The media and “fact checkers” seem to have missed it, but President Obama implicitly called for cutting Social Security by 3 percent and phasing in an increase in the normal retirement age to 69 when he again endorsed the deficit reduction plan put forward by Erskine Bowles and Alan Simpson, the co-chairs of his deficit commission.
The reduction in benefits is the result of their proposal to reduce the size of the annual cost of living adjustment by 0.3 percentage points by using a different price index. After 10 years this would imply a reduction in benefits of 3 percent, after 20 years the reduction would be 6 percent, and after 30 years the reduction would be 9 percent. If the average beneficiary lives long enough to collect benefits for 20 years, the average reduction in benefits would be approximately 3 percent.
Since Social Security is enormously important to retirees and near retirees, the media should have called attention to this part of President Obama’s speech. It is likely that many of those listening did not realize that his deficit reduction plan called for these cuts.
The media and “fact checkers” seem to have missed it, but President Obama implicitly called for cutting Social Security by 3 percent and phasing in an increase in the normal retirement age to 69 when he again endorsed the deficit reduction plan put forward by Erskine Bowles and Alan Simpson, the co-chairs of his deficit commission.
The reduction in benefits is the result of their proposal to reduce the size of the annual cost of living adjustment by 0.3 percentage points by using a different price index. After 10 years this would imply a reduction in benefits of 3 percent, after 20 years the reduction would be 6 percent, and after 30 years the reduction would be 9 percent. If the average beneficiary lives long enough to collect benefits for 20 years, the average reduction in benefits would be approximately 3 percent.
Since Social Security is enormously important to retirees and near retirees, the media should have called attention to this part of President Obama’s speech. It is likely that many of those listening did not realize that his deficit reduction plan called for these cuts.
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Dylan Matthews usually writes insightful pieces, but he really strays from the mark today in buying a story that unemployment in today’s economy is to any significant extent an issue of skills. He picks up on a new paper by two economists (Nir Jaimovich from Duke and Henry E. Siu at the University of British Columbia) that argues that structural changes rather than weak demand is the main factor behind weak job growth in the last three recoveries.
Tying structural change to the last three recoveries should immediately raise some hackles. The largest shift upward redistribution in wages from the middle and bottom to the top, occurred in the early 80s. In the folklore of skills biased technical change that dominates the economics profession, the early 80s really hold pride of place as the period that best fits the story. But Jaimovich and Siu want to put the early 80s back in the post-war golden age where we all prospered together. If they are right, then a lot of other economists are seriously wrong.
But getting to the substance, the real issue here is if there was a ton of new demand in the economy — the government had a huge make work program, the dollar plunged and net exports soared, and job creators doubled their investment inspired by the Romney-Ryan vision for America (just kidding) — whether or not we would not see a huge surge in employment. It’s hard to see anything in Jaimovich and Siu’s paper that would suggest otherwise.
We know that less educated workers bear the brunt of unemployment any time the economy falls below full employment. This was the theme of my book with Jared Bernstein a decade ago (The Benefits of Full Employment). There’s a simple logic to this. The marginal workers that firms hire when demand picks up tend to be less educated on average than the core workers who stay employed no matter what.
Think of a factory where output has been cut by 50 percent or a store where sales fall by the same amount. The managers likely stay on in their jobs, as well as the most skilled maintenance crew in the case of the factory. The people who get laid off will be the line workers in the case of the factory or the retail clerks in the case of the store. However this change in skills mix is not an indication of a change in technology, it’s an indication of weak demand.
If we actually had a serious issue with technology changing the mix of skills needed in the economy then we should be able to find large sectors of the economy where there are large numbers of job openings, where wages are rising rapidly and the average weekly hours are surging. We don’t see this. (Yes, employers complain about not being able to find qualified workers, but if this is true then our job creators have forgotten how to raise wages.)
The real story of this downturn seems very simple. We had a huge housing bubble that was driving the economy through its effect on consumption and residential construction. When it collapsed, it created a gap in demand on the order of $1.2-$1.5 trillion. There is no easy way for private sector demand to fill this gap. (Anyone got a story of how that would work?)
This means that we have to rely on government deficits to fill the demand gap in the short-term. In the longer term we should be looking to reducing the trade deficit. Residential construction should also help as it gradually returns to its trend levels from the extraordinarily depressed levels that resulted from the overbuilding of the bubble years.
