Tag Archives: austerity

Talking Turkey in the Thanksgiving Season

Now that the Trick or Treaters have departed, the election is over, and Thanksgiving is upon us — it’s time to consider what arguments may break out with Crazy Uncle and which debate techniques will be utilized over the bird carcass.   Forewarned is forearmed, and the following is intended to prevent the flinging of cranberry sauce, and the jabbing of forks in anything other than the baked turkey.

Rule One:  Green Bean Casserole does not provide sufficient cover to prevent onslaughts of “We’re on the Road to Wrack and Ruin.”   Even the most timid inquiry as to why this might be the case will suffice to insure the continuation of the rant — which was probably going to happen anyway.   Continue to smugly munch the sweet potatoes secure in the knowledge that:

Fact: We are not headed the way of Spain, Greece, Portugal, Italy, Ireland … or any other disrupted economy.  The aforementioned countries would love to be in the same “shape” as just one state in this Union — California. [Atlantic]

Fact: Regulations are NOT killing American bid’ness.  In reality a lack of adequate regulation diminishes trust, and diminished trust is an open invitation to corruption — which IS a problem in countries like Greece.  To Wit:

“One issue is trust and corruption. One of the most difficult aspects of modern social life is that the world is a big place and cooperating with strangers is difficult. After all, they might rip you off. You could appeal to the authorities, but the authorities are likely to be strangers, too. In societies with poorly functioning institutions, high levels of corruption, and low levels of social trust, it makes sense to try to stick with smaller-scale entities.” [Slate]

Fact:  There has been no government take over of anything.  That includes health care.  The Affordable Care Act, begotten of the Heritage Foundation and delivered by the U.S. Congress, requires a “free market” solution to individual health insurance coverage by giving tax breaks to companies that provide group health insurance plans, by requiring individuals to purchase individual policies if they can do so, or to purchase their own insurance policies from the corporations participating in the exchanges.

Fact: There is no horrible, heinous, terrible Debt that’s going to immediately hurl the American economy into the Next Great Big Crisis.  Yes, we do need to deal with the residual problems of Bushian Credit Card Conservativism. However,  if we finish operations in Afghanistan, get the millionaires and billionaires to pay tax rates they were paying during the Clinton Administration — when the arithmetic made sense — and get the economy going a a slightly higher rate, most of the horrible heinous terrible Debt will be erased.

Fact: Austerity doesn’t create prosperity.  We have pictures for this.  Here’s a picture of economic growth in the Eurozone:

Now, here’s a picture of U.S. economic growth, from the Department of the Treasury (pdf) :

Rule Two: Crazy Uncle’s contentions, allegations, and assertions will be no more organized than the flight from the table to the television.  All the rules about the construction and presentation of arguments have no more substance for Crazy Uncle than the cream whip on top of the pie.

Tactic:  When losing the point in the face of overwhelming facts to the contrary, change the terms.   For example, when Crazy Uncle asserts that small government is always better and someone has the temerity to mention that national disasters like Hurricane Sandy are not well contained by local agencies themselves reeling in the wake, Crazy Uncle may respond by attempting to compare disaster relief to local nutrition programs.  “Who knows the local situation better? Some bureaucrat in Washington, or the local people in the neighborhoods?”  The analogy doesn’t work any better than those marshmallows on the yams, but there is a sentient response. The answer, of course, is that local agencies do have hands on experience with such local issues, BUT the capacity of the local agencies to provide nutrition programs to the people they know in their neighborhoods often depends on federal funding levels.

Tactic:  When the facts don’t fit deny them.  When Crazy Uncle is faced with the information that the administrative costs for Medicare range from 3.6% to 5% while industry rates range from 11% to 12% [Politifact] expect a reply to the effect that (1) I’ve never read that. OR (2) That’s what the lame stream media says. OR (3) That’s some government figure, can’t trust’em.  Having internalized the notion that no media information is to be trusted from any source other than the notoriously fact free right wing radio environment, Crazy Uncle isn’t inclined to believe anything from anyone about any topic which doesn’t have the imprimatur of a radio ranter.   Forget him — continue to enjoy playing with the wish-bone.

