Of Course We Need Economic Growth

Anson Burlingame, local conservative blogger and contributor to the Joplin Globe, commented on a piece I wrote (“Liberals Love Wealth“). His response included the following:

I have just completed a semester of study of macro economics at MSSU…

Not one word, not one textbook assignment, essentially not “anything” was taught about income distribution in the entire course. No “Keynesian vs Classical” theories, no debate of differing views over WHAT is the real income distribution, how do we measure it, what is “good” or “bad” income distribution or most important what to do about it.

That makes me wonder how the “science” of economics addresses that hot political potato of today…I only hear politicians and pundits opining on the matter. To me that is akin to political arguments over nuclear power without understanding to some degree at least the “science” behind such a source of electrical power…

As all of you discuss income distribution I offer this challenge to further consider. WHICH is more important today, growth in REAL production of goods and services that will SELL around the world, a competitive world OR redistribution of WEALTH, not just income, amongst various segments of America? CAN you achieve BOTH at the same time? I frankly don’t know the answer to that question nor have I “studied” such an issue in academia yet…

Anson

My reply:

Anson,

Your study of macroeconomics is admirable, and, like you, I would want (demand?) a discussion about what politicians and pundits argue about all the time: income (re)distribution, especially since, at bottom, what constitutes an economy is the way we collectively use our resources to produce and distribute goods and services.  I can’t think of anyone better suited to help us understand the issue you raised than folks trained to analyze the economy.

As far as how economists in the field address your question, there are think tanks, etc., on all sides that publish papers; there are economists like Robert Reich or Joseph Stiglitz or Paul Krugman (on my side) who write currently about your topic and appear on TV or radio, as well as countless others who have published works in the past. So, it turns out that economists do have a lot to say about the subject.

Among ordinary folks, talking about income and wealth  distribution is not really akin to talking about nuclear power for the reason that people don’t need a degree in economics to know what fairness-justice is (perhaps they do, though, need a course on John Rawls), and it is our collective sense of fairness (expressed through our political choices) that determines whether, say, we will spend X on redistributive social programs or nothing at all.

You asked which was more important, economic growth or “redistribution of wealth, not just income.” You also asked, “Can we achieve both at the same time?

I went back on your blog and looked at an exchange we had more than three years ago about “How Do We Pay For “STUFF” (your title). Your first sentence was:

I am not sure how the federal government can pay for all the “stuff” demanded by voters, are you?

My rather lengthy response (I was willing, in those days, to invest the time in debating you) included this sentence:

Without economic growth, there is no way to solve any of the fiscal problems.

I hope you read and reread that sentence I wrote three years ago, Anson. Often it is that folks on your side ignorantly claim that liberals like me don’t give a damn about economic growth, only about spending more rich people’s money. Hooey.

Of course growth is essential to doing the stuff we liberals want to do. We are keenly aware that too much taxation and regulation stifles growth, just as conservatives should be keenly aware (few are, though) that too little taxation and too little regulation stifles civilization.

But I said all that to say this: Of course we can have both growth and a more equitable distribution of wealth (and income). In fact, both are necessary for our national well-being. The economic story of America in the twentieth century is the story of how we grew into an economic badass and yet began to figure out how to divvy things up a little more fairly (at least until conservative thinking began to take root in government and media in the 1980s).

Now, just how we get more economic equality without negatively affecting economic growth is what makes public policy choices so difficult. However, we first have to agree—we liberals and you conservatives—that a more equitable distribution of income and wealth is a goal we should pursue. Very few on your side think so (beyond helping those who can’t help themselves), and that is the source of a lot of our disagreements.

I will agree with any conservative who believes that economic growth is the best way to fight poverty. The problem is that some among us inevitably won’t get much from that formula. Indeed, some will get left out altogether, for whatever reason.

What do we do about them? Their children? And what do we do about older folks who are no longer competitively productive?

I’ll give you a hint: we don’t leave them to fend for themselves or agonize in the streets. We should help them, provide for their children (bread, butter, and books), and give them some sense of security in their old age. In a civilized society, that is what we should do.

But those things are expensive. And to pay for them we need to get the money from those who have it. Call it redistribution, call it whatever you want. But in a myriad of ways we do it each and every day, and we should strive to do it better.

And economists can and should help us understand how to do so, and if your professor failed to even bring up the subject then you missed something important.

