Krugman Smacking Down Stupidity (Again)

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Weekend Reading

Bush Ignored Seven Warnings About Attacks
Dear Mr. Dimon, Is Your Bank Getting Corporate Welfare?
The Hard Lessons Of Wisconsin
How Policy Has Contributed To The Great Economic Divide
'Nuns On The Bus' Visit Paul Ryan's Office
Public Sector Layoffs
Reagan's Gone. You're Old. Get Over It.
The Rent Is Too Damn High
Revenge Of The Urban Nerds
The Scam Wall Street Learned From The Mafia
Twilight Of The Elites
Wages Continue To Fall

The Consumption Imperative

Insight from James Livingston:

• Private investment doesn't actually drive economic growth.
• Between 1900 and 2000, real gross domestic product per capita grew more than 600 percent. Meanwhile, net business investment declined 70 percent as a share of G.D.P. What's more, in 1900 almost all investment came from the private sector whereas in 2000, most investment was either from government spending or residential investment, which  means consumer spending on housing, rather than business expenditures on plants, equipment and labor.
• According to the Organization for Economic Cooperation and Development, retained corporate earnings that remain uninvested are now close to 8 percent of G.D.P., a staggering sum in view of the unemployment crisis we have.

Midweek Reading

As Unions Weaken So Does Middle Class
Blue States To The Rescue. Again.
China Labor Costs Push Jobs Back To U.S.
CEO Pay Soaring
Death Of Forests, Loss Of Key Climate Protector
Did Fannie Cause The Disaster?
Gas Tax Short Of Covering Roads
Misrepresentations, Regulations, Jobs
No Economic Recovery Without Smart Growth
Rewarding CEOs Who Fail
Spend, Spend, Spend
Tax Subsidies For Film Doesn't Pay Off 
5 Facts About The Wealthiest One Percent
To Boost Incomes, Uncle Same Should Lend A Hand
U.S. Manufacturing: The Engine That Could

Uncertainty?

Jared Bernstein (with the help of Lawrence Mishel) dispels the right-wing talking-point of "uncertainty":

"Larry Mishel, president of the Economic Policy Institute, has an extremely useful piece up collecting all the reasons -- with evidence -- why the conservatives' "uncertainty" talking point is shovel-ready nonsense.

First, "uncertainty" in this context refers to the Republicans argument that it's government and central bank actions -- taxes, regulation, fiscal/monetary policy, health care/financial regulation reforms -- that are holding back the economy, not any of that ill-begotten Keynesian stuff, like lack of customers, orders, investors.

So how might you test for something like that?

Well, what about actual investment?

Investment in the current recovery has increased more than in it had at the same time period in the prior two recoveries and roughly the same as it did during the 1980s recovery [see figure]. In other words, this recovery is far more investment-led than the recovery under the pro-deregulation George W. Bush administration.

Private sector jobs, you ask?

...private sector job growth in this recovery looks much like job growth in recent recoveries, suggesting that businesses are not reacting to a new threat of potential regulations and taxes (the difference with this recovery is actually the loss of public sector jobs.

And then, of course, there's what the business folks, as opposed to their DC reps, actually say about what's bugging them:

...the regular National Federation of Independent Business (NFIB) surveys of small businesses found that the most common answer to the question, "what is the single most important problem your business faces?" was "poor sales." And while a number of businesses also cited regulation, the numbers were not substantially higher than under Presidents George W. Bush or Ronald Reagan and were lower than under Presidents Bill Clinton and George H.W. Bush.

None of this is to say "uncertainty" is not a problem. But while conservative politicians are busy jamming their perennial tax cut/deregulate agenda into the current context, the thing that businesses are truly uncertain about is when they're going to start seeing some customers again."

Ending Bush Tax Cuts Would Repair All Budgets

The Bush tax cuts are the largest contributor to our budget deficits. The next most responsible culprit is the Great Recession. Deficits would be cut in half over the next decade by just letting the Bush tax cuts expire. Plus, once the economy is again operating near it's potential, revenues will increase accordingly, wiping out much of the rest of the deficit.

It should be no surprise that the top 1 percent has captured a disproportionate amount of the income gains over time. We've basically told the majority to go without wage increases, health care, or solid retirement accounts, so that a select few could garner more and more of our economic pie. And, it's not just a coincidence that this redistribution has occurred alongside the decline of unionization. As our majority (those not in the uber wealthy 1 percent) has lost a strong collective voice fighting for better wages and benefits, the majority of us have been steadily losing ground.

Although I may disagree with some of the bailouts, low-interest loans, and preferential treatment to banks and insurance companies, the economy under Obama has steadily improved. Our GDP has increased and the private sector has been adding jobs for fifteen consecutive months. And, although government spending was necessary to fill the gap left by the lack of private sector demand, our spending and revenues (though still facing a gap) are converging, slowly, as the economy improves, making their way back into balance.

Weekend Reading

Are We Done Talking About Big Government?

