Tag Archives: Economy

“The Republican Party is Screwed”

Josh Barro:

Murphy urges Republicans to talk about “economic freedom.” But Mitt Romney did talk a lot about that, and middle-class voters weren’t impressed, because calls for lower taxes and less regulation are not responsive to their need for more jobs and higher wages. Murphy also urges “reform of government institutions like schools,” but that’s an issue for state and local officials.

In order to appeal to the broad middle-class, the party will have to adopt some economic policies that its big donors don’t want. As Ross Douthat points out on Twitter, that means Murphy may have picked the wrong side of the Republican schism: Social conservatives are more likely to signal openness to pro-middle class economic policies than the “hardheaded business types” who fund the party.

But social conservative interest in non-plutocratic economic policy looks awfully soft. When you look at the 2008 and 2012 Republican presidential primaries, social conservatives threw in their lot with the candidates pushing the most regressive economic policies. Mike Huckabee sounds good rhetorical notes about middle-class economic struggles, but he’s also a backer of the hugely regressive “Fair Tax.” While the donor base drives the Republican Party’s orthodoxy on economic policy, conservative activists are not exactly being dragged along — they, too, are opposed to pro-middle class policies.

The upshot is that the Republican Party is screwed: It’s in for a lot of infighting, but both sides of the party’s internal fight are committed to economic policies that are not saleable to the broader public.

As much as I don’t like to admit it, Josh is correct. I would probably fall on the side that Murphy represents and so would many Republicans that don’t care much about the social issues. But the problem isn’t just the social issues, it’s also the economic ones as well. The party is going to have to go through a wholesale makeover, not just a touchup. None of this means that the GOP becomes the diet version of the Democrats, but it does mean speaking to the economic realities Americans face in ways better than they are currently doing and in ways far better than what the Dems are selling. As Barro says in an earlier piece, conservatives are going to have to get used to talking about redistribution.

General Electric and Taxes

Megan McArdle looks into the claim by the New York Times that General Electric paid no taxes in 2010 and finds it wanting:

…I was rather skeptical of the factoid about GE’s freedom from taxes.  First of all, the definition is as muddy as the article:  what are “US taxes”?  US federal income taxes?  Because I’m quite sure that GE paid some payroll tax, various fuel taxes, etc.  And no matter how good their tax department, I’m pretty sure it didn’t work GE’s personal liability below zero.

Rick Snyder: One Tough Fascist?

At least, that’s what one blogger from Lansing believes:

As much as I hoped it wouldn’t be the case last November. It appears that Governor Rick Snyder is nothing more than a velvet-gloved austerity whore hell bent on engineering an IMF-style economic dismantling of Michigan’s government and economy. It’s time for true liberals and conservatives to wake up and unite against the systematic destruction of Michigan’s economy, Constitution and rule of law.

Rick Snyder is not a Republican. He is not a nerd. . . . He is a fascist. And if his plan is implemented, the merging of corporate and state power – the essence of Mussolini-style fascism – will be complete. And no Michigander will be immune from the onslaught.

This Is Gonna Hurt Like Hell

One of the most memorable commercials aired during the Superbowl was the one by Chrysler featuring Eminem.  For the hell of it, I here it is if you haven’t seen it yet:

It was hard for this Michigan kid to not be somewhat emotional when watching this ad.  It had images of Southeastern Michigan that I am very familiar with, and having come of age during the 70s and 80s in Michigan I’m aware of the hard times my home state has faced.

When my partner Daniel looked at the commercial, he came away with a very different reaction.  He thought it was good as well, but he reminded me that one the reasons that Detroit and the rest of Michigan is in the crapper is because the domestic auto industry refused to change and become competative.

It’s just like him to rain on my parade.

But the thing is, he was right.  In fact, I will go a step farther in saying that my emotionalism is part of why Michigan hasn’t changed, hasn’t diversified.  We didn’t want to face the fact that things were changing and would never, ever be the same.

I hear all the news surrounding Wisconsin, I have to think that this is yet another sign that the United States if not the world, is going through massive change.  The old ways of doing things don’t work anymore.  Things can’t be the same.  And the change wil hurt like hell.