Tactic:  When the territory can’t be shifted, or the facts can’t be denied, implement Operation Bullshit.  Those who watched the Presidential Debates may recognize the Gish Gallop.

“It is often successfully combined with the “point refuted a thousand times” (PRATT). The gallop must consist of as many points as possible, and even old and worn out arguments are useful in overwhelming the respondent and bamboozling the audience. The technique also takes advantage of the one single proof fallacy, since if a respondent only manages to refute 99 out of 100 points there is still one point that proves the galloper correct.

The trick is to press Crazy Uncle on a single point.  Narrow the argument to something like “which economy had the consistently higher rates of growth in 2011 — the U.S. or the Eurozone?”   The necessity of defending a single point at a time puts the reins on the Galloper.

Rule Three:  Since Crazy Uncle has his very own reality distant from, and unrelated to, the remainder of the population on this planet, the only way to completely obliterate his rambling rants is to find a televised athletic event upon which most of the diners can agree, and turn the sound up.


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Filed under conservatism, Economy, Health Care, Politics

Limits: Stimulus, Austerity, and the Discussion We Should Be Having

There are functional limits to just about everything.  Unfortunately, when political discourse devolves into a polarized face off between two advocates who cannot or will not acknowledge the kernels of accuracy in bifurcated world views then it’s hard to get anything useful out of the discussion.  Compromise doesn’t mean you adjust to fit my agenda, nor that I must adjust to yours.

Consider the Stimulus vs. Austerity economic prescriptions currently on offer.

The readily apparent limitation on stimulative measures such as infrastructure spending and social safety net (or economic automatic stabilizers) support is that at some point the bill comes due, especially if these activities and supports are based on lending.

The equally apparent limitation on austerity and cutting back the social safety net or automatic stabilizers is that at some point deleveraging becomes deflationary and depressive in an economic sense.  Too much “austerity” and demand declines, and declining demand puts the brakes on economic growth.

Consider also the long and short term repercussions of the application of stimulative and austerity driven proposals.

In the long term, advocates of austerity prescriptions and stimulus injections have to cope with a fact of modern economic life — what can be shipped will be shipped.  Beneath layers of rhetoric is the hard sad fact that a corporation which can avail itself of a labor force willing to accept $0.99 per hour with no benefits will avail itself of that labor force.  Further, a corporation which can utilize a labor force willing to accept low wages, while the housing and quotidian needs are subsidized by the public sector, or are booked as an expense, will probably do so.

Also in the long term, advocates of stimulative measures need to acknowledge that physical infrastructure projects have short term durations, and will not necessarily create “sustainable” jobs.  Nor, will those contracts necessarily yield enough jobs to create a viable platform for future job creation.

How do we define success?

One of the problems with each of these views, untempered by any acceptance of the globalization of labor and the impact of robotic technologies, and equally untempered by the obvious fact that demand is an equal side of the free market equation, is that both have very different desired outcomes.

Austerity advocates tend to think in international terms, and see a global economy in which nations measure their success or failure in financial terms.  The nations are adequately capitalized, have limited liabilities, and offer treasury securities which are solid and reliable.   However, when this is  extrapolated to the ideal, the market for treasury notes would be little better than money in the mattress — because none would have greater risk (and hence greater yields or returns) than any other.   Currently, a U.S. treasury note for 30 years pays 2.83%.   [Treas]  By contrast Irish benchmark bonds maturing in 2025 are paying 5.4%.  [NTMA]   In other words, the bond market would like more stability — but not so much that we approach the ideal in which T-notes from any nation are such a sure thing that there’s nothing to be gained by investing in one or another.

Austerity advocates are thus caught in a bit of a bind.  Too much financial “success” and bond rates drop, too little national borrowing and there is less fodder for the bond markets.   What the austerity flock appear to want is a level of national  indebtedness necessary to retain competitive edges in the bond markets, BUT not so much that there is an “unacceptable level of risk” the borrower might default or even that the bankers might take a significant “hair cut.”

