Over on The Nonprofiteer, I demonstrate my recovery from the Chicago School of economics by reviewing arguments for (and even one against) an increase in the minimum wage. Not sophisticated but (I hope) clear.
The Nonprofiteer is at it again, gently suggesting that a Sun Microsystems billionaire isn’t necessarily the world’s authority about how to combat poverty. But maybe fighting poverty isn’t what he had in mind after all.
Who taught people to say “charity” with a sneer?
Paul Krugman blames the wave of deregulation for the succession of speculative bubbles since the 1980s.
Now of course Krugman forgotten more macro than I ever thought about learning, so take this as an amateur suggestion awaiting vetting by professionals. But it seems to me that something else happened in the 1980s: the Great Moderation. Once we emerged from the Volcker interest-rate shock, we had a very long run of relatively low macroeconomic volatility.
If the threat of recession-linked declines in asset prices put a brake on speculation, and if that threat receded, then you’d expect speculation to get more … bubbly, wouldn’t you?
That doesn’t man deregulation, or a dozen other factors, weren’t also in the mix. But if market participants are confident that macroeconomic managers can prevent recessions, they why shouldn’t they bid the prices of assets that lose value when the economy tanks?
No need to review the bidding: other parts of the InterWebs have thoroughly demolished the Joe Scarborough-Jeff Sachs op-ed refuting arguments that Krugman never made. (The WaPo website served it to me with an ad for a stock tout, an ad for money-launderer HSBC, and “Three Early Signs of Dementia.” No, dammit, I am not making this up.)
But I do have a question: why should a journalist and former Member of Congress put his reputation at risk by co-authoring with a notorious charlatan whose promotion of “shock therapy” (itself a plagiarism from Milton Friedman’s “shock policy”) inflicted damage from which Russia may never recover, and who once proposed that Bolivia solve its coca-production problem by buying the land where the coca is grown?
Kevin Drum notes that Republicans insist on something called “entitlement reform,” but have no actual ideas about what this reform might mean (aside from getting rid of Medicare). So now they are insisting that President Obama make the first offer, which is a laughable position. The also insist on “putting Obamacare on the table”, which the White House immediately rejected.
But maybe it shouldn’t. If we’re talking about reducing entitlement payments, wouldn’t it be great if we could find something that could save, say, $500 billion over ten years, but not reduce access to coverage and actually make the health care system more efficient?
Oh wait: we do! Remember the public option? That’s what it would do, according to the Lewin Group and the Urban Institute. Both studies estimated a public option at saving the federal budget $50 billion a year. And if anything, those estimates are conservative, because they do not assume that Medicare providers would be mandated to accept public option patients (as they should be), and they also assume large “cost shifts,” i.e. increases in private insurance costs, which have no empirical basis. So I say put Obamacare on the table and put in a strong public option.
What’s that you say? That such an action would reform entitlements and save money, but that the Republicans would never go for it? Gosh, it’s almost as if the GOP doesn’t really care about saving money and really only wants to cut people off of health insurance. I can’t imagine why anyone would think that.
Standing out among the mainstream media’s determination to echo the standard Republican talking point that only GOP election victories actually count, Steve Benen nails the election’s real significance:
Had Obama come up short, the immediate threats to key public policies would have been significant, but the more sweeping consequence would have been the lasting damage to a progressive vision of governance.
It’s easy to imagine the recriminations this morning had the election gone the other way. The president’s 2008 victory would come to be seen as a faddish fluke, but more importantly, everything Obama fought for in his first term would be evidence of failure. For the foreseeable future, presidents would be told not to be ambitious, not to use government as a tool to make a material difference in the lives of working families, and not to rely on Keynesian economics to grow the economy through investments … or they too will end up as a one-term disappointment.
The 2012 election, then, can be seen as a referendum on Obama’s presidency — a test he passed yesterday in impressive fashion — and a referendum on the liberal experiment.
It’s what makes the president’s electoral success, not just significant in the short term, butimportant in the long term. Obama’s agenda has a new opportunity to make a meaningful, positive difference in the lives of America’s middle class, but it also establishes a precedent for history — presidents can pursue big, bold, consequential priorities, and be rewarded for it.
I’d only add that this is true even though Obama didn’t always explicitly defend activist government. Even if voters weren’t consciously voting for activist government, they were voting for the results of activist government. Thanks to the stimulus, a giant tribute to Keynes, the economy is doing just well enough that voters didn’t punish the incumbent party, in the Presidency or the Senate. No faith in government action to end recessions, no re-election.
Future presidents and Senate majorities, take note—and they will.
(cross posted at freeforall)
My first post of 2012 said the top public policy priority for 2012 was to:
…enact policies that encourage economic growth now, while moving toward a sustainable budget over the long run. This main policy need is unchanged from 2011, and we didn’t manage to do either very well.
This is still true.
Josh Barro has a piece in favor of a Value Added Tax in Bloomberg. A VAT is a tax levied on business sales minus their inputs or costs, so all companies ‘adding value’ along the production chain pay the tax, but it is collected at the sale of the final consumer good. If you buy a sweater for $50 and the VAT is 10%, $5 of the $50 is the VAT.
In my book Balancing the Budget is a Progressive Priority, I didn’t suggest that we add a VAT, but I do think that it will take a substantial increase in tax revenue as a percent of GDP to ever have a balanced budget again. I suggest 21% of GDP, which is about 3 percentage points higher than the 40 year average, a level that is doable, but won’t be easy. Would a VAT be useful to consider? A key question, and a few thoughts.
- Is the VAT viewed as a supplement to our current system of taxation (payroll taxes, personal and corporate income, excise taxes) or a replacement of some portion? I asked Josh Barro via twitter for his views, and he said he viewed the VAT as supplementing our current federal taxation regime, shown below. Individual income taxes and payroll taxes are the largest source of federal revenue, with corporate and excise taxes being much smaller (in percent of GDP terms).
In the middle of his evisceration of the House Republicans’ attack on the Affordable Care Act, MIT’s Jonathan Gruber notes that the attack claims that the ACA’s tax credits are a form of spending.
But…but…but…Saint Grover says that we cannot get rid of any corporate welfare tax credits because that is a tax increase! So wouldn’t the ACA’s tax credits be a form of “tax relief”?
Silly me. Tax credits that support, say, large oil companies are not spending: they are tax relief. Tax credits that increase working families’ capacity to buy health insurance are spending, and are thus wasteful.
Of course it is irrelevant that the ACA’s credits are refundable. All those who receive these credits are working, so they also pay Social Security, Medicare, state, local, and sales taxes. The ACA credits offset those, too, because money is fungible.
So once again: tax credits for corporate welfare, good; tax credits to cover the uninsured, bad.
I’m sure glad we cleared that up.
My Cornell colleague Bob Hockett has written a scorchingly satirical essay about the Republican mental malady that’s led them to oppose economic stimulus in the name of fiscal probity.
I liked his title so much that I’ve commissioned my sons (who are two thirds of the rock band The Nepotist) to write a song with the same name. Lyrics suggestions welcome!