Walter Russell Mead has another insightful essay today about how Democrats in incredibly blue states are also dealing with unions.  Governors like Andrew Cuomo in New York understand that the salad days are over and that the lean years are about to begin. As he notes, public sector unions are heading down the same road that private sector unions did 30 years ago:

The real news here is that the public sector labor movement is inexorably headed down the path the private sector labor movement started down thirty years ago.  At its peak in 1953, the private sector labor movement included 35.7 percent of all private sector workers in the US.  Now fewer than 7 percent belong to unions.

Labor activists would like to blame this on union-busting efforts by corporations, and it is certainly true that corporate resistance to unions has stiffened over the last thirty years.  But what really drove this process was the market.  With offshore competition and onshore automation cutting demand for unionized labor in the US even as immigration and a surge of women into the labor force increased supply, unions could not repeal the law of supply and demand. Over and over again, unions had to accept pay cuts, rollbacks, layoffs and arrangements that allowed companies to hire younger workers at lower wages and with less expensive benefit packages.  The alternative to givebacks was closure: unions were negotiating at the point of a gun.

The massive restructuring of the American auto industry was painful for Michigan.  My hometown of Flint, Michigan once claimed 80,000 people working for General Motors.  You could not travel very far in town without hitting yet another auto plant.  AC had a plant on the east side of town where my Mom worked.  Dad and my Uncle Pablo worked at Buick City near downtown.  My Aunt Nora worked in the cafeteria at the old Fisher Body plant on the southside.  All of those plants are now gone, torn down.  Today, there are about 8,000 people working for GM in the Flint area.

And yet, Michigan has lived in a kind of denial.  We kept on wanting to believe it was someone else’s fault, the Japanese, those Republicans in Washington instead of understanding that we were facing a changed world.  We wanted the good times to roll and wanted whatever politician to make all the change stop.

But change will happen.  It will happen in Michigan, in Wisconsin and in Washington, DC.  It’s gonna hurt.

That doesn’t mean that the restructuring should just hit the weakest in society.  As David Brooks notes, we have to find ways to invest in the young at the expense of the old, which will hurt.

I wonder what would have happened had the state of Michigan 30 years ago decided to diversify the economy.  What if government and industry found ways to encourage new businesses and maybe to start the next Intel or Apple?  What if Michigan had accepted that things were changing and learned to ride the wave of change instead of live in denial?

State, local and federal governments will change over time.  They have to.  Public sector unions will be weakened.  But I don’t think that means that we have to head down the dystopian future that some on the Left are fearing.  The challenge for governments in the coming decades is how to be effective and yet frugal.

I think the change will happen and it will hurt.  But I also think if we use our heads and not get trapped in emotionalism, we might find out way out of this.

How’s the Middle Class Doing?

Professor James Hanley has a great post from a few weeks back comparing the middle class circa 1950s vs. the middle class of today.  It has touched off a quite a debate at the League of Ordinary Gentlemen after Jason Kusnicki picked up on it a few days ago. Here’s part of what Hanley said in that January 5 post:

it seems to me that part of the problem is that as the country becomes wealthier, it doesn’t seem to become easier to live a middle class life. And it seems to me that this is because the material standard of living that defines the middle class today is higher than that which defined the middle class in past generations. For example, in the 1950s, a middle class lifestyle meant a window air conditioner and some fans to move the air around; today it means central air conditioning. Back then a single car family was middle class; today most middle class families are two car families. A single television set was sufficient to be middle class back then; today–even though televisions are much cheaper–most middle class families have multiple televisions, many pay extra for a television that’s much larger than what their (grand)parents had, and most pay extra–sometimes a lot extra–for cable or satellite (i.e., once upon a time three free channels was middle class; now 100 pay channels is middle class). They didn’t pay for microwaves and computers (and internet access) in the 1950s, while we do now. We also eat out a lot more today than they did back then. One of the biggest changes is the size of American homes. In the 1950s, the average home size was just under 1,000 square feet; today it’s over 2,300 square feet. As importantly, a house back then most often had a single bathroom; now homes regularly have 2 1/2 baths or more.

