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Reposted from James Fallows.
Archive for June, 2010
Learning Mandarin = Communist Brainwashing! Hilarious Daily Show Clip
Brooks is Wrong – Consumer Confidence is High
As an addendum to last night’s post on David Brooks misguided op-ed, Ezra Klein and Ryan Avent point out that contrary to this sentiment:
“in times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control.”
Consumer confidence is actually at an all time high. I really liked how Ezra Klein put it:
Now, it may be that the deficit itself scares people even as the deficit-driven economic recovery is making them confident. But that just goes to the question of whether you’d prefer to have people worried about a deficit that’s actually not a major problem or an unnecessarily deep recession that actually is a major problem.
This gets back to what I said last night – do we worry about some phantom fears of deficit or turn our attention to quantifiable worries?
David Brooks: Debt Armageddon Killing Economic Recovery?
David Brooks’ latest op-edclaims that Keynesian counter-cyclical stimulus proponents have it all wrong – fiscal policy resulting in government debt doesn’t boost aggregate demand, it frightens the business community with visions of debt armageddon:
Voters, business leaders and political leaders do not seem to think that the stimulus was such a smashing success that we should do it again, even with today’s high unemployment… In times like these, deficit spending to pump up the economy doesn’t make consumers feel more confident; it makes them feel more insecure because they see a political system out of control. Deficit spending doesn’t induce small businesspeople to hire and expand. It scares them because they conclude the growth isn’t real and they know big tax increases are on the horizon. It doesn’t make political leaders feel better either. Lacking faith that they can wisely cut the debt in some magically virtuous future, they see their nations careening to fiscal ruin.
All Brooks seems to be concerned about is the stimulus bill passed last year, and how it’s scaring the living daylights out of the industrious entrepreneurs of America. Pop-psychology aside, this was a small component of counter-cyclical stimulus, and a small reason why the deficit exploded in 2009. First, unemployment skyrocketed and unemployment insurance picked up the slack. I don’t know how to quantify the fear of businessmen, but I do know how to quantify billions of dollars sent to the unemployed, spent on food, shelter, and basic necessities. This sort of stimulus is extremely effective, because it all gets spent. Second, revenues plummeted.
My point is most of the deficit of the last year was not a direct choice of policy-makers in Washington, and cannot possibly indicate “a political system out of control.” Brooks (and most others on the right) are using the stimulus bill as a proxy for all deficit spending, and that’s wrong. We can quibble over how well the stimulus bill did its job. But what about unemployment insurance and other counter-cyclical policy? How can he balance money in the hands of the unemployed with some contrived nonsense about consumer confidence? You can look at numbers, or you can look at public opinion polls.
Tyler Cowen agrees – and he especially loves Brooks in this segment:
large and decisive deficit reduction policies were followed by increases in growth, not recessions.
I think Brooks and Cowen (and the academic researchers Brooks cites) have a problem mistaking correlation with causation. In particular, Brooks cites the US in the 1990’s; so the cw goes, President Clinton pushed through spending cuts, which encouraged business to bring in bountiful times. But this doesn’t quite hold up to inspection. While I can’t easily analyze Brooks’ examples of Ireland and Denmark, I can look at historical US government receipts, outlays, deficits (or surpluses), and GDP, all in inflation-adjusted 2005 dollars. In 1993 as Clinton came to power, $12 billion in spending was cut. But every year after, real spending was on the rise. Meanwhile in that first year, revenues increased $44 billion, $106 billion the year after that, rising every year. The deficit reduction in the 90’s only happened because a massive amount of new revenue came into the Treasury, not because spending was cut.
Besides reducing the deficit, Brooks adds what else he would like the government to pursue:
boosting innovation in areas like energy, and spending more money on growth-enhancing sectors like infrastructure.
Doh! That’s what the stimulus did! So we can’t take any money away from programs in the stimulus bill – they enhance growth. We can’t easily pull the rug under millions of unemployment insurance beneficiaries. Surely money in the pockets of the unemployed that is immediately spent can be agreed to be successful fiscal stimulus. And we can’t magically raise revenues. What does that leave us?
making the welfare state more efficient
I don’t know what this means. Regardless, it seems like Brooks wants all the benefits of Keynesian counter-cyclical fiscal stimulus without all the debt involved.
For a similar, more comprehensible argument, read William Galston and Paul Krugman.
At the Heart of the Crash
Jeff Madrick’s review of Michael Lewis’ The Big Short in the New York Review of Books is the best breakdown of the financial crisis I’ve read short of reading the book. I got it previously, but Madrick was really able to dissect Lewis’ book and distill the explanation of seriously complex derivatives into a few pages. I was already planning to read the book, but this has upped the urgency a bit.
Senate Republicans Cry Over Donald Berwick
Per Politico this morning, Senate Republicans are planning to obstruct the nomination of Donald Berwick to be Administrator of the Centers for Medicare & Medicaid Services over Berwick’s previous statements in favor of Britain’s National Health Service (NHS).
“He is, as far as I am concerned, bad news,†said Texas Sen. John Cornyn, chairman of the National Republican Senatorial Committee. “If he wants to turn America into the National Health Service in England — he thinks that is the model — he is going to find a lot of pushback.â€
But what exactly are they opposing him for? What policies does he intend to pursue that the Republican caucus can’t support? The Politico article never makes it clear what Senate Republicans are actually against, beyond the amorphous bogeyman of the NHS. Berwick is clear, however, what he supports: “universal coverage, ‘centralized stewardship’ and guaranteed care regardless of income.” All of these things are goals of the Patient Protection and Affordable Care Act. I can’t tell whether the Politico article is not accurately representing Senate Republicans or whether Senate Republicans are simply making up excuses to obstruct. My guess is the latter.