Stimulus advocates tend to see the financial picture from their own shores.   As a stimulus advocate myself, I tend to gauge the success of our economy on measures other than financial — an increasing level of aggregate demand, increasing levels of household wealth, increasing manufacturing output, and increasing exports.  While the austerity advocates appear to have an international outlook, but rather narrow definitions of success, the stimulus proponents have broader definitions of economic success but more nationally based perspectives.

Who’s Winning?

Income inequality or distributive impacts are too often discussed in horse race terms.  If the marginal tax rate for those in the top 0.1% are cut by 20% then the ultra-affluent are the obvious winners; but, if the marginal tax rate is raised for that group while we retain the child tax credits and lower the margin for middle income Americans do the ultra-affluent really win anything?  The horses are out of the gate.

In purely financial terms, who’s winning now?

Notice the steep drop between the average family income for the top 0.01% and the top 1%.  Then notice that the average family income for the remaining 90% of Americans is $29,840.

How did the top 0.01% create such a gap? A wealth management specialist, whom I’ve cited previously explains:

“Unlike those in the lower half of the top 1%, those in the top half and, particularly, top 0.1%, can often borrow for almost nothing, keep profits and production overseas, hold personal assets in tax havens, ride out down markets and economies, and influence legislation in the U.S. They have access to the very best in accounting firms, tax and other attorneys, numerous consultants, private wealth managers, a network of other wealthy and powerful friends, lucrative business opportunities, and many other benefits.

Now, why such a gap between the 0.01% and the top 0.1%?

Most of those in the bottom half of the top 1% lack power and global flexibility and are essentially well-compensated workhorses for the top 0.5%, just like the bottom 99%. In my view, the American dream of striking it rich is merely a well-marketed fantasy that keeps the bottom 99.5% hoping for better and prevents social and political instability. The odds of getting into that top 0.5% are very slim and the door is kept firmly shut by those within it.” [Domhoff]

The “winners” in purely financial terms, are the financialists. “Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting.” [Domhoff]  We should remind ourselves that the definition provided by Domhoff’s article includes the top half of the top half of all American income earners, which includes both columns at the left hand side of the graph.

It stands to reason that if the top 0.01% comes from banking or financial services sectors their perspective will be one of Austerity.   The graph illustrates the current wealth distribution but it doesn’t indicate the trends.

The Federal Reserve graph above illustrates the widening gap between the top income earners in the U.S. and those in the lower income brackets since 1967.  So, not only do we have wealth accumulating to the very tip top of the pyramid now, the trend has  been ongoing for the last 45 years.

The Stimulus Argument

One assertion which needs a bit more analysis concerns the tendency to make quick judgments about the nature of the trends.   Capitalism requires the accumulation of wealth such that investments can be channeled from areas of surplus to areas of need.  Arguments about who does the transfer are the hallmark of various forms of political ideologies.   As we can see from the discussion above, especially the observations of Mr. Domhoff, not all government activity which causes the transference of wealth are necessarily socialistic.

If our tax policy, our investment policies, and/or our banking and financial policies favor those who can borrow for almost nothing, can keep production and profits in foreign accounts, can avail themselves of tax havens, and can influence legislation favorable to those elements — then what we have, in essence, is  government intervention which favors the redistribution of wealth to the top 0.01%.   However, the moment anyone objects to this arrangement the financialists immediately cry that this is Communism, or some other form of nefarious -ism, and our Free Enterprise System is Under Attack.

The Core of Capitalism

We all got the message in high school General Business or Economics that capitalism means an economy in which the means of production, distribution, and exchange, are privately or corporately held.   And, that the exchange (or transfer) of wealth is privately distributed.  Also during that first week the teacher explained that finance involves the act of providing funds for business activities, for making purchases necessary for business and commerce, and for investing.    What we ought NOT do is to confuse the two terms.

