Yes, it’s Groundhog Day. Republicans are once again claiming that tax cuts will spur enough economic growth to pay for themselves. Well, old-timers like myself remember Round I and Round II when we tried this grand experiment. It didn’t work.
Round I was under President Reagan when he put in big tax cuts at the start of the presidency. These tax cuts were supposed to lead to a growth surge which would cover the costs of the tax cuts. Not quite, the deficit soared and the debt-to-GDP ratio went from 25.5 percent of GDP at the end of 1980 to 39.8 percent of GDP at the end of 1988. (It rose further to 46.6 percent of GDP by the end of the first President Bush’s term.)
Round II were the tax cuts put in place by George W. Bush. At the start of the Bush II administration the ratio of debt to GDP was 33.6 percent. It rose to 39.3 percent by the end of 2008.
In addition to these two big lab experiments with the national economy, we also have a large body of economic research on the issue. This research is well summarized in a study done by the Congressional Budget Office (CBO) back in 2005 when it was headed by Douglas Holtz-Eakin, a Republican economist who had served as the head of George W. Bush’s Council of Economic Advisers.
I commented on this study a few years back:
“In a model that examined the effects of a 10% reduction in all federal individual income tax rates, the economy was slightly larger in the first five years after the tax cut and slightly smaller in the five years that followed. In this case, using dynamic scoring showed the tax cut costing more revenue than in the methodology the CBO currently uses.
“The CBO did find that dynamic scoring of the tax cut could have some positive effects if coupled with other policies. In one set of models, policymakers assumed that taxes were raised after 10 years. This led the government to raise more tax revenue in the first 10 years because people knew that they would be taxed more later, so they worked more.”
In short, Holtz-Eakin considered the extent to which tax cuts could plausibly be said to boost growth and found that they had very limited impact on the deficit. The one partial exception, in which growth offset around 30 percent of the revenue lost, was in a story where people expected taxes to rise in the future. In this case, people worked and saved more in the low-tax period with the idea that they would work and save less in the higher tax period in the future.
That is not a story of increasing growth, but rather moving it forward. I doubt that any of the Republicans pushing tax cuts want to tell people that they better work more now because we will tax you more in the future. But that is the logic of the scenario where growth recaptures at least some of the lost revenue.
Having said all this, let me add my usual point. The debt-to-GDP ratio tells us almost nothing. We should be far more interested the ratio of debt service to GDP (now near a post war low of 0.8 percent).
Also, if we are concerned about future obligations we are creating for our children we must look at patent and copyright monopolies. These are in effect privately imposed taxes that the government allows private companies to charge as incentive for innovation and creative work. The size of these patent rents in pharmaceuticals alone is approaching $400 billion. This is more than 2 percent of GDP and more than 10 percent of all federal revenue. In other words, it is a huge burden that honest people cannot ignore.
Yes, it’s Groundhog Day. Republicans are once again claiming that tax cuts will spur enough economic growth to pay for themselves. Well, old-timers like myself remember Round I and Round II when we tried this grand experiment. It didn’t work.
Round I was under President Reagan when he put in big tax cuts at the start of the presidency. These tax cuts were supposed to lead to a growth surge which would cover the costs of the tax cuts. Not quite, the deficit soared and the debt-to-GDP ratio went from 25.5 percent of GDP at the end of 1980 to 39.8 percent of GDP at the end of 1988. (It rose further to 46.6 percent of GDP by the end of the first President Bush’s term.)
Round II were the tax cuts put in place by George W. Bush. At the start of the Bush II administration the ratio of debt to GDP was 33.6 percent. It rose to 39.3 percent by the end of 2008.
In addition to these two big lab experiments with the national economy, we also have a large body of economic research on the issue. This research is well summarized in a study done by the Congressional Budget Office (CBO) back in 2005 when it was headed by Douglas Holtz-Eakin, a Republican economist who had served as the head of George W. Bush’s Council of Economic Advisers.
I commented on this study a few years back:
“In a model that examined the effects of a 10% reduction in all federal individual income tax rates, the economy was slightly larger in the first five years after the tax cut and slightly smaller in the five years that followed. In this case, using dynamic scoring showed the tax cut costing more revenue than in the methodology the CBO currently uses.
