Everyone should spend a year or two teaching high school English – or so it seemed to Tony Danza recently. But it’s not like Robin Williams’ sappy movie or that classic about that Chips fellow – you won’t be the beloved eccentric who awakens young minds. A lot of it is just tedious, with paperwork, and it’s seldom like that famous song by the Police – no sweet young thing will stand too close to you. It’s just a way to learn tolerance and patience, and graceful ways to deal with inanity. There’ll be that Keats poem about the Grecian urn – truth is beauty and so on – and you’ll try to tease out from the kids what they think that could mean – and one of them will invariably say, well, the poem is about Keats’ mother, or skiing, or ceramics, or rugby. And you don’t want to crush the kid – you never want to do that – but you have to say something. You know, you could be right – but you’re not. Being able to say that gracefully, without anything like malice and scorn, is a useful skill in what they call real life, which can be defined as those things that those who are not teachers do. But that skill, of being able to say to the other party they have it all wrong, and say it in a supportive way, can be impressive, and useful.
But it’s a lost art. Most prefer their righteous or self-righteous rants – anger is always appropriate these days. The other guy must be a socialist, or going the other way, a fascist – so you preen and say the other guy is a damned fool, when you’re feeling generous, or irredeemably evil to the core, if you’re not. In the late sixties the hard left was good at this – Nixon was a great target – and now it’s the Tea Party folks. You remember those Town Hall meetings a summer or two ago, regarding healthcare policy. There was a lot of shouting, and Obama was Hitler, when he wasn’t Mao or Stalin, or a witch doctor – and he was cleverly and diabolically destroying America and all it stands for, with a suspicious secret plot, when he wasn’t dumb as a rock and in way over his head. This is the sort of thing that puzzles English teachers. As with the Keats poem, you can see what they’re saying, and maybe see why they’re saying it – but there’s nothing in the text to support what they say, not one word. They could be right, but, objectively, they’re not. There’s nothing there about that. And so it is with political arguments. There are ways to say to the other party that they have it all wrong, and say it in a supportive way – there are nice ways of saying that you could very well be right, but you’re not. You point to the text, as it were. That’s a quaint but useful skill.
And now, in the middle of December and in the middle of a lame duck session of Congress, the political world is caught up in the effort to keep taxes from jumping back up to the previous levels, as the absurd and ineffective Bush-era tax cuts are about to expire, as they had been scheduled to do. But the week opened with some movement on that:
The Senate overwhelmingly advanced President Obama’s $858-billion tax-cut package Monday in a vote that heightened pressure on reluctant House Democrats and enhanced the likelihood of congressional approval for the compromise.
The Senate could send the package to the House by midweek and then turn to remaining legislative priorities, including a nuclear arms reduction treaty with Russia, a repeal of the ban on openly gay military personnel and a youth immigration bill.
Still, House Democrats have yet to relent in their opposition to the tax-cut deal between the White House and GOP leaders, and they are expected to demand changes to the bill’s estate tax provision, which liberal lawmakers say is skewed to the wealthy.
Yet, as the Senate voted 83-15 to clear a key procedural hurdle, it became increasingly obvious that altering the package in either chamber could delay final votes and jeopardize other top goals before the Democratic-controlled Congress comes to a close at the end of the year.
Obama urged a speedy resolution.
Of course he did. Inanity was running rampant. A good number of Democrats hated this package, as it would spend hundreds and hundreds of billions of dollars to make sure millionaires and billionaires didn’t have to go back to the old tax rates, which was a waste of money we’d have to borrow, so the absurdly wealthy could remain absurdly wealthy. And the bit about effectively reinstating the estate tax would cost forty or fifty billion alone to keep the Walton family, of Wal-Mart, from having to pitch-in in hard times. Keeping fewer than a dozen wealthy families from paying what they used to pay was a hell of a reason to incur more massive debt. And Obama had said so in his campaign for president.
