Posts Tagged ‘Economics’
Yglesias takes Tyler Cowen to task for invoking the specre of Hitler and the Nazis to make an argument against Keynesian stimulus:
When a country produces more HDTVs, more people have HDTVs and living standards go up. When a country produces more tanks and military explosives, none of the tanks or military explosives go into private hands (we hope!) so living standards are unchanged. But producing HDTVs doesn’t increase your ability to conquer France, whereas tanks and explosives are useful for conquering France. Hitler’s policy objective was to prepare for conquering France. And his policies worked quite well (though Ernest May reminds us not to neglect the importance of French intelligence failures), they just served Nazi objectives. But I don’t see why Hitler couldn’t have spent the money on something else. If we use fiscal policy to raise measured GDP primarily through building tanks, we’ll have higher GDP and more tanks. But if we use fiscal policy to raise measured GDP primarily through repairing existing roads and building new mass transit and high-speed rail lines, then we’ll have higher GDP, better roads, and more mass transit and HSR systems. It seems to me that living standards would therefore be higher.
Right. I doubt living standards increased for most Americans during the war years, but nonetheless GDP was rapidly expanding. The economic growth was sufficiently robust (explosive, really) to finally jolt the country out of depression. Once the war was over, living standards could resume their ascent, as money for guns was channeled into money for butter.
We don’t have the luxury at the present time to agonize over slumping living standards. The task is to save the economy, and avoid deflation. Once things have returned to normal — a non-deflationary economy characterized by growth — we can hopefully get back to increasing living standards. Personally I expect that, for a while at least, such increases will be modest, given the need to increase savings over the long term, pay back debt (ie higher taxes) and put the economy on a long-term, sustainable path. Still, “modest” need not mean “none.” Ideally, we can increase savings and (modestly) increase consumption over the long term by limiting growth in consumption to a number slightly lower than GDP growth.
Of course, we can (and should!) also try and extract some gains in this regard for the vast majority of the population by tackling the income inequality issue.
I strongly suspect this situation directly flows from Bush-Paulson’s rudderless, schizophrenic approach to fnancial crisis strategy:
The bailout is now the hottest lobbying game in town.
Insurers, automakers and American subsidiaries of foreign banks all want the Treasury Department to cut them a piece of the largest government rescue in U.S. history.
The betting is that many with their hands out will be successful, especially with financial markets in a stomach-churning dive and predictions the economy is about to tumble into a deep recession.
These groups argue that the credit squeeze is so severe and the risks to the economy so dire that their industries need financial support as well.
The Treasury is considering requests from a variety of industries, but has not decided whether to expand the program, officials said Saturday.
Lobbying efforts are intensifying.
Sounds very unfocused, and rather depressing.
Commenting on John McCain’s enthusiastic pro-Nafta speech this week north of the border, John Ibbitson writes:
Mr. Obama, on the other hand, is a NAFTA skeptic. “NAFTA and its potential were oversold to the American people,” his website declares. “Obama will work with the leaders of Canada and Mexico to fix NAFTA so that it works for American workers.” When Austan Goolsbee, Mr. Obama’s chief economic adviser, reportedly told Canadian diplomats that Mr. Obama’s statements on NAFTA were mere campaign rhetoric, the ensuing controversy embarrassed both the candidate and the Canadian government. Mr. Obama does appear to be trying to distance himself from some of his earlier tough talk, telling Fortune magazine that some of his trade rhetoric was “overheated and amplified.” But his support for increased trade ties with Canada is lukewarm at best, and he could actually prove hostile to the bilateral trading relationship.
I think the significant majority of Canadians who feel Obama’s politics more closely match their own political ideals (and therefore are inclined to favor his candidacy over McCain’s) are right not to worry too much about the Illinois senator’s nods to the protectionists and anti-globalists in the Democratic party. Nearly all parties of the left in rich democracies count within their ranks substantial numbers of people opposed to the further integration of the global economy. And the thing is, a number of states Obama either badly wants to win (Ohio) or absolutely must win (Pennsylvania) are home to large number of culturally conservative unemployed/marginalized blue collar workers who may abandon the culturally liberal Obama if they perceive he’s an excessively enthusiastic fan of free trade.
I believe it’s clear Obama knows the path to securing the living standards of working people lies in strengthening the safety net and not in erecting barriers to trade.
This is simply American presidential politics 101. There’s no serious prospect of an Obama administration’s igniting a trade war between the US and Canada. And in the unlikely event that a President Obama were to broach the subject of labor standards and worker protections with Ottawa (over the Nafta issue), Canadians would have nothing to worry about, since any resulting action would mean it is the US that would be beefing up its standards to match the practices of the more Western European-style Canadians.
On the topic of the Obama’s and McCain’s views on taxation, Clive Crook writes:
With their fixation on the fate of the Bush tax cuts, both of them are missing the main point: comprehensive reform is needed–and needed so badly it may be unavoidable. The key is to broaden the income-tax base. Income-tax rates are moderate in the United States by international standards, but the income-tax base is narrow, so the total raised is less than you would expect. Raising significant amounts of additional revenue–which is going to be necessary, even if no new spending is undertaken–would push income-tax rates quite high. The country needs to broaden its tax base and simplify the rate structure, and much the best way to do this is as part of a thorough overhaul of the code. A lot of what should be done is neither liberal nor conservative. Ordinarily one thinks of a trade-off between equity and efficiency. At some point, those choices do have to be made, but the United States is not at that point. The current system is so inept, so complicated, and so replete with unintended consequences that it is easy to devise a win-win alternative–fairer and more conducive to growth at the same time. Yet neither Obama nor McCain gives any sign of embracing comprehensive reform. Quarreling over the fiscal legacy of the Bush administration is more to their liking. So much for post-partisan politics.
Although I couldn’t agree more that the country badly needs reform of the tax code, I strongly suspect neither Obama nor McCain is so much “missing” this point as avoiding it, for reasons of politics. Any reform of the tax code that is sufficiently radical to do any real good will require a bloody political fight.
I don’t see much prospect of any decent reform plan getting enacted under a McCain presidency, given the likely composition of the Congress (though you never know, and of course McCain has shown some proclivity for working with Democrats). I reckon Obama is the more plausible agent of change in this regard. If I were he I’d avoid getting into specifics with respect to tax reform ideas if such an agenda were part of my plans (one can only hope tax code reform is part of his plans). Obama displayed admirable unwillingness to pander to the electorate on gasoline taxes — an unwillingness that probably helped him finish off Hillary Clinton. But I don’t think he can count on a similarly happy outcome flowing from the effects of candor on the tax code in general, at least to the extent that any substantive reform cannot wholly ignore the mortgage interest deduction