Here’s an idea, of which I was reminded of in the Brookings Institution’s “Export Nation” report: a National Infrastructure Bank. These days it seems the only way Congress is able to act is when it spins off its powers to another institution (re: the Independent Medicare Advisory Committee, or IMAC). Regardless, I would look forward to an infrastructure bank. Instead of re-appropriating funds every year, which could be discouraged in times like these, an infrastructure bank could be more nimble and light on its feet. This is a useful quality when one considers the vast demand for infrastructure investment.
‘The Great Stagnation’ & ‘Grand American Projects’
One of Ezra Klein’s blog posts today reminded me to write a little note clarifying an earlier post – “Rebuilding America”. That post was more of a broad overview on the inability of the federal government to enact any further fiscal or monetary stimulus. I argued that President Obama needs to make an unequivocal case for ‘rebuilding America’ with the type of “Grand American projects” associated with the strategic visions proposed by Steve Clemons and James Fallows.
What I was unclear about was what the term “Grand American projects” meant. My working definition now is long-term fiscal policy designed to quantitatively improve the working class’ quality of life and productivity, and to reduce the income gap. In short order, to revitalize the social mobility that was characterized by the 90’s. This is a broad definition – it includes investments in renewable energy, transportation networks, urban renewal and planning, other infrastructure, and education (this list is by no means exhaustive). These policies need to be passed now and take effect over the next several decades, rather than serve as a reactionary measure a la the 2009 stimulus.
What about what has already been signed into law? I view financial reform as a necessity, but not a Grand American project; it’s mainly a reactive measure. Part of health-care reform would qualify – R & D, IT investment. The rest of the bill is absolutely vital in improving quality of life and productivity, but is not intended to radically improve social mobility. Finally, tax-code reform (this calculator from CEPR is useful – I would add more income levels in the tax code and tax the top marginal rate higher) is necessary to fund these investments and reduce our debt obligations.
The US has been wracked for the past decade with what Ed Luce calls “the Great Stagnation”. Real income has decreased, and we’ve let our regulatory system grow dysfunctional from disuse and our infrastructure system decrepit from under-investment. We’re also competing with foreign industries to accomplish the same goals. I don’t believe foreign growth is bad – on the contrary, Chinese growth opens up Chinese markets to our goods and services. But I do think that US stagnation is bad. We vitally need a positive vision of a more equitable America. I don’t use the word ‘vision’ lightly. It can’t be anything less than a ‘vision’. Anything less would be disastrous.
White House and DoD Attack Wikileaks for Afghani Informant Outings
By now, White House and DoD criticism of the release of the Wikileaks archive has shifted from ‘it harms American soldiers and US military operations’ to ‘it doesn’t tell us anything we don’t already know’ to ‘Wikileaks released the names, hometowns, and families of Afghani informants, which will result in their deaths’. The possibility that Afghans could be assassinated as a result of this leak is reprehensible and probably the worst result of the leak. But is retribution likely?
In an interview with the Daily Beast, Sirajuddin Haqqani, son of the leader of the Haqqani Network, pointedly omitted any reference to retribution, but does talk about the ‘atrocities’ of US and NATO forces, as well as the ‘loss of innocent lives in bombings’. Both the Taliban and ISAF are waging two parallel wars: the physical war with each other, and the psychological war to gain the trust of the Afghani people (this is what the DoD calls psy-ops, or psychological operations). Both are an integral part of the Taliban’s mission, just as much as it is a part of COIN strategy. Retribution is therefore rather unlikely – not simply because the Taliban talks about ‘innocent lives’ (that would be naive), but because it would set them back in the more important psy-ops war.
Rebuilding America
The lede from a WSJ article yesterday made me laugh – conservatives continually harp that Ben Bernanke and the Fed must do all in their power to curb the inflationary tendencies associated with the coming economic recovery. Of course, no inflation has arrived, and neither has economic recovery – the US is in a deflationary period. But this doesn’t stop the WSJ now complaining of the Fed’s inaction in dealing with unemployment. The paper finally takes the Fed’s inflation targets at face value – a rare occurrence.
But this raises the question – what can the Fed actually do to combat the recession now? Monetary policy is a blunt hatchet – lowering interest rates makes borrowing easier across all sectors of the economy, but isn’t guaranteed to work. In this analogy, fiscal policy is a scalpel. Congress can target individual economic sectors – construction, for example, can be boosted through infrastructure expenditures. Unfortunately for us, neither looks likely to happen any time soon. Interest rates are now at their lowest, and a second stimulus (despite statements to the contrary) is dead in the water. And even if the Fed or Congress did manage to take action of some sort, it would be far too late now to affect the economy before the the end of the year.
What else is left when policy fails? Politics. In a utopia, the benefits of a particular policy would be obvious to completely rational, politically-engaged citizens. But that’s not how it works. The only way for the Obama administration to inspire confidence in the public is to act confidently. Those who are actually committed to sane economic policy (i.e., not deficit hypocrites who would vote for the 2001 and 2003 tax cuts) need to think big – rebuilding America big – because politics, unfortunately, comes before policy.
Darth Vader Helps John Williams Compose Sith Theme, Conan the Barbarian: The Musical, and More
That was so good. Conan the Barbarian: The Musical, Total Recall: The Musical, and 24 Season Two: The Musical, are equally humorous. Courtesy of Jon and Al. Great job, guys.
David Leonhardt Puts His Finger on the Button, and More Deficit Politics
David Leonhardt at the New York Times gets it exactly right:
The reasons for the new American austerity are subtler, but not shocking. Our economy remains in rough shape, by any measure. So it’s easy to confuse its condition (bad) with its direction (better) and to lose sight of how much worse it could be. The unyielding criticism from those who opposed stimulus from the get-go — laissez-faire economists, Congressional Republicans, German leaders — plays a role, too. They’re able to shout louder than the data…
In an ideal world, countries would pair more short-term spending and tax cuts with long-term spending cuts and tax increases. But not a single big country has figured out, politically, how to do that.
This is the problem, very elegantly put. With a slight change in priorities and with the right mix of policy, wiping out the deficit is a very doable task. Only bad politics is screwing over the right policy.
I also love Paul Krugman’s refutation of David Brooks’ recent op-ed, and this wonderful deficit calculator from the Center for Economic and Policy Research, which shows you just what policies would get us to a budget surplus.
Learning Mandarin = Communist Brainwashing! Hilarious Daily Show Clip
| The Daily Show With Jon Stewart | Mon – Thurs 11p / 10c | |||
| Socialism Studies | ||||
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Reposted from James Fallows.
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.