And on the other side they were crowing about a win, about fleecing Obama and keeping the important people way on top of the heap, where they should be, but they were disappointed that they had to agree to extending unemployment benefits to the unimportant people, who ought to just go out and get a job and quit whining. Neither side wanted to discuss how this was pretty much an almost nine hundred billion dollar unfunded stimulus package, much like the first one. The angry Democrats wanted to remain angry and the crowing Republicans wanted to keep crowing about how they snookered Obama. But some Republicans don’t. an do look at the text. Charles Krauthammer does just that:
Barack Obama won the great tax-cut showdown of 2010 – and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package. It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years – which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years. Two-thirds of that is above and beyond extension of the Bush tax cuts but includes such urgent national necessities as windmill subsidies.
He’s one unhappy conservative, wondering why the liberals are angry and in despair and up in arms. He’s puzzled, but all of this is a bit crazy, and it’s probably best to just pass the package and get on with business. The analogy is what an English teacher does when it’s all inanity – someone argues passionately that the Keats poem is about the Vietnam War. You call class and send the kids on their way.
But there’s something even more fundamental that underlies this all – an argument about consumption versus production when things have gone in the weeds. Which is more important? There’s Steven Horwitz here on the question of consumption versus production:
One of the most pernicious and widespread economic fallacies is the belief that consumption is the key to a healthy economy. We hear this idea all the time in the popular press and casual conversation, particularly during economic downturns. People say things like, “Well, if folks would just start buying things again, the economy would pick up” or “If we could only get more money in the hands of consumers, we’d get out of this recession.” This belief in the power of consumption is also what has guided much of economic policy in the last couple of years, with its endless stream of stimulus packages.
This belief is an inheritance of misguided Keynesian thinking. Production, not consumption, is the source of wealth. If we want a healthy economy, we need to create the conditions under which producers can get on with the process of creating wealth for others to consume, and under which households and firms can engage in the saving necessary to finance that production.
And it comes down to this:
Putting more resources in the hands of consumers through a government stimulus package fails precisely because the wealth so transferred ultimately has to come from producers. This is obvious when the spending is financed by taxation, but it’s equally true for deficit spending and inflation. With deficit spending the wealth comes from producers’ purchases of government bonds. With inflation it comes proportionately from holders of dollars (obtained through acts of production) whose purchasing power is weakened by the excess supply of money. In neither case does government create wealth. Nor does consumption. The new ability to consume still originates in prior acts of production. If we want real stimulus, we need to free up producers by creating a more hospitable environment for production and not penalize the saving that finances them.
That sounds reasonable. It is pure supply-side economics, but as that Keats poem about the Grecian urn is not about the Vietnam War, so this is inane nonsense, or so says Matthew Yglesias:
I think people find this sort of logic compelling because it has the combination of sounding virtuous and tough-minded, but also aligns you politically with the interests of rich people and powerful business executives. It’s a hard to beat combination.
But ask yourself, why does the focus on consumption become prominent during economic downturns? Well, it’s because in a modern economy downturns often occur absent any kind of negative shock to our productive capacity. It’s possible for such shocks to occur. The US military reduced most of Japan’s cities to rubble in 1944-45 precisely in order to cripple Japan’s ability to produce things. Increasing Japanese prosperity over the next ten years was about re-creating that capacity. But the year 2008 wasn’t in the distant past – we can remember what happened and didn’t happen. No American cities were destroyed by nuclear weapons. No draught crippled our agriculture. People didn’t suddenly forget job skills they’d had. What happened was a large negative shock to demand – not an earthquake or a flood or a plague. I was there and so were you.
People talk about demand during downturns because in a downturn you have an unusually large number of unemployed people. That’s people producing nothing who the year before were producing something. If there were more demand, they’d produce something.
And like an English teacher saying look at the text, Yglesias offers this:
Now if you look around the world, you can find lots of examples of countries with lower unemployment rates than the United States that are nonetheless poorer than the United States. How does that happen? That happens because when you’re not in a downturn, the only way for a country to improve its living standards is to actually get better at producing stuff. When almost everyone who wants a job has one, the only way to get richer is for people to start being more productive. Productive capacity matters – a lot.
But when lots of people who want jobs aren’t doing jobs you’ve got a different problem – a failure to mobilize the productive people you already have.
People do make passionate arguments for nonsense, of course. Steven Horwitz does. He must have been a terror in English class way back when.
