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

Will It Take A President Romney To Ultimately Fix America?

One might feel better about inequality if there were a grain of truth in trickle-down economics.”

—Joseph Stiglitz

 recent poll found that about 60% of all Americans think (falsely) that no matter who sits in the White’s House next January 21st, it won’t matter a whit to the economy or unemployment.

While it clearly will matter whether Romney-Ryan budget thinking prevails in November, perhaps there is at least a partially rational explanation for such public despair. Economist Joseph Stiglitz wrote, in a piece disturbingly titled, “America is no longer a land of opportunity,” the following:

US inequality is at its highest point for nearly a century. Those at the top – no matter how you slice it – are enjoying a larger share of the national pie; the number below the poverty level is growing. The gap between those with the median income and those at the top is growing, too. The US used to think of itself as a middle-class country – but this is no longer true.

Now, admittedly, I have been saying such things for years, but I don’t have a Nobel Prize in Economics. Stiglitz does and he adds:

…the median income of Americans today is lower than it was a decade and a half ago; and the median income of a full-time male worker is lower than it was more than four decades ago. Meanwhile, those at the top have never had it so good.

Here’s how it all happened:

Markets are shaped by the rules of the game. Our political system has written rules that benefit the rich at the expense of others. Financial regulations allow predatory lending and abusive credit-card practices that transfer money from the bottom to the top. So do bankruptcy laws that provide priority for derivatives. The rules of globalisation – where capital is freely mobile but workers are not – enhance an already large asymmetry of bargaining: businesses threaten to leave the country unless workers make strong concessions.

Stiglitz points out that the conservative argument that “increased inequality is an inevitable byproduct of the market” is demonstrably false:

Textbooks teach us that we can have a more egalitarian society only if we give up growth or efficiency. However, closer analysis shows that we are paying a high price for inequality: it contributes to social, economic and political instability, and to lower growth. Western countries with the healthiest economies (for example those in Scandinavia) are also the countries with the highest degree of equality.

The US grew far faster in the decades after the second world war, when inequality was lower, than it did after 1980, since when the gains have gone disproportionately to the top. There is growing evidence looking across countries over time that suggests a link between equality, growth and stability.

Mentioning that there is a real difference between Obama and Romney, in terms of whether America will “once again become a land of opportunity,” Stiglitz ends with a theme I find fascinating and have thought about frequently these days:

The country will have to make a choice: if it continues as it has in recent decades, the lack of opportunity will mean a more divided society, marked by lower growth and higher social, political and economic instability. Or it can recognise that the economy has lost its balance. The gilded age led to the progressive era, the excesses of the Roaring Twenties led to the Depression, which in turn led to the New Deal. Each time, the country saw the extremes to which it was going and pulled back. The question is, will it do so once again?

Are we yet to the point where a “new progressive” era or a “new New Deal era” can be born? Or will it be a President Mitt Romney—a genuine Gilded Ager— who finally impregnates America with enough despair and disgust and determination to produce one?

The War On Terror And Aid To Joplin

I just want to remind everyone who has a Scroogish opinion about federal disaster aid to Joplin of one thing: The Iraq and Afghanistan wars are costing us at a minimum $3 billion—every week of the year.  To put that in perspective, that’s the reported estimated damage caused by the tornado that hit our city a week ago, destroying or severely damaging almost one-third of it.

Here is a conservative estimate of the total cost of the Iraq and Afghanistan Wars—no offsets for them, you know; all have been and are being paid for with borrowed money—as of 8:30pm Central Standard Time:

 

If you follow and buy into the argument by Nobel prize-winning economist Joe Stiglitz, you get a much higher number.  Just in the case of the Iraq War, Stiglitz estimated the cost to be, well, his book (co-authored with Linda Bilmes) was titled, “The Three Trillion Dollar War: The True Cost of the Iraq Conflict,” so you get the idea.  It’s a lot.

Stiglitz believes that the Iraq war has had particular macroeconomic effects that are not part of the calculation most people make when totaling up the cost of the war.  For instance, he argues that “the war has led to higher oil prices.”  In his book he only conservatively attributed a $5-10 increase to the war, but believes “a reasonable number would be at least $35 and probably much more.”

He also argues that the war spending in Iraq didn’t and doesn’t have much of a stimulative effect on our economy, either in the short or long run:

If we spend money for somebody from Nepal to work in Iraq it does not stimulate the American economy in the same way as building a road in America or hiring a teacher in America. It certainly does not increase long-run productivity in the United States.

The third argument he makes, related to the Joplin emergency funding issue,  is this one:

This war was financed totally by deficit financing, unlike any other war.  Normally when countries go to war they talk about shared sacrifice. As America went to war we lowered the taxes on upper-income Americans. Really very strange behaviour in a context in which we already had a large deficit. The national debt has grown by almost $1 trillion just because of the war and by 2017 we estimate it will rise by another $1 trillion.  That is a lot of money.

He adds:

These three factors have led to a depressing of the U.S. economy today and weakening the U.S. economy in the future.

He also believes that “lax monetary policy” by the Federal Reserve, which was implemented in order to compensate for the decreased purchasing power in the economy resulting from higher oil prices, led to a distortion in the economy that itself contributed to the pre-collapse bubble before the fall of 2008.  How do you calculate that cost?

Finally, Stiglitz points out that the long-term cost of disability payments and health-care costs for wounded soldiers, and the cost for replacing equipment lost or damaged during the war, all add up to his final cost of what he called “a war of choice.” 

And the simple point is that in the case of the war in Iraq or the war in Afghanistan—both wars of choice that have been deficit-funded—no one in the Republican Party argued that the costs of the wars had to be offset in the budget or else there would be no funding for those wars.

As a commenter on this blog pointed out,

Picking up the pieces of disasters such as the one that hit Joplin is one of the many reasons why we have a government in the first place.

So, before anyone argues with me about “bailing” out Joplin, or argues that the costs of emergency funding for our city should be offset with cuts elsewhere in the budget and thus become part of a protracted political fight, please tell me why you weren’t arguing since 2001 for cutting the budget to fund our war efforts.

That’s what I thought.

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