Anyhow, the housing bubble story provides a simple answer as to why we are not creating jobs. I suppose we can keep a lot of economists employed looking for other explanations, but aren’t there more productive things they would be doing?
Dylan Matthews usually writes insightful pieces, but he really strays from the mark today in buying a story that unemployment in today’s economy is to any significant extent an issue of skills. He picks up on a new paper by two economists (Nir Jaimovich from Duke and Henry E. Siu at the University of British Columbia) that argues that structural changes rather than weak demand is the main factor behind weak job growth in the last three recoveries.
Tying structural change to the last three recoveries should immediately raise some hackles. The largest shift upward redistribution in wages from the middle and bottom to the top, occurred in the early 80s. In the folklore of skills biased technical change that dominates the economics profession, the early 80s really hold pride of place as the period that best fits the story. But Jaimovich and Siu want to put the early 80s back in the post-war golden age where we all prospered together. If they are right, then a lot of other economists are seriously wrong.
But getting to the substance, the real issue here is if there was a ton of new demand in the economy — the government had a huge make work program, the dollar plunged and net exports soared, and job creators doubled their investment inspired by the Romney-Ryan vision for America (just kidding) — whether or not we would not see a huge surge in employment. It’s hard to see anything in Jaimovich and Siu’s paper that would suggest otherwise.
We know that less educated workers bear the brunt of unemployment any time the economy falls below full employment. This was the theme of my book with Jared Bernstein a decade ago (The Benefits of Full Employment). There’s a simple logic to this. The marginal workers that firms hire when demand picks up tend to be less educated on average than the core workers who stay employed no matter what.
Think of a factory where output has been cut by 50 percent or a store where sales fall by the same amount. The managers likely stay on in their jobs, as well as the most skilled maintenance crew in the case of the factory. The people who get laid off will be the line workers in the case of the factory or the retail clerks in the case of the store. However this change in skills mix is not an indication of a change in technology, it’s an indication of weak demand.
If we actually had a serious issue with technology changing the mix of skills needed in the economy then we should be able to find large sectors of the economy where there are large numbers of job openings, where wages are rising rapidly and the average weekly hours are surging. We don’t see this. (Yes, employers complain about not being able to find qualified workers, but if this is true then our job creators have forgotten how to raise wages.)
The real story of this downturn seems very simple. We had a huge housing bubble that was driving the economy through its effect on consumption and residential construction. When it collapsed, it created a gap in demand on the order of $1.2-$1.5 trillion. There is no easy way for private sector demand to fill this gap. (Anyone got a story of how that would work?)
This means that we have to rely on government deficits to fill the demand gap in the short-term. In the longer term we should be looking to reducing the trade deficit. Residential construction should also help as it gradually returns to its trend levels from the extraordinarily depressed levels that resulted from the overbuilding of the bubble years.
Anyhow, the housing bubble story provides a simple answer as to why we are not creating jobs. I suppose we can keep a lot of economists employed looking for other explanations, but aren’t there more productive things they would be doing?
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A NYT piece contrasting the politics of Elizabeth Warren and Bill Clinton tells readers that:
“Mr. Clinton is the president who made the sustained case to Democrats that they had to be pro-growth and pro-Wall Street, not just to get elected, but also to build a more modern economy.”
There is considerable evidence that these are contradictory positions. Our bloated financial sector is a drain on growth as shown in a recent paper from the Bank of International Settlements. Resources that could be deployed productively are instead applied to rent-seeking activity in the financial sector.
This paper found that a large financial sector posed the largest burden on sectors with more research and development and were heavily dependent on external financing. In the former case, finance apparently pulls away workers who might otherwise be employed as scientists and technicians elsewhere in the economy. In the latter case, finance driving up speculative bubbles could displace finance for new investment.
President Clinton’s policies set the country on a course of bubble driven growth. The prosperity of the last four years of his administration was driven by an unsustainable stock bubble. The collapse of the bubble was responsible for the recession of 2001 (and the deficits that get the Washington establishment types so excited). It was difficult for the economy to recover from this downturn which led to, at the time, the longest period without job growth since the Great Depression. When the economy finally did recover from this downturn and start to create jobs it was on the back of the housing bubble.
This is the economic model that President Clinton is associated with. By contrast, Elizabeth Warren is associated with a growth model that builds on broadly shared income gains. The track record suggests that the Warren model is far more effective.
