Tuesday, September 28, 2010

Demand-side Economic Policies Work. Will Anyone Notice?

Some recent comments from Republicans on President Obama's efforts to stimulate the economy:

"We do not have the luxury of waiting months for the president to pick scapegoats for his failing stimulus policies." - U.S. House minority leader John Boehner

"The president will use the Labor Day holiday as the launching pad for yet another government stimulus effort, another play called from the same failed Keynesian playbook." - Congressman Eric Cantor

"The point is that the Obama Keynesian-on-steroids has not worked,"
- Senator John McCain

"The Keynesian experiment, which was more spending, has failed to produce jobs." - Congressman Paul Ryan

Ok, so here's a couple of questions:
1. These Republicans claim that the American Recovery and Reinvestment Act of 2009, otherwise known as the Stimulus, failed to create jobs and to promote investment and consumer spending. Are they correct?
2. Who is Keynes, and what has he got to do with it?

I'm only going to tackle the first question in this post. Here are some comments on the stimulus from various smart persons.

From the New York Times: "officials from both the Bush and Obama administrations have trumpeted how the government’s sweeping interventions to prop up the economy since 2008 helped avert a second Depression."

"In a new paper," economists Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, "argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year. In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation."

Hey, not bad! Here's some more, from Reuters: "The massive U.S. stimulus package put millions of people to work and boosted national output by hundreds of billions of dollars in the second quarter (of 2010), the nonpartisan Congressional Budget Office said on Tuesday. CBO's latest estimate indicates that the stimulus effort, which remains a political hot potato ahead of the November congressional elections, may have prevented the sluggish U.S. economy from contracting between April and June. CBO said President Barack Obama's stimulus boosted real GDP in the quarter by between 1.7 percent and 4.5 percent, adding at least $200 billion in economic activity." "It raised employment by between 1.4 million and 3.3 million jobs during the second quarter of this year, CBO estimated."

Sounds like the stimulus accomplished quite a lot. Anything else? From USA Today: "President Obama's stimulus package saved jobs — but the government still needs to do more to breathe life into the economy, according to USA TODAY's quarterly survey of 50 economists. Unemployment would have hit 10.8% — higher than December's 10% rate — without Obama's $787 billion stimulus program, according to the economists' median estimate. The difference would translate into another 1.2 million lost jobs."
Furthermore, the stimulus did a lot of good things besides helping the economy, as even conservative Time Magazine is willing to admit: "For starters, the Recovery Act is the most ambitious energy legislation in history, converting the Energy Department into the world's largest venture-capital fund. It's pouring $90 billion into clean energy, including unprecedented investments in a smart grid; energy efficiency; electric cars; renewable power from the sun, wind and earth; cleaner coal; advanced biofuels; and factories to manufacture green stuff in the U.S."

"The stimulus is also stocked with nonenergy game changers, like a tenfold increase in funding to expand access to broadband and an effort to sequence more than 2,300 complete human genomes — when only 34 were sequenced with all previous aid. There's $8 billion for a high-speed passenger rail network, the boldest federal transportation initiative since the interstate highways. There's $4.35 billion in Race to the Top grants to promote accountability in public schools, perhaps the most significant federal education initiative ever — it's already prompted 35 states and the District of Columbia to adopt reforms to qualify for the cash."

Fantastic! So is there any down side? Only that President Obama is really, really bad at doing things that are popular as well as useful. He cut taxes for 95% of Americans. Not popular. He passed dramatic reforms in health care. Not popular. The same goes for the stimulus. As Alan Blinder notes, "It seems that more Americans believe that "Barack Obama's economic policies," (according to a new poll) "have made economic conditions worse (29%) than better (23%), and another 35% of Americans think his policies have "not had an effect so far.""

So it was a bittersweet moment yesterday when President Obama signed the Small Business Jobs Act. A Republican wave at the ballot box this year will put an end to demand-side economics in Congress. Welcome back, supply-side.

In my next post, I'll be talking some more about demand-side versus supply-side, and who this mysterious Keynes person is.

Sunday, September 19, 2010

Some Myths About the Tea Party that Aren't Myths

The most significant phenomenon in politics this year has been the ability of conservative "Tea Party" activists to secure nominations for largely unknown right-wing candidates. These candidates have repeatedly defeated incumbent Republicans and candidates supported for office by the party's  establishment institutions such as the National Republican Senate Committee.