But people make all sorts of arguments, as Robert Samuelson does in this column about the economic problem of risk-aversion:
The Great Recession’s most worrisome legacy could be this common allergy toward risk-taking. Having underestimated risks in the bubble years, we may overestimate them now. Consider the shriveling of venture capital – a big source of money for high-tech start-ups. In 2009, venture capital funds received less than half the $35 billion they raised in 2007, and inflows in 2010 are running 27 percent below 2009 levels. The institutions (pensions, endowments) and wealthy individuals that provide venture capital have less money to invest and are less willing to commit it to chancy firms.
But Yglesias would put this in another way:
The allergy toward risk-taking isn’t a consequence of the recession – it’s something that existed even beforehand. After the dot-com bubble and the Enron/WorldCom accounting scandals, people were looking for safe investments. And the selling point of housing (for ordinary households) and mortgage-backed securities (for big shots) was that this was supposed to be a basically safe non-speculative investment with a somewhat higher yield than a savings account or a treasury bond. That turned out to be an illusion, but it was a risk-averse pursuit from the beginning.
And Kevin Drum agrees:
The entire decade of the aughts was marked by an almost fanatical aversion to risk. All those synthetic CDO’s and credit default swaps, all the super senior tranches that banks smugly kept on their books, the whole panoply of measurement tools like VaR and the Gaussian copula – all of them were designed to convince investors that risk had been engineered out of the system. That’s why they were so popular. Not because Bush-era investors were bold capitalists with confidence in the future, but just the opposite: it was because Bush-era investors were desperately looking for high-yield investments that were essentially fully hedged and risk free. It was a fool’s paradise, all right, but it was a fool’s paradise based thoroughly and explicitly on avoiding risk.
Now, of course, it’s worse. Investors are still risk averse, but they’re also operating in a recessionary environment in which good investment opportunities are genuinely hard to find and financial engineering no longer seems like a panacea. What’s changed isn’t the fundamental timidity of America’s modern millionaire class, only the fact that it’s now a lot more obvious.
Okay, there’s that. And also this. The argument to eliminate taxes on the rich and regulations on their businesses – the uncertainty of what’s going on is killing them, and thus they don’t feel like boosting production or expanding, and that’s killing us. A close reading of the facts here, however, seems to show that there’s no demand for anything they might produce, or do produce. They could very well be right, but they’re not.
And on another economic matter, where folks could be right, but they’re not, there’s Fred Clark at Slacktivist with this:
The confused conservatives seem to mistakenly believe that during the Great Recession those eight million workers were simply fired.
If that had been the case, the economy would have greeted those eight million newly unemployed workers with eight million newly vacant job openings. The relocations, re-trainings and logistics of rearranging all of those workers back into the assorted job openings created by their firings would have been unpleasant in the short term, but wouldn’t have created an insurmountable long-term problem for either those eight million people or for the economy as a whole. That sort of churning and rearranging goes on all the time, which is why economists regard something like a 4 percent unemployment rate as “full employment.”
If those workers had all simply been fired, the scenario would have played out as something like the economic equivalent of a Chinese fire drill – everyone get up and find a new seat. That would have been disruptive, but still possible because there would still have been one seat for every displaced worker.
But like the English teacher saying look at the text, Clark says look at what happened with this Great Recession:
Those eight million workers were not fired, they were laid off. Getting laid off is not the same as getting fired.
Those eight million workers got up and their seats were taken away. They cannot find new seats because there are not nearly enough seats to go around. Those eight million or so workers cannot simply find new jobs because there are eight million fewer jobs to be found.
The facts are there:
The most recent figures, if you want to be precise: 14.2 million looking for work; 3.4 million job openings. That means 10.8 million Americans right now, today, are royally, epically screwed.
That means it wouldn’t matter if every unemployed American followed all the advice for what job-seekers are supposed to do. If every single one of them keeps a positive attitude while still being willing to settle for less, if each and every one of them takes classes and volunteers to keep their skills sharp, if each and every one networks furiously, gets up every morning, showers, shaves and gets dressed for the office before sending out dozens of perfect, enticingly crafted résumés all day, every day, then 10.8 million of them will still not find jobs because there are 10.8 million fewer jobs than there are job seekers.