A NYT piece contrasting the politics of Elizabeth Warren and Bill Clinton tells readers that:
“Mr. Clinton is the president who made the sustained case to Democrats that they had to be pro-growth and pro-Wall Street, not just to get elected, but also to build a more modern economy.”
There is considerable evidence that these are contradictory positions. Our bloated financial sector is a drain on growth as shown in a recent paper from the Bank of International Settlements. Resources that could be deployed productively are instead applied to rent-seeking activity in the financial sector.
This paper found that a large financial sector posed the largest burden on sectors with more research and development and were heavily dependent on external financing. In the former case, finance apparently pulls away workers who might otherwise be employed as scientists and technicians elsewhere in the economy. In the latter case, finance driving up speculative bubbles could displace finance for new investment.
President Clinton’s policies set the country on a course of bubble driven growth. The prosperity of the last four years of his administration was driven by an unsustainable stock bubble. The collapse of the bubble was responsible for the recession of 2001 (and the deficits that get the Washington establishment types so excited). It was difficult for the economy to recover from this downturn which led to, at the time, the longest period without job growth since the Great Depression. When the economy finally did recover from this downturn and start to create jobs it was on the back of the housing bubble.
This is the economic model that President Clinton is associated with. By contrast, Elizabeth Warren is associated with a growth model that builds on broadly shared income gains. The track record suggests that the Warren model is far more effective.
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The Democrats’ discussion of the loss of the Clinton budget surpluses is a tale of paradise lost. Unfortunately, it was an illusory paradise that serious people should not concern themselves with. That is why it is disappointing to see Ezra Klein give us more tales of the evaporating budget surplus.
The huge surpluses of the last Clinton years were the result of a boom that was driven by a stock bubble. The boom was great. Millions of people got jobs who would not have otherwise. We also saw real wage gains up and down the income distribution for the first time since the early 70s.
The greatest minds in the economics profession had assured us that the unemployment rate could not get below 6.0 percent without touching off accelerating inflation. However the boom pushed the unemployment rate down to 4.0 percent as a year-round average in 2000. Guess what? There was no story of accelerating inflation. (Fortunately for economists, continued employment, and even standing in the profession, does not depend on performance.)
But the key point is that the surplus came from a boom that was not sustainable. Here’s the key chart that shows you how we went from the deficit of 2.7 percent of GDP that the Congressional Budget Office had projected in 1996 for 2000 to the surplus of 2.4 percent of GDP that we actually saw in 2000.
Source: Congressional Budget Office and author’s calculations.
This was not a story of tax increases and budget cuts, those had already been on the books by 1996. This was pure and simple a story of the bubble-based boom pushing the economy much further than CBO had expected. (Greenspan deserves a huge amount of credit for allowing the unemployment rate to fall. His Clinton appointed colleagues, Lawrence Meyer and Janet Yellen, wanted to raise interest rates in 1996 to keep unemployment from falling much below 6.0 percent.)
Anyhow, when the bubble burst, the surplus was destined to vanish. The Bush tax cuts and even the wars helped to stimulate the economy and maintain employment. There were much better ways to boost the economy, but it is absurd to imagine that the economy somehow would have been better off without this spending.
To repeat a post from last week, the real tragedy of both conventions is that policy is so obsessed with the deficit. No one apart from a few policy wonks in DC even has a clue as to the size of the deficit. (Quick, give it to me to the nearest hundred billion.) Contrary to the scare stories, the burden of the debt (a.k.a. interest payments) are near a post-war low as a share of GDP, not a record high.
Source: Congressional Budget Office.
Topics one, two, and three should be jobs, jobs, and jobs. The deficit is a distraction. And the tale of the vanishing Clinton era budget surpluses, well that’s something for retired budget wonks to reminisce over in their golden years.
Addendum:
Many good questions are raised below. I’ll just address a few points. First, I have zero interest in getting into debates on the budget deficit. I don’t care whether the government runs a budget surplus, so the particular accounting is of no interest to me apart from the fact that it needs to be consistent through time. I suppose we can have some good make work jobs having people design new budget methodologies, but I don’t intend to get involved myself.
In terms of the causes of the deficits/debt, a lot depends on the baseline. My baseline was 1996 since I wanted to show that Clinton did not give us a balanced budget/surplus, the stock market bubble did. The spending/tax cuts that followed the recession were needed to boost the economy. Unless you like to see people out of work, you should be happy for the deficit. Of course the tax cuts and money spent on the war could have been much better directed, but if the choice was no tax cuts and no additional military spending versus what we got, there can be little doubt that the latter created more jobs.