Nor should we narrow the definition of finance so strictly that it comes to mean only those activities which facilitate the accumulation of wealth.  Finance in a capitalist system means funneling wealth from areas of surplus to areas of need — from the investors or bankers to the contractor who needs a loan to get materials needed for the next job, the car dealer who wants to add inventory, the manufacturer who wants to expand the factory, the restaurant owner who wants to open a new cafe, the garage owner who wants to buy new and more modern engine diagnostic equipment.

Yes, there is a “need” to channel some funds into wealth accumulation — or what good would retirement planning be?  There is nothing intrinsically wrong with some people working very hard in the financial sector to increase the wealth of their investors.  There is something wrong with an investment sector which focuses almost exclusively on increasing investor wealth to the detriment of the real economy.

One more time, let’s return to Tom Armistead’s definition of financialism and its effects:

Financialism is an economic system where the primary activity consists of creating and manipulating financial instruments. Financial instruments – loans, mortgages, stocks, bonds, etc. – are in their original form firmly linked to economic reality: the mortgage finances home ownership; the stock certificate represents ownership of a company that owns physical assets, the bond secures debt incurred to build a factory.

So far so good — the financial instruments are linked to the real economy.  But, remember Armistead’s continuation:

However, when financialism sets in, financial instruments become progressively further removed from their role in supporting commerce in the real world and develop a life of their own, a weird shadow dimension, a hall of mirrors, a distorted alternate reality that intersects and reacts with the real economy in unpredictable and destructive ways. George Soros described this phenomenon as “reflexivity.” Derivatives have a lot to do with it. Leverage and the abuse of easy credit are contributing causes. The shadow banking system is a symptom.

Here’s where the problem begins.  The distorted hall of mirrors in an alternative reality is destructive of the real economy, the one in which those mortgages, car loans, student loans, commercial loans, and business loans are made.   Wall Street stops being a channel by which investment moves, at a profit, from areas of surplus to areas of need and starts being a Casino.

When securitization becomes an end in itself, for the construction of yet more artificial derivatives, and not necessarily for the reduction of risk; when the shadow banking system sucks wealth from the real banks and the real economy — capitalism and finance are in trouble.  The result? Increased volatility, faster cycles of boom and bust, and economic instability.

Let’s ask if the discussion we should be having is NOT one about capitalism vs. “wealth redistribution,” but one in which we talk of capitalism and the incentives to invest in activities which increase real economic growth, not merely the accumulation of wealth for those at the very top of the income period.

If the 0.01% intend to anchor their wealth on something substantial like loans, mortgages, equities, and bonds (from the real economy), or are they content to accumulate wealth in the shadow banking realms and hope the remaining 99.99% don’t fold under the volatile economic  pressures and their declining share of total national wealth?

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Filed under Economy, income inequality

Romney’s Blarney

Colbert Show guest Dr. Paul Krugman observed that if the United States adopts the “austerity” model response to our economy, we could end up looking like the Republic of Ireland.  So, what’s the situation on the Emerald Isle?

Austerity. The Republic of Ireland slashed its budget by €4 billion, and public employees accepted 5% pay cuts.  Its VAT (a form of sales tax) has been increased to 23%.  31 Garda Stations (police) have been closed as of December 2011, 10 others were open on  a part time basis. [BelTel] A second wave of closure has been announced for next year. [BelTel] Child benefits have been reduced: “The first of these is a reduction in child benefit, which will save 45 million euro. Payment for third child cut to 148 euro per month, with fourth and subsequent children down to 160 euro per month.” [BelTel] The fuel assistance program has been cut; public service overtime payrolls cut by 10%; and, there’s more:

“Changes to the one-parent family payment will save 20.7 million euro, and the age limit of the youngest child for receipt of payment reduces to seven by 2014.

Weekly carer’s allowance and carer’s benefit rates will not change. Meanwhile, third-level student registration fees will rise by 250 euro, securing savings of 18.5 million euro.

Changes to fee and maintenance support for new postgraduate students, and reducing maintenance grants generally, will deliver savings of 12.6 million euro.

