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Thursday, January 31, 2013

Greg Sargent Shows GOP Sequester Stance Doesn't Add Up

     Great minds think alike... Sargent also wrote aboutr the strange GOP strategy on the seqester cuts. Everything they say doesn't add up.

      http://diaryofarepublicanhater.blogspot.com/2013/01/is-sequester-gops-leverage.html

       "The news today that the economy contracted thanks to a steep drop in defense spending has sparked another exchange over who is to blame for the pending defense cuts in the sequester, which pose further danger to the economy. Republicans appear to believe today’s economic news helps their case. It isn’t immediately clear why."

      "At his press briefing today, White House spokesman Jay Carney said today’s news should renew pressure on Republicans to avoid allowing the sequester to happen. He called on them to make a deal that includes new revenues in order to avert the sequester cuts. That prompted this response from John Boehner’s office:
These arbitrary, automatic cuts were a creation and demand of the White House in 2011. Twice the House has passed legislation to replace them with common sense cuts and reforms. If there was any uncertainty late last year about the sequester, it was because the Democratic-controlled Senate, per usual, never lifted a finger to pass a plan to replace it.
    "In other words, the threat to the economy posed by the sequester is the White House’s fault, because Democrats have not proposed a plan to avert it. The odd thing about this, though, is that Republicans have explicitly and repeatedly stated that they intend to use the threat of the sequester to extract the spending cuts they want without compromising with Obama and Dems. Not long ago, before the GOP’s debt ceiling cave, Boehner told the Wall Street Journal that the sequester, and not the debt ceiling, would give Republicans their real leverage. And remember this Associated Press headline?
In turnabout, GOP lawmakers willing to risk automatic budget cuts to get their way on budget
  
      "The news today that the economy contracted thanks to a steep drop in defense spending has sparked another exchange over who is to blame for the pending defense cuts in the sequester, which pose further danger to the economy. Republicans appear to believe today’s economic news helps their case. It isn’t immediately clear why."

     "At his press briefing today, White House spokesman Jay Carney said today’s news should renew pressure on Republicans to avoid allowing the sequester to happen. He called on them to make a deal that includes new revenues in order to avert the sequester cuts. That prompted this response from John Boehner’s office:
These arbitrary, automatic cuts were a creation and demand of the White House in 2011. Twice the House has passed legislation to replace them with common sense cuts and reforms. If there was any uncertainty late last year about the sequester, it was because the Democratic-controlled Senate, per usual, never lifted a finger to pass a plan to replace it.
     "In other words, the threat to the economy posed by the sequester is the White House’s fault, because Democrats have not proposed a plan to avert it. The odd thing about this, though, is that Republicans have explicitly and repeatedly stated that they intend to use the threat of the sequester to extract the spending cuts they want without compromising with Obama and Dems. Not long ago, before the GOP’s debt ceiling cave, Boehner told the Wall Street Journal that the sequester, and not the debt ceiling, would give Republicans their real leverage. And remember this Associated Press headline?"
In turnabout, GOP lawmakers willing to risk automatic budget cuts to get their way on budget
     http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/30/puzzling-gop-logic-on-the-sequester/

     As Sargent points out-and has Krugman has repeatedly pointed out-the GOP is incoherent in both decrying the military cuts as contracting the economy's spending and suggesting that the domestic cuts could actually help the economy. Does cutting spending contract the economy or somehow expand it?

      If they agree it expands it then how do they justify the domestic cuts? Are they claiming that military spending stimulates the economy but domestic spending contracts it? That would be a hell of a claim-I'd love  to see the model for that. What that would mean though is that some kinds of spending stimulate the economy and some type-somehow-contract it.

     Then again, they haven't actually given an offer: what they've done is demand that the military cuts be cancelled while offering nothing in return. Yet if they believe that the cuts to military spending are going to be bad for the economy then yesterday's report shoud show taht they need to negotiate to mitigate against them rather than digging their hands in andy playing another game of My way or the highway.

     So it's not really clear what they're doing right now. I still think they may have to fold on this too. Recall that the sequester date was already extended for two months during the fiscal cliff deal. Certainly the negative GDP number doesn't make them it easier for them to play hostage taking.

    
 
 

Is the Sequester the GOP's Leverage?

    They certainly want to convince us of that. Even since they folded on debt ceiling chicken they've been acting as if they hold the cards here.

     The media is replete with pessimistic headlines that that the chances of a deal look bleak because "both sides" are dug in. A piece in Huffingtonpost today says "Sequestration Likely to Happen."