In six Senate races this year, Alaska, Colorado, Delaware, Florida, Nevada and Utah, the Republican party has attempted to rally support around an experienced and relatively moderate incumbent or new candidate only to see that candidate fall in the party primary to a far more strident and less-experienced challenger.

The pundit world is abuzz with all kinds of commentary regarding what these developments mean. For my two cents, I want to discuss an article about the Tea Party that appeared in the Washington Post last month that talks about what the Tea Party is and what it is not.

I'm only going to address two points in Dave Weigel's article, Five myths about the 'tea party.' These are the "myths" that the Tea Party is racist, and that it hurts the Republican party. Here we go:

Weigel myth #2: The tea party is racist.
"Yes, there are racists in the tea party, and they make themselves known. But tea party activists usually root them out."

Here Weigel suggests that although a couple of Tea Party leaders have used racist rhetoric, the party at large is not racist because those leaders were shown the door after making their racist thoughts public. Well I'm sorry, but the fact that the party excommunicates leaders who embarrass them in public doesn't necessarily mean that the party faithful actual disagree with the ideas of those leaders. After all, the people who joined the Springboro, Ohio tea party did so even though the party's organizer is the kind of person who uses Twitter to send messages like, "Illegals everywhere today! So many spics makes me feel like a speck. Grrr. Wheres my gun!?"

Digging a little deeper, we find a survey by the University of Washington Institute for the Study of Ethnicity, Race & Sexuality, which suggests, "that people who are Tea Party supporters have a higher probability of being racially resentful than those who are not Tea Party supporters," according to Christopher Parker, who directed the study. "The Tea Party is not just about politics and size of government. The data suggests it may also be about race."

Weigel myth #4: The tea party hurts the GOP.
"Rep. Bob Inglis (R-S.C.), who lost his primary race to a tea party-backed candidate, has made the media rounds to accuse the movement and some of its heroes, such as Glenn Beck, of poisoning politics."

"But in every political cycle there are "bad" candidates who say the wrong things -- and with the right electorate, they still win. The tea party movement is giving Republicans a dream of an electorate, one in which surveys find more GOP-inclined voters enthusiastic."

Now here's where I really take issue with Mr. Weigel. First of all, his line of reasoning is spurious. His conclusion is that if conservatives seem very energized this year, it must be because of that Tea Party you've been hearing so much about. I see no reason to believe that conservatives are any more energized this year than they would be in any year in which the country is holding a mid-term election while we have a Democrat in the White House and while we're having severe economic problems.

Second of all, (and the heart of the matter) is that the Tea Party IS hurting the Republican party is a number of ways, all of which I will be glad to describe in loving detail.

1. Tea Party nominees support ideas that are not popular with the public at large.
Most or all of the candidates that the tea party has helped to nominate support the following ideas:
* Extend all of the Bush tax cuts for the very wealthy.
* Repeal the new Health Care Law.
* Replace Medicare with vouchers.
* Amend the Constitution to deny citizenship to children of illegal immigrants.
* Privatize social security.

Ok, here's the problem: the American public does not, in fact, support ANY of this agenda. President Bush made social security privatization the cornerstone of his second term in office, and the idea went over like a lead balloon. Sure, a lot of Tea Party candidates are going to win this year. But if they give the Republican caucuses in Congress a core of elected officials whose ideas are deeply unpopular, the only reasonable conclusion is that Tea Party candidates are doing the Republican party serious, long-term damage.

2. The Tea Party has instigated Civil War among Republicans.
In one corner of the metaphorical boxing ring, we have the National Republican Senate Committee, who have taken great pains to promote experienced, popular, and relatively moderate candidates for this year's competitive Senate races. In the opposite corner, we have the Tea Party, Sarah Palin and Senator Jim DeMint, who have been extremely successful in undoing all of the work of the NRSC by securing nominations for office for right-wing nut jobs whose ideas are unpopular with the electorate at large.

All of this has resulted in a situation where, (1.) the Republican party is wasting millions of dollars in resources fighting primary battles, so those resources aren't available to fight Democrats and (2.) we have a lot of bitter recriminations among conservatives themselves. Karl Rove and Sean Hannity attacking each other? Wow.