The Democrats’ discussion of the loss of the Clinton budget surpluses is a tale of paradise lost. Unfortunately, it was an illusory paradise that serious people should not concern themselves with. That is why it is disappointing to see Ezra Klein give us more tales of the evaporating budget surplus.
The huge surpluses of the last Clinton years were the result of a boom that was driven by a stock bubble. The boom was great. Millions of people got jobs who would not have otherwise. We also saw real wage gains up and down the income distribution for the first time since the early 70s.
The greatest minds in the economics profession had assured us that the unemployment rate could not get below 6.0 percent without touching off accelerating inflation. However the boom pushed the unemployment rate down to 4.0 percent as a year-round average in 2000. Guess what? There was no story of accelerating inflation. (Fortunately for economists, continued employment, and even standing in the profession, does not depend on performance.)
But the key point is that the surplus came from a boom that was not sustainable. Here’s the key chart that shows you how we went from the deficit of 2.7 percent of GDP that the Congressional Budget Office had projected in 1996 for 2000 to the surplus of 2.4 percent of GDP that we actually saw in 2000.
Source: Congressional Budget Office and author’s calculations.
This was not a story of tax increases and budget cuts, those had already been on the books by 1996. This was pure and simple a story of the bubble-based boom pushing the economy much further than CBO had expected. (Greenspan deserves a huge amount of credit for allowing the unemployment rate to fall. His Clinton appointed colleagues, Lawrence Meyer and Janet Yellen, wanted to raise interest rates in 1996 to keep unemployment from falling much below 6.0 percent.)
Anyhow, when the bubble burst, the surplus was destined to vanish. The Bush tax cuts and even the wars helped to stimulate the economy and maintain employment. There were much better ways to boost the economy, but it is absurd to imagine that the economy somehow would have been better off without this spending.
To repeat a post from last week, the real tragedy of both conventions is that policy is so obsessed with the deficit. No one apart from a few policy wonks in DC even has a clue as to the size of the deficit. (Quick, give it to me to the nearest hundred billion.) Contrary to the scare stories, the burden of the debt (a.k.a. interest payments) are near a post-war low as a share of GDP, not a record high.
Source: Congressional Budget Office.
Topics one, two, and three should be jobs, jobs, and jobs. The deficit is a distraction. And the tale of the vanishing Clinton era budget surpluses, well that’s something for retired budget wonks to reminisce over in their golden years.
Addendum:
Many good questions are raised below. I’ll just address a few points. First, I have zero interest in getting into debates on the budget deficit. I don’t care whether the government runs a budget surplus, so the particular accounting is of no interest to me apart from the fact that it needs to be consistent through time. I suppose we can have some good make work jobs having people design new budget methodologies, but I don’t intend to get involved myself.
In terms of the causes of the deficits/debt, a lot depends on the baseline. My baseline was 1996 since I wanted to show that Clinton did not give us a balanced budget/surplus, the stock market bubble did. The spending/tax cuts that followed the recession were needed to boost the economy. Unless you like to see people out of work, you should be happy for the deficit. Of course the tax cuts and money spent on the war could have been much better directed, but if the choice was no tax cuts and no additional military spending versus what we got, there can be little doubt that the latter created more jobs.
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Eduardo Porter has an interesting piece pointing out that in many respects Richard Nixon’s economic policy was well to the left of Barack Obama’s (no doubt attributable to his Kenyan socialist background). Clearly the center of economic debate has moved well to the right.
Porter attributes much of this shift to the rise of global competition. Increased international competition can help to explain the desire to push down wages of ordinary workers, but it doesn’t explain why corporations have not felt the need to push down the wages of their lawyers, the doctors they indirectly pay through employer provided health insurance, or their CEOs. The pay for these groups are hugely out of line with international standards even though there is zero reason to believe that the professionals who fill these jobs in the United States perform their work any better than their peers elsewhere.
The explanation would seem to be that these professionals have been able to secure protection for themselves in ways that autoworkers and textile workers have not. In the case of CEOs, they essentially pay off board members to turn the other way as they pilfer the corporations they run. In short, the end of decent paying jobs for ordinary workers is not due to globalization, it is due to the fact that certain powerful interest groups have been able to use the forces of globalization to their advantage.
