Tag Archives: economic policy

An Intriguing Analysis

Paul Krugman recently had a column that–almost incidentally–amplified the findings I reported on yesterday from Democracy Corp’s focus groups.

He began by noting that Biden simply doesn’t arouse the same degree of animosity that Obama did. Krugman leaves it there, but the reason for the moderation of vituperation is pretty obvious: Biden’s a White guy. Yes, he’s a hated Democrat/Socialist/Leftie/Whatever, but at least he’s not Black.

Krugman focused on the lower level of animus and hostility aimed at Biden by Republicans, and speculated over what that “low energy” opposition might mean for the prospects of upcoming legislative proposals.

Just about every analyst I follow asserted, almost until the last moment, that $1.9 trillion was an opening bid for the rescue plan and that the eventual bill would be substantially smaller. Instead, Democrats — who, by standard media convention, are always supposed to be in “disarray” — held together and did virtually everything they had promised. How did that happen?

Much of the post-stimulus commentary emphasizes the lessons Democrats learned from the Obama years, when softening policies in an attempt to win bipartisan support achieved nothing but a weaker-than-needed economic recovery. But my sense is that this is only part of the story. There has also been a change on the other side of the aisle: namely, Republicans have lost their knack for demonizing progressive policies.

Krugman is careful to note that the decrease in demonization applies to policies (after all, lots of Republicans still believe that Democrats managed to steal a federal election at the same time they were sexually exploiting and then feasting on small children…) But as he notes, there’s been an absence of “bloodcurdling warnings about runaway inflation and currency debasement, not to mention death panels.”

True, every once in a while some G.O.P. legislator mumbles one of the usual catchphrases — “job-killing left-wing policies,” “budget-busting,” “socialism.” But there has been no concerted effort to get the message out. In fact, the partisan policy critique has been so muted that almost a third of the Republican rank and file believe that the party supports the plan, even though it didn’t receive a single Republican vote in Congress.

Krugman notes a number of possible explanations: the obvious hypocrisy of screaming about deficits under Obama and then incurring huge ones via tax cuts for the rich; the fact that none of their past, dire warnings of inflation under Obama–or their rosy predictions of a boom under Trump–materialized (although, as he points out ” inconvenient facts haven’t bothered them much in the past.”)

Or perhaps Republicans no longer know how to govern. They are trapped in a culture war of their own creation. As Krugman notes, while the Democrats were fashioning legislation and hammering out policy compromises, Republicans were screaming about Dr. Seuss and Mr. Potato Head.

In short, the prospects for a big spend-and-tax bill are quite good, because Democrats know what they want to achieve and are willing to put in the work to make it happen — while Republicans don’t and aren’t.

I have been extremely happy with what the Biden Administration has done–and failed to do–thus far. This is a highly competent operation. What is undoubtedly true, however, is that one reason the path has been smoother for Joe Biden is simply because his skin is white.

And that is an incredibly sad commentary on the current state of America.

 

The Economy And The Parties

Talk about your provocative headlines! The New York Times opinion page recently ran a column titled: “The Economy Does Much Better Under Democrats. Why?”

The column began with an acknowledgement  of the limited control presidents exert over the economy. After all, presidents are at the mercy of numerous global and other realities, as the pandemic is currently illustrating.  Furthermore, economic performance is determined by literally millions of decisions made every day by businesses and consumers, many if not most of which have little relation to government policy.

So why is there an undeniably “stark pattern” showing that the economy has grown significantly faster under Democratic presidents than Republican ones?

It’s true about almost any major indicator: gross domestic product, employment, incomes, productivity, even stock prices. It’s true if you examine only the precise period when a president is in office, or instead assume that a president’s policies affect the economy only after a lag and don’t start his economic clock until months after he takes office. The gap “holds almost regardless of how you define success,” two economics professors at Princeton, Alan Blinder and Mark Watson, write. They describe it as “startlingly large.”

Since 1933, the economy has grown at an annual average rate of 4.6 percent under Democratic presidents and 2.4 percent under Republicans, according to a Times analysis. In more concrete terms: The average income of Americans would be more than double its current level if the economy had somehow grown at the Democratic rate for all of the past nine decades. If anything, that period (which is based on data availability) is too kind to Republicans, because it excludes the portion of the Great Depression that happened on Herbert Hoover’s watch.

If the disparate results are too clear and too large to dismiss, the reasons are far less obvious. (As the King in “The King and I” liked to say, “It’s a puzzlement.”)

The authors of the study considered and discarded several possibilities. They threw out  Congressional control, because the pattern held regardless of which party was running Congress;  deficit spending also couldn’t explain the gap, because–contrary to GOP rhetoric–during the past 40 years, Republican presidents have run up larger deficits than Democrats.

If Congressional partnerships and deficit spending couldn’t account for the differences, what might? The authors concluded that the difference could be explained by the willingness of Democrats–but not Republicans–to respect  that pesky thing we call evidence.