Duane

A Visual Case For Democratic Economic Philosophy

I saw the following graph this morning on MSNBC:

This graph was based on a study done by Larry Bartels of Princeton. Bartels found that under Democratic administrations, growth rates were higher, unemployment lower, and incomes distributed more evenly. Think about that.

Timothy Noah, who has done great work on presenting the depressing news about the increasing income inequality in America, presented the graph based on Bartels’ findings this way:

The only difference is the end year. I don’t know why the MSNBC graph used 2008, but the point remains the same: Income growth for all income groups grew significantly more under Democratic administrations, especially groups of  lower and middle income folks, since 1948.

Look at those graphs. Study what they mean.* And then think about what they tell us every time you hear Republicans claim—as they do all the time—that they are better stewards of the economy and their economic philosophy and the resulting policies are far superior, in terms of economic growth, than those of the Democrats.

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*  To be scrupulously fair, a conservative Republican political scientist from the University at Buffalo, SUNY, James E. Campbell, challenged these findings by Bartels and others in a paper that concluded this way:

The parties are different in many important ways and may well have important long-term economic differences between them, but the economic outcomes that the presidential parties have presided over during the tenure of their  administrations have not been significantly different once the economic conditions that they inherited are considered. The claim that Democratic presidents and policies have produced significantly greater economic growth, lower unemployment, and more equal distributions of income than Republican presidents and policies is not supported by the evidence.

Now, even if we grant this self-admitted Republican his argument—and I don’t after reading his paper—he is still not claiming that Republicans are better managers of the economy nor claiming that economic growth is better under their administrations. He is merely saying that there isn’t much of a difference between the two parties. So, even if we accept his conclusion, Republicans still have no business claiming the high ground on economic stewardship.

Stimulus: “It Did What It Was Supposed To Do”

Mark Zandi, chief economist of Moody’s Analytics, was asked about the latest jobs report on The Daily Rundown this morning:

LUKE RUSSERT: The stimulus worked a little bit, you think, here?

ZANDI: I think it was a success, yes. It did end the recession; it jump-started our recovery. It’s not a source of long-term economic growth—it was never intended to be—but it did what it was supposed to do.

Voters should remember that the positive news in February means 24 consecutive months of private-sector job growth, and they should remember this too:

 

“Invested In A Bad Economy”

Although I don’t agree with everything Steven Pearlstein says, he has made a simple point that bears repeating:

In case you haven’t noticed, the economy is actually getting better. Noticeably better.

His salient evidence:

The data points for this optimism are to be found in recent reports on private payrolls (averaging just under 200,000 jobs per month for the past year), gross domestic product (growing at an annual rate of 3 percent), consumer confidence (as high as its been since 2008) and income (up 5 percent in the past year before adjusting for inflation).

And:

Federal and state tax revenues are beginning to come in better than projected and households are continuing to whittle down their debt, with a savings rate of 4.5 percent. There are even enough green shoots in the housing market to suggest that residential construction might contribute to GDP growth this year rather than subtract from it. Revisions of government data are now reliably up rather than down.

All that is great news, but I want to note something he wrote that needs to be stressed again and again:

And yet, there are those on the Republican right and the Democratic left who have so much invested in a bad economy that they are reluctant to acknowledge any of this good news.

Of course those on the Republican right are invested in a bad economy—have you heard Mittens speak lately?—but I have also noticed that some folks on the left (like some who write for HuffPo, for instance) don’t want to acknowledge that as bad as things have been and still are, things are getting better.

And given what Barack Obama and the Democrats have faced—a Republican phalanx in Congress that desires their defeat more than an improving economy—I find the progress remarkable.

Government Matters And Don’t Forget It

The recent report that the economy grew at an annualized rate last quarter of 2.8%—a growth rate we have not seen since early in 2010—brought some election-year relief to Democrats defending their policies—particularly the silver lining of past stimulus efforts—and caused Republicans to look for, as always, the dark cloud.

Most talking-head defenders of the GOP wanted everyone to know that the actual GDP growth rate for all of 2011 was 1.7% (I heard George Will make that point just this morning on ABC’s This Week). It is vital to Repubicans’ reelection efforts to not let folks think things are on the mend.

