Friday, January 4, 2013
Similarities Between US Tea Party And UK Euroskeptics
The Tea Party in the US has pushed the Republican Party too far to the right to win general elections. The Tories in the UK have also pushed the conservative party too far to the right. Cameron won the general election but his political options have been limited by radical Tories in his party. This is a difficult problem to overcome because of the way in which political parties select their candidates. Extremists in both parties tend to be more active in primary campaigns than moderate voters. Radical Tories and Tea Party members in the US share a common ideology based upon divisive social issues in both countries.
Paul Krugman Provides His Views On The Political Battle In Washington
Krugman believes that the war between the GOP and Democrats is a war over the preservation of the New Deal and Great Society programs. The fiscal cliff deal left Social Security and healthcare programs intact, and the concessions made on tax policy by the administration are not significant. He is more worried about future negotiations over the debt ceiling. The GOP may hold the administration hostage in order to extract more concessions on entitlements. Obama blinked the last time when the GOP threatened to maintain the debt ceiling, and they may expect him to blink again.
Some progressives disagree with Krugman's analysis. They argue that all of the Bush tax cuts, even those for the middle class, should have been left to expire. Making most of the Bush tax cuts permanent will reduce tax revenues to the point that future cuts will be needed in social welfare programs; they will also limit the government's ability to make necessary investments in the future. They see a future in which government will have to play a larger role in the global economy and it must be paid for with taxes.
Reasonable Republicans (there are not totally extinct) raise other issues. They believe that Republicans are too willing to maintain social welfare programs at their current levels. Romney backed away from Social Security and Medicare reform in the last election, and he accused Obama of wanting to cut spending on Medicare. Both parties are afraid of trying to sell entitlement reform to the public. It also seems that neither party is interested in raising taxes on the middle class. They correctly believe that politicians prefer to provide expensive social programs, and pay for them with borrowed money instead of taxes. That certainly was the favored approach in the Reagan and Bush administrations. Bush attempted to privatize Social Security, and that is still a Republican dream, but he could not make an effective case for privatization to the public. He also added an expensive drug benefit to Medicare prior to the 2004 election without raising taxes. That may have helped him to win a very close election that was decided by the Supreme Court.
Almost everyone agrees that our major budget issue is the rising cost of healthcare. Our current system is inefficient and unaffordable. Neither party, however, has been able to make the necessary changes. The Affordable Healthcare Act is a step in the right direction. It extends government benefits to more people, but it does little to reduce the impact of healthcare price inflation. The ACA could pave the way to essential reforms, but Republicans will continue to use scare tactics to resist real change in the system.
Some progressives disagree with Krugman's analysis. They argue that all of the Bush tax cuts, even those for the middle class, should have been left to expire. Making most of the Bush tax cuts permanent will reduce tax revenues to the point that future cuts will be needed in social welfare programs; they will also limit the government's ability to make necessary investments in the future. They see a future in which government will have to play a larger role in the global economy and it must be paid for with taxes.
Reasonable Republicans (there are not totally extinct) raise other issues. They believe that Republicans are too willing to maintain social welfare programs at their current levels. Romney backed away from Social Security and Medicare reform in the last election, and he accused Obama of wanting to cut spending on Medicare. Both parties are afraid of trying to sell entitlement reform to the public. It also seems that neither party is interested in raising taxes on the middle class. They correctly believe that politicians prefer to provide expensive social programs, and pay for them with borrowed money instead of taxes. That certainly was the favored approach in the Reagan and Bush administrations. Bush attempted to privatize Social Security, and that is still a Republican dream, but he could not make an effective case for privatization to the public. He also added an expensive drug benefit to Medicare prior to the 2004 election without raising taxes. That may have helped him to win a very close election that was decided by the Supreme Court.
Almost everyone agrees that our major budget issue is the rising cost of healthcare. Our current system is inefficient and unaffordable. Neither party, however, has been able to make the necessary changes. The Affordable Healthcare Act is a step in the right direction. It extends government benefits to more people, but it does little to reduce the impact of healthcare price inflation. The ACA could pave the way to essential reforms, but Republicans will continue to use scare tactics to resist real change in the system.
Wednesday, January 2, 2013
A Humorous Quote On The State Of Macroeconomics
The global financial system created problems in the global economy that are not easily explained by economic theory. Moreover, there has been a battle within macroeconomics about how to deal with the global economic problems that we have created. I was in the middle of one these discussions when I found the following quote among the comments. I thought that it was both funny, and closer to the real issues than many of the discussions on this topic. Some of you may also appreciate the humor.
"Macroeconomics is the attempt to find a mathematical justification for pre-existing preferences about what governments ought to do. Those preferences are usually the result of the economist’s childhood experiences and Minnesota Multiphasic Personality Inventory score."
More Thoughts On The Fiscal Deal
The Administration got part of what it wanted. The fiscal deal will keep the economy from rapidly moving into recession, but it will not do enough to stimulate growth. This post raises an interesting question. Is the president a bad negotiator, or is this the deal that he really wanted? He has a history of establishing positions from which he rapidly retreats in negotiations with the GOP.
The GOP House voted to approve the bill but many representatives, on both sides of the aisle, held their nose when they voted for it. There are strong differences of opinion about taxes and government spending in Congress, and in the nation. The issue has also been framed as a problem of long term deficit reduction, instead of focusing on the short term problem of job creation. We can't easily fix the deficit problem without creating jobs. We also can't easily reduce healthcare price inflation without making more fundamental reforms to our healthcare system. We seem to get bills from Congress that nobody really likes.