Eduardo Porter has an interesting piece pointing out that in many respects Richard Nixon’s economic policy was well to the left of Barack Obama’s (no doubt attributable to his Kenyan socialist background). Clearly the center of economic debate has moved well to the right.
Porter attributes much of this shift to the rise of global competition. Increased international competition can help to explain the desire to push down wages of ordinary workers, but it doesn’t explain why corporations have not felt the need to push down the wages of their lawyers, the doctors they indirectly pay through employer provided health insurance, or their CEOs. The pay for these groups are hugely out of line with international standards even though there is zero reason to believe that the professionals who fill these jobs in the United States perform their work any better than their peers elsewhere.
The explanation would seem to be that these professionals have been able to secure protection for themselves in ways that autoworkers and textile workers have not. In the case of CEOs, they essentially pay off board members to turn the other way as they pilfer the corporations they run. In short, the end of decent paying jobs for ordinary workers is not due to globalization, it is due to the fact that certain powerful interest groups have been able to use the forces of globalization to their advantage.
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Newspapers are not supposed to do fluff pieces, that is the job of PR departments. Apparently the NYT does not know this, hence the fluff piece on former President Bill Clinton and the various charitable organizations that he has established since leaving the presidency. A serious news piece would have included some discussion of the TRIPS agreement that he inserted into the Uruguay Round of the WTO.
This agreement, which was inserted at the urging of Pfizer and other drug companies, required developing countries to adopt U.S. style patent and copyright protections. The resulting monopolies raise the price of prescription drugs and other protected products by several thousand percent above the free market price. It is a virtual certainty that this agreement will do far more to harm the health of people in Africa, by raising the price that the continent must pay for its drugs, than anything Bill Clinton’s charities can do to aid Africans.
Newspapers are not supposed to do fluff pieces, that is the job of PR departments. Apparently the NYT does not know this, hence the fluff piece on former President Bill Clinton and the various charitable organizations that he has established since leaving the presidency. A serious news piece would have included some discussion of the TRIPS agreement that he inserted into the Uruguay Round of the WTO.
This agreement, which was inserted at the urging of Pfizer and other drug companies, required developing countries to adopt U.S. style patent and copyright protections. The resulting monopolies raise the price of prescription drugs and other protected products by several thousand percent above the free market price. It is a virtual certainty that this agreement will do far more to harm the health of people in Africa, by raising the price that the continent must pay for its drugs, than anything Bill Clinton’s charities can do to aid Africans.
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That is what readers of its lead editorial demanding that President Obama move to the right will undoubtedly conclude. After all, it begins by telling readers:
“THE BIGGEST CHALLENGE for the next president will be putting the nation’s long-term finances on sounder footing. The failure to do so is the biggest shortcoming of President Obama’s first term [capitalization in original].”
After all, people who had access to data on the labor market would have to believe that the fact that tens of millions of people are still unemployed or underemployed is the biggest failure of President Obama’s first term. These people and their families are seeing their lives ruined.
The worst part is that the devastation they are suffering is not due to their own failings. It’s due to the incompetence of people with names like Alan Greenspan, Ben Bernanke and Robert Rubin and the people who have the opportunity to express themselves in major media outlets like the Washington Post. This disaster would have been 100 percent preventable, if anyone in a position of authority had been able to recognize an $8 trillion housing bubble and understand that its collapse would have a devastating impact on the economy.
Unfortunately, in modern America, people rarely suffer the consequences of their own failures. As a result, the people responsible for this disaster have granted themselves a collective “who have known?” amnesty. Virtually all of them still hold their jobs.
The other part of the Post’s story is also wide of the mark. Rather than suffering from an imminent fiscal crisis, the ratio of interest payments to GDP is near a post-war low.
Source: Congressional Budget Office.
That is what readers of its lead editorial demanding that President Obama move to the right will undoubtedly conclude. After all, it begins by telling readers:
“THE BIGGEST CHALLENGE for the next president will be putting the nation’s long-term finances on sounder footing. The failure to do so is the biggest shortcoming of President Obama’s first term [capitalization in original].”
After all, people who had access to data on the labor market would have to believe that the fact that tens of millions of people are still unemployed or underemployed is the biggest failure of President Obama’s first term. These people and their families are seeing their lives ruined.
