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July 26, 2010

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Paul Krugman: Who Cooked the Planet?

Posted: 26 Jul 2010 12:42 AM PDT

Why did climate change legislation fail?:

Who Cooked the Planet?, by Paul Krugman, Commentary, NY Times: Never say that the gods lack a sense of humor. I bet they're still chuckling on Olympus over the decision to make the first half of 2010 — the year in which all hope of action to limit climate change died — the hottest such stretch on record. ...
So why didn't climate-change legislation get through the Senate? Let's talk first about what didn't cause the failure, because there have been many attempts to blame the wrong people.
First of all, we didn't fail to act because of legitimate doubts about the science. Every piece of valid evidence ... points to a continuing, and quite possibly accelerating, rise in global temperatures.
Nor is this evidence tainted by scientific misbehavior. You've probably heard about the accusations leveled against climate researchers —... "Climategate," and so on. What you may not have heard, because it has received much less publicity, is that every one of these supposed scandals was eventually unmasked as a fraud concocted by opponents of climate action...
Did reasonable concerns about the economic impact of climate legislation block action? No. ... All serious estimates suggest that we could phase in limits on greenhouse gas emissions with at most a small impact on the economy's growth rate.
So it wasn't the science, the scientists, or the economics that killed action on climate change. What was it?
The answer is, the usual suspects: greed and cowardice.
If you want to understand opposition to climate action, follow the money. The economy as a whole wouldn't be significantly hurt if we put a price on carbon, but certain industries — above all, the coal and oil industries — would. And those industries have mounted a huge disinformation campaign to protect their bottom lines.
Look at the scientists who question the consensus on climate change; look at the organizations pushing fake scandals; look at the think tanks claiming that any effort to limit emissions would cripple the economy. Again and again, you'll find that they're on the receiving end of a pipeline of funding that starts with big energy companies, like Exxon Mobil, which has spent tens of millions of dollars promoting climate-change denial, or Koch Industries, which has been sponsoring anti-environmental organizations for two decades.
Or look at the politicians who have been most vociferously opposed to climate action. Where do they get much of their campaign money? You already know the answer.
By itself, however, greed wouldn't have triumphed. It needed the aid of cowardice — above all, the cowardice of politicians who know how big a threat global warming poses, who supported action in the past, but who deserted their posts at the crucial moment.
There are a number of such climate cowards, but let me single out one in particular: Senator John McCain.
There was a time when Mr. McCain was considered a friend of the environment. Back in 2003 he burnished his maverick image by co-sponsoring legislation that would have created a cap-and-trade system for greenhouse gas emissions. He reaffirmed support for such a system during his presidential campaign, and things might look very different now if he had continued to back climate action once his opponent was in the White House. But he didn't — and it's hard to see his switch as anything other than the act of a man willing to sacrifice his principles, and humanity's future, for the sake of a few years added to his political career.
Alas, Mr. McCain wasn't alone; and there will be no climate bill. Greed, aided by cowardice, has triumphed. And the whole world will pay the price.

Uncertainty about Regulation and Taxes is *Not* the Problem

Posted: 26 Jul 2010 12:17 AM PDT

It's pretty obvious why the business community is pushing the idea that uncertainty about future regulation and taxes is holding back business investment and slowing down the recovery, but the evidence doesn't support this claim:

Blame Games, by James Surowiecki: The U.S. economy is limping along. The job market is in rotten shape, and business investment is hitting historic lows. And, if you're looking for a culprit for this dismal state of affairs, many businesspeople would be happy to point you to the White House. Companies aren't hiring or investing, businessmen say, because ... of Barack Obama's anti-corporate attitude and a blizzard of new regulations and proposed taxes...
There's no doubt that Obama is unpopular in the business world. ... From an economic perspective, the important question is whether such perceptions are really what's keeping the economy in neutral. Those who think that they are say that "uncertainty surrounding regulations and taxes," ... is making business hold back. But uncertainty is a fact of business life, and the impact of new regulations on most companies has been overhyped: unless you're a financial-services or health-care company, Obama's initiatives aren't remaking your business. In fact, Wall Street and health care are among the few industries currently adding jobs, which suggests that new regulatory burdens aren't the cause of sluggishness. In surveys, meanwhile, fewer small businessmen cite regulation as their biggest problem today than did in the boom years of the nineteen-nineties. ...
If businesses truly were holding back on hiring new workers or building new plants in the face of real opportunities, we'd see them working their current employees and factories to the limit. But they aren't: weekly hours worked have scarcely budged in two years, and factory usage is at just seventy per cent of capacity, which is historically quite low.

links for 2010-07-25

Posted: 25 Jul 2010 11:03 PM PDT

WikiLeaks Releases Documents on Afghanistan

Posted: 25 Jul 2010 04:50 PM PDT

Will this be a game changer in Afghanistan?