That is the situation. That is what we are up against.
Millions of people got laid off. They weren’t fired – they were laid off. Their jobs are gone and now there aren’t enough jobs.
It’s pretty simple actually. All of it is pretty simple. Look at what’s in front of you. Deal with that. Don’t make stuff up to impress the teacher or the cute girl two rows over. And yes, your English teacher may say, well, you could very well be right, but you’re not. That’s not a compliment on your imaginative insight. Go back, and look at what’s in front of you and don’t be a jerk.
And of course Obama, with his madding insistence on bipartisanship, even in the face of the absolutist Republicans – the Party of No – has spent the first two years of his presidency doing that very same English teacher thing. And that’s probably the best way to deal with inanity. Sooner or later the kid gets it.
See this comment from Rick, the News Guy in Atlanta, moved up from the comments section:
According to Steven Horwitz:
Production, not consumption, is the source of wealth. If we want a healthy economy, we need to create the conditions under which producers can get on with the process of creating wealth for others to consume, and under which households and firms can engage in the saving necessary to finance that production. Putting more resources in the hands of consumers through a government stimulus package fails precisely because the wealth so transferred ultimately has to come from producers. This is obvious when the spending is financed by taxation, but it’s equally true for deficit spending and inflation. With deficit spending the wealth comes from producers’ purchases of government bonds. With inflation it comes proportionately from holders of dollars (obtained through acts of production) whose purchasing power is weakened by the excess supply of money. In neither case does government create wealth. Nor does consumption. The new ability to consume still originates in prior acts of production. If we want real stimulus, we need to free up producers by creating a more hospitable environment for production and not penalize the saving that finances them.
Only if a producer were an idiot would he produce something for sale to a consumer who doesn’t have the money to buy it. A healthy economy does not really depend that much on the ability for somebody to sell something – it’s really about the ability of somebody to buy something.
Supply does not create demand, demand creates supply. You may have a very nice Smartphone to sell us, but if none of us has the money to buy it, you’re stuck with it. On the other hand, if a bunch of us folks suddenly come into money and would love to buy a Smartphone, you can be sure some enterprising seller will materialize, seemingly from thin air, to sell it to them.
Yes, the producer could cast his “risk aversion” to the winds and just produce something without a visible market for it, but even under the Bush tax cuts, that’s not been happening — probably because producers, not being idiots, are noticing that so many people have no jobs, and therefore no money to spend, and are therefore not going to buy just any old thing that some brave manufacturer cranks out of his factory.
Yes, you could say the “wealth” that goes into stimulus packages comes ultimately from producers, but you’d be wrong. It comes from all of us — that is, anyone who pays taxes or buys government bonds — and to say it just comes from producers is both arrogant and myopic.
But a healthy economy is not really about creating “wealth” anyway, it’s about economic activity. Hell, you can be plenty wealthy, at least for awhile, and never produce anything. Nor is it really about “consumption” — if the dollar is low, for example, it creates demand for our products overseas, which helps our exports. Even though domestic consumption doesn’t necessarily go up, employment does, and that’s got to be a good thing for the economy.
So instead of “consumption,” maybe the magic word should be “spending” — which in turn, stands in for “buying and selling”. Without any of that going on, you don’t have an economy.
No, Horwitz is right, stimulus packages don’t in themselves create new jobs, but they do try to hold the line on losing old ones, which hopefully will maintain stability and keep some spending going until demand comes back, thereby giving producers reason to begin producing again. With each additional job lost, there’s that much less money being spent, creating a cascade of income losses down the line, and causing even more unemployment. The idea, which seems to escape the conservatives, is to keep the economy from collapsing into itself.
But the present lack of economic activity is not, as Horwitz seems to think, because someone is “penalizing” the savings that finances producers. It’s been widely noted that producers are already sitting on piles of cash that will be needed to get back into production, once they see the economy getting stronger.
Conservatives, who have been trying so hard to explain why producers haven’t been producing, have glommed onto the idea that it must be the “uncertainty” of Obama tax policies, so it will be interesting to see if production dramatically picks up after the first of the year, after the compromise tax bills are passed.
I doubt that it will, at least not until we see demand start picking up.