The employer redundancy rebate will also be cut from 60% to 15%, saving 81 million euro. The monthly threshold for the Drug Payment Scheme will jump from 120 euro to 132 euro, saving 12 million euro. And a total of 50 million euro will be saved by securing efficiencies of 2% in disability, mental health and children’s services.”  [BelTel]

Now, there’s some austerity!  So, what has all this gotten them?

High unemployment.  The Irish Times reports:

“Unemployment will remain high next year but the economy is expected to grow, albeit weakly, according to a new forecast from the Economic and Social Research Institute (ESRI). […]

The institute estimates that job losses will continue to mount in 2012 with the unemployment rate hitting 14.9 per cent before easing slightly next year to 14.7 per cent.” (June 18, 2012)

Youth unemployment stood at 29.1% in 2011. [PAI] and the long term unemployment rate increased YOY from 7.8% to 8.9&.  [CSO pdf] Repeating an all too familiar motif — emigration is expected to “relieve” some of the unemployment pressure.

Stagnant Growth. Again, from the Irish Times:

“The ESRI forecasts that gross domestic produce (GDP) will grow by 0.6 per cent this year but remain unchanged when measured by gross national product (GNP) – a narrower measure of economic activity which excludes multinational firms.

GDP is expected to rise by 2.2 per cent in 2013 with GNP increasing by 0.5 per cent.

The ESRI says with domestic demand still expected to act as a drag on the economy this year, exports will again likely be the principal factor determining growth in the Irish economy.” (emphasis added)

Notice the part wherein the “domestic demand” will be a drag.  When unemployment is high, long term unemployment is high, public sector employment is cut by 5.4% [COS pdf] and all the “austerity” measures like increasing the VAT kick in — what would a rational person think would happen to aggregate domestic demand levels?  The ESRI report didn’t mince words about the future, “It adds that household consumption is likely to weaken further this year and next year as disposable incomes continue to decline.”

Weak housing market.  Does this sound familiar?

“The institute says that with house prices weak and demand levels remaining low, it is unlikely that there will be growth in the volume of house building in the near future.

“It is difficult to be more precise as to when the bottom of the cycle will be reached but an important factor in any stabilisation will be price expectations. Continued uncertainty about prices, combined with a desire to see a sustained stabilisation before people enter the market means that housing demand is likely to remain weak in 2013.”  [Irish Times]

Incredibly enough, the report cited by the IT recommends NO domestic stimulus, without explaining why this wouldn’t work other than to say that money spent on imports won’t do the domestic economy any good, and the nation needs to be “competitive” and increase its exports.   Unmentioned in the previous report is any indication that the Republic could do with some improvement in infrastructure — as in the case of its outmoded communications networks.  [SiliRp]  The U.S. isn’t the only nation on the planet with a very skeptical engineering community.

Infrastructure needs.  Engineers Ireland, a nonpartisan association of engineers, issues their own domestic report card.  The engineers cite rail lines and seaports as being in need of improvement, upgrades, and maintenance.  Rural roadways are in need of improvement, as are airports outside the Dublin area. [EI pdf]

Romney’s Blarney

Governor Romney has been vague to the point of opacity on specific suggestions concerning the economy, but we do have some partial views of his program, and one thing he hasn’t ruled out is the VAT.

“He says he doesn’t “like the idea” of layering a VAT onto the current income tax system. But he adds that, philosophically speaking, a VAT might work as a replacement for some part of the tax code, “particularly at the corporate level,” as Paul Ryan proposed several years ago. What he doesn’t do is rule a VAT out.”  [Forbes]

Even the arch-conservative Cato Institute doesn’t care for the VAT idea.

Cutting public employees.  Governor Romney tried to slide out from the “we don’t need more teachers, etc.” flap by saying that these individuals are employed locally, and therefore the federal government doesn’t have anything to do with their employment.  [MSNBC] [WaPo] Actually, the federal government has been supporting educational, first responder, and police programs at least since the 1980s, and much before if we count the National Defense Education Act.