“The CBO did find that dynamic scoring of the tax cut could have some positive effects if coupled with other policies. In one set of models, policymakers assumed that taxes were raised after 10 years. This led the government to raise more tax revenue in the first 10 years because people knew that they would be taxed more later, so they worked more.”
In short, Holtz-Eakin considered the extent to which tax cuts could plausibly be said to boost growth and found that they had very limited impact on the deficit. The one partial exception, in which growth offset around 30 percent of the revenue lost, was in a story where people expected taxes to rise in the future. In this case, people worked and saved more in the low-tax period with the idea that they would work and save less in the higher tax period in the future.
That is not a story of increasing growth, but rather moving it forward. I doubt that any of the Republicans pushing tax cuts want to tell people that they better work more now because we will tax you more in the future. But that is the logic of the scenario where growth recaptures at least some of the lost revenue.
Having said all this, let me add my usual point. The debt-to-GDP ratio tells us almost nothing. We should be far more interested the ratio of debt service to GDP (now near a post war low of 0.8 percent).
Also, if we are concerned about future obligations we are creating for our children we must look at patent and copyright monopolies. These are in effect privately imposed taxes that the government allows private companies to charge as incentive for innovation and creative work. The size of these patent rents in pharmaceuticals alone is approaching $400 billion. This is more than 2 percent of GDP and more than 10 percent of all federal revenue. In other words, it is a huge burden that honest people cannot ignore.
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The NYT had an article reporting on how the Pew Research Center had discovered work done by the Economic Policy Institute for a quarter century (the middle class is hurting). At one point the piece compares the United States with France and Germany:
“The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France.”
When making such comparisons it is important to note that people in Europe work many few hours than people in the United States. Five or six weeks a year of vacation are standard. In addition, these countries all mandate paid sick days and paid family leave.
According to the OECD, the length of the average work year in the United States in 2015 was 1790 hours. It was 1482 hours in France (17 percent fewer hours) and just 1371 hours (23 percent fewer hours) in Germany. While these comparisons are not perfect (there are measurement issues) it is clear that people in these countries and the rest of Europe are working considerably fewer hours than people in the United States in large part as a conscious choice. This should be noted in any effort to compare them.
The NYT had an article reporting on how the Pew Research Center had discovered work done by the Economic Policy Institute for a quarter century (the middle class is hurting). At one point the piece compares the United States with France and Germany:
“The United States, including the middle class, has a higher median income than nearly all of Europe, even if the Continent is catching up. The median household income in the United States was $52,941 after taxes in 2010, compared with $41,047 in Germany and $41,076 in France.”
When making such comparisons it is important to note that people in Europe work many few hours than people in the United States. Five or six weeks a year of vacation are standard. In addition, these countries all mandate paid sick days and paid family leave.
According to the OECD, the length of the average work year in the United States in 2015 was 1790 hours. It was 1482 hours in France (17 percent fewer hours) and just 1371 hours (23 percent fewer hours) in Germany. While these comparisons are not perfect (there are measurement issues) it is clear that people in these countries and the rest of Europe are working considerably fewer hours than people in the United States in large part as a conscious choice. This should be noted in any effort to compare them.
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It would have been worth including this point in an interesting column by Gretchen Morgenson noting how bank regulators remain close to the industry they regulate. The point is straightforward. If banks can make profits by writing deceptive contracts and finding ways to trick consumers, then they will devote resources to this effort, instead of concentrating on providing better services and reducing costs.
From the standpoint of the economy, devoting resources to ripping off consumers is a complete waste. It simply redistributes money from the rest of society to the banks. For this reason, people who care about economic growth should support measures that prevent predatory practices by the financial industry.
It would have been worth including this point in an interesting column by Gretchen Morgenson noting how bank regulators remain close to the industry they regulate. The point is straightforward. If banks can make profits by writing deceptive contracts and finding ways to trick consumers, then they will devote resources to this effort, instead of concentrating on providing better services and reducing costs.
From the standpoint of the economy, devoting resources to ripping off consumers is a complete waste. It simply redistributes money from the rest of society to the banks. For this reason, people who care about economic growth should support measures that prevent predatory practices by the financial industry.
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I see Noah Smith is struggling to explain “the mystery of labor’s falling share of GDP.” At the risk of jeopardizing good paying jobs for people with PhDs in economics, let me suggest that there is no mystery to explain.
