The Best Graph Debunking Movement Conservative Economics

Paul Krugman posted this today to show the Reagan Non-Miracle.

As Krugman says, the highest rates of growth and the most sustained growth occurred under the high taxes and relatively highly unionized post-war era, and since Reagan growth has occurred in brief fits and starts.  (BTW, you see the same pattern in GDP, Productivity, or just about any economic index you choose to look at, except those heavily massaged and cherry picked ones from certain think tanks funded by coal billionaires.)  Since 1980, the highest and most sustained growth occurred just after Bill Clinton raised the top tax rate, and the since the GW Bush tax cuts the result was at first stagnation, and then catastrophe.

Reagan and other Movement Conservatives just know this isn't true, they don't need to check the actual data.  Reagan cut tax rates, therefore it must have made the economy do better, because taxing something (income) makes people do less of what leads to it.  I have never bought into the perverse logic of this with regards to taxing income. If I wish to have the same after-tax income to similarly impress my friends, or simply pay the food and rent bills, why wouldn't higher tax rates make me work harder?  Oh well.  And why wouldn't a CEO get up to work to make 40 times the after-tax income of an average worker, if that's the best he can do, just as much as he would get up to work 400 times the after-tax income of an average worker?  If he makes the larger amount, he might well be able to work much less, or retire at 30.

Here is a particularly good analysis posted today of why lower tax rates on the wealthy lead to worse economic outcomes overall.  I've seen many others.

Honest and well informed movement conservatives (if there are any) actually changed the argument from economics to moral justice.  George W said something like "It's their money, therefore they should get to keep it."  That's wrong on many levels.

1) By definition, "their money" is net income, what's left after taxes.

2) Income and wealth are made possible by a productive society, such a society depends on government for eductation, infrastructure, and many other services that make production efficient and even possible.

3) Income and wealth are protected by government.

4) Free markets are made possible by government regulation.

5) Production is actually done by workers.

6) (wonkish) Capitalist managers only provide some direction over the production (not the production itself), and not necessarily socially desireable direction.  Capital owners and rentiers only provide the capital, which is nothing more than direction at the top level (which enterprises to fund and how much to fund them).  If capital markets were perfectly efficient (as technically defined by economists), all this direction has zero net social benefit, that is, all the net benefits would accrue to the owners.  Therefore, to the degree that capital markets are completely efficient, capitalism deserves no social support, but gets it anyway (see 2).

7) Income is derived from socially created and valued production.  One personal alone on a planet does not create income.  A social process of production creates and then distributes the proceeds of the production.  Greater income simply results from greater power over this social process.  Why do we need to respect such thuggery?

Links for end of July 2011

Obama Fiddles while Debt Ceiling Fires Burn hits hard at Obama.  He has lots of options, but chooses to ignore them and instead offer cuts to Social Security.  He wasn't asked by Boehner or any other politician to do that. Quoting Yves Smith (and this is really making me distrust Obama):

And the Obama appears recklessly unwilling to circumvent the debt ceiling, since it would eliminate his leverage for pushing through entitlement cuts.

A commenter notes that:

 The American people aren’t confused or contradictory, they want these things and polling consistently shows they know how they want to pay for it all: Much higher taxes on the top quintile.

I've heard more and more polls to that effect (and I feel that way too).

And then, while our government representatives are using deception and extortion to take away our hard earned and 99% paid for Social Security benefits (a pocket change tax increase would have the program paying full benefits for the next seventy five years, but nobody wants to tell you that), Standard and Poors is using similar extortion tactics, threatening the rating (or something like that) of US bonds, to get out from their responsibility (major) in the financial collapse of 2008. 

Truth about Federal Spending

Paul Krugman debunks the myth that federal spending has vastly increased under Obama.  He's done this about a dozen times before.

http://krugman.blogs.nytimes.com/2011/07/29/the-truth-about-federal-spending/

His argument is this, as a % of GDP, federal spending has indeed risen from 19.6% in 2007 to 23.8% in 2010.  About 1/3 of that change is from reduced GDP.  About half is a rise in safety net programs, because more people are in need or retired or past 65.  The remaining 1/6 is stimulus programs [which were deeply inadequate] which have now ended, and they were mainly money sent to states to temporarily somewhat maintain spending, not increase spending.

