The Explanation Election

This article makes a good point.  We have an explanation gap from both political parties. Romney said that he was going to fix the economy, but he failed to explain how he would do it. Even the Wall Street Journal criticized Romney for not explaining how he would make the middle class better off.  Obama wants 4 more years to fix the economy but he has not presented an understandable plan for doing so.  Both candidates  have been running negative campaigns, and the public may be ready to support the candidate that can tell the public, in clear language, how it might be done.

Healthcare Costs In Canada And US

Canada has a single payer healthcare system.  It moved to a single payer system and was able to provide universal healthcare at a lower cost than it had under a system of private insurance. Republicans and Democrats agree that healthcare price inflation is our biggest fiscal problem.  The Republican proposal for solving the problem is to increase the role of private insurers in the healthcare system.  The GOP plan would also greatly reduce access to healthcare via Medicaid.  If the twin problems of healthcare in the US are the high cost of healthcare and limited access, the GOP plan is exactly the wrong way to go.

Obama's healthcare plan is a political compromise. It did not believe that moving to a single payer plan like Canada's would be any more politically possible than it was in the Clinton administration.  The plan contains ways to reduce price inflation in Medicare, and to use the savings to extend the reach of Medicaid to more Americans.  It also developed methods to supplement the cost of private insurance for those not covered by employer provided insurance.  It is not a perfect plan, but it does deal with each of the twin problems of US healthcare.

In a more perfect world, with a better informed electorate, it should be a no-brainer to reject GOP proposals which worsen each of the twin problems.  Healthcare prices will continue to rise, and fewer American's will have access healthcare under the GOP plan. Unfortunately, we have a poorly informed electorate and a political party that preys on a misinformed public.  I wonder how Canada was able to overcome the political obstacles that must have been on the path to a single payer system?

The America That We Have Lost And The America That Has Replaced It

This article does a nice job of describing the US economy when stakeholder capitalism was the dominant religion.  Tax rates were much higher than they are today, but people still worked hard and businesses invested to satisfy consumer demand.  Productivity was also higher than it has been recently, and the gains from productivity were shared between labor and capital. A prosperous middle class was the fuel for economic growth. Things changed in the early 80's when shareholder capitalism was introduced to restore the "Guilded Age".  The tax system was made less progressive, with the help of economic charlatans, who told us that lower taxes would encourage people to work harder, and stimulate business investment.  That would promote economic growth, which would more than pay for the revenue lost from tax cuts. Government borrowing was required to replace the lost tax revenues.  The benefits from productivity were not shared between labor and capital either. Most of the gains from productivity went to capital, and wages for middle class Americans stagnated.  Asset bubbles and debt replaced  income growth in the middle class as the fuel for economic growth. On the other hand, corporate executives rewarded themselves with compensation plans that used to be reserved for the successful founders of businesses. Wall Street also found ways to take advantage of shareholder capitalism and the deregulation of the banking system.  An increasing share of corporate profits were captured by the financial services industry.  It looked like the good old days during the Guilded Age on Wall Street.

Globalization played a role in the restoration of the Guilded Age, but it was not singularly decisive. Some countries have been able to manufacture and export products and still pay decent wages. The US has become a low wage economy relative to Germany and other countries which adopted different ways of responding to globalization without putting all of the burden on labor.

Maureen Dowd Sums Up The GOP Masquerade Party

I have posted lots of articles about the distortion of reality at the GOP nomination party.  Sometimes its better to have a writer with imagination do it for us.  Few do it as well as Maureen Dowd.  She goes right to the essence of the personalities and the party that was in charge of the masquerade.  The head of engineering  for a major computer company was once asked to define marketing.  He said that marketing is what companies do when they don't have a product.  That explains the masquerade party as well as anything else that I have heard.  The GOP does have a product but it is toxic for the majority of American's.  Hopefully, masquerades will not become the norm for American politics. If political parties with toxic products can put a mask on them, and sell them to a carnival loving public, marketing will have replaced democracy in America.

How Is The US Downturn Different From Prior Recessions?

There has been an ongoing debate at the Fed and elsewhere about the answer to the above questions.  Some argue that the recession and slow recovery are the result of structural problems in the economy.  In that case, there is not much that the Fed can do about the problem.  A conservative economist from the Bush administration disagrees.  He argues that this recession is much like earlier recessions.  It is caused by a lack of demand.  The major difference between this recession and others is that it was more severe.  Since we have a problem of weak demand, the Fed can use monetary policy to stimulate demand and speed up the recovery.

American Capitalism Under The Microscope

There is a general agreement that American capitalism has lost some of its appeal.  It is no longer the model that other countries hope to emulate.  This has led to an outpouring of books that attempt to diagnose the patient and prescribe the appropriate medicine.  This article reviews several of the books that have been recently written on this topic.  Some deny that there is a real problem with American capitalism, and some of the diagnoses are not very deep.  There are a few themes, however, that tend to run together and form a core message.  American capitalism has lost its moral foundation.  Economies need to have have a purpose.  The idea that greed is good, which seems to be its moral foundation today, is not a good foundation upon which a sustainable economy can be built.  Underneath the erosion of the economy's moral decline, are several institutional changes that undermine its social purpose.

One of the bad institutional developments has been the preeminence of maximizing shareholder value as as the objective of the economy.  It has not worked to maximize shareholder value but it has maximized the paychecks of CEO's.  The return on F500 stocks, since the late 70's, when the doctrine of maximizing shareholder value written into stone has not been good for shareholders.  The returns to shareholders has been lower than it was when multiple stakeholders were considered to be important.  On the other hand, CEO compensation has grown eight times faster than corporate profits.  Managing investor expectations and the stock price has crowded out the management of the enterprise.  It has also led to bad practices as rising expectations about continuous growth have been difficult to satisfy without "creative" accounting.

It was also ironic to see books by the liberal Joe Stiglitz and a conservative economist from Chicago arrive at similar diagnoses of the problems in American capitalism. The both agree that a more equal distribution of output of the economy is good for society and for the economy.  Rising inequality has distorted democracy and it has diminished consumer demand.  Instead of an economy regulated by real competition in product markets, corporations have captured government and changed the rules of the game to their advantage.  Crony capitalism, facilitated by government, has not been good for the economy or for the majority of Americans.  Income inequality, and diminished social mobility, interact in ways that exacerbate social problems and the ability of government to deal with them.

In general the diagnoses of the problems are better than the solutions that are proposed.  The economic  train has left the station and it is going to be difficult to put it on a better track.  Crony capitalism did not develop overnight.  It has taken over 30 years to replace a system that worked better for most Americans with what we have today.  The diagnoses are the first step in taking the actions that will be required.  We understand the problem.  We just need to begin to do what we know we have to do.

Fed Chairman Calls Unemployment Rate A Grave Concern

The Chairman of the Federal Reserve used unusually strong language in his remarks about the economy.  His comments signal that the Fed will make further efforts to strengthen the economy.  In particular, he said that interest rates would be kept close to zero beyond 2014.  He also referred to other actions that the Fed might take because of his concerns about Europe and the weakness of the global economy.

The Federal Reserve has a twin mandate to maintain price and unemployment stability.  Republican's have tried to keep the Fed from doing anything to improve the employment rate prior to the election.  Mitt Romney, would prefer to run against the President in a weak economy.  The GOP has resisted almost every effort by the administration to strengthen the economy prior to the election.  They put party interests ahead of the public interest.