"The purpose of studying economics is not to acquire a set of ready-made answers to economic questions, but to learn how to avoid being deceived by economists."
-- Joan Robinson, Economist (1903-1983)
Friday, December 2, 2011
Has Robert Reich Been Reading My Blog?
A recent article by Robert Reich, former President Clinton's Secretary of Labor, calls attention to the history of Republican adherence to Social Darwinism in the nineteenth century. He ties the current policies of the party to that history.
Last April, I mentioned the same phenomenon in my post on altruism and politics. Robert Reich adds some useful detail.
Last April, I mentioned the same phenomenon in my post on altruism and politics. Robert Reich adds some useful detail.
A German's View Of America
Speaking of Germany; here is a link to an article in Spiegel on line magazine analyzing the US presidential election to date The title says it all :
The Republicans' Farcical Candidates
Thursday, December 1, 2011
Europe In Perspective
Lord Ismay, the first Secretary General of NATO, once observed that the purpose of the alliance was to "keep the Russians out, the Americans in, and the Germans down."
That worked for about twenty-five years, but the dynamics of Europe began to change about halfway through the decade of the seventies. Germany began flexing her economic, political and military muscle about that time. General Alexander Haig, Supreme Allied Commander, Europe (SACEUR) from 1974 to 1979, embraced that change by supporting the appointment of a German general as Deputy SACEUR, filling a position vacated by France when they withdrew from the NATO integrated military structure in 1967.
The truth is, Europeans were never as concerned about the Soviet Union as they were about Germany. Admitting Germany into NATO worried the Soviet Union, but in fact it was aimed more at controlling Germany by embracing them than it was aimed at defending against Moscow.
At the same time, Ismay's goal of "keep[ing]...the Americans in..." was to a great extent for the same purpose. Only America could serve as a counterweight to Germany. In addition, persistent animosities among European nations were so strong that only an outside, neutral power (the US) could moderate these ancient passions.
Reading today's headlines, it seems that nothing much has changed in the past three decades. (I served on the staff of the Supreme Allied Powers, Europe (SHAPE) from 1978 to 1981.) Even in the Euro zone, it appears that the United States continues to be a necessary counterweight to Germany.
That worked for about twenty-five years, but the dynamics of Europe began to change about halfway through the decade of the seventies. Germany began flexing her economic, political and military muscle about that time. General Alexander Haig, Supreme Allied Commander, Europe (SACEUR) from 1974 to 1979, embraced that change by supporting the appointment of a German general as Deputy SACEUR, filling a position vacated by France when they withdrew from the NATO integrated military structure in 1967.
The truth is, Europeans were never as concerned about the Soviet Union as they were about Germany. Admitting Germany into NATO worried the Soviet Union, but in fact it was aimed more at controlling Germany by embracing them than it was aimed at defending against Moscow.
At the same time, Ismay's goal of "keep[ing]...the Americans in..." was to a great extent for the same purpose. Only America could serve as a counterweight to Germany. In addition, persistent animosities among European nations were so strong that only an outside, neutral power (the US) could moderate these ancient passions.
Reading today's headlines, it seems that nothing much has changed in the past three decades. (I served on the staff of the Supreme Allied Powers, Europe (SHAPE) from 1978 to 1981.) Even in the Euro zone, it appears that the United States continues to be a necessary counterweight to Germany.
Is Taxing The Rich A Good Idea? Yes!
The most interesting thing about our current political debate on fiscal policy is that not only Warren Buffet, but the most successful stock market investors (speculators, if you will) all say that the best way to insure the prosperity of the rich is to insure the prosperity of the middle class.
Don't believe me? Check out this article by Nick Hanauer, a venture capitalist who has started more than twenty companies, including Amazon.com. He says, "I’ve never been a “job creator,” going on to explain: "I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate."
Actually, that sounds a lot like Henry Ford, who recognized that if his workers couldn't afford to buy his cars, his enterprise would be in trouble. Accordingly, he paid his workers more than the prevailing wage.
Hanauer drives the point home: "That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be."
In case you still don't agree, he amplifies the point: "When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
"It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer."
"And that’s what has been happening in the U.S. for the last 30 years."
The Occupy Wall Street movement has finally figured it out.
Don't believe me? Check out this article by Nick Hanauer, a venture capitalist who has started more than twenty companies, including Amazon.com. He says, "I’ve never been a “job creator,” going on to explain: "I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate."