I believe Krugman is correct.  I am not aware of significant new federal programs, other then the temporary stimulus.  But it would be nice to see a clearer argument, such as breaking down the actual spending by dollars.  Here are some numbers provided by one commenter:

2002: $2.0 trillion
2003: $2.2 trillion
2004: $2.3 trillion
2005: $2.5 trillion
2006: $2.7 trillion
2007: $2.7 trillion
2008: $3.0 trillion
2009: $3.5 trillion
2010: $3.5 trillion
2011: $3.8 trillion (budgeted)

FY=Fiscal Year, FY 2008 began October 2007

These are nominal dollars (not adjusted for inflation):

FY 2008 (the last full FY under GWB): 3.0 trillion
FY 2009 (started under GWB): 3.5 trillion
FY 2010: 3.5 trillion
FY 2011: 3.8 trillion (budgeted)

The fairest comparison I can do with these data would be FY 2002-2003 for Bush, and 2010-2011 under Obama.  (Sorry there aren't many years).  In both cases, that starts with the first full fiscal year under each President.

2.2/2.0 = 1.1x increase for GWB
3.8/3.5 = 1.08x increase for Obama

The best comparison would start with 2001 and 2009, the previous fiscal years (largely set by previous president and congress).  Unfortunately, I can't do that comparison with these data, since 2001 was not provided.

I can easily pick years which make Bush look like far bigger spending increaser than Obama.

Anyway, even looking at these raw numbers, it appears that Krugman is correct.  There was a comparatively large jump from FY2008 to FY2009 of $0.5 trillion, but (1) that can't really be nailed on Obama, when he took office that FY was budgeted and 1/3 over, and (2) it includes the inadequate stimulus program, which should have been much bigger, as well as increased unemployment, social security, and medicare spending, which Obama had no control over.

Interesting Links

Time is running out for logging out of my computer, here are some more interesting links I have been looking at:

http://crookedtimber.org/2011/05/22/the-fragmenting-coalition-of-the-left-some-musings/#more-20113

http://jacobinmag.com/summer-2011/how-can-the-left-win/

http://www.thefiscaltimes.com/Columns/2011/07/22/Barack-Obama-The-Democrats-Richard-Nixon.aspx#page1 (This one is all the more important because the writer is a old style conservative.)

http://thinkprogress.org/yglesias/2011/07/26/279266/theres-still-more-to-life-than-the-president/

http://www.versobooks.com/authors/2-slavoj-zizek/?utm_source=jacobin&utm_medium=banner&utm_campaign=SZ

MMT'er says liquidity trap unimportant

Here's an MMT proponent claiming that the liquidity trap we are in now is unimportant.

http://bilbo.economicoutlook.net/blog/?p=15168

Unimportant in that we should always just deficit spend to meet all our needs, or something like that.  So a liquidity trap is, by this interpretation of MMT, not required to justify this.

I'm inclined to think, as Krugman does, that MMT goes a bit too far.  But much bigger deficits are called for now because of liquidity trap, unemployment, and so on.

Chance leads to ever greater inequality

This is something I've long argued, now borne out by a simulation.

http://www.eurekalert.org/pub_releases/2011-07/uom-cft072111.php

Debt Ceiling is Unconstitutional

There is no question in my mind that the Debt Ceiling is unconstitutional.

Congress does have the responsibility for determining how money is spent.  But once it is spent, it is out of their hands.

The 14th Ammendment makes that clear beyond doubt.

If Congress wishes to limit spending, they have the power and the responsibility to do that.  And they would have to make the hard choices too.

But holding the executive hostage over rolling over the debt, that is clearly unconstitutional.

Patents and Copyrights don't work either

I could almost hear those gleefully scriping up my words on a previous post showing that the only path to continued growth is through growth of knowledge, and concluding that "intellectual property" is the property of the future.