3. The Tea Party will cause the Republicans to lose elections, even in 2010
The most prominent supporter of Tea Party candidates among Republican elected officials is Senator Jim DeMint of South Carolina, who said, "I would rather have 30 Republicans in the Senate who really believe in principles of limited government free markets, free people, than to have 60 that don't have a set of beliefs."

Apparently, DeMint wasn't kidding. He's been a supporter of political upstart Christine O'Donnell, the right-wing candidate who won a surprise victory over popular moderate Congressman Mike Castle for the GOP's Senate nomination in the open-seat race in Delaware. Now, in all of the other major Tea-Party-versus-Republican-establishment primary battles this year, the resulting victories by Tea Party candidate have not necessarily harmed the party's prospects for victory in November.

But in Delaware, it's a different story. Mike Castle was virtually certain to win Joe Biden's old Senate seat for the Republicans, while O'Donnell is almost certainly a loser versus Democrat Chris Coons in November. It's even possible that failing to win this race with cost Republicans control of the Senate.

The message from Tea Party Republicans is clear. They aren't interested in building a majority coalition of conservatives and moderates. They also aren't interested in tempering any of their more strident views in order to broaden their appeal. In the long run, this is not a strategy that leads not to power, but to oblivion.

Sunday, September 12, 2010

American Corporations Profit, Lose Souls

81% of Americans rate the US economy as "poor." With unemployment at above 9%, that's not surprising.

So who's to blame for the fact that people can't find jobs? Consider the following statistics:

September, 2006: Corporate profits: $1.6 trillion. Unemployment: 4.4%
July, 2010: Corporate profits: $1.6 trillion. Unemployment: 9.6%

If big business was in trouble, it would be understandable that they would not be hiring. However, the truth is that American corporations are refusing to add new jobs to their payrolls even as they enjoy very robust profits.

Republicans are claiming that the reason that businesses are not hiring is because of the "uncertainty" created by "new government regulations." But I don't think those claims stand up upon examination. Consider this Washington Post article by Neil Irwin,

"What role is government policy playing in fostering corporate caution?

The executive class in the Chicago region is none too pleased with many of the policies of President Obama, their former hometown senator. They criticize his willingness to let Bush-era tax cuts expire at year's end for households that make over $250,000 and allow the capital gains tax rate to increase. They dislike aspects of his landmark health-care law, and some fear that the financial overhaul legislation enacted this summer will make it harder for them to get loans.

"Congress has been very tough on businesses," said Jason Speer, chief executive of Quality Float Works of Schaumburg, Ill., which makes the industrial equivalent of toilet ball floats, items that sell for up to $1,200 and are used to measure water levels in farm and industrial equipment. The company also makes the metal balls that go on the top of flagpoles.

Fundamentally, executives objected to Obama's policies on the grounds they would make the United States a less competitive place to operate in the long run.

But when Speer and other executives were pressed on the role that tax and regulatory policies play in hiring, they drew only vague connections. Speer said his decision whether to hire is driven primarily by demand for his products. Orders are coming in strong enough that he is running about 20 hours a week of overtime. So he is weighing whether to hire two or three additional manufacturing workers.

None of the executives interviewed linked a specific new government initiative with a specific decision to refrain from hiring."

So to summarize:
During the first year of Obama's Presidency:
1. Quarterly growth in GDP rose from a rate of minus 6.8% to plus 5.4%,
2. Corporate profits increased by more than 50%.
3. The economy went from hemorrhaging nearly one million private sector jobs per month to positive growth in the number of private sector jobs.
4. The Dow Jones Industrial Average rose about 18%.
5. The federal government bailed out the automobile and banking industries, saving them from widespread liquidation.

Does that sound to you like an environment that is, "very tough on businesses"? Let's face it, businesses are not hiring because they don't have to. And it's not difficult to discern the chain of thought among corporate executives: If businesses refuse to hire, then unemployment stays high, which causes angry voters to put the Republicans back in power, who then protect tax breaks and an unregulated business environment.

Of course, as the sub-prime lending crisis demonstrated, businesses don't actually prosper in an environment of deregulation, but that's a story for another day.