Noah’s piece features a graph showing the labor share of GDP declining from a range of 64 to 65 percent in the 1960s and early 1970s to just over 60 percent in the most recent data. He then gives us several possible explanations for this drop. Let me give an alternative one, there was no drop or at least not much of one.
Suppose we look at the labor share of net domestic product. This is GDP after removing depreciation. This makes sense since deprecation is not something to be divided by labor and capital. It is the amount of output needed to replace worn out plant and equipment. The story since 1960 is below. (For those wanted to check the numbers, labor compensation comes from NIPA Table 1.10, Line 2; NDP from Table 1.7.5, Line 30.)
Source: Bureau of Economic Analysis.
As we can see, there is no pattern of decline over the last five decades. In fact, the labor share of net domestic product is higher today than it was in the sixties. The labor share did fall sharply in the Great Recession, but this seems easy to attribute to the extraordinary weakness of the labor market. The share is now recovering and my bet is, that if the Fed can be prevented from slamming on the brakes, the labor share will soon return to the levels we saw in most of the period from 1970 to the early 2000s.
Of course, this doesn’t mean that there was not an upward redistribution of income, but rather that it was mostly from low- and middle-wage earners to high wage earners. The latter group including doctors and dentists, Wall Street financial-types, CEOs and top executives, and folks in a position to benefit from patent and copyright rents. (This is the topic of Rigged: How the Rules of Globalization and the Modern Economy Were Structured to Make the Rich Richer.)
So we should definitely be worried about the upward redistribution of income, but it is not a story of a shift from wages to profits. But undoubtedly we can keep many eocnomists employed for some time trying to explain something that did not happen.
I see Noah Smith is struggling to explain “the mystery of labor’s falling share of GDP.” At the risk of jeopardizing good paying jobs for people with PhDs in economics, let me suggest that there is no mystery to explain.
Noah’s piece features a graph showing the labor share of GDP declining from a range of 64 to 65 percent in the 1960s and early 1970s to just over 60 percent in the most recent data. He then gives us several possible explanations for this drop. Let me give an alternative one, there was no drop or at least not much of one.
Suppose we look at the labor share of net domestic product. This is GDP after removing depreciation. This makes sense since deprecation is not something to be divided by labor and capital. It is the amount of output needed to replace worn out plant and equipment. The story since 1960 is below. (For those wanted to check the numbers, labor compensation comes from NIPA Table 1.10, Line 2; NDP from Table 1.7.5, Line 30.)
Source: Bureau of Economic Analysis.
As we can see, there is no pattern of decline over the last five decades. In fact, the labor share of net domestic product is higher today than it was in the sixties. The labor share did fall sharply in the Great Recession, but this seems easy to attribute to the extraordinary weakness of the labor market. The share is now recovering and my bet is, that if the Fed can be prevented from slamming on the brakes, the labor share will soon return to the levels we saw in most of the period from 1970 to the early 2000s.
Of course, this doesn’t mean that there was not an upward redistribution of income, but rather that it was mostly from low- and middle-wage earners to high wage earners. The latter group including doctors and dentists, Wall Street financial-types, CEOs and top executives, and folks in a position to benefit from patent and copyright rents. (This is the topic of Rigged: How the Rules of Globalization and the Modern Economy Were Structured to Make the Rich Richer.)
So we should definitely be worried about the upward redistribution of income, but it is not a story of a shift from wages to profits. But undoubtedly we can keep many eocnomists employed for some time trying to explain something that did not happen.
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Germany is running an annual trade surplus of more than 8.0 percent of its GDP (equivalent to $1.6 trillion in the U.S. economy). This huge trade surplus translates into large deficits for the rest of the world. This is the largest single cause of the problems facing Greece, Italy, Spain, and even France. All are seeing their growth and employment seriously constrained as a result of the large German trade surpluses.
In the good old days before the euro, Germany’s trade surplus would have led to a run-up in the value of its currency making its goods and services less competitive in the world economy, which would have diminished its surplus. However, now that Germany is in the euro, this mechanism for adjustment does not exist.
In the absence of an exchange rate adjustment, the mechanism for addressing the trade imbalance would be more rapid inflation and growth in Germany. The inflation would adjust relative prices and the growth would pull in more imports from Germany’s trading partners. For reasons that seem largely grounded in superstition, Germany refuses to embark on a more rapid growth path (it is running a budget surplus) and continues to maintain a very low inflation rate. (The two are directly linked, since more rapid growth would be the mechanism for increasing the inflation rate.