All this extra material wealth is a good sign, from a strictly economic point of view,* because this means our middle class can afford more than our grandparents’ middle class. Our middle class has a higher standard of living, is better off, than our grandparents middle class. But as commenter E.C. Gach’s question, “Will we (human race) ever have competed enough in the rat races to have a future where our children can have their needs met while only working part time at the “low end” job?”

Like I said, it’s created a lot of debate. As of today, there are 353 comments. This is what E.D. Kain, once a heterodox conservative and now newly-minted progressive, had this to say:

Jason,

I’m well aware that leisure items and material goods are in many ways more fun and more advanced than in the past. But this says absolutely nothing about retirement security or healthcare – two far, far more important issues. Furthermore, it doesn’t speak to the preferred changes libertarians and many conservatives would like to make which would, on sum, make retirement security even less reliable. And frankly, if left to just libertarian and conservative ideas on healthcare – without the pressure liberals place on the issue – I don’t think you’d ever see anything like healthcare security for the poor and working classes. Just look at the efforts to cut people off the Medicaid rolls across the country.

Furthermore, while this does a fine job at explaining how things have improved in society (and I don’t think most people are arguing that we should return to the 1950’s or the 1800’s – the idea of progress is well-rooted in the collective psyche) it says nothing at all about how things should have improved. Would we trade our high-tech middle-class existence for the low-tech middle-class existence of the 1950’s – maybe some die-hard nostalgiaits would, but most people would not, even if they believed that there was a crisis in the middle class. Asking to pick the present over the past and then using that as an example of how things must have improved is pretty paper-thin as far as arguments go. Nor does it say why things have gotten materially better. Perhaps some of these much-loathed government programs are to blame; and perhaps, too, the liberalization of markets and the lowering of tax rates have helped as well. Perhaps it is a very mixed bag with no simple explanation, just as the gains made across the board don’t tell the whole story either. But I suspect that the usefulness of libertarian economics has reached its peak. Civil liberty issues are the next frontier for libertarians who want to improve the lives of Americans – not attempts to privatize public libraries or fight for more tax cuts.

Anyways, this argument also says nothing about how things will be in the future if we maintain the current course. I don’t trust that the nation as a whole will be very good with its 401k investments, or that the investment bankers who just thrashed the economy will be very wise stewards of our money. Pointing out that the middle class can afford more leisure and better toys than it used to, and that we live in more material comfort, ignores the chaos in the system, the rapidly shifting industries, the rough and tumble ride that middle class workers face, and how very important things like health insurance are for people who have none, or who lose it when they lose their jobs.

The argument that is going on about the middle class could be summed up in another comment:

Being middle class isn’t just the ability to buy stuff… it’s security: knowing that if you get sick you’ll get health care, when you retire you will be comfortable; etc.

One of the main defenses of the globalization of labor is that this decreases the cost of consumer goods. Well, we have that now.
Maybe it’s time to focus on the other side of the equation… finding ways to drive up the costs of labor so that the middle class can have both cheap TVs and a decent retirement.

The debate boils down to what the middle class can do: are they able to buy certain consumer items or are they able to afford retirement and health care.

Since, I tend to lean to the right, I tend to resonate with Hanley’s argument.  But I don’t know if some the anxieties that the middle class feels is just due to higher living standards.

What do you all think?

Pre-judging Mitch Daniels

Alex Knapp is not so impressed with Mitch Daniels:

Looking at the Republican field for 2012, I’m more than a little disheartened that the most prudent and fiscally conservative contender for the Republican nomination is Mitch Daniels.

The same Mitch Daniels who, as director of OMB, oversaw a federal budget that went from a $236 billion suprlus to a $400 billion deficit.

The same Mitch Daniels who stated that the cost of the Iraq War would be “only about $50-60 billion.” (Actual cost to date — over $800 billion and climbing.)

Ugh.

Now, I’ll be fair. I’m only now starting to look at Mitch Daniels. I haven’t had a chance to review his record as Governor. Maybe it’s an improvement.

But in the past few weeks I’ve heard him bandied about as the “fiscally conservative” candidate, and I have to say the first time I heard that, I laughed.