Actually, intellectual monopolies (correct term) do not lead to growth of knowledge either, in fact they attempt to restrict knowledge.  There is no path to exponential growth there.  Furthermore, intellectual monopolies do not actually encourage the growth of knowledge, they encourage the growth of ignorance (as when drug companies hide more effective natural or alternative treatments, and that's just one example of the growth of ignorance caused by intellectual monopolies).  Finally, patents only apply to a specific kind of knowledge, one that is actually not much useful in generating future growth in quality.  Most knowledge of that kind is "a is better than b." which is inherently not patentable.  "a is better than b" is the kind of knowledge that free blogs are providing in exponential increase.

Letter to Obama

Nothing will be worse for the economy now than cutting spending. You should not be negotiating with the insane and amnesiac Republican Party. Paul Krugman is correct only he doesn't go far enough. Cutting taxes will only make matters worse. It would actually help to raise taxes on the wealthy to encourage spending, such taxes are now too low and that is part of our problem. Failing to make the government the employer of last resort will ultimately lead to the deflationary collapse of capitalism, leaving government as the only employer left standing. Keynesian economics was about saving capitalism. Now it appears that the Republican Party is committed to the destruction of capitalism, if not the entire country. We need green jobs.

The only path to Quality: Post Capitalism

In previous post I described how there seems to be a way out of the end-of-growth (from peak everything), and that is for quality to take the place of quantity.  I only began to contemplate how difficult, or perhaps even impossible, that would be.

The more I think about it, the more impossible it seems.  Not that we can't get quality (though we probably won't, except as I plan to describe), but that quality could provide continued "economic growth," at least as we've known that under capitalism.

I'm familiar with concepts related to quality from my other blog, Audio Investigations.  I've been an audiophile for more than 40 years.  I've heard quality.  I've also heard what was supposed to be quality, but wasn't, and unfortunately, even among dedicated audio enthusiasts, that is quite common, maybe more the rule than the exception.

Now sometimes quality does require more resources.  For example, the quality from a large speaker system, or a large Class A amplifier, may require LOTS more resources.  THAT kind of quality cannot continue to increase, given peak everything.  A few high wizards, as I'd like to imagine myself, may be able to keep the candle of such quality burning.  But it cannot become more and more widespread.

Similarly the quality that comes from selecting the best things out of many.  Even though any one of these highly selected things may not have required more resources, the many things it was selected from did, so most people cannot have such quality, and therefore it cannot continue to grow.

But there is one kind of quality that can continue to grow endlessly.  And that is the quality that comes from precisely one thing: knowledge.

There is a problem with that wrt economic growth.  And that is that knowledge seeks to be free.  So while out "utility" from knowlege can continue to grow exponentially (and it may be doing that now more than ever, thanks to endless free blogs on the internet which are often much better than this one), that utility cannot pay the rent to rentiers, or pay the wages of people to do miserable work that nobody really wants to do.

This newly endless and free knowledge is already part of Marx's Realm of Freedom.  It is not capitalism any longer, it is post capitalism.  But while our heads may be in the clouds, our mouths are back down on the ground.

And it's back down on the ground where capitalism, now more than ever, seems to be grinding itself (and the planet with it) into burning dust.

Economic Growth or No Economic Growth

I like leftism, which I see as "power for the people", in several different strains including Socialism (both pre-Marxist, Marxist, and post-Marxist), Keynesianism (political economy oriented to minimizing unemployment, and maximizing the common good, through collectivist guidance of a market system), and sustainability eco-leftism (we must preserve nature for itself independent of ourselves and as our common resource, and that means ultimately we decrease our footprint on the planet both by exploiting and polluting less).  Neither Marx nor Keynes (as far as I know) addressed the impossibility of maintaining exponential growth in resource utilization forever.

The System Dynamics thread within eco-leftism emphasizes that we must learn to live without economic growth, because endless economic growth is the driver toward unsustainable misuse of the environment.  I pretty much subscribe to that view (although I believe strongly that right now, especially, we need the right kind of economic growth to put people who want jobs back to work, in fact i would state is simply that as long as there is unemployment, or population increase, we must have economic growth to accomodate it).