Instead of giving these basic facts to readers, the NYT ran a Reuters article that reported the dispute as a silly he said/she said. It told readers:
“The Trump administration has criticized Germany for its large trade surpluses with the United States, while Germany has said its companies make quality products that customers want to buy.”
The German response is of course meaningless. The fact that it has a trade surplus means that people want to buy its products at their current prices. If there was an adjustment process that made the German products, say 20 percent more expensive, many fewer people would want to buy them.
The piece also bizarrely asserts that the reform of the corporate income tax being considered by Republicans is “protectionist.” It is not obviously protectionist in a way the refunding of the value added tax on exports is protectionist, and it is certainly not as obviously protectionist as patent and copyright protection. In effect, what Reuters was telling readers is that it doesn’t like the tax proposal and they should not either.
Note: Typos corrected from an earlier post. Thanks to Robert Salzberg and MichiganMitch.
Germany is running an annual trade surplus of more than 8.0 percent of its GDP (equivalent to $1.6 trillion in the U.S. economy). This huge trade surplus translates into large deficits for the rest of the world. This is the largest single cause of the problems facing Greece, Italy, Spain, and even France. All are seeing their growth and employment seriously constrained as a result of the large German trade surpluses.
In the good old days before the euro, Germany’s trade surplus would have led to a run-up in the value of its currency making its goods and services less competitive in the world economy, which would have diminished its surplus. However, now that Germany is in the euro, this mechanism for adjustment does not exist.
In the absence of an exchange rate adjustment, the mechanism for addressing the trade imbalance would be more rapid inflation and growth in Germany. The inflation would adjust relative prices and the growth would pull in more imports from Germany’s trading partners. For reasons that seem largely grounded in superstition, Germany refuses to embark on a more rapid growth path (it is running a budget surplus) and continues to maintain a very low inflation rate. (The two are directly linked, since more rapid growth would be the mechanism for increasing the inflation rate.
Instead of giving these basic facts to readers, the NYT ran a Reuters article that reported the dispute as a silly he said/she said. It told readers:
“The Trump administration has criticized Germany for its large trade surpluses with the United States, while Germany has said its companies make quality products that customers want to buy.”
The German response is of course meaningless. The fact that it has a trade surplus means that people want to buy its products at their current prices. If there was an adjustment process that made the German products, say 20 percent more expensive, many fewer people would want to buy them.
The piece also bizarrely asserts that the reform of the corporate income tax being considered by Republicans is “protectionist.” It is not obviously protectionist in a way the refunding of the value added tax on exports is protectionist, and it is certainly not as obviously protectionist as patent and copyright protection. In effect, what Reuters was telling readers is that it doesn’t like the tax proposal and they should not either.
Note: Typos corrected from an earlier post. Thanks to Robert Salzberg and MichiganMitch.
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On the day of the March for Science the NYT ran a column by Chad Terhune, a senior correspondent for Kaiser Health News and California Healthline, telling readers that the economy was dependent on the health care sector to generate employment.
“The country has grown increasingly dependent on the health sector to power the economy, and it will be a tough habit to break. Thirty-five percent of the nation’s job growth has come from health care since the recession hit in late 2007, the single biggest sector for job creation.”
Okay, this is the story that we don’t have enough work to fully employ people. If we didn’t waste huge amounts of labor doing needless tasks in the health care sector, then millions of workers would be out on the street having nothing to do.
That sounds really bad. It’s also 180 degrees at odds with the conventional concern of economists, which is scarcity, an inadequate supply of labor. We see this story all the time in various forms. Just yesterday the Washington Post told readers about how the retirement of baby boomers was leading to a shortage of workers in construction and trucking.
More generally, the concern frequently expressed by the Washington Post, that an overly generous disability system is leading too many people to leave the labor force (actually we have the least generous system among rich countries), or concerns about budget deficits generally, are concerns about scarcity. In effect they mean that we don’t have enough workers to do what needs to be done. (For the record, the data seem to agree with the scarcity folks for the now, with productivity growth at historic lows for the last decade.)
Anyhow, it is striking that we have seemingly serious people who are 180 degrees at odds on this one. Either the planet as a whole is getting warmer or cooler, it can’t possible be both. Experts on climate science appear to be in agreement on this one. Unfortunately, in economic policy, we don’t need seem to know which way is up.