     " Lawmakers and economists urged Congress to reconsider the massive spending cuts set to begin in March in light of Wednesday's alarming news that the nation's gross domestic product shrank for the first time in more than three years. But in a testament to beltway inertia, Congress seemed more likely than not to hit the fiscal snooze button."

     "Rep. Chris Van Hollen (D-Md.) said Wednesday's report from the Bureau of Economic Analysis was further proof that implementing "big austerity measures now will hurt the recovery." But the ranking member of the House Budget Committee added that the findings may not be enough to persuade lawmakers to replace the looming sequester, or a decade's worth of automatic cuts to defense and domestic spending."

    "The question is how far over the ledge do we go before people take action," Van Hollen said in an interview. He said he hoped sequestration wouldn't be triggered. "But that may be required to bring some sense to the process. If you look at this report, there is no doubt that the spending slowdown contributed to the contraction and that was before the sequester. That was just in anticipation to the sequester."

    "Sen. John Thune (R-S.D.) said he was unsure how Wednesday's report would "be used in the debate about the sequester and what we ought to do going forward." But his outlook for a legislative compromise was pessimistic nonetheless."

    "There doesn't seem to be much of an appetite by the president or Senate Democrats to do that," said Thune. "So I'm not sure how that ends up. What the Democrats want to do is they want to raise taxes to replace the sequester. That would make matters in the economy much worse in my view."
With both sides convinced that the other's solution to sequestration would result in further economic woes, a resolution appeared far off, even after Wednesday's unexpected news. In issuing its report, the Bureau of Economic Analysis blamed a combination of factors for the 0.1 percent contraction of the economy, most notably a 15 percent reduction in federal spending and a 22 percent decline in national defense spending."

    "While the report suggested that economic growth had paused, the underlying indicators weren't all depressing. With personal consumption up, an increase in the purchasing of durable goods and general improvement in the housing market, the shrinkage may be more a fluke than a trend."

     http://www.huffingtonpost.com/2013/01/30/2013-sequestration-gdp-report_n_2584742.html

      There is a good deal of talk on the GOP side that they want to "pocket" these discretionary spending cuts they've "won" and that they are willing to let the cuts also take effect for military spending though they have been telling us for 15 months that these cuts will degrade our military strength significantly.

      Yet if they really are anxious to pocket the domestic cuts and prepared to let the Pentagon cuts happen then Thune's comments above that the Senate Democrats and Obama aren't willing to compromise make no sense. Do they think having them take effect as they are now written is the best effect or not? If not then what do they want?

      Thune's comments also suggests that if only the Dems would compromise something could be done. Yet there's the rub. The GOP has denounced the Pentagon cuts since they agreed to them as part of the 2011 deal yet they've never suggested they'd be willing to engage in horse trading to mitigate them-by mitigating the domestic cuts.

      What they're "offer" has been is to demand that the Dems unilaterally stop the military cuts while they refuse to consider mitigating the domestic cuts.

       So even if the GOP is as willing to allow the military cuts as they clam-a claim I'm not sure of; there's some posturing here as well-it wouldn't mean that the Democrats should compromise more-as there really is no way to compromise with the GOP 'offer" so far; it's not been an offer but a unilateral demand.

       No doubt the Dems are willing to compromise if that means they accept some but milder cuts in exchange for the same on military cuts. So the actual GOP strategy-whether they are bluffing or are not-doesn't matter. The Dems have the same task. Point out to the American people that the GOP is willing to risk an economy that showed a contraction in GDP that may be caused to a significant extent due to the idea of cuts that haven't even started as they think it gives them "leverage."

      It's going to take awhile for them to realize that they have no leverage. It's baby steps. They gave up on fiscal cliff "leverage" for debt ceiling "leverage." They gave up that for sequester "leverage." At some point-it may not be till next year, they'll realize that they have no leverage in general. If these cuts go into effect and do hurt the economy they again will rightly take the blame.

Immigration is Simply Going to Happen

     If you've read me much since the election-well, first of all, thank you and I love you! Keep on keeping on. However, you also know that I've been just a little upbeat since the election. My catchphrase-or I use it anyway-is that the future is so bright we're going to have to wear shades.

     Am I an overly optimistic Obama apologist? Well, certainly I'm an Obama apologist, but that's because he deserves a lot more credit than he's gotten so far some are starting to appreciate him a little more. His approval rating continues to climb.

