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August 13, 2009

Economist's View - 5 new articles

The Trickle-Up Economy

Paul Krugman notes the latest inequality numbers:

Even more gilded, by Paul Krugman: With everything else going on, the latest inequality numbers from Emmanuel Saez, now updated to 2007, didn't get much attention. But they're truly amazing:

How will the crisis change these numbers, if at all?

Update: Brad DeLong:

That means that the top 1-10,000 of the American income distribution receives 6% of pretax household income--meaning that their average income is 600 times that of the average.

Time for a more progressive income taz, is what I am saying...

"The GOP's Misplaced Rage"

Bruce Bartlett argues that conservative anger is misplaced, it ought to be directed at George Bush rather than the current administration. That may be, but I don't blame conservatives for trying to hang our problems on the Obama administration. If they can get away with it, why not? I suppose you could argue that displacing the blame delays adjustments the GOP needs to make, the argument below is that conservatives will not reestablish credibility until they begin holding Republican Party memebers publicly accountable for transgressions of conservative ideals. I'll let conservatives figure out what is best for their own party, public blame of themselves or public blame of the current administration, my concern is that they can falsely blame the current administration and make questionable assertions without getting called on it in the media. It doesn't hurt your credibility to say false or misleading things about the Obama administration if there is no accountability for it from the major media (who instead seem to fan the flames of outrage irrespective of the underlying truth in their attempt to grab viewers). If the media carries the message without effective rebuttal, why not make outrageous claims?:

The GOP's Misplaced Rage, by Bruce Bartlett: ...Does anyone believe the economy would be growing faster or that unemployment would be lower today if John McCain had won the election? I know of no economist who holds that view. The economy is like an ocean liner that turns only very slowly. The gross domestic product and the level of employment would be pretty much the same today under any conceivable set of policies enacted since Barack Obama's inauguration. ...
I think conservative anger is misplaced. To a large extent, Obama is only cleaning up messes created by Bush. ... Conservative protesters should remember that the recession, which led to so many of the policies they oppose, is almost entirely the result of Bush's policies. According to the National Bureau of Economic Research, the recession began in December 2007—long before Obama was even nominated. ...
[T]he extremely poor economic performance of the Bush years really set the stage for the current recession. This is apparent when we compare Bush's two terms to Bill Clinton's eight years. ...
Throughout the Bush years, many conservative economists ... extravagantly extolled Bush's economic policies. As late as December 21, 2007, after the recession already began, he wrote in National Review: "the Goldilocks economy is outperforming all expectations." In a column on May 2, 2008, almost six months into the recession, Kudlow praised Bush for having prevented a recession.
But the truth was always that the economy performed very, very badly under Bush, and the best efforts of his cheerleaders cannot change that fact because the data don't lie. Consider these comparisons between Bush and Clinton... [list of comparisons] ...
Conservatives delude themselves that the Bush tax cuts worked and that the best medicine for America's economic woes is more tax cuts; at a minimum, any tax increase would be economic poison. They forget that Ronald Reagan worked hard to pass one of the largest tax increases in American history in September 1982 ... even though the nation was still in a recession that didn't end until November of that year. Indeed, one could easily argue that the enactment of that legislation was a critical prerequisite to recovery because it led to a decline in interest rates. The same could be said of Clinton's 1993 tax increase, which many conservatives predicted would cause a recession but led to one of the biggest economic booms in history.
According to the CBO, federal taxes will amount to just 15.5 percent of GDP this year. That's 2.2 percent of GDP less than last year, 3.3 percent less than in 2007, and 1.8 percent less than the lowest percentage recorded during the Reagan years. If conservatives really believe their own rhetoric, they should be congratulating Obama for being one of the greatest tax cutters in history.
Conservatives will respond that some tax cuts are good while others are not. ... According to the supply-side view, temporary tax cuts and tax credits are economically valueless. Only permanent cuts in marginal tax rates will significantly raise growth.
On this basis, we see that Bush's tax cuts were pretty much the opposite of what supply-side economics would recommend. The vast bulk of his tax cuts involved tax rebates—which failed in 2001 and again in 2008, because the vast bulk of the money was saved—or tax credits that had no incentive effects. While marginal rates were cut slightly—the top rate fell from 39.6 percent to 35 percent—it was phased in slowly and never made permanent. Neither were Bush's cuts in capital gains and dividend taxes.
I could go on to discuss other Bush mistakes that had negative economic consequences, such as ... starting unnecessary wars in Iraq and Afghanistan, which will burden the economy for decades... But there is yet another dimension to Bush's failures—the things he didn't do. In this category I would put a health-care overhaul.
Budget experts have known for years that Medicare was on an unsustainable financial path. ... In 2003, the Bush administration repeatedly lied about the cost of the drug benefit to get it passed, and Bush himself heavily pressured reluctant conservatives to vote for the program.
Because reforming Medicare is an important part of getting health costs under control generally, Bush could have used the opportunity to develop a comprehensive health-reform plan. By not doing so, he left his party with nothing to offer as an alternative to the Obama plan. Instead, Republicans have opposed Obama's initiative while proposing nothing themselves.
In my opinion, conservative activists, who seem to believe that the louder they shout the more correct their beliefs must be, are less angry about Obama's policies than they are about having lost the White House in 2008. They are primarily Republican Party hacks trying to overturn the election results, not representatives of a true grassroots revolt against liberal policies. ...
Until conservatives once again hold Republicans to the same standard they hold Democrats, they will have no credibility and deserve no respect. They can start building some by admitting to themselves that Bush caused many of the problems they are protesting.