Perhaps even worse, no one gives a damn.
On the day of the March for Science the NYT ran a column by Chad Terhune, a senior correspondent for Kaiser Health News and California Healthline, telling readers that the economy was dependent on the health care sector to generate employment.
“The country has grown increasingly dependent on the health sector to power the economy, and it will be a tough habit to break. Thirty-five percent of the nation’s job growth has come from health care since the recession hit in late 2007, the single biggest sector for job creation.”
Okay, this is the story that we don’t have enough work to fully employ people. If we didn’t waste huge amounts of labor doing needless tasks in the health care sector, then millions of workers would be out on the street having nothing to do.
That sounds really bad. It’s also 180 degrees at odds with the conventional concern of economists, which is scarcity, an inadequate supply of labor. We see this story all the time in various forms. Just yesterday the Washington Post told readers about how the retirement of baby boomers was leading to a shortage of workers in construction and trucking.
More generally, the concern frequently expressed by the Washington Post, that an overly generous disability system is leading too many people to leave the labor force (actually we have the least generous system among rich countries), or concerns about budget deficits generally, are concerns about scarcity. In effect they mean that we don’t have enough workers to do what needs to be done. (For the record, the data seem to agree with the scarcity folks for the now, with productivity growth at historic lows for the last decade.)
Anyhow, it is striking that we have seemingly serious people who are 180 degrees at odds on this one. Either the planet as a whole is getting warmer or cooler, it can’t possible be both. Experts on climate science appear to be in agreement on this one. Unfortunately, in economic policy, we don’t need seem to know which way is up.
Perhaps even worse, no one gives a damn.
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The New York Times ran a column by Michael Rips that inadvertently called attention to a major tax scam. Rips is unhappy because when artists and other creative workers donate their work to a museum or other charitable institution they can only deduct the value of the materials on their taxes. They cannot deduct the full market value of the work, nor any amount for their labor.
There is a simple reason why they can’t deduct the value of their labor from their taxes, they never paid taxes on their labor in the first place. Suppose a doctor or a lawyer could do work for school and then deduct the value of this work without ever paying taxes on it. This would be a very nice subsidy to the doctors or lawyers, but it doesn’t make sense as tax policy. Nor does it make sense to allow artists to deduct the market value of their work, if they had not already paid taxes on it.
But Rips does call attention to an important discrepancy in the tax code. Suppose a rich person buys a painting for $5 million and then donates it to a museum twenty years later when it has a market value of $50 million. The rich person is allowed to deduct the full market value of $50 million from their taxes, even though they only paid $5 million for the painting.
There is no obvious rationale for this sort of arrangement and it naturally encourages cheating. (Find me an appraiser who will say that my $40 million painting is worth $50 million and it gets me another $4 million off my taxes.) The more logical path would be to limit the person to deducting the original price of the work (perhaps with an inflation adjustment). The rich person could of course sell the painting, pay the capital gains tax, and then donate the proceeds to the museum, but then the museum doesn’t get the painting.
Anyhow, we know it’s hard to be rich, but there is no reason to have special tax breaks like the one Rips calls attention to.
The New York Times ran a column by Michael Rips that inadvertently called attention to a major tax scam. Rips is unhappy because when artists and other creative workers donate their work to a museum or other charitable institution they can only deduct the value of the materials on their taxes. They cannot deduct the full market value of the work, nor any amount for their labor.
There is a simple reason why they can’t deduct the value of their labor from their taxes, they never paid taxes on their labor in the first place. Suppose a doctor or a lawyer could do work for school and then deduct the value of this work without ever paying taxes on it. This would be a very nice subsidy to the doctors or lawyers, but it doesn’t make sense as tax policy. Nor does it make sense to allow artists to deduct the market value of their work, if they had not already paid taxes on it.
But Rips does call attention to an important discrepancy in the tax code. Suppose a rich person buys a painting for $5 million and then donates it to a museum twenty years later when it has a market value of $50 million. The rich person is allowed to deduct the full market value of $50 million from their taxes, even though they only paid $5 million for the painting.