Hands Off Housing.  This one hits close to home: “Romney turned off some Nevada residents when a housing-related comment he made to the Las Vegas Review-Journal editorial board went public.  “As to what to do for the housing industry specifically and are there things that you can do to encourage housing: One is, don’t try to stop the foreclosure process. Let it run its course and hit the bottom,” said Romney. ” [MoneyMorn] [Zillow] Ouch.  The GOP candidate has been very critical of the housing market situation under the Obama Administration, but has yet to offer specific solutions — other than to let the market sort it out — which would assist underwater homeowners.

Hands off employment.  Mr. Romney recently “promised” a 6% unemployment rate but that’s not all that hard to come by.   We simply continue the current growth under the Obama Administration and the non-partisan CBO projects that’s just about where we’ll be:

“Though 6 percent unemployment is significantly lower than the current 8.1 percent rate, the feat isn’t all that remarkable. In fact, it is exactly where multiple government agencies project unemployment will be at the end of that time frame. The Congressional Budget Office predicts that unemployment will average 6.3 percent in 2016; the Office of Management and Budget, meanwhile, projects unemployment will hit 6.1 percent and ultimately fall below 6 percent the same year.”  [TP]

With Liberty and Austerity for all.   Governor Romney does have a tax plan: “Mitt Romney has proposed permanently extending the 2001-03 tax cuts, further cutting individual income tax rates, broadening the tax base by reducing tax preferences, eliminating taxation of investment income of most individual taxpayers, reducing the corporate income tax, eliminating the estate tax, and repealing the alternative minimum tax (AMT) and the taxes enacted in 2010’s health reform legislation.” [TPC pdf] The program results would be about as follows:

Professor Krugman may indeed have a point — if we’re interested in regressive taxation, a hands off approach to the housing market, no increased spending for infrastructure, and a “market” solution to employment — then we could easily end up looking very much like the Republic of Ireland with high unemployment, domestic demand dragging the economy down, and a mired housing market.  Perhaps the places to which we might emigrate would be so kind as to not allow NANA signs in shop windows?

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Filed under 2012 election, Economy, Romney

Wall Street Fine, Main Street Not So Much, States Caught in the Middle

The situation in Nevada is beginning to demonstrate the universal application of the great literary phrase: “It was the best of times, it was the worst of times.”  Consider the following information from a Las Vegas Sun article about therapeutic services for disabled children back in March:

“In 76 percent of the cases reviewed, the state did not provide all of the services called for in plans agreed to by state caseworkers and families. This was “due to a lack of available personnel resources” and reduced hours the state had to contract with therapists.”

In 52 percent of cases, the state did not initiate services within 30 days, as required by the federal government. This was “attributable to the lack of personnel resources as a result of the reduction in the amount of funds available for contract services.”

There are 2,477 children receiving these services, such as they are, and another 250 ranging in age from newborn to 3 years of age on a waiting list.   So youngsters with autism, physical disabilities, developmental issues, and other serious medical challenges are in the cross hairs of a support system in which “fewer children could have more services, or more children could have fewer services.”  This is what an austerity budget means.   For everyone. If there are no increases in revenues, then all public services will be caught in the same bind as the kids — fewer may have more, or more can receive fewer.

However, in a political climate still clutching the remnants of the failed Voodoo economics of the Trickle Down Artists, and the ephemeral mythology that lower taxes magically transforms spreadsheet pixel dust into increased revenues,  any attempt to raise revenue is the antithesis of good politics.  [“Sandoval, not in favor of business tax initiative“, LVSun]

The often and well debunked MYTH [EconoFact]  that lower rates of taxation will generate the revenues necessary to provide essential government services simply doesn’t work in the real world in which there are pot holes in asphalt, 30 kids in a kindergarten class, not enough health inspectors to cover the number of restaurants in a single year, not enough deputies to keep trucks from speeding through small towns, aging fire fighting equipment, and what might generously be called “antique” drinking water delivery systems.

For small businesses in Nevada this isn’t the best of times either.  Nevada’s experiencing job growth of about 1.1% YOY, a tick behind the national YOY job growth of 1.4%.  [DETR] Of special note is that the capital region — Carson City — has lost 4.2% of its job growth.  In fact, the capital city MSA is the only one in the state which is having declining job growth.