The worst part is that the devastation they are suffering is not due to their own failings. It’s due to the incompetence of people with names like Alan Greenspan, Ben Bernanke and Robert Rubin and the people who have the opportunity to express themselves in major media outlets like the Washington Post. This disaster would have been 100 percent preventable, if anyone in a position of authority had been able to recognize an $8 trillion housing bubble and understand that its collapse would have a devastating impact on the economy.
Unfortunately, in modern America, people rarely suffer the consequences of their own failures. As a result, the people responsible for this disaster have granted themselves a collective “who have known?” amnesty. Virtually all of them still hold their jobs.
The other part of the Post’s story is also wide of the mark. Rather than suffering from an imminent fiscal crisis, the ratio of interest payments to GDP is near a post-war low.
Source: Congressional Budget Office.
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David Brooks tells us that Obama has three choices for “big ideas.” (Too bad he could only think of three, but that’s another matter.) Anyhow, his choice number 2, fixing a broken capitalism, sounds pretty good. The basic point is that the gains from growth have been going primarily to the richest 1 percent and that this could be reversed. (Why this can’t be merged with his idea number 1, slowing global warming, is a mystery to me.)
Anyhow, the idea seems solid, but the solutions are Brooksian silly. Brooks proposes strengthening unions, hiring more teachers and creating jobs rebuilding infrastructure. That part sounds good. We can strengthen unions by giving workers their day in court, let workers sue in real court for wrongful firing when they are involved in union organizing rather than sending them to children’s court (the National Labor Relations Board) where the penalties are a joke. In other words, strengthening unions is largely about not rigging the deck against workers who are trying to organize.
Firing teachers in the middle of a downturn was really bad economic policy, both short-term and long-term. Hiring them back would make lots of sense. Rebuilding infrastructure is a great idea when the real interest rate on government debt is negative. Let’s include retrofitting buildings, both public and private, to make them more energy efficient. (There we go, mixing Brooks’ idea #1 and #2, it’s so hard to get things right.)
Then we get a set of proposals from Brooks that are more mixed in their seriousness:
“He could cap the mortgage interest deduction, cap social security benefits, raise taxes on the rich, raise taxes on capital gains and embrace other measures to redistribute money from those who are prospering to those who are not.”
Let’s see, capping the mortgage interest deduction? And what exactly is the public benefit from subsidizing the purchase of a bigger home by a wealthy family? That should be a non-brainer. (This subsidy is likely larger than the welfare checks to poor people that seem to get Republicans so excited.)
Capping Social Security benefits? I don’t know that this one will hit the Peter Petersons of the world very hard. I do know that it won’t save any noticeable amount of money and will likely undermine support for the program. These are the reasons that no progressive/populist ever has means-testing for Social Security on their list.
Raising taxes on the wealthy sounds fine, but how about raising taxes in a way that eliminates economic waste. The obvious story here would be a financial speculation tax that would downsize the financial sector. This would both make it more efficient in carrying through its economic function (allocating capital from those who want to save to those who want to borrow) and help to reduce inequality by reducing the huge rents earned by some in this sector. Ending the subsidy provided by too big to fail insurance for the largest banks would also be a good item in this category.
A knowledgeable columnist would have these items on his populist agenda for Obama. Brooks either has not done his homework or just wants to make the agenda look silly.
Finally Brooks suggests:
“He could crack down on outsourcing and regulate trade.”
Brooks probably missed it, but we already regulate trade. A major item on Obama’s (and Bush and Clinton’s) trade agenda has been increasing patent and copyright protection throughout the world. This imposes enormous economic costs, often raising the price of protected items by a factor of 10 or even 100. Our trade negotiators have also sought to eliminate barriers on trade to manufacturing goods, which lowers the wages and costs the jobs of manufacturing workers, while leaving in place protectionist barriers for highly educated professionals like doctors and lawyers.
President Obama can actually push a free trade agenda that would mean millions of new manufacturing jobs. For example, he could pursue a competitive dollar policy that will push the dollar down to levels where U.S. goods and services are better able to compete internationally. This would bring our trade deficit closer to balance. This would be both good economics (it is the only way to end the borrowing that gets folks like Brooks so upset) and good politics since it would have huge appeal to the bulk of the population, although it would likely lose President Obama many big donors.
Of course Brooks volunteers that he wouldn’t like this route, but he also claims that it would alienate moderate voters. That is more difficult to see given the potential benefits to the non-rich from following this route.