There is no obvious rationale for this sort of arrangement and it naturally encourages cheating. (Find me an appraiser who will say that my $40 million painting is worth $50 million and it gets me another $4 million off my taxes.) The more logical path would be to limit the person to deducting the original price of the work (perhaps with an inflation adjustment). The rich person could of course sell the painting, pay the capital gains tax, and then donate the proceeds to the museum, but then the museum doesn’t get the painting.
Anyhow, we know it’s hard to be rich, but there is no reason to have special tax breaks like the one Rips calls attention to.
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The Washington Post had an interesting piece on how employers in traditionally male-dominated industries, like construction and trucking, are increasingly looking to hire women. While opening up these relatively high-paying sectors to women is certainly good news, the argument in the article really does not make sense.
The piece asserts that employers are having difficulty finding qualified workers, in large part because of the retirement of large numbers of baby boomers. If employers are really having trouble finding workers then we should see rapidly rising wages in these sectors. We don’t.
The piece focuses on iron workers, a skilled construction trade. According to the Bureau of Labor Statistics, the average real hourly wage among specialty trade contractors, the category that includes iron workers, has risen by less than 3.0 percent since its peak in 2002.
Average Hourly Earnings: Specialty Trade Contractors
Source: Bureau of Labor Statistics.
That is annual rate of increase of roughly 0.2 percent. That is not what we would expect in an occupation facing a labor shortage. (Earnings are expressed in 1982–84 dollars, multiply by roughly 2.5 to get 2017 dollars.) It’s great that doors are being opened to women, but there is not evidence of a labor shortage in this sector.
The piece also included an interesting discussion of a looming worker shortage in the trucking industry:
“The American Trucking Associations, meanwhile, declared in a recent report that the industry needs to add almost 1 million new drivers by 2024 to replace retired drivers and keep up with demand.”
In recent months there have been endless news stories about how self-driving vehicles were going to lead to mass unemployment in the trucking industry. This seems like more evidence of the which way is up problem in economics; we will either have a massive shortage of workers in the trucking industry or mass unemployment. Whichever, it clearly is a serious problem.
The Washington Post had an interesting piece on how employers in traditionally male-dominated industries, like construction and trucking, are increasingly looking to hire women. While opening up these relatively high-paying sectors to women is certainly good news, the argument in the article really does not make sense.
The piece asserts that employers are having difficulty finding qualified workers, in large part because of the retirement of large numbers of baby boomers. If employers are really having trouble finding workers then we should see rapidly rising wages in these sectors. We don’t.
The piece focuses on iron workers, a skilled construction trade. According to the Bureau of Labor Statistics, the average real hourly wage among specialty trade contractors, the category that includes iron workers, has risen by less than 3.0 percent since its peak in 2002.
Average Hourly Earnings: Specialty Trade Contractors
Source: Bureau of Labor Statistics.
That is annual rate of increase of roughly 0.2 percent. That is not what we would expect in an occupation facing a labor shortage. (Earnings are expressed in 1982–84 dollars, multiply by roughly 2.5 to get 2017 dollars.) It’s great that doors are being opened to women, but there is not evidence of a labor shortage in this sector.
The piece also included an interesting discussion of a looming worker shortage in the trucking industry:
“The American Trucking Associations, meanwhile, declared in a recent report that the industry needs to add almost 1 million new drivers by 2024 to replace retired drivers and keep up with demand.”
In recent months there have been endless news stories about how self-driving vehicles were going to lead to mass unemployment in the trucking industry. This seems like more evidence of the which way is up problem in economics; we will either have a massive shortage of workers in the trucking industry or mass unemployment. Whichever, it clearly is a serious problem.
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That’s the gist of Anne Applebaum’s Washington Post column today. In a discussion of the upcoming election in the United Kingdom, she refers to the political stances of the Labor Party, the Conservative Party, and the Scottish National Party:
“Curiously, the three parties do have one thing in common: They all claim to be fighting for “the people” against an unnamed and ill-defined “elite.” They all offer their followers a new sort of identity: Voters can now define themselves as “Brexiteers,” as class warriors or as Scots, opposing themselves against enemies in (take your pick) journalism/academia/the judiciary/London/abroad/financial markets/England. If you were wondering whether “populism” was nothing more than a political strategy, easily tailored to elect any party of any ideology, you have your answer. Left-wing radicals, right-wing radicals and Scottish radicals all share a style, if not an agenda.”