I find his criticism mean-spirited and ignorant.  He never bothered to check Daniel’s record as governor, something Daniels has been doing for about seven years, he bases his opinion on the few years he was OMB Director for President Bush.  I mean, all he had to do was look up Daniels via Google to get some more info.

If you want to judge Daniels on his fiscal conservatism, fine.  But at least have the decency to judge his whole record and not just selective bits.

What an idiot.

Generation 1099

Chris Ladd probably does the best job of summing up what’s going on in Wisconsin:

The unstated agreement when our ancestors left behind their Jeffersonian rural lives for the greater wealth and opportunity of a Hamiltonian city (suburb, really) was that employment could provide us with the same dignity as owning our own land.  On our little green patch of suburbia we would keep some vestige of the independence – the sovereignty – that my grandparents knew on their farm.

With a decent education and a steady job, you could be almost as free as our grandparents.  Government had little purpose apart from providing police, schools, and roads (on which to drive to work).  We could pretend that little had changed from the farm.

But employment as we have understood it for a hundred years is fading away.  It is being replaced by what Bush II’s speechwriters called “The Ownership Society.”  With each passing year, fewer and fewer us are formally employed and more of us work for ourselves (almost 1/3 of the workforce already), either as full-blown entrepreneurs or as independent contractors.  It may feel scary, but on the whole, this could become a very, very good thing.

It could lead us to an era of broadly shared wealth beyond most people’s imagination in which a culture dominated by a massive middle and upper-middle class earns money more or less at their own pace, owning their own businesses or working as contractors.  It could make the supposed Golden Age of the ’50’s look like drudgery.

Or not.  It could, if we screw this up, devolve into a sort of hell.  There are two political constituencies poised to make the nightmare scenario come true and, you guessed it, they are squared off against each other in Wisconsin right now.

The Tale of Two Coffee Cups

Commenter DonC shares this story:

40 years ago I went out and bought a coffee cup. The guy who produced that coffee cup in Ohio made a fair wage. The woman at the distribution center made a fair wage. The trucker who hauled it made a fair wage. The owner of the local hardware store made a fair profit. His clerk made a fair wage. That coffee cup, relative to inflation was fairly expensive, but back then, my life wasn’t oriented around consume, consume, consume … so I was happy with my coffee cup.

Yesterday, I went out and bought another coffee cup. I went to Walmart, because their prices are always the lowest … always. The woman at the highly mechanized cup factory in China was paid $1.50 per hour. Walmart has its own truckers and distribution network, with workers paid a substandard wage … to stay competitive. The helpful folks at my local Walmart also received a very modest wage … because there aren’t any other jobs in town that pay much better. They survive because their spouse is forced to work … also for a modest wage. They generally shop at Walmart because they can’t afford much more. The folks that do seem to be doing fairly well are the upper managers and stock holders at Walmart. They have enjoyed corporate and individual tax rates that haven’t been lower in the past 60 years. They also enjoy a nice array of loopholes to keep their net taxes rates surprisingly low. On top of all of this, those stockholders really like it if Walmart can continually decrease expenses, improve margins and show hefty profit gains, regardless of what the economy is doing. That’s called ‘being competitive’.

Let me ask you all … first, where do you think necessary tax revenues should come from in this 21st century economy? And secondly, which coffee cup do you really want to drink out of??

Reading Don’s story, you get the idea of what they answer is: we should prefer the cup made 4o years ago by people who made fair wages.  This assumes that life and the economy 40 years ago was much better than it is today and frankly, I don’t know if that’s the case.

In 2009, Brink Lindsey wrote about “Nostalgianomics” the tendency of some folks to look back at the American economy of the 1940s-70s with rose-colored glasses.  Lindsey is able to show that those “good ol’ days” were not so good if you wanted to start your own business or were a woman, or a person of color.

But back to Don’s analogy.  I’m not an economist and I won’t try to bore you with charts and graphics, but I don’t think our present is as dire as Don think it is.  First, about the fact that the cup might now be made by someone in China.  I traveled to China in 1999 and was amazed by the rapid growth taking place.  While I chaffed at the oppressive role of the government, I saw a nation trying to catch up economically.  That worker in China might be able to make more than he or she would have made living in the country trying to eke out an existence.