David Brooks tells us that Obama has three choices for “big ideas.” (Too bad he could only think of three, but that’s another matter.) Anyhow, his choice number 2, fixing a broken capitalism, sounds pretty good. The basic point is that the gains from growth have been going primarily to the richest 1 percent and that this could be reversed. (Why this can’t be merged with his idea number 1, slowing global warming, is a mystery to me.)
Anyhow, the idea seems solid, but the solutions are Brooksian silly. Brooks proposes strengthening unions, hiring more teachers and creating jobs rebuilding infrastructure. That part sounds good. We can strengthen unions by giving workers their day in court, let workers sue in real court for wrongful firing when they are involved in union organizing rather than sending them to children’s court (the National Labor Relations Board) where the penalties are a joke. In other words, strengthening unions is largely about not rigging the deck against workers who are trying to organize.
Firing teachers in the middle of a downturn was really bad economic policy, both short-term and long-term. Hiring them back would make lots of sense. Rebuilding infrastructure is a great idea when the real interest rate on government debt is negative. Let’s include retrofitting buildings, both public and private, to make them more energy efficient. (There we go, mixing Brooks’ idea #1 and #2, it’s so hard to get things right.)
Then we get a set of proposals from Brooks that are more mixed in their seriousness:
“He could cap the mortgage interest deduction, cap social security benefits, raise taxes on the rich, raise taxes on capital gains and embrace other measures to redistribute money from those who are prospering to those who are not.”
Let’s see, capping the mortgage interest deduction? And what exactly is the public benefit from subsidizing the purchase of a bigger home by a wealthy family? That should be a non-brainer. (This subsidy is likely larger than the welfare checks to poor people that seem to get Republicans so excited.)
Capping Social Security benefits? I don’t know that this one will hit the Peter Petersons of the world very hard. I do know that it won’t save any noticeable amount of money and will likely undermine support for the program. These are the reasons that no progressive/populist ever has means-testing for Social Security on their list.
Raising taxes on the wealthy sounds fine, but how about raising taxes in a way that eliminates economic waste. The obvious story here would be a financial speculation tax that would downsize the financial sector. This would both make it more efficient in carrying through its economic function (allocating capital from those who want to save to those who want to borrow) and help to reduce inequality by reducing the huge rents earned by some in this sector. Ending the subsidy provided by too big to fail insurance for the largest banks would also be a good item in this category.
A knowledgeable columnist would have these items on his populist agenda for Obama. Brooks either has not done his homework or just wants to make the agenda look silly.
Finally Brooks suggests:
“He could crack down on outsourcing and regulate trade.”
Brooks probably missed it, but we already regulate trade. A major item on Obama’s (and Bush and Clinton’s) trade agenda has been increasing patent and copyright protection throughout the world. This imposes enormous economic costs, often raising the price of protected items by a factor of 10 or even 100. Our trade negotiators have also sought to eliminate barriers on trade to manufacturing goods, which lowers the wages and costs the jobs of manufacturing workers, while leaving in place protectionist barriers for highly educated professionals like doctors and lawyers.
President Obama can actually push a free trade agenda that would mean millions of new manufacturing jobs. For example, he could pursue a competitive dollar policy that will push the dollar down to levels where U.S. goods and services are better able to compete internationally. This would bring our trade deficit closer to balance. This would be both good economics (it is the only way to end the borrowing that gets folks like Brooks so upset) and good politics since it would have huge appeal to the bulk of the population, although it would likely lose President Obama many big donors.
Of course Brooks volunteers that he wouldn’t like this route, but he also claims that it would alienate moderate voters. That is more difficult to see given the potential benefits to the non-rich from following this route.
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Yes, it’s hard to those who write for major news outlets to notice an $8 trillion housing bubble. This is the story of the downturn and the current “fiscal woes.” It would be nice if Cohen could do a little homework before writing a column like this one. In reality, the U.S. has no fiscal woes right now (the interest rate remains near post-war lows), we just have inadequate demand.
Yes, it’s hard to those who write for major news outlets to notice an $8 trillion housing bubble. This is the story of the downturn and the current “fiscal woes.” It would be nice if Cohen could do a little homework before writing a column like this one. In reality, the U.S. has no fiscal woes right now (the interest rate remains near post-war lows), we just have inadequate demand.
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