Reverse Psychology?

Posted: 25 Jul 2010 11:43 AM PDT

Instead of a series of op-eds by Christina Romer, Larry Summers, Jared Bernstein and other members of the administration making a strong, strong case for more stimulus -- particularly that devoted to job creation -- along with the president himself making the case to the nation, the appearance of key administration officials on Sunday talk shows to bolster the effort, and so on, the administration has decided to try and sell a recovery that hasn't yet taken hold.

Thus, instead of a much needed and impressive effort to move Congress to action, or at least make clear to voters who is and who isn't trying to help those struggling with the recession, here's Timothy Geithner saying it's time for the government to back off because a solid recovery is underway:

Treasury Secretary Timothy Geithner said the economy has now recovered sufficiently for government to begin to make way for private business investment.... Mr. Geithner's comments on Sunday, which echo previous sentiments expressed by President Barack Obama, reflect a turning point in the government response to the worst economic downturn since the Great Depression, a period marked by deep federal intervention in the financial, housing, auto and other industries...

The message is that the administration is pulling back, and maybe even starting to balance the budget because good times are just around the corner:

"We need to make that transition now to a recovery led by private investment," Mr. Geithner said Sunday on NBC's "Meet the Press." Mr. Geithner hit two Sunday talk shows, delivering the Obama administration's message that the economy was recovering...

I don't understand this strategy. The election is not that far way. If unemployment continues to be a problem, and it looks like it will, saying that things are fine and recovery is just around the corner will backfire.

Update: I meant to make this point, but forgot, so I'm glad Calculated Risk noted this (and I likely would have relied on his evidence in any case):

The WSJ is quoting Treasury Secretary Timothy Geithner as saying it is time for private investment to take over from government stimulus:

"We need to make that transition now to a recovery led by private investment," Mr. Geithner said Sunday on NBC's "Meet the Press."
...
"I think the most likely thing is you'll see an economy that gradually strengthens over the next year or two, you'll see job growth start to come back, investments expanding ... but we've got a long way to go still," Mr. Geithner said.

I discussed this last week - in most sectors of the economy there is over capacity or too much supply (housing), so there is no reason for significant new private investment.

(Also, in response to comments, maybe I should also add that, despite the poorly chosen title, I wasn't serious about the reverse psychology part.)

Update: Brad DeLong follows up.

I would put it much less politely: have Tim Geithner and Barack Obama lost their minds? The Administration's mid-session review--released last week--projects that the unemployment rate will rise in the next several months and will be at 9.3% in February 2011. It projects that Q4/Q4 real GDP growth will be 2.9% this year--and I don't see how we are going to get there with a 2.7% growth rate in the first quarter, a likely 2.0% growth rate in the second quarter, and with the tracking third-quarter growth aret at 2.9%. We would need 4.0% growth in the fourth quarter of this year. Nor do I understand where the 1.7% decline in unemployment over 2011 is supposed to come from: a simple Okun's Law coefficient of 2 would suggest that we need 2 x 1.7 + 2.6 = 6% real GDP growth to generate such a decline.

According to Mark Zandi, in the fourth quarter of this year the phase-out of the ARRA is likely to shave 0.3% off the real GDP growth rate. in 2011, the contractionary effects of the ARRA phase-out on the quarterly growth rates are likely to be -0.8%, -1.2%, -0.7%, and -0.2%.

It sure ain't morning in America. Maybe I need to go back and read Geithner's transcripts from this morning to see if the MSM is misrepresenting what he said...

"The Monumental Hypocrisy of the Republican Party"

Posted: 25 Jul 2010 09:36 AM PDT

I'm behind today. While I try to catch up, first, from an interview with Bruce Bartlett:

Six questions for Bruce Bartlett, The Economist: ... DiA: More generally, which party do you find more credible when discussing America's fiscal challenges?
Mr Bartlett: The Republicans don't have any credibility whatsoever. They squandered whatever they had when they enacted a massive UNFUNDED expansion of Medicare in 2003. Yet they had the nerve to complain about Obama's health plan, WHICH WAS FULLY PAID FOR according to the Congressional Budget Office. The word "chutzpah" is insufficient to describe how utterly indefensible the Republican position is, intellectually.
Furthermore, Republicans have a completely indefensible position on taxes. In their view, deficits cannot arise from tax cuts. No matter how much taxes are cut, no matter how low revenues go as a share of GDP, tax cuts are never a cause of deficits; they result ONLY AND EXCLUSIVELY from spending—and never from spending put in place by Republicans, such as Medicare Part D, TARP, two unfunded wars, bridges to nowhere, etc—but ONLY from Democratic efforts to stimulate growth, help the unemployed, provide health insurance for those without it, etc.
The monumental hypocrisy of the Republican Party is something amazing to behold. And their dimwitted accomplices in the tea-party movement are not much better. They know that Republicans, far more than Democrats, are responsible for our fiscal mess, but they won't say so. And they adamantly refuse to put on the table any meaningful programme that would actually reduce spending. Judging by polls, most of them seem to think that all we have to do is cut foreign aid, which represents well less than 1% of the budget.
Consequently, I have far more hope that Democrats will do what has do be done. The Democratic Party is now the "adult" party in American politics, willing to do what has to be done for the good of the country. The same cannot be said of Republicans, who seem unwilling to do anything that would interfere with their ambition to retake power so that they can reward their lobbyist friends with more give-aways from the public purse.
Unfortunately, I don't think Democrats have the guts or the stamina to put forward a meaningful deficit-reduction programme because they know—as I do—that it will require higher revenues. But facing big losses in the elections this fall I can't blame them. That leaves us facing political gridlock between the sensible but cowardly party and the greedy, sociopathic party. Not a pleasant choice for those of us in the sensible, lets-do-what-we-have-to-do-for-the-good-of-the-country independent centre. ...

Next, as Brad DeLong notes, Martin Wolf "makes the case that America's future depends on the rapid destruction of the Republican Party and its replacement by an alternative opposition party to the Democrats":

The political genius of supply-side economics, by Martin Wolf: ...My reading of contemporary Republican thinking is that there is no chance of any attempt to arrest adverse long-term fiscal trends should they return to power. Moreover, since the Republicans have no interest in doing anything sensible, the Democrats will gain nothing from trying to do much either. That is the lesson Democrats have to draw from the Clinton era's successful frugality, which merely gave George W. Bush the opportunity to make massive (irresponsible and unsustainable) tax cuts. In practice, then, nothing will be done. ...
To understand modern Republican thinking on fiscal policy, we need to go back to perhaps the most politically brilliant (albeit economically unconvincing) idea in the history of fiscal policy: "supply-side economics". Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets. ... It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?
How did supply-side economics bring these benefits? First, it allowed conservatives to ignore deficits. They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run. Second, the theory gave an economic justification – the argument from incentives - for lowering taxes on politically important supporters. Finally, if deficits did not, in fact, disappear, conservatives could fall back on the "starve the beast" theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.
In this way, the Republicans were transformed from a balanced-budget party to a tax-cutting party. This innovative stance proved highly politically effective...
The ... theory that cuts would pay for themselves has proved altogether wrong. ... Indeed, Greg Mankiw ... has responded to the view that broad-based tax cuts would pay for themselves, as follows: "I did not find such a claim credible, based on the available evidence. I never have, and I still don't." Indeed, he has referred to those who believe this as "charlatans and cranks". ...
So, when Republicans assail the deficits under President Obama, are they to be taken seriously? ...[I]t is not deficits themselves that worry Republicans, but rather how they are caused: deficits caused by tax cuts are fine; but spending increases brought in by Democrats are diabolical, unless on the military. ...
What conclusions should outsiders draw about the likely future of US fiscal policy? First, if Republicans win the mid-terms in November, as seems likely, they are surely going to come up with huge tax cut proposals (probably well beyond extending the already unaffordable Bush-era tax cuts).
Second, the White House will probably veto these cuts, making itself even more politically unpopular.
Third, some additional fiscal stimulus is, in fact, what the US needs, in the short term, even though across-the-board tax cuts are an extremely inefficient way of providing it.
Fourth, the Republican proposals would not, alas, be short term, but dangerously long term, in their impact.
Finally, with one party indifferent to deficits, provided they are brought about by tax cuts, and the other party relatively fiscally responsible (well, everything is relative, after all), but opposed to spending cuts on core programs, US fiscal policy is paralyzed. ...
This is extraordinarily dangerous. The danger does not arise from the fiscal deficits of today, but the attitudes to fiscal policy, over the long run, of one of the two main parties. Those radical conservatives (a small minority, I hope) who want to destroy the credit of the US federal government may succeed. If so, that would be the end of the US era of global dominance. The destruction of fiscal credibility could be the outcome of the policies of the party that considers itself the most patriotic.
In sum, a great deal of trouble lies ahead, for the US and the world.
Where am I wrong, if at all?

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