As they note, Democrats have been far more willing to consider the lessons of economic history–to see which policies have been shown to actually strengthen the economy, and to replicate those approaches. Republicans, on the other hand, have “clung to theories that they want to believe — like the supposedly magical power of tax cuts and deregulation.”

In other words, Democrats have been pragmatists; Republicans have been ideologues.

As the authors note, since 1980, Republican economic policy has boiled down to a single measure: large tax cuts, tilted heavily toward the rich. That may work in countries with very high tax rates, but the United States has had very low tax rates for decades.

It may be that Republicans actually believe in their own prescription, despite the repeated failure of tax cuts to provide the promised economic stimulus and/or job creation. Or it may be–as cynics suggest–that the parties are simply playing to their respective bases of support– responding to the interest groups that support and finance them.  Democratic-leaning groups (like labor unions and civil-rights organizations) favor policies aimed at achieving broad-based economic growth; Republicans are pandering to wealthier supporters (those we used to call “country club Republicans), who favor policies that will shift income in their direction.

It will be interesting to see whether Republican ideology shifts as the  GOP becomes increasingly the party of whites without wealth or a college education–and as significant numbers of those suburban “country club” Republicans desert a GOP that is firmly in thrall to bigots and crazy people.

 

Trashing The Economy

Schadenfreude would be appropriate if real people weren’t being hurt.

Recent business news included the planned overseas move by that icon of Americana, Harley-Davidson. Although a quote attributed to the CEO to the effect that Trump is a moron who knows nothing about either trade or economics turned out to be bogus, the  decision to move production offshore sends a not-dissimilar message.

As Paul Krugman noted in a recent column, Harley-Davidson may be an icon, but it isn’t really a big economic player.

Nonetheless, I think the Harley story is one of those anecdotes that tells us a lot. It’s an early example of the incentives created by the looming Trumpian trade war, which will hurt many more American companies and workers than Trump or the people around him seem to realize. It’s an indication of the hysterical reactions we can expect from the Trump crew as the downsides of their policies start to become apparent — hysteria that other countries will surely see as evidence of Trump’s fundamental weakness.

No President can be an expert on all of the subjects on which a President must make consequential decisions. Most of those who have occupied the Oval Office have compensated for that reality by surrounding themselves with credentialed, expert advisers. But then, most of Trump’s predecessors were mentally stable enough to recognize that a need for advice about a highly technical area isn’t tantamount to an admission of inferiority.

There’s a reason the Trump Administration is filled with incompetents and sycophants–increasingly from Fox News–and even then, has seen unprecedented turnover.

And what Trump’s alleged experts have to say about the controversy offers fresh confirmation that nobody in the administration has the slightest idea what he or she is doing.

About that trade war: So far, we’re seeing only initial skirmishes in something that may well become much bigger. Nonetheless, what’s already happened isn’t trivial. The U.S. has imposed significant tariffs on steel and aluminum, causing their domestic prices to shoot up; our trading partners, especially the European Union, have announced plans to retaliate with tariffs on selected U.S. products.

And Harley is one of the companies feeling an immediate squeeze: It’s paying more for its raw materials even as it faces the prospect of tariffs on the cycles it exports. Given that squeeze, it’s perfectly natural for the company to move some of its production overseas, to locations where steel is still cheap and sales to Europe won’t face tariffs.

Opposition to tariffs used to be a hard-and-fast position of (what used to be) the Republican Party. It was a position I heartily endorsed, for reasons that Krugman alludes to and all Americans will soon begin to appreciate. That Harley and other companies would choose to move in reaction to those tariffs was entirely predictable.

But while it’s what you’d expect to see, and what I’d expect to see, it’s apparently not what Trump expected to see. His view seems to be that since he schmoozed with the company’s executives and gave its stockholders a big tax cut, Harley owes him personal fealty and shouldn’t respond to the incentives his policies have created….

So what do Trump’s economists have to say about all of this? One answer is, what economists? There are hardly any left in the administration. But for what it’s worth, Kevin Hassett, the chairman of the Council of Economic Advisers, isn’t echoing Trump’s nonsense: He’s uttering completely different nonsense. Instead of condemning Harley’s move, he declares that it’s irrelevant given the “massive amount of activity coming home” thanks to the corporate tax cut.

That would be nice if it were true. But we aren’t actually seeing lots of “activity coming home”; we’re seeing accounting maneuvers that transfer corporate equity from overseas subsidiaries back to the home corporation but in general produce “no real economic activity.”

As real economists and business reporters have documented, those tax reductions have once again failed to “trickle down” to the workers they were supposed to benefit. Most have been used in corporate stock buy-backs. Meanwhile, Congressional Republicans are voting to rob Social Security and Medicaid and make access to other social welfare programs more difficult–just as the Administrations uninformed trade war policy threatens to tank the economy. We are already seeing a weakening in consumer spending.