Second is the talk of truckers and cup workers making “fair wages.”  I don’t doubt that they were good wages, but they were agreements made during: 1) a period of high unionization in industry governed by the Treaty of Detroit; 2) the fact that there restrictions on immigration, which led to a “labor shortage” and to artificially high wages;  and3) in some cases, Fair Trade laws basically fixed the prices of products.

As for the fixation on WalMart, well- it has become too easy to blame the retailer for everything that has gone wrong in society.  I would refer to some work by Jason Furman who sees some of the good that WalMart can bring.

I don’t want to say that the way the economy was run in 1971 was somehow “bad” and that our current economy is “good” and visa versa.  As blogger Michael Kruse has noted economics is about trade offs:

As with most economic issues we aren’t talking about clear cut “right and wrong” so much as trade-offs. Do we want higher wages, home-grown stores, limited variety, and higher prices or lower wages, box stores, wide variety, lower prices.

Having benefitted from the economy that Don talks about, I can see some of its good points.  But our current economy isn’t so bad either and if I have to choose, I’d go with today’s economy.

A Nation of Cowards

There has been a lot of carping about President Obama’s budget from folks on the left and right.  As Steven Taylor notes, the President’s budget is only a proposal and nothing more, but that hasn’t stopped folks from calling him everything but a child of God.

Meagan McArdle once said that the talk of fiscal responsibility is really about politics- an excuse to beat the other side up for not being more prudent with the national bank account.  On Monday, we saw that in droves.  Republicans are quick to say that federal spending by the President and Democrats is driving the country to ruin, while Democrats harken back to the Bush years to talk about how the tax cuts under the former President’s watch have destroyed the American future.

But the fact is, both side are talking out of their backsides.  None of them want to touch the main drivers of the budget: entitlements and defense, so they go after the 12 percent of the budget and make it look like they are saving the country from fiscal disaster.  Ezra Klein isn’t joking when he says that the federal government is basically an “insurance conglomerate protected by a large standing army.”

Two of every five dollars goes to Social Security, Medicare or Medicaid, all of which provide some form of insurance. A bit more than a buck goes to the military. Then there’s a $1.50 or so for assorted other programs — education, infrastructure, environmental protection, farm subsidies, etc. Some of that, like unemployment checks and food stamps, is also best understood insurance spending. And then there’s another 40 cents of debt repayment. Calvin Coolidge once said that the business of America is business. Well, the business of the American government is insurance. Literally. If you look at how the federal government spends our money, it’s an insurance conglomerate protected by a large, standing army.

But you wouldn’t know it to listen to the debate over the budget. When House Republicans talk about cutting spending and the Obama administration talks about freezing spending, neither group is talking about the vast expanse of the government’s commitments. They’re looking at a small corner of the budget, the 12.3 percent known as non-defense discretionary spending. The stuff that’s not Medicare, not Medicaid, not Social Security or the military. It’s the odds-and-ends, so to speak.

And it’s a bad place to focus cuts. Politicians don’t take the axe to non-defense discretionary spending because they think Teach for America or the food safety infrastructure — both of which the Republicans are proposing to cut dramatically — is more wasteful than the Pentagon or the health-care system. They do it because Teach for America and the food safety system is less politically powerful than the Pentagon or Medicare beneficiaries. The budget ends up like the yard of a man who owns only a lawnmower: The grass is trim, but the trees are overgrown and the ivy is everywhere and the gazebo is falling apart. Yet we keep mowing, because that’s what we feel able to do.

-Ezra Klein

The thing is, if anyone proposes cutting entitlements and defense, they will get punished for it.  This is why Obama didn’t release a budget that followed the perscriptions in Simpson-Bowles.  In the long run, it would be great for him to release an outline that really tells it like it is, but in the short run- meaning 2012- everyone would hate him.  Republicans would go after him for cuts in defense (he’s making the nation less safe!) and in the entitlements.  Democrats would start talking about old people having to eat cat food because of  Social Security cuts.  The President may want to reduce the deficit, but he isn’t willing to stick his neck out for no good reason.

