Thursday, September 29, 2011

Easterbrook's Stupidity Makes My Eyes Bleed

Gregg Easterbrook writes a blog post today (I've linked to it, but please for the love of God, plese don't go read it, it's unusually moronic, even for an Easterbrook post). Here, I'll summarize Easterbrook's commentary on the recession thusly:
1.) Democrats are demanding government spending to help fix the economy. But that's what Democrats always demand and it hasn't worked.

2.) Federal government spending has risen dramatically since 2008 (due to the stimulus) so Paul Krugman is an idiot for pointing out that government spending has decreased.

3.) The whole problem with the economy is pessimism and the only fix is optimism. Once people become optimistic again, the economy will turn around. 
Let's start the fisking shall we?

Point 1: Do Democrats always demand government spending? Of course not. Only a complete idiot would say this. When the economy is healthy, Democrats do not demand government spending. But when interest rates are at 0.0%, and have been at 0.0% for three years but still haven't pushed the economy out of its recession, that's when Democrats demand government spending. Nevermind that this is textbook macroeconomics.

Point 2: Do I really need to correct this point? Let me just re-write what Easterbrook said once more for you. 
"Federal government spending has gone up since 2008, so Paul Krugman is an idiot for pointing out that total government spending (which includes both federal and state spending) has decreased. He has named that 'austerity'. Hahaha, look at what an idiot that man is. Hahahaha."
Point 3: Do I really need to correct this point either? This 'lack of optimism' crap is basically the same line of thinking that wingnuts use as a reason for being in a recession. But they limit it to businesses and say we're in a recession because businesses lack confidence. This talking point has been fisked and fisked and fisked and fisked until it can't be fisked anymore. But here is the most recent, point-by-point destruction by Larry Mishel.

So that's it. That's Easterbrook's column today. Everything in it (and I mean EVERY SINGLE THING in it) is so wrong that it would be laughable if it weren't for the fact that Easterbrook is somehow a popular and respected "centrist" columnist.

And I'm not going to apologize for my ad-hominem attacks on this nitwit. His blog posts tend to make my eyes bleed, but after reading this most recent one I went through a fifteen minute stretch where I thought I might never recover my eyesight again. Suffice it to say that the world would be better off if Easterbrook never put printed word to page ever again. 

Thursday, September 8, 2011

Libertarian Hackery - Gregg Easterbrook, Vol 2

Easterbrook writes a blog post on Reuters today and proves that he doesn't know how to calculate GDP, but that doesn't stop him from writing about it nonetheless (there are a lot of things wrong with Easterbrook's post, but I'll concentrate on just this one most glaring of mistakes).

Firstly, let me explain the calculation of GDP. It's an easy calculation and shouldn't intimidate anyone. GDP equals C+I+G+NX.

What that means is that GDP equals private consumption (C) plus investment (I), plus government spending (G) plus net exports (which is imports minus exports). This is an accounting equation which means it must balance. I'll repeat that again. The calculation of GDP is an accounting equation that must balance (it's also an equation that anyone who's taken a Macro 101 course would have learned on the first day).

I highlighted government spending above because, as Libertarian Hacks are wont to do, Easterbrook tries to claim that federal government spending (in this case, construction spending) doesn't contribute to GDP. He says federal government construction spending is wasteful and slow, which means (obviously) that it cannot contribute to GDP.

But for Easterbook to be right, that would mean that any money the federal government spends on construction just disappears into thin air. Literally, it just disappears. I'm not sure if space aliens or magical wizards took it, but it's gone. And seriously, this is what Easterbrook is claiming.

What he insinuates (but doesn't prove, by the way) is that federal government construction money goes into the pockets of contractors who work slowly, inefficiently and come in over budget, and might even be outright crooks. But even if that were absolutely true and Easterbrook proved it were true, the money still wouldn't have magically evaporated. It would have been paid to someone. And economics (and the GDP calculation) don't care whether the people who take government money are inefficient workers, crooked cheats or pathologically lazy contractors. They're still people and they're still economic actors. So economics (and the GDP calculation) only care that another dollar has been put into circulation. And government spending, therefore, contributes to GDP, no matter where the money goes or who it goes to.

I can illustrate this most plainly with the end of the Great Depression. WWII pulled the country out of the Great Depression and it did so because it forced the country into a massive round of federal government spending (some of which started with the New Deal, but really the depression was wiped out completely and totally by government spending on the war effort). So if you're a Libertarian Hack, and you want to claim that government spending doesn't contribute to GDP or can't pull us out of the current recession because government spending is "wasteful", you have to willfully ignore the fact that the federal government didn't spend a dollar on anything economically useful in the run up to the war. All those tanks, planes and bombs could have been built and dumped into the ocean for all the economic good they did.