There is a (very unattractive) part of me that is watching this train wreck as vindication–this is what happens when you turn government over to people who ignore history and evidence and scorn the “effete elites” who actually know what they’re doing.

Schadenfreude.

But then I think of all the people who will suffer needlessly thanks to this clown and his circus…

 

Those Disappearing Consumers…

A recent article in The Week considered the phenomenon of the retail apocalypse–the sudden loss of thousands of jobs in retailing.

Employment in general merchandise stores has fallen by almost 90,000 jobs since October. Just like manufacturing jobs before them, brick-and-mortar retail jobs are finally falling to the twin forces of technology and globalization — this time in the form of Amazon and e-commerce. Or so goes the narrative.

And what, exactly, is inaccurate about that narrative? According to the article–which goes into considerable detail–it omits a key cause. The story being told “vastly oversimplifies what’s going on with retail.” And it completely misses a significant cause of the collapse: the loss of a once-reliable mass of consumers and the effect of that loss on retail stores.

Things get interesting when we pick apart what we mean by “retail.” Employment in department stores has bled 500,000 jobs since 200118 times the number of jobs the coal industry lost in the same period.

 

 

Recognizable brands like Macy’s and Sears are looking shaky: the former plans to close 68 stores and lay off 10,000 workers, while the latter’s business model has been rotting for years and may collapse altogether. Malls across the country — long the home of these department store chains — are dying and emptying out.

As the article points out, department stores and malls depend upon a sufficient number of middle-income consumers. And those consumers need to live pretty much everywhere.

If you’re going to have a mall with department stores in every decent-sized town, you need middle-class consumers in every decent-sized town, too.

That’s precisely the sort of consumer we’ve lost. For the last few decades, middle- and lower-class wages have stagnated, while the portion of Americans high up the income ladder provide more and more of all consumer spending. The national economy has also gone through a remarkable geographic shift, in which pretty much all new job and business creation occurs in major cities.

The article concedes the significant role of the internet in our shifting consumption patterns, but insists that the major culprit is the loss of good-paying jobs–some as a result of trade, but far more as a result of automation and misguided economic policies that have abandoned the mid-century focus on full employment–a focus that drove up wages.

The culprit–the reason those middle-income consumers are vanishing–turns out to be low wages.

In the past few years, we’ve learned that resistance to raising the minimum wage was  based on erroneous assumptions, mostly the argument that a higher wage would lead to fewer jobs. But job creation has actually improved in places that have raised the minimum wage.

What the old argument missed suddenly seems so obvious: When workers have more money to spend, they buy stuff. They consume. When they can barely make ends meet, they don’t go to the mall. They don’t eat out. They don’t browse at the department store.

There’s no doubt that the nature of retailing is changing. The Internet, Amazon’s same or next day delivery, the convenience of online shopping–all present a very real challenge to conventional retail trade. That challenge will require adjustment and innovation.

But first, you need customers with money to spend.

How Are Hoosiers Really Doing?

Morton Marcus can always be counted on to debunk official happy talk. In a recent column (link not available), he did it again.

Responding to what he characterized as “recent self-congratulatory claims from the State Office for Ooze,” he chose annual data for two decades (from 1994 to 2004 and 2004 to 2014), a time period that allows him to paint a more accurate picture of how Indiana has been doing compared to the nation.

Here are the numbers:

  • At the national level, the number of jobs grew by 17 percent from 1994 to 2004. In the next decade (2004 to 2014), U.S. jobs grew by 10 percent. For those two decades, Indiana’s job growth rate was 9 and 4 percent respectively.
  • Over that 20 year period, jobs in the U.S. grew by 29 percent while Indiana advanced only 13 percent. Indiana ranked 47th among the states.
  • Between 1994 to 2014, Indiana fell from having 2.3 percent to barely 2 percent of all American jobs. (As Morton points out, that may not seem like much, but that “little difference is the equivalent of 950,000 jobs over those 20 years. That failure to just keep pace with the nation, means our addition of 442,000 jobs between ’94 and ’14 was 53 percent short of mediocrity.”)
  • Also during this time frame, Indiana lost 26,000 construction jobs or 12 percent of the jobs in that industry while the national decline was only 7 percent. Indiana also saw greater percentage declines in computer and electronic products employment than did the nation, although the state experienced lesser percentage losses in primary metals and motor vehicle manufacturing.
  • Indiana had job losses in every category of retail shops while some types of retail grew at the national level. “Despite the Great Recession, finance and insurance jobs grew by 22 percent nationally, but only 9 percent in the Hoosier state. Food service and drinking places had job growth of 20 percent across America, but only 10 percent here.”

Next year, Indiana will elect a new Governor. Candidates for that position need to tell us how they plan to improve–rather than continue to spin– the state’s dismal economic performance.