Which brings us to the real culprit when it comes to the deficit: us.  The problem isn’t as much the politicians, as it is the American public that wants a balanced budget in the theoretical sense, but not in reality, not when it might take away this program or that tax credit.  Steven Taylor notes:

If one considers that perhaps the most popular piece of legislation in the last two years was the bipartisan compromise in the lame duck session that extended the Bush tax cuts and extended unemployment benefits that may be all one needs to know about the politics of the deficit.  The vast majority of the American public wants a diet of giant cake that they can eat too and that, further, will have no detrimental effects on their long-term health (but, they want to complains about the fact they are getting fat and yet have no energy).

To talk pure politics for a moment:  if the Obama administration had come out with a serious budget proposal that did things like cut entitlements and defense and that, further, raised taxes (the kinds of things that have to be done to deal with the current fiscal trends), does anyone think that it would have been greeted positively?  Again:  this is not to defend the Obama administration, but rather to try to get us to think about where the real problems we face are.

As much as I would like top blame politicians, the bottom line remains this:  the reason that the Obama administration (and ultimately, I predict, the Congress) is unwilling to make serious attempts at dealing with the fiscal challenges facing the United States is because we, the people, would punish them all at the ballot box if they did.  We don’t want our entitlement cuts, we don’t want to cut defense spending, and we don’t want to raise taxes (some “we’s” want some of these things and some “we’s” want others, but there is no critical convergence of interest that will allow any of these to happen at the moment—and really, they all need to undertaken to one degree or another).

Voters needs to stop falling for assertions like cutting “waste” or foreign aid will solve these problems. See here, for example.   Until the public (and, really, most pundits/analysts/politicians) really takes all of this seriously, all this is just so much shouting in the wind.

The American public is like someone who wants to lose weight but still thinks they can eat all the ice cream they want and never eat the spinach.

Until we are willing to eat our spinach and take some sacrifice, nothing will happen.  There has been talk about the fact that we need grown-up politicians when it comes to the budget- we also need a grown-up electorate as well.

To the Barricades!

David Frum wonders why with a 9 percent unemployment rate, people in the States aren’t taking to the streets ala Egypt:

Jon Stewart has some fun with Fox News personalities like Glenn Beck who worry that “we might become Egypt.” Yes silly obviously. But behind the silliness is a serious question: Isn’t the most remarkable thing about the US in 2011 precisely the absence of protest by the unemployed and foreclosed? Here we’ve gone through the most protracted economic crisis since World War II – in many ways the most severe crisis – a crisis directly attributable to terrible business decisions supported by government policies bought-and-paid-for by powerful financial interests – a crisis out of which so many of the authors have escaped unscathed (unlike say 1929-33) and indeed richer than before. And yet … the only populist movement the country has seen is a movement of the right, in defense of the existing rules and arrangements? I can think of many explanations, and yet at a deeper level I remain baffled. I expected otherwise.

There are few things about this paragraph that interest me.  I’m not an economist, but  compared to the Great Depression, unemployment is not as bad.  The figures that I keep hearing bandied about is that the unemployment rate was about 25 percent back then as opposed to nearly 10 today.  Having one in ten people unemployed isn’t good, but it’s not one in four.

Several left-leaning and/or centrist  blogs have talked about the fact that there is more income inequality in the United States than there is in Egypt, which again leads some to wonder why there aren’t demonstrations in our major cities. There is also a counterargument that has appeared on many right-leaning and or centrist blogs that state that the poorest American is richer than the poorest Indian.

All of this is to say that it’s hard to equate what is going in Egypt to what is going in the United States.  They are two different nations with different systems.  It might be that people here might have it bad in the wake of the Great Recession, but they know its not as bad as it could have been.  When it comes to why people aren’t demanding blood from the bankers that helped us get into this mess, we forget that in 1929 there were few safeguards to protect average people.  There was no FDIC for one thing.  In this day and age, people aren’t losing their bank accounts and they have things like unemployment insurance when they are without work to keep them from utter poverty.

The thing is, while things are bad today, they are not as desparate economically as they are in Egypt or as they were in American circa 1932.  Which might be why folks aren’t hitting the streets in protest.

What do you think?