WWII was quite possibly the greatest example of Keynes' "money hole". It was wasteful government spending that pulled the country out of a depression. Should we repeat that now? Probably not. Keynes advocated spending money on economically useful projects (bridges, roads, dams etc.), but in the absence of that, even burying money in jars at the bottom of a hole and getting workers to dig it out would work. And WWII proved him right.

But Easterbrook dismisses history, macroeconomics and accounting in service to being a Libertarian Hack of the First Order. And we're all worse off for having to read whatever he spews. 

Wednesday, September 7, 2011

Reflections of a GOP Operative

Mike Lofgren was a Republican staffer for thirty years. His written a piece that lays out what most of us have known for a while -- that the modern GOP is out to destroy the government, and the country with it. Most of what Lofgren writes was covered in more detail in Thomas Frank's book The Wrecking Crew. I recommend reading both Frank's book and Lofgren's article. I've summarized a large chunk of Lofgren's article here, but I still recommend you click through and read the whole thing.
To millions of Americans who... watched with exasperation the tragicomedy of the debt ceiling extension, it may have come as a shock that the Republican Party is full of lunatics. To be sure, the party, like any political party on earth, has always had its share of crackpots... but the crackpot outliers of two decades ago have become the vital center today.

I could see as early as last November that the Republican Party would use the debt limit vote... to concoct an entirely artificial fiscal crisis. Then, they would use that fiscal crisis to get what they wanted, by literally holding the US and global economies as hostages...It should have been evident to clear-eyed observers that the Republican Party is... an apocalyptic cult... This trend has several implications, none of them pleasant.

Virtually every bill, every nominee for Senate confirmation and every routine procedural motion is now subject to a Republican filibuster. Under the circumstances, it is no wonder that Washington is gridlocked: legislating has now become war...

A couple of years ago, a Republican committee staff director told me candidly (and proudly) what the method was to all this obstruction and disruption. Should Republicans succeed in obstructing the Senate from doing its job, it would further lower Congress's favorability rating... By sabotaging the reputation... of government, the party that is against government would come out the winner.

[It is a] psychologically insightful [tactic] that plays on the weaknesses both of the voting public and the news media. There are tens of millions of low-information voters... [whose] confusion over who did what allows them to form the conclusion that "they are all crooks," and that "government is no good,"... This ill-informed public cynicism... further intensifies the long-term decline in public trust in government.

The media are also complicit in this phenomenon... Inside-the-Beltway wise guy Chris Cillizza...wrote that the institution of Congress was a big loser in the [debt ceiling] fracas, which is, of course, correct, but then he opined: "Lawmakers - bless their hearts - seem entirely unaware of just how bad they looked during this fight and will almost certainly spend the next few weeks (or months) congratulating themselves on their tremendous magnanimity." Note how the... deprecation falls... on those who precipitated the needless crisis and those who despaired of it. He seems oblivious that one side... has deliberately attempted to damage the reputation of Congress to achieve its political objectives.

This constant drizzle of "there the two parties go again!" stories... combined with the hazy confusion of low-information voters, means that the long-term Republican strategy of undermining confidence in our democratic institutions has reaped electoral dividends.

But if this technique falls short... there are other even less savory techniques upon which to fall back.... Republicans... have systematically attempted to make it more difficult to vote: by onerous voter ID requirements (in Wisconsin, Republicans have legislated photo IDs while simultaneously shutting Department of Motor Vehicles (DMV) offices in Democratic constituencies while at the same time lengthening the hours of operation of DMV offices in GOP constituencies); by narrowing registration periods; and by residency requirements that disenfranchises university students.

[T]he deindustrialization and financialization of America since about 1970 has spawned an increasingly downscale white middle class - without job security (or even without jobs), with pensions and health benefits evaporating and with their principal asset deflating in the collapse of the housing bubble. Their fears are not imaginary; their standard of living is shrinking.

While Democrats... dismissed [those] fears... Republicans went to work.... the business wing of the Republican Party consists of the most energetic outsourcers, wage cutters and hirers of sub-minimum wage immigrant labor to be found anywhere on the globe. But the faux-populist wing of the party... played on the fears of the white working class to focus their anger on scapegoats that do no damage to corporations' bottom lines: instead of raising the minimum wage, let's build a wall on the Southern border (then hire a defense contractor to incompetently manage it). Instead of predatory bankers, it's evil Muslims. Or evil gays. Or evil abortionists.