Now, before we move on and discuss a real problem with the economic growth rate, we need to review what has happened since the assault of the Great Recession. Here is an excerpt from a piece on Ezra Klein’s Wonkblog written by Brad Plumer discussing the revised numbers by the Bureau of Economic Analysis vis-à-vis the depths of the Great Recession:

As Moody’s chief economist Mark Zandi told me this morning, the revisions suggest that the recession following the financial crisis was much, much more severe than we’d thought—the economy actually shrank at a 8.9 percent annual rate the fourth quarter of 2008 and 6.7 percent in the first quarter of 2009 (earlier estimates had shown a smaller, 5.9 percent annualized drop across the two quarters).

Then, Congress passed the stimulus bill, the fall in growth dwindled to 0.7 percent in the second quarter, and, by the third quarter of 2009, we had 1.7 percent growth. “We went from negative to positive at precisely the time that the stimulus was providing maximum benefit in terms of tax cuts and spending increases,” Zandi says. “The numbers actually reinforce the importance of the stimulus in jump-starting a recovery.” What the stimulus didn’t do, however, was raise employment to the levels that the White House had predicted — partly because the economy was in worse shape than anyone, even the official data-crunchers, knew.

I will add to all that the fact that the 2010 GDP growth rate was 3.1%, which reflected the full effects of the original stimulus. This stuff is important to remember. There is a lot of history-distorting and history-ignoring going on in the GOP primary and beyond, but the fact is that in down times, particularly in really down times like we have had, government spending is a crucial part of the recovery process.  We have seen that in terms of the various stimulus measures that have been passed and, negatively, we can see that in the latest numbers out for economic growth last quarter.

Again, from Wonkblog:

Government spending cuts are biting into economic growth. Government spending contracted a whopping 7.3 percent in the fourth quarter of 2011 — led by big cutbacks in defense spending. Had it not been for these cutbacks, the data suggest, growth in the last quarter would have been 3.7 percent. That’s the difference between “okay” growth and “good” catch-up growth that would make a meaningful dent in the jobless rate. It’s also a reminder that Congress can very much affect what happens in 2012 — especially since lawmakers still haven’t extended the payroll tax holiday or expanded unemployment insurance for the full year.

When this point was made this morning on This Week, I thought the heads of extremist George Will and vulgar extremist Laura Ingraham* were going to make news by detonating before our eyes. The lesson here is that government austerity—the core of the Republican economic plan—is a drag on economic growth, particularly during times like these.

And we don’t know yet how hard Democrats will have to fight congressional Republicans to get the payroll tax cut and unemployment benefits extensions (they expire on February 29 and even though Mitch McConnell said on Sunday the thing will get done, he does not control the House), but that Democrats do have to fight for such basics should tell us all we need to know about what has happened to the Republican Party.

One more word about the stimulative effects of government spending: With all the talk coming from the right-wing about Obama being the food stamp president, here is a reminder of how important that program is not only to the individual or family receiving the help (about half are kids and almost a third have earned income), but to the economy as a whole:

The U.S. Department of Agriculture calculates that for every $5 of food-stamp spending, there is $9.20 of total economic activity, as grocers and farmers pay their employees and suppliers, who in turn shop and pay their bills.

While other stimulus money has been slow to circulate, the food-stamp boost [$19.9 billion] is almost immediate, with 80% of the benefits being redeemed within two weeks of receipt and 97% within a month, the USDA says.

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* There is never a person as rabidly far left as Ingraham is far right on this program. Never.

The Sadistic Spiral

The media in America has a bigger responsibility than it’s exercising today. The media has got to begin to not give equal time or equal balance to an absolutely absurd notion just because somebody asserts it or simply because somebody says something, which everybody knows is not factual. It doesn’t deserve the same credit as a legitimate idea about what you do.  And the problem is everything is put in this tit-for-tat, equal battle and America is losing any sense of what’s real, of who’s accountable, of who is not accountable, of who’s real, who isn’t, of who’s serious, who isn’t.

—John Kerry, on Morning Joe, August 5, 2011

Some of us have been arguing for some time now that concern over the long-term national debt, while appropriate, is out of sequence.  First things must come first.

Completely detached from immediate economic reality, the Johnny One-Note Tea Party in Congress has crippled government with a singular concentration on reducing government spending while ignoring our scrawny economy, which even with today’s better-than-expected jobs report, is perilously underperforming.

The priority right now should be fueling the economy with more not less government spending.  While in this environment that may sound crazy, it’s time for leadership—and it appears it will all have to come from Democrats—to make the case.

It is a simple matter of sputtering demand:

♦ Consumers are holding back their spending (demand) either out of fear of losing their jobs and/or in order to pay down debt.

