Who Should We Trust?

These may not be the times that try men’s souls, but they sure are times that confound economic policymakers.

We have one set of economists telling countries to implement austerity measures, and another group insisting that for now, stimulus is the answer. For those of us who are not trained in the “dismal science,” it’s increasingly difficult to distinguish between medicine and snake oil. Prescriptions sounding eminently reasonable to those of us unschooled in economic arcana turn out to be counter-productive in practice—case in point: research showing that so-called “right to work” legislation just depresses wages without generating the promised economic growth.

So where should we look for advice?

An October paper for the New America Foundation, by Daniel Alpert, Robert Hockett and Nouriel Roubini (not-so-affectionately dubbed “Dr. Doom” after he predicted the mortgage meltdown) proposes a way forward, and the logic seems—at least to this non-economist—pretty compelling.

The authors spend considerable space analyzing “how we got here,” and they note that digging out of the present crisis will be particularly difficult because, thanks to the entry into the world economy of “successive waves of new export-oriented economies,” and the concurrent, dramatic rise in productivity gains “rooted in new information technologies and the globalization of corporate supply chains,” the world economy now has excess supplies of labor, capital and productive capacity relative to global demand. Furthermore, the integration of new economies with competitive workforces has shifted the balance between capital and labor, resulting in income inequality as bad as—if not worse than—the gilded age.

The bottom line, as they see it: it will be difficult to sustain even current levels of consumption without improved wages and incomes, but such increases are unlikely due to the gluts of both labor and capital. In such a situation, austerity simply leads to a vicious downward cycle of weaker demand, weaker investment and more unemployment.

What to do? The authors lay out a three-part prescription: first, a “substantial” five to seven year public investment program to repair America’s crumbling infrastructure; second, a “comprehensive” debt restructuring plan; and third, global reforms to offset diminished demand in the developed world and correct the current imbalance in supply and demand.

The paper is long and quite detailed, and the descriptions of each proposal deserve to be read in their entirety, but I was particularly struck by the logic of the infrastructure recommendations.

  • Fixing infrastructure now would take advantage of a “historically unique opportunity” to put idle capital and labor to work rebuilding at an extremely low cost and with potentially high returns. Capital costs are now at historic lows, and labor is in abundant supply. It will never be less expensive to fix our decaying infrastructure than it is now.
  • The American Society of Civil Engineers estimates we need 2.2 trillion to meet even the most basic infrastructure needs. Less than half of that is currently budgeted.
  • Every billion dollars invested in infrastructure generates 23,000 well-paying jobs. Over the course of five years, such a program would create over 5.52 million jobs.
  • The CBO estimates that every dollar of infrastructure spending generates a 1.6 dollar increase in GDP.
  • Fixing our infrastructure is also essential to restoring American competitiveness. China invests 9% of GDP annually in infrastructure—we spend less than 3%. Public infrastructure investment lowers the costs of transportation, electricity and other core business expenses.

Even if these economists are overstating the case, what’s the worst that would happen if we took their advice? Our bridges might stop falling down? Pollution levels would abate? Workers with jobs might have money to spend?

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I Don’t Get It

There’s a pretty robust public debate–in which I’ve engaged–about the refusal of congressional Republicans to even consider raising taxes on the wealthiest Americans. That debate has centered around the practicality and morality of their position: practically, government needs the revenue that would be raised by what would historically be considered a very minimal raise in the rate; morally, it seems truly wrong to demand yet more sacrifice from the beleaguered middle class while giving the rich a pass.

That debate is worth having, but what I don’t get is the politics of the position.

I understand that the people who fund GOP campaigns–the Kochs, the Scaifs, etc.–look favorably upon the Republican position. And I understand that money matters (far more than it should or than it used to, thanks to Citizens United). But I can’t believe that a political party can win a national election on a platform that advocates hollowing out the public purposes of government–“starving the beast” is the way Grover Norquist puts it–in order to protect the pocket-change of the powerful.

Leave aside whether the GOP position makes any economic or moral sense. I can’t imagine it making political sense. You can rename plutocrats “job creators” all you want, but it is pretty clear that they aren’t creating any jobs (at least not here in the US), and without that rather thin defensive reed to lean on, it is hard to envision any but the most ideologically rigid buying that snake-oil.

What am I missing?

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DUBLIN

The difference between Vilnius and Dublin in attitudes is palpable. Although the young woman who narrated our tour in Vilnius said that Lithuania was experiencing an economic downturn, it wasn’t visible–shops and cafes were bustling, there was significant construction and restoration activity, and everyone we interacted with seemed upbeat.

In Dublin, by contrast, the shops are all plastered with sale signs, there are empty shops even on Grafton Street, the “fancy” and expensive shopping thoroughfare, and both our cab-driver yesterday and a salesclerk in Marks and Spencer’s today volunteered that Ireland is experiencing a depression. (Their terminology.)

The taxi driver also volunteered considerable anger at “the bankers” who are giving themselves bonuses after their actions bankrupted the country. People are losing everything, he said, and those who brought on the crisis are still living high. One of these days, he predicted, someone with nothing left to lose will shoot a couple of them.

Sobering realities, and not so far from those we left at home–although I haven’t heard so direct an indictment elsewhere.

Last evening we strolled around Temple Bar and ate at a traditional Irish restaurant called Gallaghers. We had Irish boxty–the Irish version of Knish, with some variation. (It has been a theory of mine that every culture has similar dishes that are simply named differently–kreplach, ravioli…).

Tomorrow we are taking a day train out into the Irish countryside, and quite early on Tuesday we head for Berlin via Birmingham, London, the Chunnel and Paris. It will be a long travel day, and I anticipate no time for blogging until we are in Berlin.

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Why Evidence Matters

Steve Benen has an important post up today at Political Animal, discussing the GOP’s recently-unveiled and badly misnamed “Jobs bill.”

As Benen points out, “the jobs agenda, such as it is, is practically a conservative cliche: the GOP wants massive tax cuts for the wealthy, deregulation, more coastal oil drilling, and huge cuts to public investment. Republicans are confident this will work wonders, just as they were equally confident about the identical agenda in the last decade, and the decade before that, and the decade before that.

Indeed, the most glaring problem with the GOP jobs agenda is that it won’t work, but nearly as painful is the realization that it’s already been tried, over and over again, to no avail. They either haven’t heard the famous axiom about trying failure repeatedly and expecting a different result, or they don’t care.

The agenda is the agenda: tax cuts for the wealthy, deregulation, cut public investments. Good times and bad, deficit or surplus, war or peace, it just doesn’t matter.”

The entire post is well worth reading.

Way back when I became politically active, I bought into the theory that tax cuts for the wealthy would spur investment, and that investment would create jobs. It made a lot of sense; unfortunately, the evidence is pretty overwhelming that it doesn’t work that way.

The ability to change ones opinion when faced with new evidence is how humans learn and thrive. When people “double down” on beliefs even when faced with facts debunking those beliefs, we call that a delusion.

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