So there you have it. We can’t actually have a politics directed against all the money going to the rich because, everyone says they are against the elite. I guess the only thing left to do is cut programs like Social Security and disability and have the Federal Reserve Board raise interest rates to keep people from having jobs. Otherwise, you could be a populist.
That’s the gist of Anne Applebaum’s Washington Post column today. In a discussion of the upcoming election in the United Kingdom, she refers to the political stances of the Labor Party, the Conservative Party, and the Scottish National Party:
“Curiously, the three parties do have one thing in common: They all claim to be fighting for “the people” against an unnamed and ill-defined “elite.” They all offer their followers a new sort of identity: Voters can now define themselves as “Brexiteers,” as class warriors or as Scots, opposing themselves against enemies in (take your pick) journalism/academia/the judiciary/London/abroad/financial markets/England. If you were wondering whether “populism” was nothing more than a political strategy, easily tailored to elect any party of any ideology, you have your answer. Left-wing radicals, right-wing radicals and Scottish radicals all share a style, if not an agenda.”
So there you have it. We can’t actually have a politics directed against all the money going to the rich because, everyone says they are against the elite. I guess the only thing left to do is cut programs like Social Security and disability and have the Federal Reserve Board raise interest rates to keep people from having jobs. Otherwise, you could be a populist.
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The NYT ran a Reuters article which reported on the German government’s response to I.M.F. complaints about its trade surplus. The essence of the response was the German government lacked the competence to reduce its trade surplus, which is currently more than 8.0 percent of GDP ($1.6 trillion in the U.S.). The German trade surplus is of course a deficit for other countries, which are seeing a loss of output and employment as a result.
Because Germany is in the euro, the most important tool for addressing an excessive trade surplus, a rise in the value of the currency, is not available as an option. A higher valued euro would hurt the competitive position of other countries in the euro, like Greece, Portugal, and Spain, that are struggling with slow growth and high unemployment. Of course, a change in the value of the euro does not affect Germany’s position at all relative to its main trading partners within the euro.
The mechanism for an adjustment in this case would be for Germany to increase demand and to try to raise its domestic inflation rate. The best way to increase its budget deficit. Unfortunately, instead of running large budget deficits, Germany is running a budget surplus of 0.6 percent of GDP ($115 billion annually in the United States).
If Germany continues to run large trade surplus, then heavily indebted countries like Greece will inevitably need further debt relief. In effect, this means that Germany will have given away its exports in prior years. If Germany were prepared to run more expansionary fiscal policy and allow its inflation rate to rise somewhat then it could have more balanced trade, meaning that it would be getting something in exchange for its exports.
However, Germany’s political leaders would apparently prefer to give things away to its trading partners in order to feel virtuous about balanced budgets and low inflation. The price for this “virtue” in much of the rest of the euro zone is slow growth, stagnating wages, and mass unemployment.
The NYT ran a Reuters article which reported on the German government’s response to I.M.F. complaints about its trade surplus. The essence of the response was the German government lacked the competence to reduce its trade surplus, which is currently more than 8.0 percent of GDP ($1.6 trillion in the U.S.). The German trade surplus is of course a deficit for other countries, which are seeing a loss of output and employment as a result.
Because Germany is in the euro, the most important tool for addressing an excessive trade surplus, a rise in the value of the currency, is not available as an option. A higher valued euro would hurt the competitive position of other countries in the euro, like Greece, Portugal, and Spain, that are struggling with slow growth and high unemployment. Of course, a change in the value of the euro does not affect Germany’s position at all relative to its main trading partners within the euro.
The mechanism for an adjustment in this case would be for Germany to increase demand and to try to raise its domestic inflation rate. The best way to increase its budget deficit. Unfortunately, instead of running large budget deficits, Germany is running a budget surplus of 0.6 percent of GDP ($115 billion annually in the United States).
If Germany continues to run large trade surplus, then heavily indebted countries like Greece will inevitably need further debt relief. In effect, this means that Germany will have given away its exports in prior years. If Germany were prepared to run more expansionary fiscal policy and allow its inflation rate to rise somewhat then it could have more balanced trade, meaning that it would be getting something in exchange for its exports.
However, Germany’s political leaders would apparently prefer to give things away to its trading partners in order to feel virtuous about balanced budgets and low inflation. The price for this “virtue” in much of the rest of the euro zone is slow growth, stagnating wages, and mass unemployment.
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