♦ And without the prospect of increased demand, businesses are reluctant to put to work the some $2 trillion in cash they have stored away, cash that in normal times would be put into additional hiring and increases in wages, which would itself bring additional demand.

So, consumers are holding back until business picks up and business is holding back until consumer demand picks up. This sadistic spiral will more or less continue in the short-term unless government bridges the demand gap up until the economy is fully on the road to recovery. 

And as many learned people have pointed out, getting this feeble economy going again is the best available way we have to make an impact on the long-term deficit.

The problem is that the right-wing has demonized the last effort to stimulate the economy, which turned out to be too small. The recession was much worse than anyone knew at the time, as last week’s yearly revision of economic data by the Commerce Department made clear:

WASHINGTON — The 2007-2009 recession, already in the record books as the worst in the 66 years since the end of World War II, was even worse than previously thought.

From the start of the recession at the end of 2007 to the end in June of 2009, the U.S. economy shrank 5.1 percent. That is 1 percentage point worse than the previous estimate that the recession reduced total output during that period by 4.1 percent.

And here was the reason for the initial underestimate:

The government attributed the bigger declines in output in part to weaker consumer spending and business investment than previously estimated.

Sound familiar?

The report also revised the growth rates for 2010:

The revisions showed that growth in 2010 was a bit stronger than previously estimated. They put growth for all of 2010 at 3 percent, up from a previous estimate that the economy grew 2.9 percent last year.

What made the difference in 2010?  How about the effects of the American Recovery and Reinvestment Act, the stimulus package passed in February of 2009?

The truth, as should be clear to all clear-thinkers, is that the 2009 stimulus was effective in terms of stopping the job bleeding, but not big enough to push the economy beyond 3 percent growth, which would start to bring the unemployment numbers down.  And as the stimulus has wound down, so has economic growth, which today is less than half of what it was last year.

Mr. Obama needs to step up and clearly and forcefully explain to the American people just what happened (“I underestimated the depths of the problem”) and what needs to be done (“A concentrated effort to create jobs”).  He has lately been caught up in the debt hysteria to the detriment of economic growth and he needs to dramatically change the national conversation. 

And if the Republicans in Congress won’t go along with him, he needs to shout from every podium in the country that they are the problem, the obstacle to economic growth and job creation.

This morning on Morning Joe, Senator John Kerry firmly insisted that “this is a moment for leadership.” He said things that needed to be said and said them exactly how they should be said, including a shot at a complicit news media, that presents what’s going on as an “equal battle” of ideas. I urge everyone to listen to the following segment, which also includes the incomparable Ezra Klein:

Vodpod videos no longer available.

While We Were Away, Republicans Were Trying to Kill The Economy

While the mess in Wisconsin drags on, the economic recovery remains fragile and anemic.

And the Republicans in Congress—almost unnoticed—are doing everything they can to exacerbate its fragility and deprive it of much-needed iron—government spending.

Most every economist this side of Rush Limbaugh understands that there is a deficiency in demand in our economy.  That’s one reason (but not the only one) why American businesses are sitting on a Chris Christie-size pile of cash.   But what to do about the demand problem is the issue.

The Republican answer is austerity.  Crippling austerity, it turns out.  Last week, Speaker Boehner famously said he doesn’t much care (“so be it”) if the GOP spending cuts kill jobs, because they would be government jobs.

But yesterday, the Financial Times published a story indicating that it won’t just be government workers who take a hit from Republican budget-cutting hysteria. The headline was:

Goldman sees danger in US budget cuts

The story began:

The Republican plan to slash government spending by $61bn in 2011 could reduce US economic growth by 1.5 to 2 percentage points in the second and third quarters of the year, a Goldman Sachs economist has warned.

Even if—to avoid a government shutdown—Democrats managed to whittle down the budget cuts in a compromise deal with Republicans, say, to $25 billion, that will still “lead to a smaller drag on growth of 1 percentage point in the second quarter.”

Mark Zandi, chief economist at Moody’s Analytics, and former John McCain campaign adviser, concurs:

The betting is that we’ll see cuts somewhere close to $25-, $30 billion that take affect beginning in the second quarter of this year. And that could shave growth by as much as a percentage point. So it would weigh on growth. It would have longer lasting affects, but near-term it would be a negative.

Kudos to at least one Senate Democrat Chuck Schumer, who said,

This nonpartisan study proves that the House Republicans’ proposal is a recipe for a double-dip recession. Just as the economy is beginning to pick up a little steam, the Republican budget would snuff out any chance of recovery. This analysis puts a dagger through the heart of their ‘cut-and-grow’ fantasy.