When the “business” of a MSA is primarily government then the private sector is affected when government declines.  We can craft a little home-made chart showing what happened to Carson City in terms of the percentage change YOY in its taxable sales as reported to the Department Of Taxation, as the state shed jobs and shaved the budget.  (pdf reports)

It’s no wonder small businesses and local retailers feel the bind when there’s been only one YOY increase since 2007 — and they started digging and backfilling out of the prior four year hole.  This is what an “austerity” budget looks like to local businesses trying to function in an area in which government payrolls help support the local economy.

So, why all the demand for “austerity,” if it doesn’t help provide public services and it doesn’t help local businesses? 

Federal and state deficits are a problem when interest rates are high.  Here’s one of the simplest explanations I’ve found so far:

“When long-term interest rates are high, a federal deficit competes against and “crowds out” private borrowing and investment. When long-term interest rates are low, the federal deficit is not taking away from borrowing by the private sector. On the contrary, the federal deficit is acting as a needed boost to aggregate demand in the economy, an action also known as “fiscal policy.” When the economy is slack, every dollar of reduction in federal spending takes three or four dollars off of our gross national product.”  [Grayson](emphasis added)

Got that?   The “crowding out private borrowing and investment” happens when interest rates are HIGH.”   So, what are the long term interest rates now?  The Treasury 20 year CMT is 2.13%. [Treasury] What does this look like in a historical context?  This:

The overall trend line doesn’t seem to indicate “high interest rates” does it?  Notice that the top of the line for the interest rates shown on the chart doesn’t go above 5.5%  Now, let’s compare that to the 30 yr. CMT for a previous era, say 1980 to 1990:

Since the old 30yr column has gone the way of the DoDo, and really long term Treasuries are spoken of as 25+’s, perhaps a better comparison would be the current 20 year rates:

The rate for 20 year notes hasn’t crept up over 3.08% during 2012 thus far.  We could sit and look at pretty charts all day, and the message would remain the same — this is NOT a period of HIGH interest rates, therefore the old “government borrowing drives out private capital” maxim doesn’t apply.  What the heck! Let’s look at one more — the U.S. Treasury’s Yield Curve showing the yields (rates) for all the notes available:

And, there it is — a graphic illustration of Low Interest Rates.  So, let’s get this straight.  We have to have an “austerity budget,” meaning that the federal government has to cut back on aid to the states, because when the government has to borrow money it crowds out private investment — EXCEPT when interest rates are low.   No, this doesn’t make sense, and Laura D’Andrea Tyson explains why:

“The “crowding out” argument explains why large and sustained government deficits take a toll on growth; they reduce capital formation. But this argument rests on how government deficits affect interest rates, and the relationship between government deficits and interest rates varies.

When there is considerable excess capacity, an increase in government borrowing to finance an increase in the deficit does not lead to higher interest rates and does not crowd out private investment. Instead, the higher demand resulting from the increase in the deficit bolsters employment and output directly, and the resulting increase in income and economic activity in turn encourages or “crowds in” additional private spending.”  [NYT] (emphasis added)

How do we know when we have excess capacity?  High unemployment is one really good tell.   What have we learned?

(1) Austerity budgets, the result of program funding cuts without any new revenue don’t serve to provide basic services for Nevada citizens, and others throughout the nation.

(2) We know that in regions in which government spending constitutes one of the major supports of the local economy local retailers and other small businesses see their sales decline.

(3)  Deficit reduction is necessary when government borrowing during periods in which we are operating at or close to our economic capacity when interest rates will be affected by the “crowding” to get capital.

(4) Our interest rates, for even very long term treasury notes, are exceedingly  low.

(5) Our economy is not functioning close to its capacity — witness the unemployment rates.