     It really is merit based however. I'm not mindlessly optimistic, I guess it's "optimism with a mind." I look at it this way. Yes the economy hasn't recovered as quick as we would have liked-and yesterday's GDP contraction is enough to even give a cock-eyed optimist like myself pause.

    Yes, if you insist on belaboring it, the Obama team had promised a much quicker recovery than we would get, However, that's not the President's fault, it was the conventional wisdom of all mainstream economists.

     I feel very proud of my fellow Americans that they didn't fall for Mitt Romney's simplistic attempt to make it a simple referendum on the economy: if you were totally happy with it-and who was?-vote for the President. If not vote for him.

     Since November I've repeatedly stated that contrary to the conventional wisdom perhaps even among liberals, this will be a very productive two years for the President. He will get accomplish many of his priorities.

    Yes, the GOP would seem to have a strong majority in the House and many of them are from very conservative-gerrymandered-districts. Nevertheless, what this leaves out is that this is not like the last Congress. That GOP Congress ruled the country via the Hastert Rule.

    This GOP Congress has had to rip up the Hastert Rule out of political necessity. If House GOPers try to play My way or the highway now it blows up in their face. The Senate passes it in conversations with the White House and then it's rammed through the House with just enough GOP support and unanimous Democratic support-the difference is the demise of the Hastert Rule.

     What the GOP may finally be realizing is that there's no percentage in going My way or the highway. It simply means they won't get to put any imprint on legislation. The night before the House finally voted through the fiscal cliff deal Gingrich had urged the GOP to put amendments on it-a move that would have stalled it immediately. He said this was the only way to make the President recognize that the GOP House exists.

    Yet My way or the highway doesn't get them recognized but ignored. If you have any doubt that my "overconfidence" about immigration reform is correct then just check out the latest. Yesterday we saw that Rush Limbaugh implicitly has endorsed immigration reform-by endorsing Rubio's plan, which of course he has to exaggerate the difference from Obama's plan.

    http://diaryofarepublicanhater.blogspot.com/2013/01/rush-limbaugh-backs-rubios-immigration.html

     Now check this out. The House is now quietly working on its own immigration reform framework. That in itself-even if the plan were awful-is big news. Yet with the level of GOP Senate support it makes sense. The GOP House has to recognize this. To be sure, it's not such an easy path in the House.

    "The eight-person immigration House team — which includes four Republicans and four Democrats — had hoped to put forth a statement of principles as early as Friday, but sources say that is unlikely. Now, they are hoping to announce something closer to Feb. 12, the day of the State of the Union."

     "According to sources, the House working group includes Democrats Zoe Lofgren and Xavier Becerra of California, Luis Gutierrez of Illinois and John Yarmuth of Kentucky. Negotiating for the Republicans are Mario Diaz-Balart of Florida, Sam Johnson and John Carter of Texas and Raul Labrador of Idaho."

     Read more: http://www.politico.com/story/2013/01/house-group-secretly-crafts-immigration-plan-86971.html#ixzz2JZ64FiWE

    So it's been delayed and yes there is already carping about the Senate plan-even though Rush Limbaugh supports it...

    That they are working at all, though, is big news. And while some ideologues may give engage in fiery talk there's good reason to think they'll get there:

     "Wisconsin Republican Rep. Jim Sensenbrenner, who in 2005 sponsored a tough House bill to deter illegal immigrants from entering the U.S., said in a statement Monday: “Extending amnesty to those who came here illegally or overstayed their visas is dangerous waters. We are a nation of laws, and I will evaluate any proposal through that matrix.”

    "But several sources familiar with the work of the House group said that it has come to a general consensus on a number of issues despite coming from different ideological places."

    "The biggest sticking point is most likely their differing views on offering illegal immigrants a pathway to citizenship."

     "In an interview with POLITICO on Monday, Labrador said he supports the principles that the Senate laid out but insisted that “creating a new pathway” to citizenship for undocumented workers “is not a good idea.” It would encourage more illegal immigration, he said.

     "Asked if he is flexible, Labrador said: “The question that is more appropriate is how flexible are they? We’ve gone a bit to their side. If they’re unwilling to be flexible on that issue, [then] they want political victory not policy victory.”

     "On the same note, Johnson articulated a fairly tough stance on illegal immigrants on his website: “If you are here legally, you ought to be rewarded. If you are here illegally, you ought to be deported.” “I am strongly opposed to both illegal immigration and a repeat of the 1986 amnesty.”
Still, sources say that the group is closer to agreement than the rhetoric suggests.