However, in this very interesting discussion on the future of the left (which starts with a most excellent post by Chris Bertram) an alternative to the no-future-growth idea (which happens to be nicely argued therein by Sandwichman, one of my favorite posters) an alternative is posited:

Economic growth does not necessarily mean more stuff, it can also mean higher quality stuff (or even similar quality stuff that is simply more sustainably produced, though the poster did not mention that).  As long as the total "value" increases, you have economic growth.

I agree with that sentiment entirely.  I have long been attached to the idea of improving quality rather than quantity.  However, I fear it is hard to get to that point in our kind of economy not because of its logical or macroeconomic impossibility, but because it doesn't work as well for the kinds of capitalists we have now. Basically, it's not as profitable.  For starters, quality is always a hard sell, lower price (often based on greater exploitation of some kind) is an easier sell.

I like this website

Somehow reading one of my usual dismal econoblogs I stumbled upon the link to LeftMathProf, whose own blog is an encyclopedic new age, but deeply political, vision.  I like what he says; I've been thinking basically the same things for a long time, but he brings it all together with links to define everything.  A masterpiece.

http://leftymathprof.wordpress.com/

It's quite long and I've only read bits and pieces.  Although beginning in a very new agey way, toward the end he says this (which happens to describe what I do somewhat):

Join the struggle, in whatever way feels right for you. Put peace symbols on your clothing and your money. Join a small, local political group if you can find one or start one — you’ll feel greatly empowered once you become part of a community, and part of the conversation steering that community. (Here in Nashville, you can choose among many political groups, though I see them all as facets of one larger cause.) Or host screenings of films. If you have the tools and skills, make some films yourself; even short clips on Youtube are helpful in spreading ideas. Or just talk with people, online or off — the solutions to our problems will be developed in the global conversation, if anywhere.

Great Post from Doug Henwood

As a former subscriber to his newsletter, I'm glad to see Doug Henwood is back to serious blogging with this great post.  He takes a swipe at the technocratic left (economist Brad DeLong was offended) and calls for real spending jobs programs, not just more monetary easing (or actaully, he seems to expressly oppose those sorts of things).

http://lbo-news.com/2011/07/16/the-limits-of-easy-money/

Actually, though,  Henwood swipes too much his spade.  The center of his criticism, Yglesias, also calls for infrastructure jobs programs, as do DeLong and others on the technocratic left.  And sadly Henwood often makes mistakes like that, it seems to be part of his basic schtick, as with Green Partyiers who refuse to see any differences at all between Republicans and Democrats.  But if you ignore his personal attacks on those infidels who are only slightly (if at all) less left than he is, much of what Henwood says is good.

In fact, it may be Henwood who is the conservative populist at heart, and more conservative than the others, by opposing monetary easing.

Social Democrat on Marxism

Economics professor and social democrat John Quiggin has written 3 thought provoking posts on Marxism.  He is not a Marxist, but finds excellence in some Marxist ideas, though violent revolution not being one of them, at least in forseeable future.

Here are the links to the posts and comments within Crooked Timber, one of my favorite blog sites, featuring a number of leftish Australian professors.

http://crookedtimber.org/2011/06/19/marxism-without-revolution-class/

http://crookedtimber.org/2011/06/25/marxism-without-revolution-crisis/

http://crookedtimber.org/2011/07/01/marxism-without-revolution-capital/

He opens up another thread for discussion of revolution here:

http://crookedtimber.org/2011/06/19/you-say-you-want-a-revolution/#more-20641

Why we are doomed

Most of the things that contributed to our modern way of life began about the same time.  I suspect they are highly interdependent.  I'm talking about:

1) Exponentially increasing use of fossil fuels, starting with coal
2) Capitalism (essentially, privatization of the formerly aristocratically controlled commonwealth)
3) Constitutional representative democracy
4) Modern science and associated technologies, such as engineering and medicine

these led, before long, to exponential increases in human population, and utilization of land and other resources

Now what happens as the unsustainable exponentially increasing use of fossil fuels (and every other material resource) declines.  Can capitalism and representative democracy be sustained?

It looks to me that in a low-to-negative growth scenario, which is the future, the answer for various reasons is probably not.

