A Description Of Last Quarter's Drop In GDP

Dean Baker provides the highlights on Q4.  One time changes in spending caused most of the drop in GDP.  Durable goods were up because of auto sales.  The cars ruined by Sandy needed to be replaced.  The good news is that spending on healthcare has been growing slower than it has in the past.  That will have an important impact on budget deficit projections if it continues.

Dean Baker Deflates Tom Friedman

I'm getting sick of criticizing Friedman.  Dean Baker shows that Friedman is an empty suit.  Friedman is still doing what he did in 2004 when he wrote The Earth Is Flat.  Most of the time he is harmless.  This time, however, Friedman made the mistake of explaining unemployment and falling wages.  His solution is simple, like his book, but it is very wrong.  I'll let Dean Baker tell you why.

Why Obama Should Not Promote A Progessive Agenda

The US contains a multiplicity of interest groups.  Around 25% of Americans claim to be liberals and 35% are conservative.  Moderates outnumber liberals and conservatives.  Therefore, it would be a mistake for the president to promote the liberal policies that he advocated in his inaugural address.  He should attempt to devise a more moderate set of policies that will make conservatives and liberals happy.  In other words, he should use his second term to make the mistake that he made in his first term.  Republicans were not interested in negotiating compromises with the president in his first term.  They behaved as if they had won the election.  They proposed far right alternatives on every policy issue.  They are still doing that today. 

The other thing that bothers me about this article, is that its hard to find a far left idea in the agenda that the president outlined in his address.  Is addressing climate change; investing in infrastructure, and improving access to higher education in order to promote equality of opportunity a set of far left ideas?  Those are the ideas that have enabled us to prosper, and to become a model for much of the world.  It is a sad statement of current political situation, if the ideas that were once shared by the majority of Americans are too radical for our president to promote.

The Financialization Of The US Economy And Unemployment

This is a fascinating article which shows how the US economy has changed since 1980.  Non-financial corporate payouts to shareholders, prior to 1980, was around 40% of after tax profits.  The remainder was available to fund investments.  That pattern shifted dramatically in the 1980's, and it continues today.  In 2008 corporate payouts to shareholders, through dividends and net stock repurchases, exceeded the profits of non-financial corporations.  Many corporations were borrowing money in order to provide payouts to shareholders with dividends, or stock repurchases that have the effect of increasing the value of the outstanding stock shares. 

This pattern was consistent with the concept that purpose of the corporation was to increase shareholder value.  Management compensation also moved in that direction.  Executive compensation was linked to increases in the stock price.  This aligned the incentives of executives with that of shareholders. 

This also shifted the investment function from corporate executives to Wall Street firms that owned, or managed stocks for individuals and other investors.  Wall Street was put in the position of allocating funds to firms or industries that would provide the best returns to investors.  Many argued that Wall Street would be better at allocating capital to its most productive uses than corporate executives.  Wall Street has been critical of firms, like Apple, which retains earnings so that it can allocate profits to innovations that will allow it to grow. They want Apple to use its cash to payout dividends to shareholders, or to repurchase its stock.  The financial industry also favors firms that set higher targets for internal investment projects.  That encourages firms to make fewer riskier investments and to focus on cost cutting to increase profits.  The end result is decreased innovation, and less expenditure on R&D.  It also encourages corporations to lobby government for tax reductions, or other favors that might contribute to corporate profits, and returns to shareholders.

The financialization of the economy leads to unemployment by lowering the level of internal corporate investment on new projects.  Corporate investments focus on increasing internal efficiency, and reducing the cost of labor.  Firms that are not successful in increasing returns to shareholders are subject to attack by private equity firms.  Their mode of operation is to produce a quick return to their investors by borrowing money in order to pay dividends to the private equity company, along with high fees for consulting services.  The private equity firms make money even if the company fails. It also makes money if it can increase profits through cost cutting, and sell the business to a third party.

George Will Offers His View On A GOP Revival

George Will is another smart guy who earns a good living by selling snake oil.  The title of the article is about a GOP revival.  However, the article has little to do with a GOP revival.  Instead of suggesting ways that his political party can help to make government work, he attacks President Obama for putting climate change on his agenda.  Most of the article is directed towards climate change denial.  The rest of the article attacks the president for supporting green technology.  The president said nothing about green technology, or any other approach to limiting carbon emissions.  George Will simply rehashes the GOP message about the failed government investment in a green technology firm several years ago.

The Washington Post is one of our countries leading newspapers.  It is unfortunate that it provides a platform George Will to misinform the public.  His articles are syndicated nationally to small town newspapers in parts of the country that vote for his favorite political party.  His brainpower would be better used if he directed his attention towards fixing the problems in his own party.

David Brooks Argues For An Alter GOP

David Brooks joins Paul Krugman in arguing that the GOP can't get away with a strategy of telling the public one thing, and continuing to do what the public opposes.  He understands that the GOP base is too dependent on the South and rural America.  The current anti-government message of the GOP won't in the areas of the country that are now looking to the Democratic Party for solutions.  He also understands that its hard for leopard to change its spots.  He suggests that the GOP should only slightly alter its anti-government message.  It is not against government.  It is against centralized government that is epitomized by Obama.  That message would sell in the Northeast and other areas that now favor the Democrats.  That would allow the GOP to hold onto its constituents in the South and the rural parts of the western states; it would also make the GOP more competitive in the rest of the country.

Brooks understands the problems with the GOP's dependence on the least educated part of white America. He also knows that globalization and other trends in the economy worry many Americans.  Unfortunately, he does not offer a GOP solution for addressing those problems.  He only offers a modified version of the GOP's anti-government message.  It will become the anti-centralized government party.  Unfortunately, the problems that most Americans are worried about, such as entitlement reform, and the hollowing out of the middle class, will require a stronger voice in Washington.  The GOP strategy of making the country ungovernable from Washington, as long as a Democrat is in the White House,  is also doomed to failure.

David Brooks is very smart and articulate.  Its too bad that his ability is wasted on efforts to fix a broken political party. 

The GOP Is Trying To Change Its Image But Not Its Policies

The GOP has lost successive presidential elections.  It was successful in capturing a good share of the populist market by organizing the Tea Party, but there is more to the populist movement than the Tea Party.  They can't win general elections with only the Tea Party, and the super-rich on their side.  Consequently, they are trying to softer their image as the party of the rich.  It appears that they are more concerned about image change than they are about policy change.  Krugman points out some the discrepancies between what they say and what they are doing.  He tries to explain their behavior by arguing that they live in and information bubble which reinforces their central belief system.  He is not sure that this explains their behavior and I agree.  Oligarchies only tolerate democracy when they can control democratic outcomes.  The policies that the GOP supports, are the policies favored by their political masters.  They can't change the policies, so they can only work harder on marketing them.