     "Carter might be the only member to actually have publicly admitted to being part of the working group. He told the Fort Worth Star-Telegram this week the House measure is “90 percent there.”
“We address all categories,” Carter said. “Border security and all the things that go to the people who are here illegally. I believe we’ve solved the problem of those concerned with the rule of law,” meaning those opposed to amnesty, “but we’ve done it with compassion.”

     Read more: http://www.politico.com/story/2013/01/house-group-secretly-crafts-immigration-plan-86971_Page2.html#ixzz2JZAGyZLS

      Ok then. The rule of law with compassion. It's a start. I'm telling you: buy those shades now before the prices go up!

    
    

Wednesday, January 30, 2013

Good News and ad News in Today's Report of GDP Contraction

     The bad news is that in the preliminary report at least, the economy contracted for the first time since the end of the 2009 recession. In itself this can only be bad news.

     The U.S. economy unexpectedly shrank from October through December for the first time since 2009, hurt by the biggest cut in defense spending in 40 years, fewer exports and sluggish growth in company stockpiles. The drop occurred despite stronger consumer spending and business investment.
The Commerce Department said Wednesday that the economy contracted at an annual rate of 0.1 percent in the fourth quarter. That was a sharp slowdown from the 3.1 percent growth rate in the July-September quarter.

     http://www.huffingtonpost.com/2013/01/30/us-economy-shrinks-gdp_n_2580897.html

     However:

     "Economists said the drop in gross domestic product wasn't as bleak as it looked. The weakness was mainly the result of one-time factors. Government spending cuts and slower inventory growth, which can be volatile, subtracted a combined 2.6 percentage points from GDP."

     "But the fact that the economy shrank at all, combined with much lower consumer confidence reported Tuesday, could raise fears about the economy's durability in 2013. That's because deep government spending cuts will automatically slash domestic and defense programs starting in March unless Congress reaches a deal to avert them.

     Indeed, some are calling it a "good-looking contraction."

     "The government spending cuts and slack inventory growth in the fourth quarter offset a 2.2 percent increase in consumer spending. And business spending on equipment and software rose after shrinking over the summer."

      "Consumer spending added 1.5 percentage points to GDP, and business investment added 1.1 points – both stronger contributions than in the third quarter."

      "Frankly, this is the best-looking contraction in U.S. GDP you'll ever see," Paul Ashworth, an economist at Capital Economics, said in a research note. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."

      "For all of 2012, the economy expanded 2.2 percent, better than 2011's growth of 1.8 percent."

      Still with a drop even if it is -fingers crossed-one off items, is this the time we want the deep spending cuts of the sequester? The GOP has been bellyaching loudly for the better part of the year over the military side of these cuts. Since the debt ceiling deal they've been acting very sanguine about them. Part of it I think is a ruse thinking this gives them a bargaining chip. Still, is this the time for playing with a bargaining chip?

    As the White House said today:

    "The White House said that a report showing the economy shrunk in the fourth quarter of 2012 should be a reminder to Congress of the need to act to "avoid self-inflicted wounds to the economy."

    "The Administration continues to urge Congress to move toward a sustainable federal budget in a responsible way that balances revenue and spending, and replaces the sequester, while making critical investments in the economy that promote growth and job creation and protect our most vulnerable citizens," Alan B. Krueger, chairman of the Council of Economic Advisers, wrote in a statement.

     http://www.politico.com/politico44/2013/01/wh-gdp-report-shows-need-for-balanced-approach-155634.html

Rush Limbaugh Backs Rubio's Immigration Plan

     This is another sign it's going to happen. Greg Sargent had a post yesterday that asked if immigration reform is dead on arrival in the House. The short answer is no. Just like the fiscal cliff deal, Sandy relief, and raising the debt ceiling. In fact it's more imperative that the GOP agree to real immigration reform. There will be enough GOP support in the House and Boehner will certainly allow a vote.

     I think the National Journal post that Sargent looks at, fails to realize that the GOP House is now a paper tiger. In a post Hastert Rule world, important legislation will make it.

     "All of this said, there are reasons to believe immigration reform very well may end up getting through the House. Think back to the student loan, payroll tax cut, and fiscal cliff debacles in the House. In all these cases, measures fiercely opposed by conservatives won broad bipartisan support in the Senate, whereupon the isolation of House Republicans proceeded to intensify and the pressure on them to cave grew louder. then came the surrender, in which the House GOP leadership allowed a vote. The measures passed the House with mostly Democratic support. That’s how things could play out in the House on immigration reform, too, particularly if GOP leaders want it to happen. All signs are that they do. So I wouldn’t declare this dead in the House quite yet."

     http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/29/is-immigration-reform-doomed-in-the-gop-controlled-house/

      If you want to understand the likely trajectory of policy over the next few years, it's vital to understand that this is not the last Congress, Yes the GOP still has decent sounding numbers and I get that many of them are from very conservative districts. But there are enough more mainstream conservatives-as the record of past legislation shows.