I think he's right that the real anger is about losing the White House, but they only have themselves to blame for that. They do need to recognize this, it wasn't Democrats acting like they are acting that caused the downfall, it was their own choices. But that doesn't mean they can't be effective in tearing down the current administration in the face of a complacent and enabling media that refuses to analyze and report on the veracity of the claims and the true underlying causes of the anger from the right.

The Anti-Greenspan

Dani Rodrik wants the Anti-Greenspan - someone who truly distrusts financial markets and the ideology that surrounds them - to be the next Fed Chair:

Let finance skeptics take over, by Dani Rodrik, Commentary, Project Syndicate: ...Federal Reserve Chairman Ben Bernanke's term ends in January, and President Barack Obama must decide before then: either re-appoint Bernanke or go with someone else...
[I]n recent decades central banks have become even more significant as a consequence of the development of financial markets. Even when not formally designated as such, central banks have become the guardians of financial-market sanity. The dangers of failing at this task have been made painfully clear in the sub-prime mortgage debacle. ...
This is a job at which former Fed Chairman Alan Greenspan proved to be a spectacular failure. ... As a member of the Fed's Board of Governors under Greenspan..., Bernanke can also be faulted...
What hampered Greenspan and Bernanke as financial regulators was that they were excessively in awe of Wall Street... They operated under the assumption that what is good for Wall Street is good for Main Street. This will no doubt change as a result of the crisis, even if Bernanke remains at the helm. But what the world needs is a Fed chairman who is instinctively skeptical of financial markets and their social value.
Here are some of the lies that the finance industry tells itself and others, and which any new Fed chairman will need to resist.
Prices set by financial markets are the right ones for allocating capital and other resources to their most productive uses. That is what textbooks and financiers tell you, but ... there are far too many "market failures" in finance for these prices to be a good guide for resource allocation. ... Implicit or explicit bailout guarantees, moreover, induce too much risk-taking. ... So the prices that financial markets generate are as likely to send the wrong signals as they are to send the right ones.
Financial markets discipline governments. This is one of the most commonly stated benefits of financial markets, yet the claim is patently false. ... If in doubt, ask scores of emerging-market governments that had no difficulty borrowing in international markets, typically in the run-up to an eventual payments crisis.
In many of these cases ... financial markets enabled irresponsible governments to embark on unsustainable borrowing sprees. When "market discipline" comes, it is usually too late, too severe, and applied indiscriminately.
The spread of financial markets is an unmitigated good. Well, no. Financial globalisation was supposed to have enabled poor, undercapitalised countries to gain access to the savings of rich countries. It was supposed to have promoted risk-sharing globally. In fact, neither expectation was fulfilled. ...
Financial innovation is a great engine of productivity growth and economic well-being. Again, no. Imagine that we had asked five years ago for examples of really useful kinds of financial innovation. We would have heard about a long list of mortgage-related instruments... The truth lies closer to Paul Volcker's view that for most people the automated teller machine (ATM) has brought bigger benefits than any financially-engineered bond.
The world economy has been run for too long by finance enthusiasts. It is time that finance skeptics began to take over.

My view is that Bernanke should be reappointed.

Wrong Message

The administration has been trying to sell health care reform by reassuring people that if they are satisfied with the coverage they have now, they can keep it.

That is, so long as it's still available. Given the way employers have been shedding responsibility for health care and the way escalating costs have been reducing affordability, it's unlikely that it will be. And, of course, if you do get sick, you may find you don't have the coverage you thought you had.

So the message should be that health care reform is the only chance people have to keep the coverage they have now.

links for 2009-08-13

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