What is the point of "investment" when there can be no growth?  The existing order, which at its peak included robust social democracy, relied upon growth to satisfy both the capitalists and the non-capitalists.

Currently, as peak everything is topping out, the first thing to go is general prosperity for all.  The rich, who have the power to do so, are holding on to what they have taken, and are still trying to grab more, in so doing leaving the non-rich worse and worse off.  Since wages are sticky in the downward direction, the result is unemployment gets worse without end.  This is the destruction of the middle class.

But in the long run, this is unsustainable too.  The richness of the capitalist rich depended on capitalism, growth, consumer markets, and so on.  As the poor are squeezed, all those things will fail also.

The resulting uber-rentier state, in which a very few top fat cats continue to rise, leaving little else, is ultimately politically unsustainble.  Some strong leader(s) will arise to crush the last remaining uber rentiers who will claim vast multiples of the annual product as their personal wealth.  Those strong leader(s) and their lieutenants will ultimately constitute a return to aristocracy, the social order humans have known pretty much from the beginning of large scale civilization.  We know that "works" in the sense that it can exist in the face of a no growth political economy.

Many other visions exist, but it is not clear if any truly address the human faculties.  Some envision, for example, localistic anarcho-syndicalism.  That might be possible if the level of human intellectual capabilities and memory were high enough.  Most who envision it believe in a sort of peaceful coexistance.  Probably most who have envisioned it simply block from their minds the influence of militaristic power.  Existing power has collaborated with capitalism, but when capitalism collapses there will be no alternative power left.  Military power centralizes society.  Localism only exists now because it is harmless to the pervasive capitalist matrix.  But when the falling apart of capitalism happens, the centralizing effect of remaining military power will prevail.

Watching the current spectacle of preoccupation with rentier's holdings (deficits!) at the expense of the entire economy (unemployment!!!) does not give one confidence in human intellectual capabilities.  Of course this is coordinated by a fully corrupted media, but something like that is likely always to exist and be subservient to the centralized power.

Another possibility might be (and this might well happen eventually, say in 500-1000 years) is that the human population is so reduced that centralization is impossible, leaving some kind of localism, which could be anarcho-syndicalism, but is probably more likely to be feudalistic tribalism.  That is unlikely so long as there are more than 100 million human beings on earth.

One way that this dismal thesis could be wrong is through the freedom, growth, and lack of destruction of collective memory, knowledge, etc.  That is the major countervailing force of our time against the dominant powers.  Certainly the recent USA (United States of Amnesia) experience does not give one much confidence in this, but that case could either be special or unnecessary.

The rise of plutocracy in the 1970's came in many ways, especially including the rise of "government is the problem" Republicanism.  Social democracy was the ultimate glue that made capitalist democracy work. Social democracy temporarily made it possible for ordinary people to satisfy their wishes through the collective power of government.  But when it had a hiccup, the more dominant force of plutocracy prevailed, and the pre-social democratic order of government-of-by-and-for-the-rich prevailed.  Representative democracy has now been degraded back to being merely a tool of wealth.

Such a cabal of crook representatives cannot cope with the huge problems that are forthcoming in any positive way.  Plutocracy is about the short-term-gain.  When overfishing depletes the fish, the money simply moves on to something else.  But in the future of now, we are running out of something-elses.

The main reason why social democracy could be crushed was lack of memory of the prior order.  That does not bode well for the future of representative democracy, for it is that kind of long term memory which is essential to keeping plutocracy at bay amidst a plutocratically rigged media-PR brainwashing system.  Now I fear the rise of plutocracy over democracy is irreversible.  That is likely to lead to increasing failures of government leadership toward the common good, and ultimately the rise of totalitarian dictatorship.

It is said that James Madison feared democracy most of all, which is why he designed a very limited representative democratic system, intending that the best men would prevail.  Problem was, he did not fear plutocracy sufficiently.  A limited representative democratic system is almost certain to be subservient to plutocracy.  And that works only so long as economic growth is possible to satisfy all.

Another factor which forced plutocracy to work toward the common good in James Madison's day was limits on the ability to change investment quickly through Wall Street, the casino of corporations, forcing more long term thinking.