Speaking of New Ideas

How to get people working again, generate revenue, reduce the deficit and stimulate the economy by increasing aggregate demand - not a new idea, but a proven one:

How to cure the unemployment problem?:

"This isn't hard. Hire people to build things with the free money the world is offering us."

Posted by Mark Thoma on Monday, August 15, 2011 at 10:08 PM in Economics, Unemployment

Or how about this:

"The only policy that will really help is an increase in aggregate demand."

"The right policy can be debated, but the important thing is for policy makers to stop obsessing about debt and focus instead on raising aggregate demand. As Bill Gross of the investment firm Pimco put it recently: “While our debt crisis is real and promises to grow to Frankenstein proportions in future years, debt is not the disease — it is a symptom. Lack of aggregate demand or, to put it simply, insufficient consumption and investment is the disease.”

Bruce Bartlett; Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.

Or this:


"Among those calling for a mix of cuts and revenue are onetime standard-bearers of Republican economic philosophy like Martin Feldstein, an adviser to President Ronald Reagan, and Henry M. Paulson Jr., Treasury secretary to President George W. Bush, underscoring the deepening divide between party establishment figures and the Tea Party-inspired Republicans in Congress and running for the White House.
“I think the U.S. has every chance of having a good year next year, but the politicians are doing their damnedest to prevent it from happening — the Republicans are — and the Democrats to my eternal bafflement have not stood their ground,” Ian C. Shepherdson, chief United States economist for High Frequency Economics, a research firm, said in an interview.
As for the longer term, Ethan Harris, co-head of global economics research at Bank of America, wrote this week that “Given the scale of the debt problem, a credible plan requires both revenue enhancement measures and entitlement reform. Washington’s recent debt deal did not include either.”

New Ideas

About this time in every election cycle, we begin to hear candidates, pundits and observers talking about how we need "new ideas."

The belief in new ideas isn't universal, though. Or even belief in novelty of any kind. For example:

"9  The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun."
Ecclesiastes 1:9

At least in human affairs, the preacher who wrote that book seems to be right. The more familiar you are with history, the more it appears that every so-called new idea is just a revamping of some idea long known to humankind.

Even so, if the idea is something you have never heard about, it seems new.

Yesterday's New York Times had an article lamenting not just the paucity of new ideas, but the shortages of any ideas at all. Neal Gabler, senior fellow at the Annenberg Norman Lear Center at the University of Southern California writes of The Elusive Big Idea. Gabler observes that not only do we no longer have big thinkers, our best new ideas seem trivial. He attributes the problem to a surfeit of information, readily available over the internet, which paradoxically crowds out thought and ideas.

The economist Jared Bernstein takes issue with Gabler. At least in the field of economics, Bernstein contends, ideas have been suppressed by a confluence of wealth and power.

"The financial crash of the 2000s revealed a confluence of many powerful and socially disruptive forces: levels of income inequality not seen since the dawn of the Great Depression, stagnant middle-class living standards amidst strong productivity growth, solid evidence that deregulated markets were driving a damaging bubble and bust cycle, deep repudiation of supply-side economics, and most importantly, even deeper repudiation of the dominant, Greenspanian paradigm that markets will self-correct." Despite the evidence and the warnings of economists, Bernstein continues, "And yet, at least from where I sit today, we let the moment pass.  Far from a debate over a new paradigm, our national political economy discussion is bereft of ideas, leaving us mired in recession as we self-inflict one economic wound after another.  Forget new ideas—we can’t seem to correctly apply the old ones!"

Why is that?  Bernstein explains: "Why did we squander the opportunity?  Not because there’s so much information on the web.  It is, at least in part, because the concentration of wealth and power blocked the new ideas from a fair hearing."

About Demand

"I hear politicians say that businesses have money and they should be hiring," said Riddle, a tall, distinguished-looking man who might be cast as the president if he were an actor. "But if you don't have the demand, you don't hire the people."

Aug. 14, LA Times

Here's the rest of the article:

Companies are afraid to hire, even if business is improving

Bailing Out

The labels need updating, but the cartoon is still good.

Cheerleading Politicians

A curious feature of American elected officials is that a number of them prepared for officialdom by serving as cheerleaders either in high school or college.