Therefore, the argument that we have to privatize Social Security, turn Medicare into a voucher coupon program, cut women and children off WIC nutrition support, take SNAP benefits from working families, cut spending for infrastructure maintenance and improvement, slash preventative medicine and wellness programs, and leave the national parks to rot…. because We Have To Reduce The Deficit — is ultimately ideology and currently bogus economics.


Filed under conservatism, Economy, Federal budget, Health Care, Infrastructure, Medicaid, Medicare, Nevada economy, nevada health, Nevada politics, nevada taxation, public employees, recession, Romney, Social Security, Taxation

Coffee and the Papers

## There are some headlines that just really aren’t all that surprising, for example, “Nevada Ron Paul backers unfazed by RNC warnings.” [Las Vegas Sun] Hmmm, did someone think they would be?

## Should we go back to having a “War Department?”   Maybe we should, considering presidential candidate Willard Mitt Romney’s selection of Neo-Con military and foreign policy advisers.  [Nation] A taste:

“Of Romney’s forty identified foreign policy advisers, more than 70 percent worked for Bush. Many hail from the neoconservative wing of the party, were enthusiastic backers of the Iraq War and are proponents of a US or Israeli attack on Iran. Christopher Preble, a foreign policy expert at the Cato Institute, says, “Romney’s likely to be in the mold of George W. Bush when it comes to foreign policy if he were elected.”

Oh, goody… just what we need.

## Uh huh, we know there are some people who will not vote for President Obam, and we also know why:

“He was like, ‘Here I am, I’m black and I’m proud,’ ” said Lesia Felsoci, a bank employee drinking a beer in an Applebee’s. “To me, he didn’t have a platform. Black people voted him in, that’s why he won. It was black ignorance.” [NYT] [TAWire]

##  Here’s a classic example of why it doesn’t do to sound off too early on foreign policy questions:

“A Chinese dissident has been given a fellowship at a university in the United States and will be allowed to leave China with his wife and two children, providing a possible solution to a diplomatic crisis for President Obama. The Chinese government is expected to arrange travel procedures for Chen Guangcheng, according to Victoria Nuland, a State Department spokeswoman.”  [The Hill]

Some adviser didn’t give candidate Romney a heads-up about speaking too soon, allowing the presumed nominee to say:

“It’s also apparent, according to these reports if they’re accurate, that our embassy failed to put in place the kind of verifiable measures that would assure the safety of Mr. Chen and his family,” Romney said. “If these reports are true, this is a dark day for freedom and it’s a day of shame for the Obama administration. We are a place of freedom, here and around the world, and we should stand up and defend freedom wherever it is under attack.” [BostonHerald]

Whilst candidate Romney was jumping the gun, Chen had not requested asylum, and the Administration and the Chinese government were obviously negotiating a deal that would allow Chen to leave China and not have to go through the asylum permission process.  Win. Win.   From the Department of Unsolicited Advice:  In diplomatic processes it is always better to restrain the lip and not shoot from the hip.

## Austerity never begat prosperity, and the French may be finding that out?  See: “The French Election and Austerity in the Eurozone,” The New Yorker. Local election results in Great Britain weren’t pretty for the Austerity promoting incumbents either.  [NYT]  Meanwhile, “Misery Builds for the EuroZone,” Reuters.

## Employers added 115,000 jobs last month (a number less than some Wall Streeters wanted) therefore we have the Administration chasing “analysts expectations.” [Bloomberg] And when we compare the Obama Administrations efforts with those in the Eurozone Austerity Sphere:

“The improvement in the U.S. contrasts with some of the other major economies. Joblessness in the 17-nation euro area increased to 10.9 percent in March, the highest since April 1997, from 10.8 percent a month earlier, data showed this week.”  [Bloomberg]

## A Citizens United tale if there ever was one.  Check out the chart indicating money flowing into the Scott Walker campaign coffers in Wisconsin. Note the number of $250,000+ donors and their locations.

## Chart of the Day:

This doesn’t have to be complicated.  Higher wages create demand. Demand means sales.  More sales mean more jobs.  Austerity never begat prosperity.

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Filed under 2012 election, Economy, Foreign Policy, Nevada politics, Obama, Romney