How do they manage to do this? Because Democrats... do not understand language. Their initiatives are posed in impenetrable policy-speak: the Patient Protection and Affordable Care Act. The what? No wonder the pejorative "Obamacare" won out. Contrast that with the Republicans' Patriot Act. You're a patriot, aren't you? Does anyone at the GED level have a clue what a Stimulus Bill is supposed to be? Why didn't the White House call it the Jobs Bill and keep pounding on that theme?

You know that Social Security and Medicare are in jeopardy when even Democrats refer to them as entitlements... Why not call them "earned benefits," which is what they are because we all contribute payroll taxes to fund them? That would never occur to the Democrats. Republicans don't make that mistake; they are relentlessly on message.

After a riot of unbridled greed... by Wall Street and its corporate satellites, where is the popular anger directed? At "Washington spending" - which has increased primarily to provide unemployment compensation, food stamps and Medicaid to those economically damaged...

The Republican Party of 2011 believes in three principal tenets...

1. The GOP cares solely and exclusively about its rich contributors... they... cannot abide so much as a one-tenth of one percent increase on the tax rates of the Walton family or the Koch brothers, much less a repeal of the carried interest rule that permits billionaire hedge fund managers to pay income tax at a lower effective rate than cops or nurses.

John Boehner is fond of saying, "we won't raise anyone's taxes," as if the take-home pay of an Olive Garden waitress were inextricably bound up with whether Warren Buffett pays his capital gains as ordinary income or at a lower rate. Another chestnut is that millionaires and billionaires are "job creators." US corporations have just had their most profitable quarters in history; Apple, for one, is sitting on $76 billion in cash, more than the GDP of most countries. So, where are the jobs?

...Republicans have assiduously spread the myth that Americans are overtaxed. But compared to other OECD countries, the effective rates of US taxation are among the lowest. In particular, they point to the top corporate income rate of 35 percent as being confiscatory... But the effective rate is much lower. Did GE pay 35 percent on 2010 profits of $14 billion? No, it paid zero.

2. They worship at the altar of Mars. Democrats... can never match GOP stalwarts... in their sheer enthusiasm for invading other countries. [John] McCain wanted to mix it up with Russia - a nuclear-armed state - during the conflict with Georgia in 2008... while Lindsey Graham has been persistently agitating for attacks on Iran and intervention in Syria. And these are not fringe elements of the party; they are the leading "defense experts"... Militarism springs from the same psychological deficit that requires an endless series of enemies, both foreign and domestic.

3. Give me that old time religion. Pandering to fundamentalism is a full-time vocation in the GOP. Beginning in the 1970s, religious cranks ceased to be a minor public nuisance... but grew into the major element of the Republican rank and file.... Also around us is a prevailing anti-intellectualism and hostility to science.

[H]ow did the whole toxic stew of GOP beliefs - economic royalism, militarism and culture wars cum fundamentalism - come completely to displace an erstwhile civilized Eisenhower Republicanism? [T]he rise of politicized religious fundamentalism... may have been the key ingredient of the takeover... Politicized religion... rationalizes...all three of the GOP's main tenets.

If you are wealthy, it is a sign of God's favor. If not, too bad! But don't forget to tithe in any case. This rationale may explain why some economically downscale whites defend the prerogatives of billionaires.

The GOP's fascination with war is also connected with the fundamentalist mindset. The Old Testament abounds in tales of slaughter... This... has led to such phenomena as Jerry Falwell once writing that God is Pro-War.

I left [the GOP] because I was appalled at the headlong rush of Republicans... to embrace policies that are deeply damaging to this country's future... Having gutted private-sector pensions and health benefits... the GOP now thinks it is only fair that public-sector workers give up their pensions and benefits, too.... Under the circumstances, it is simply safer to be a current retiree rather than a prospective one.

If you think Paul Ryan and his Ayn Rand-worshipping colleagues aren't after your Social Security and Medicare, I am here to disabuse you of your naiveté. They will move heaven and earth to force through tax cuts that will so starve the government of revenue that they will be "forced" to make "hard choices" - and that doesn't mean repealing those tax cuts, it means cutting the benefits for which you worked.

If Republicans have perfected a new form of politics that is successful electorally at the same time that it unleashes major policy disasters, it means twilight both for the democratic process and America's status as the world's leading power.

Tuesday, September 6, 2011

Listen to the Markets!

Martin Wolf thinks governments should listen to the markets and spend:

Martin Wolf (FT):
"[L]isten to the markets. They are saying: borrow and spend, please... US 10-year Treasuries yielded 1.98% on Monday, their lowest for 60 years... fiscal deficits help the private sector deleverage. Fiscal deficits are helpful... in a balance-sheet contraction.

