just too North Idaho for my taste.

But there are late-bloomers. There are people whose misspent youths are no real indicator of their present talents and abilities. There are people who rise to the occasion. Read U.S. Grant's Personal Memoirs sometime. While overestimating your opposition may lead you to give up without a fight, underestimating them may leave you unprepared for the fight you face. Let us not allow Sarah Palin's weaknesses, real and apparent, to blind us to her very real strengths. This column is a good starting point.

Liberal Condescension

Gerard Alexander thinks that he's found a new weakness among liberals: condescension. The easy answer to why liberals think they know everything, are right about everything, and have no reason to change their ideas, is that liberals do know everything. We are always right. And the conservatives are just a bunch of ignorant yahoos. At least, that's Al Franken's point of view.

This is a long article, but it may be worth reading for some serious thoughts about why the two sides aren't listening to one another.

I think, from my own point of view, that most of the up-front policy ideas on both the liberal and the conservative side are based upon deep-down attachments to ideas that no one has examined very thoroughly, and which everybody finds rather frightening to question.

Whenever I see a reaction out of all proportion to the action which supposedly triggered it, I know that there is some underlying force that has built up on the reactor's side.

Here's an example. The Republicans are highly averse to tax increases. They are passionate about not allowing any tax increases. This is practically an article of religious faith with them, and the evil of higher taxes is so self-evident to them, that they find it difficult to articulate reasons for their position. In fact, a lot of the opposition to taxes is based on a still-deeper article of faith: You can reduce the size and influence of government by cutting taxes.

The problem is that the "starve the beast" theory has never worked. The government, whether under Democrats, Republicans or Martians (I refer to the late Bush administration), continues to spend, borrowing to make up the difference. The Republicans cannot admit that starving the beast is an ineffective strategy, however, because they don't have any other strategy for cutting the size of government, except by doing things that voters don't like.

Let's face the obvious problem: The people, in their majesty - vox populi, vox dei - want more services than they are willing to pay for. They want the government to do things that cost more than the amount of money they are willing to allow it. And they don't want their representatives to tell them that they can't have it both ways.

You can't cheat an honest man, as the saying goes, but what we have here is a dishonest electorate.

What Paulson Knew

Daniel Gross devotes his column to a review of Henry Paulson's memoir of the financial crisis. The review, as a review, is good and readable, and it makes me think that the memoir itself would be worth reading. Gross does chide Paulson for being unreflective and for failing to see the big picture. Paulson takes things as they come; he doesn't place them in a larger context, and he doesn't have a grand philosophy to bring to bear on them.

What Gross doesn't, perhaps, get is that a more reflective man, a man with an explicit philosophy about how the economy was supposed to work, might very well have been paralyzed in the face of the financial crisis. Paulson's very pedestrian, task-oriented approach enabled him to deal with one problem at a time.

Gross mentions that Paulson is a birder. Well, there are birders who worry about the ecosystem as a whole and how our winged friends fit into it. But there are also birders who get out to a location, binoculars, field guide and notebook in hand, and just look for the birds that are there. Paulson strikes me as one of the latter.

The book is On the Brink: Inside the Race to Stop the Collapse of the Global Financial System.

Saturday, February 6, 2010

Are You Rich?

Are you rich? Am I rich?

One of the features of President Obama's fiscal policy has been that he would not impose new taxes on middle-class Americans. Of course, in America, we're all middle-class, so there has to be a cut-off point for such a determination. President Obama has set that point at $250,000 per year of income. A lot of people who make that much (or even more) contend that they aren't rich: They, too, are middle-class.

Daniel Gross provides a nice analysis here, showing that people making $250,000 annually are indeed rich. It's a nicely written piece, and Gross doesn't bother us with statistical analysis, but he does point out that $250,000 is about five times the national median income.

I, for one, think it would be good to allow the Bush tax cuts to expire in their entirety, and for the estate tax to come back in full force, but I'll settle for having those cuts taken away from the rich.