The GOP House voted to approve the bill but many representatives, on both sides of the aisle, held their nose when they voted for it. There are strong differences of opinion about taxes and government spending in Congress, and in the nation. The issue has also been framed as a problem of long term deficit reduction, instead of focusing on the short term problem of job creation. We can't easily fix the deficit problem without creating jobs. We also can't easily reduce healthcare price inflation without making more fundamental reforms to our healthcare system. We seem to get bills from Congress that nobody really likes.
Lessons From The Longshoremen
In the 1950's there were 35,000 longshoremen unloading ships in NY and NJ ports. Today there are 15,000 longshoremen on the east and west coasts unloading more tonnage than they unloaded in the 1950's.
The nature of their work has also changed. They operate sophisticated technology, and they unload, and load shipping containers instead of boxes. They are more productive, and their work can't be relocated to low wage countries. They also belong to strong unions. Consequently, they earn more money than longshoremen in the 1950"s. They have been able to share in the growth of productivity more than many other laborers in the US whose jobs can be relocated, and who are not represented in wage negotiations by unions.
This could be viewed as a story about the value of unions. At a deeper level, however, it raises questions about rising productivity and the availability of jobs. Productivity will continue to grow in the future, and fewer workers will be needed to produce the economic output that will be demanded. That will not be a problem for many companies that can sell their products in countries with an expanding middle class. It represents a real problem, however, in developed countries that will have a shrinking, or stagnant, middle class. Rising productivity in agriculture lowered the demand for farm workers, and they moved to cities to take jobs in the growing industrial sector. The post-industrial economy has not created enough high paying service jobs to replace those that were lost from deindustrialization in developed countries.
The nature of their work has also changed. They operate sophisticated technology, and they unload, and load shipping containers instead of boxes. They are more productive, and their work can't be relocated to low wage countries. They also belong to strong unions. Consequently, they earn more money than longshoremen in the 1950"s. They have been able to share in the growth of productivity more than many other laborers in the US whose jobs can be relocated, and who are not represented in wage negotiations by unions.
This could be viewed as a story about the value of unions. At a deeper level, however, it raises questions about rising productivity and the availability of jobs. Productivity will continue to grow in the future, and fewer workers will be needed to produce the economic output that will be demanded. That will not be a problem for many companies that can sell their products in countries with an expanding middle class. It represents a real problem, however, in developed countries that will have a shrinking, or stagnant, middle class. Rising productivity in agriculture lowered the demand for farm workers, and they moved to cities to take jobs in the growing industrial sector. The post-industrial economy has not created enough high paying service jobs to replace those that were lost from deindustrialization in developed countries.
A Few Simple Charts That Describe The State Of The Union In 2012
Stephen Rattner provides several charts which provide a picture of the economy, and the polarization of Congress. There are lots of things that need to fixed, but our political system is becoming increasingly dysfunctional. Neither of our political parties is blameless, but the radicalization of the GOP, and changes to campaign finance laws, have been the major sources of political dysfunction. The polarization of our political system has also amplified the regional differences in our nation. Rural America and Urban America no longer share the same value system, and many Americans cannot accept the results of national elections.
One part of the story is the decline in median family income. Almost all of the growth in income has gone to our wealthiest families. Most families have seen a decline in their standard of living and they are less able to invest in their future or in the future of their children. Governments suffers from a similar problem. Tax revenues are growing slower than mandatory spending on entitlements. Spending on healthcare is the major problem area. Costs are driven by price inflation and by an aging population. Our political system is not capable of doing much about price inflation. It is a very inefficient system that is well protected by politicians who serve the interests of those who benefit from its current structure. Social Security is less of a problem and I have a problem with the way that it is described in this article. One graph shows the spending on Social Security is growing faster than family income. That is true, but part of the explanation is that median family incomes have been shrinking as well. The majority of income growth has gone to households with incomes above the $113, 000 (2013) cap on payroll taxes
One part of the story is the decline in median family income. Almost all of the growth in income has gone to our wealthiest families. Most families have seen a decline in their standard of living and they are less able to invest in their future or in the future of their children. Governments suffers from a similar problem. Tax revenues are growing slower than mandatory spending on entitlements. Spending on healthcare is the major problem area. Costs are driven by price inflation and by an aging population. Our political system is not capable of doing much about price inflation. It is a very inefficient system that is well protected by politicians who serve the interests of those who benefit from its current structure. Social Security is less of a problem and I have a problem with the way that it is described in this article. One graph shows the spending on Social Security is growing faster than family income. That is true, but part of the explanation is that median family incomes have been shrinking as well. The majority of income growth has gone to households with incomes above the $113, 000 (2013) cap on payroll taxes
Tuesday, January 1, 2013
Polictical Negotiations And Poker Playing
This analysis of the fiscal cliff deal is similar to others made by progressives. I posted this one because it describes the administration's poker playing style. Poker players call it a tight-weak style. Players with that strategy lose when they have weak hands, and they fail to maximize their potential gain from strong hands. In this case, the administration had a strong hand, but it did not take advantage of the cards that it held. Moreover, it will be in a weaker position in future negotiations over the debt ceiling. Tight-weak players lose big when they do not hold a strong hand. The implication is that we cannot expect the administration to accomplish much over the next four years.
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