Tag Archives: Paul Krugman

Blogging Made Very, Very Easy (Political Economy Edition)

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I could just quote Paul Krugman. With appropriate attribution, of course:

But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.

Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?

… This isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.

Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class….

In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.

One of the comments at the Times website suggested we should stop talking about equality and talk about fairness instead. When we talk about equality, the right-wing response is “but people aren’t all the same  — what you want to do is punish success”. That’s not true but it’s a clever response. The natural response to talking about fairness is “life isn’t fair”. No, but we could and should make it more fair than it is. Not just for ethical reasons, but, as Krugman points out, for pragmatic reasons as well.

Grasping at Flaws

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Republicans are doing whatever they can to attack the Affordable Care Act by highlighting people who are supposedly victims of the new law. When reporters look into the details of these sad cases, it turns out that the supposed victims are either lying or ignorant. In one such case, the middle-aged woman described in one of the Republican responses to the State of the Union didn’t know she was eligible for cheaper insurance because she refused to visit one of those evil “Obamacare” websites. One right-wing character responded to this revelation by arguing that it’s mean and unfair to question the story of somebody with cancer.

As Paul Krugman explains (we should all get together and buy this guy a beer or a really nice meal), the ACA does help some people and hurt others. The law tends to help those who are sicker, older and poorer.  It tends to hurt people who are healthier, younger and richer (many of whom will one day be sicker, older and poorer). That’s why the right-wing is having such trouble finding real sympathetic subjects to use in their propaganda. Krugman suggests that when you hear a terribly sad anecdote or see a disturbing advertisement about a sick person who can’t afford treatment anymore or a poor family who can’t afford health insurance because of the ACA, keep in mind that it’s almost certainly right-wing nonsense.

The Usual Fear Mongering Baloney

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Fox News headline: “ObamaCare could lead to loss of nearly 2.3 million US jobs, report says”.

Speaker of the House John Boehner tweets: “Pres. Obama’s [health care law] expected to destroy 2.3 million jobs”.

What the Congressional Budget Office really said:

CBO estimates that the ACA will reduce the total number of hours worked, on net, by about 1.5 percent to 2.0 percent during the period from 2017 to 2024, almost entirely because workers will choose to supply less labor — given the new taxes and other incentives they will face and the financial benefits some will receive….the largest declines in labor supply will probably occur among lower-wage workers….

The estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply, rather than from a net drop in business’ demand for labor, so it will appear almost entirely as a reduction in labor force participation and in hours worked relative to what have occurred otherwise rather than as an increase in unemployment (that is, more workers seeking, but not finding jobs) or underemployment (such as part-time workers who would prefer to work more hours per week)….

In other words, some people, especially low-wage workers, will decide to work less because of the ACA, mostly because of the benefits they’ll receive.

I don’t know why those who wrote the report believe this will result in fewer hours being worked. In the case of anyone but the self-employed, employers will presumably still want someone to work those hours. As the supply of labor declines, the demand for labor should increase, resulting in rising wages for some workers and job openings for others (and, of course, low wages and unemployment are still two of our major problems). 

You might even argue (incorrectly) that everybody should work as much as possible, because that’s the capitalist way. That’s very different, however, from saying the ACA is going to destroy millions of jobs. 

As usual, Paul Krugman offers thoughtful commentary on the economics and the social impact here and here.

It’s the Austerity and Lack of Trust

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The chart below shows government spending after our last four recessions (that’s total federal, state and local spending, corrected for inflation, with the numbers at the bottom representing yearly quarters after the recessions).

After three recessions, government spending went up. After the most recent recession, it’s gone down:

blog_austerity_state_local_federal_spending_0

It makes sense for families to cut spending if they run into economic difficulty, but it makes no sense for the government to do the same. In situations like we’re in now, the government has to counteract the natural tendency of families and businesses to cut back when economic times are hard. Common sense and economic theory tell us the government should spend more after a recession in order to help the economy recover, even if that means increasing government debt until things get better. Yet we’ve been following the opposite policy the past few years. The result has been a relatively weak recovery that has left too many Americans unemployed and underemployed.

Why have we acted so stupidly? The obvious answer is that there were Republicans in the White House after those earlier recessions. Now there’s a Democrat. That’s why Republicans in Congress supported government spending after the earlier recessions, but have vigorously opposed it this time. (After all, Republicans love certain kinds of government spending, despite what they claim.) Hypocrisy, foolishness, the desire to recapture the White House, combined with the failure of Democrats to make the case for more stimulus. It’s all those things and more. 

The chart is from “How Austerity Wrecked the American Economy” at Mother Jones. The author updates the story here.

Meanwhile, Paul Krugman sees a connection between the declining acceptance of evolution among Republicans and their rejection of stimulus spending: in order to be a good Republican these days, you have to deny climate change, evolution and modern economics.

Another economist who has repeatedly pointed out the stupidity of what we’ve been doing is Joseph Stiglitz. In a New York Times article called “In No One We Trust”, he explains how we’re losing trust in each other and our institutions as inequality increases. The article is especially interesting when he shows how a lack of trust and an excess of bad behavior got us into the economic mess we’re still trying to get out of:

Trust is becoming yet another casualty of our country’s staggering inequality: As the gap between Americans widens, the bonds that hold society together weaken. So, too, as more and more people lose faith in a system that seems inexorably stacked against them, and the 1 percent ascend to ever more distant heights, this vital element of our institutions and our way of life is eroding….

The banking industry is only one example of what amounts to a broad agenda, promoted by some politicians and theoreticians on the right, to undermine the role of trust in our economy. This movement promotes policies based on the view that trust should never be relied on as motivation, for any kind of behavior, in any context. Incentives, in this scheme, are all that matter.

End Poverty and Bring Back the 90% Income Tax!

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If you’re feeling too optimistic about the future and want a bracing jolt of economic reality, you might want to read Paul Krugman’s latest column. It’s called “A Permanent Slump?“

Professor Krugman considers the possibility that the normal state of our economy is now mild depression (what psychiatrists call “chronic dysthymia” in another context). He describes it as “a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between”.

Krugman points out that the economy hasn’t done especially well for most people in recent decades, even when we were in the midst of a housing bubble and consumers were taking on increasing amounts of debt. By now, the economy should have recovered nicely from the financial crisis of 2007-2009, but it hasn’t. As he puts it:

The evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.

I went out to rake leaves after reading this. It was a beautiful fall day, very conducive to deep thoughts about politics and the economy. After ruling out the violent overthrow of the government, I concluded that there are a couple of things we need to do.

1) Establish a guaranteed minimum income, like Switzerland is considering. If too many people can’t find a decent job in this country, let’s at least make sure the worst off have a reasonable amount of money to live on. Maybe we don’t need as many people working as we used to, back before the “Information Revolution” and the “Global Economy”. Danny Vinik of the Business Insider makes a strong case here. He argues, for example, that most people would still want to work. I think one important result would be that the economy as a whole would benefit if people with low incomes had more money to spread around.

2) Bring back the progressive income tax, like we used to have when this country worked well for the majority of people. As recently as 1963, the highest tax rate was 90%. Of course, that doesn’t mean that someone making a million dollars a year (who made that kind of money back then?) had to pay $900,000 in federal taxes. The 90% rate applied to income above a certain threshold. As recently as 1980, the highest rate was 70%. Now, after the “Reagan Revolution”, it’s 35%. We’re still waiting for the wealth to trickle down. It might be the case that lots of billionaires and multi-millionaires would move to the Bahamas. (Good riddance.) But it would allow us to move away from being a “Winner Take All Society“.