Actually, that sounds a lot like Henry Ford, who recognized that if his workers couldn't afford to buy his cars, his enterprise would be in trouble. Accordingly, he paid his workers more than the prevailing wage.
Hanauer drives the point home: "That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be."
In case you still don't agree, he amplifies the point: "When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
"It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer."
"And that’s what has been happening in the U.S. for the last 30 years."
The Occupy Wall Street movement has finally figured it out.
Wednesday, November 30, 2011
Debt Ceiling Analysis (Apologies To Sistine Chapel)
Here is a link to an article in GQ magazine with illustrations of the major players in the debt ceiling controversy. Take a look. How many can you identify?
Tuesday, November 29, 2011
Debt Ceiling Update
Not long ago headlines were screaming about our supposed debt crisis - we had to fix it by taking away benefits for Americans with modest incomes or we are all doomed.
We may be doomed, but not because of the federal debt. Not in the short or medium term, at least.
It is amazing, after all the hype, how little uproar there has been at the failure of the "super committee."
In my view, it would be good to get the debt level down, but by putting people back to work so federal expenditures decline and revenues increase. We need greater aggregate demand and an effective industrial policy as well.
A bigger debt problem is the overhang of private indebtedness. As the most recent data shows, Nonfinancial private sector debt is about 170% of GDP, but is declining. The last time private sector debt exceeded 170% of GDP was at the height of the depression, when it exceeded 230%. At that time, GDP plunged but existing debts retained their nominal values.
The recent decline in debt to GDP ratio is good for individual debtors, but not good for the economy. If everyone tries to pay off their debts at once, the economy will contract.
Unless the Europeans do something different than they have been doing, this seems likely to happen in the Euro Zone. Both economists and investors seem to believe the US economy will follow Europe into contraction.
We may be doomed, but not because of the federal debt. Not in the short or medium term, at least.
It is amazing, after all the hype, how little uproar there has been at the failure of the "super committee."
In my view, it would be good to get the debt level down, but by putting people back to work so federal expenditures decline and revenues increase. We need greater aggregate demand and an effective industrial policy as well.
A bigger debt problem is the overhang of private indebtedness. As the most recent data shows, Nonfinancial private sector debt is about 170% of GDP, but is declining. The last time private sector debt exceeded 170% of GDP was at the height of the depression, when it exceeded 230%. At that time, GDP plunged but existing debts retained their nominal values.
The recent decline in debt to GDP ratio is good for individual debtors, but not good for the economy. If everyone tries to pay off their debts at once, the economy will contract.
Unless the Europeans do something different than they have been doing, this seems likely to happen in the Euro Zone. Both economists and investors seem to believe the US economy will follow Europe into contraction.
Monday, November 28, 2011
OECD Joins Critics Of Economic Dithering
Today the Organization for Economic Cooperation and Development (OECD) joined the chorus of economic observers and major players calling for urgent action to put "weakening global [economic] activity back on track."
The OECD calls for action both by Europe and the United States. OECD's latest Economic Outlook report foresees serious risks to the global economy.
OECD Chief Economist Carlo Padoan observes that “Prospects only improve if decisive action is taken quickly.”
The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid disorderly sovereign defaults, a sharp credit contraction, systemic bank failures and excessive fiscal tightening. It sees GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013. Unemployment in the OECD area is also projected to remain high for an extended period, with the jobless rate staying at around 8% through the next two years.
“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” Mr Padoan said during the launch of the report in Paris. “We see the US growth recovering only slowly, the euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”
The OECD calls for action both by Europe and the United States. OECD's latest Economic Outlook report foresees serious risks to the global economy.
OECD Chief Economist Carlo Padoan observes that “Prospects only improve if decisive action is taken quickly.”
The Outlook’s baseline scenario assumes that policy-makers take sufficient action to avoid disorderly sovereign defaults, a sharp credit contraction, systemic bank failures and excessive fiscal tightening. It sees GDP across the OECD countries slowing from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013. Unemployment in the OECD area is also projected to remain high for an extended period, with the jobless rate staying at around 8% through the next two years.
“We are concerned that policy-makers fail to see the urgency of taking decisive action to tackle the real and growing risks to the global economy,” Mr Padoan said during the launch of the report in Paris. “We see the US growth recovering only slowly, the euro area entering into mild recession and Japan growing faster because of reconstruction, but this boost is temporary and will fade away.”
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