It makes sense. The function of a cheerleader is to stir the crowd to a hysterical level of support and optimism, no matter how dire the circumstances. The opposing team is ahead by four touchdowns and has the home team's back against the goal line, threatening another score. "Push 'em back," the cheerleader cries to the shouts of the fans, "push 'em way back.!"

Cheerleaders don't organize or select the plays,don't throw any passes, don't catch the ball or set any blocks. They don't even carry water to the folks who do.

Reality plays no part in the matter at all.

Among former cheerleaders in politics:

Thad Cochran, senior senator from Mississippi (Ole Miss);
Trent Lott, former senator from Mississippi (Ole Miss);
Kay Bailey Hutchison, former senator from Texas (University of Texas);
George W. Bush, former governor of Texas and former president of the United States (Phillips-Andover);
Rick Perry, governor of Texas (Texas A&M).

Third Party Nostrum

Last months' distressing dispute over the manufactured issue of the debt ceiling has inspired some pundits to fall in with the "third party" nostrum. The latest to join that particular bandwagon is the New York Times' Tom Friedman in a recent column.

The newest wrinkle in this third party scheme is a nationwide primary over the internet.

Friedman seems to think we need a more moderate party. I think a major part of our current problem is that the political process is both dominated by and beholden to monied (especially financial) interests. Moderation won't help that.

As for primaries, they're already pretty open. I think they are a large part of the problem, along with the visible decline of the journalism profession.

A contributing factor for much of the present confusion is the left/right/moderate typology. There are better models of the real political word. One such model is found at The Political Compass, which describes political views on an x-y plot, adding an additional dimension to the usual left/right straight line. Check it out at politicalcompass.org. Take the survey and see where you stand. You might be surprised.

A different approach is taken by the Pew Center for The People and the Press. After every presidential election the Pew Center (and before the the Times Mirror) conducts a detailed survey and provides the results in a report titled Beyond Red vs Blue: The Political Typology. The most recent report, released May 4th of this year, finds that the public is more doctrinaire at each end of the ideological spectrum, yet more diverse in the middle than it has been in the past. The typology, the fifth since 1987, sorts Americans into cohesive groups based on their values, political beliefs and party affiliation.

The most recent survey divides the public into nine groups, one of which, the "bystanders," don't bother voting at all. Of the others, twenty-five percent fall into mostly Republican groups, forty percent fall into mostly Democratic groups, and thirty-five percent fall into mostly independent groups. If we had elections based on proportional representation, the eight groups (other than bystanders) might form the basis for roughly the same number of political parties.

The Pew site offers readers the chance to take a quiz to determine their personal typology. Give it a try.

Breaking News: Guru Remains Deceased

Chicago: Aug. 12, 2011 This just in - John Maynard Keynes remains dead, fulfilling his own prophecy. "In the long run, we are all dead," Keynes predicted in 1923. His complete forecast was: "The long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."

Chicago economists, however, have decided to undertake that very easy, useless task and reveal the plan: "leave the economy alone and it will come home. It's in the book."

Many observers hasten to add: "pay no attention to the apparent accuracy of predictions and mathematical models concocted by Keynes' disciples. Facts can only confuse things. What matters is dogma!"

Post War (WWII) Economic Reconstruction

My favorite economist, Paul Krugman, has pointed out a number of times recently that the profound increase in American prosperity after WWII took place in a period of high marginal tax rates and powerful labor unions. All true. I'm developing some thoughts about other things that were going on at the time that could have easily led to economic disaster except for some very effective economic planning for the postwar transition. More on that theme later.

I just came across a paper by the economist Brad DeLong comparing the postwar period with the period between WWI and WWII, especially in Europe:

"Another second important factor in making post-World War II economic reconstruction a success, a factor independent of the Keynesian revolution in economic policy, was the fact that post-World War II reconstruction was carried out in the shadow of the interwar period. The political and economic struggle between classes as it had been carried out in Europe between the wars had ended in complete disaster for all. Right-wing factions had wanted low wages, no welfare state, and stable prices; left-wing factions had wanted high wages and an extensive welfare state. The political and economic disruptions that this struggle generated led to fascism and Nazism. Hitler's rise had benefited no one." (Emphasis mine.)

Notice any familiar concepts?