Ayn Rand Grabbed Social Security & Medicare When She Needed Them

Crisis No More

The Death of Green

Did The Poor Cause The Crisis?

Federal Research Develops Medicine

The Five Views That Define American Politics

Raising False Alarms

Repealing Health Care Is A Job Killer

Right Wing's Obsession With Gold

The Consequences of Our Tax Cowardice

The War on Demand

What Does Your State Do Well?

What Is Your State Worst At?

Why Do People In Finance Earn So Much?

Economic Readings

Central Banks Should Do More
Job Loss Looms As Part Of Stimulus Act Expires
Recessions And Recoveries Are Not All The Same
Very Serious Reactions To The Levin Bill
What Is This "Demand For Money" Of Which You Speak?

Selling Our Soul To The Company Store

Michael Moore eviscerates capitalism in his new film, Capitalism: A Love Story. He finds it to be unworkable, evil, and needing replacement with true democracy. Now although there may be persuasive kernels of truth in Moore’s vision, I’m not inclined to go quite as far. I tend to fall more into the Robert Kuttner camp, whose ideas are presented in his book The Squandering of America. In which he describes a mixed economy – basically a regulated capitalist economy with progressive taxation (think our post-WWII economy up until the late 1960s). Although either vision would likely get us closer to the standard-of-living we covet rather than the present dog-eat-dog, increasing inequality paradigm within which we operate.

One-sixth of our economy is represented by sickness – the health care industry. The financial services industry (which as we recently witnessed, adds nothing of value) represents 20 percent of GDP. Over 13 percent of the population lives in poverty. 50 million have no health insurance coverage. In indicator after indicator, and study after study, the U.S. trails in outcomes and performance. The only categories we still lead in are delusion and boastfulness.

Maybe it’s time we actually reregulate – the banks, the polluters, Wall Street, corporations, etc. Let’s increase taxes on the wealthiest. It’s time to get rid of 401(K)s and bring back quality pensions. The solution to health care: Medicare for all. The answer to unemployment, job training, and our crumbling infrastructure: public works programs.

Yes, there is definitely a large cost to such an expansive initiative. But that’s what an investment is, it makes everyone better off in the long-run. Rather than just benefiting a select, wealthy, few right now. The kind of investment that “spreads the wealth,” builds/maintains transportation networks, provides clean air and water, in essence, the tools and techniques that enable a civilized society.

Demand as Economic Engine

If you build it, there is no guarantee anyone is coming. We’ve been sold a false fable whereby low taxes (which primarily favor the uber wealthy) enable our social betters - The Ruling Class - to make wise investments which will either create more market liquidity or produce much sought-after services. Which is true, if you think $12 trillion in bubble wealth is actual liquidity, or if by sought-after services one means convenience, impulse items.

We are a fast food nation, addicted to debt, over burdened with things, and being led astray by those whom could care less about our health, retirement, wages, and quality-of-life. The capitalists have put a giant wheel in each of our cages and told us if we run fast enough we can be like them. In reality, we just need to get off the wheel.

As Abraham Lincoln's quote (the subtitle of this blog) explains, Labor is the engine, not capital. One can produce and produce, unless someone actually wants or needs the service or product its useless. Valuing Labor and utilizing its skills and knowledge to make things desired and necessary is a sustainable and less volatile path. We, as workers in a supposedly representative democracy, should be exporting our step-up model (living wage, health care, pension) rather than allowing corporations to slowly drag everyone down to below subsistence wages.

Privatizing Away Equity

Privatization is not the end-all, be-all its boosters have claimed. In fact, numerous studies have shown privatization of public services usually ends up costing more. Not only does it cost more, the money now spent does not support living wages, quality health care, or a decent pension plan. Now that the service has been privatized, the workers’ are ravaged. This is part of the process of what academics have called the race to the bottom.

The race to the bottom is the continual search for cheaper inputs in the production process. And crushing Labor (wages, health, retirement) is at the top of the list. The primary flaw in the privatization schemes we’ve been peddled over the last few decades (coincidentally alongside Reaganomics) is that the savings never appear. There is merely a realignment of monies from worker to management. The CEOs and executives of the new private ownership make out like kings, while the workforce of this service provider is suddenly making essentially minimum wage.

Moving Forward

Obama stormed into office promising change. Change is exactly what we need. But based on the development over the last eight months, change may not be on the way. Health care is still overly controlled by insurance and pharmaceutical companies. Our economic policy is still enraptured with deregulation, the supply-side, and the status quo. Our environmental degradation and sprawling lifestyle has yet to even enter a meaningful realm of debate.

Here's hoping the threat of the 2010 election inspires Democrats to relocate their spines and do what is right for America and its workers, ignoring the typically destructive policies the conservatives continue to claim will (eventually) work despite the evidence.

For Further Reading:

Nike Is Leading Race to the Bottom

Race to the Bottom

Understanding and Preventing Privatization