One objection... is that people will fear higher future taxes and save more... But there is a good answer: use cheap funds now to raise future wealth and improve the fiscal position in the long run.  It is inconceivable that creditworthy governments would be unable to earn a return above [1.98% for ten years]... by investing in physical and human assets.

Another noteworthy objection... is that growth slows sharply once public debt exceeds 90% of GDP. Yet that is a statistical relationship, not an iron law. In 1815, UK public debt was 260% of GDP. What followed? The industrial revolution.

It is becoming ever clearer that the developed world is making Japan's mistake of premature retrenchment during a balance-sheet depression, but on a more dangerous scale... In a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings. Markets are loudly saying exactly this. So listen."

Friday, September 2, 2011

Joseph Stiglitz Examines US War Costs

His column from Project Syndicate:

The Price of 9/11 - Joseph Stiglitz 
"[The] attacks by Al Qaeda were meant to harm the United States, and they did, but in ways that Osama bin Laden probably never imagined.... Bush's response to the attacks compromised America's basic principles, undermined its economy, and weakened its security. The attack on Afghanistan... was understandable, but the subsequent invasion of Iraq was entirely unconnected to Al Qaeda... that war quickly became very expensive... When Linda Bilmes and I calculated America’s war costs three years ago, the conservative tally was $3-5 trillion. Since then, the costs have mounted further.

Even if Bush could be forgiven for taking America... to war on false pretenses, and for misrepresenting the cost... there is no excuse for how he chose to finance it. His was the first war in history paid for entirely on credit. As America went into battle, with deficits already soaring from his 2001 tax cut, Bush decided to plunge ahead with yet another round of tax “relief” for the wealthy.

Increased defense spending, together with the Bush tax cuts, is a key reason why America went from a fiscal surplus of 2% of GDP... to its debt position today. Moreover... disruption in the Middle East led to higher oil prices, forcing Americans to spend money on oil that they otherwise could have spent buying goods produced in the US.

Ironically, the wars have undermined America's (and the world's) security... an unpopular war would have made military recruitment difficult in any circumstances. But Bush... underfunded the troops, refusing even basic expenditures... or adequate health care for returning veterans.... Military overreach has predictably led to nervousness about using military power... but America's real strength, is its "soft power," its moral authority. And this, too, was weakened as the US violated basic human rights... and its longstanding commitment to international law was called into question.

The wars' collateral damage has been massive: by some accounts, more than a million Iraqis have died... [and] America's military spending still nearly equals that of the rest of the world combined.... Some of the increased expenditures went to the costly wars in Iraq and Afghanistan... but much of it was wasted on weapons that don't work against enemies that don't exist.

Al Qaeda, while not conquered, no longer appears to be the threat that loomed so large... but the price paid in getting to this point... has been enormous – and mostly avoidable. The legacy will be with us for a long time. It pays to think before acting."

Thursday, September 1, 2011

The question is not "can" the economy be saved, but "will" it.

Martin Wolf:
Struggling With a Great Contraction - (FT)
"Many ask whether high-income countries are at risk of a "double dip" recession. My answer is: no, because the first one has not ended. The question is, rather, how much deeper and longer this recession... might become. By the second quarter of 2011, none of the six largest economies had surpassed... their 2008 [output levels]... In the US, unemployment is still double its pre-crisis rates. 
In neither the US nor the eurozone, does the politician in charge... appear to be much more than a bystander of unfolding events... Obama wishes to be president of a country that does not exist. In his fantasy, US politicians bury differences in bipartisan harmony. In fact, he faces an opposition that would prefer the country to fail, rather than the president succeed... 
In the long journey to become ever more like Japan, the yields on 10-year US and German bonds are now down to where Japan's had fallen in October 1997... does deflation lie ahead...? That seems... to be a more plausible danger than the hyperinflation those fixed on fiscal deficits find so terrifying. [The] huge fight over US fiscal policy... has caused a run into, not out of, US government bonds. Meanwhile, stock markets have taken a battering... Nouriel Roubini, also known as "Dr Doom", predicts a downturn... yet he is surely right that the buffers have mostly gone: interest rates are low, fiscal deficits are huge and the eurozone is stressed. The risks of a vicious spiral from bad fundamentals to policy mistakes... are large. 
Yet all is not lost. In particular, the US and German governments retain substantial fiscal room for maneuver--and should use it. But, alas, governments that can spend more will not and those who want to spend more now cannot. Again, the central banks have not used up their ammunition. They too should dare to use it... the key, surely, is not to approeach a situation as dangerous as this one within the boundaries of conventional thinking."