Unfortunately, the cut-and-grow fantasy is not that easy to kill.

Paul Krugman, wrote a few days ago:

It’s amazing how this whole crisis has been fiscalized; deficits, which are overwhelmingly the result of the crisis, have been retroactively deemed its cause. And at the same time, influential people around the world have seized on the idea of expansionary austerity, becoming ever more adamant about it as the alleged historical evidence has collapsed.

Since the fall of 2008, there has emerged two diametrically opposed approaches to solving our (and the world’s) economic predicament:

(1) Stimulate the economy through government (deficit) spending until consumer demand picks up sufficiently to sustain a strong recovery

(2) Drastically cut government spending because deficits are a drag on the economy

It appears to me that the balance of economic opinion—from real economists—agrees with (1).  But Republicans—energized by anti-government deficit-phobes in the Tea Party movement—have successfully changed the debate from nurturing the economy back to health and creating jobs to killing labor unions, dismantling government programs, and making draconian cuts in government spending.

It’s fair to ask: What does killing Big Bird and collective bargaining have to do with lowering the unemployment rate?

Mark Thoma, Professor of Economics at the University of Oregon, wrote in The Economist:

Policymakers are not taking proper account of the risk of an extended period of stagnation. We should be pursuing additional fiscal stimulus along with quantitative easing as insurance against a stagnant economy that persists into the future, in fact this should have happened months ago.

He wrote that in October of 2010.

But Thoma is a real economist.  He doesn’t just play one on TV or radio.  And as Krugman said,

From where I sit, it looks as if the ascendant doctrines in our policy/political debate are coming precisely from people who don’t know and don’t care about technical economics. The revival of goldbuggy sentiment, the fear of hyperinflation in the face of high unemployment, the continuing force of the notion that tax cuts don’t increase the deficit, aren’t coming from some subtle battle among mathematical modelers; they’re coming from the same people who reject evolution, climate science, and more. They don’t need no stinking technical analysis. The truth is that the economics profession is proving far less relevant to public debate, even in the face of economic crisis, than was dreamed of in our philosophy.

Now, whether you think it good or ill that professional economists have lost their clout, the fact remains that in their place have come fiscal and monetary policy geniuses like Michele Bachmann and Glenn Beck and, God forbid, Ozark Billy Long.  People like these three have more to do with how we are fighting this crisis than those who have spent a lifetime studying economics.

And if that doesn’t scare you, then you must be a wealthy Republican.

[J.S. Applewhite / AP (left, center); Cliff Owen / AP]

A Thanksgiving To Remember For Business

Yet again, I heard another Washington “insider” arguing this morning on TV that Obama sorely needs to repair his relationship with the business community.  They think he is an enemy of business, don’t you know.  But mostly, they just think he talks mean about them.

This time it was the Washington Post‘s Steven Pearlstein, who repeated the Obama-needs-to-suck-up-even-more-to-business nonsense, but it has been a recurring theme for quite some time on the cable shows.  Apparently, chronic whining from people who are taking a disproportionate share of the economy pays off in more ways than one.

Not only do these people want all the bleeping money in America, they want good press on top of it. And, generally, they get it courtesy of the so-called liberal media.

But the truth is that the era of Obama has been berry, berry good to business.  And here’s why:

The New York Times reported yesterday that,

American businesses earned profits at an annual rate of $1.659 trillion in the third quarter, according to a Commerce Department report released Tuesday. That is the highest figure recorded since the government began keeping track over 60 years ago, at least in nominal or noninflation-adjusted terms.

It’s fair to ask, just what have those increased profits brought to the rest of America?  Not much. From The Atlantic:

From the Wall Street Journal this summer:

The Federal Reserve reported Thursday that nonfinancial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952.

 

But wait, there’s more!

TARP, which began under Bush and continued big time under Obama, saved the financial industry and the economy, by most accounts.  Does Obama hate business?

The GM/Chrysler rescue not only saved the American auto industry, but businesses big and small that are dependent on the success of the American car companies.  Does Obama hate business?

The Recovery Act, the economic stimulus bill so hated by Republicans, resurrected economic growth:

And the growth for the 3rd quarter of this year was revised upward to 2.5%.  That’s five straight months of growth.

Again, does Obama hate business?  Or is it just that business hates Obama?

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