     On immigration you'll probably get more GOP support in the House than say Sandy relief-which suggests their warped priorities, no doubt.

     On Monday, Limbaugh had dismissed the plan as "amnesty" and that it was up to him and Fox News to kill it. He then said he wasn't so sure about Fox which is true-Sean Hannity and Bill O'Reilly have already signed on to immigration reform.

     However, after speaking to Rubio, Rush is won over. What's really going on is that Rush and company have to convince themselves that Rubio and Obama's plans are incommensurable-there's such a wide gulf they're unbridgeable.

     http://www.huffingtonpost.com/2013/01/29/marco-rubio-rush-limbaugh_n_2575469.html?utm_hp_ref=miami

     At the end of the day, though they have Rush on board. It's going to happen and it's going to be big. The only question is how many GOP Reps. It could be a healthy number.

     
    

   

     

Tuesday, January 29, 2013

Not Krugman Against the World but Noneconomists vs. Economists

     Joe Wiesenthal provides a list of 11 economists who don't think the deficit is the number one public menace.

     For previous piece about Scarborough's misinformed comments see here

     http://diaryofarepublicanhater.blogspot.com/2013/01/what-joe-scarborough-doesnt-know-about.html

    "The article says: Paul Krugman favors running deeper deficits, but folks like the chief of the Council on Foreign Relations, Erskine Bowles, Scarborough himself, Mika Brzezinski, Steven Rattner, and former Joint Chief chairman Michael Mullen all disagree with Krugman."

     "Note that zero of the above people are "economists" let alone mainstream economists.
But actually there are plenty of economists and economically-literate minds who think that, to varying degrees, the deficit is not what we should be worrying about."

     "For Joe Scarborough's sake, here's a list of people. With each we've linked to comments they've made about their (lack of) worry about the deficit."
     "Anyway, that was just a partial list, but one that covers conservatives, liberals, Wall Street economists, and former government officials."

     "Note that several of them, including Paul Krugman himself, do acknowledge long-term issues arising from health care costs, so even the idea that Krugman wants to do nothing is a falsehood.
The issue is not as one-sided as Scarborough believes."

       http://www.businessinsider.com/10-people-who-disagree-with-joe-scarborough-2013-1

        It turns out it's not Krugman against the world but noneconomists vs. economists. When Scarborough talks about conventional opinion it refers to the opinion of people who are not economists.
    

Is the Ambiguity in the Senate Immigration Reform Plan By Design?

     I've already been on the record as saying I think this gets done. I've also argued that Cassandra's aren't always right and often aren't.

     http://diaryofarepublicanhater.blogspot.com/2013/01/eating-lunch-with-nanute-cassandras-not.html

     So in a way-I believe I have the answer to the math question before knowing how to get it. I just believe that

     A). The Kristol Premise is correct. Elections have consequences and that the GOP has to work with Obama even though it's the last thing they want to do. We've already seen them cave on the fiscal cliff, Sandy relief, and the debt ceiling. Then you add in B

    B). They have to get immigration reform or certainly can't obstruct it.

    So I reason it has to happen. Yes there are going to be recalcitrant GOP House members. But if anything less than on the other things I've mentioned-this is something that many Republicans do want. If you could get enough Republicans to raise taxes on the rich you should have no trouble getting enough on something like this.

    What's more they really need to have some GOP votes for this.

    Ok, There is some liberal concern about language from the Gang of Eight about a commmission that has to agree that the border is safe-never mind many believe it already is. This could be a problem, However, as long as it's constructed right it won't be. The Democrats say it won't be.

    It doesn't sound too bad either by the way McCain describes it:

    "On CBS this morning, John McCain said the “final decision” about whether the border is secure will be made by the Department of Homeland Security, which suggests a diminished role for this commission, while remaining inconclusive on precisely how this process will work. But in an interview with Ed Morrissey late yesterday, Marco Rubio suggested he won’t support a path to citizenship unless the commission does sign off on border security, a position he reiterated in another interview. There’s no clear agreement even among Republicans about the role of this commission.
Meanwhile, Dem Senate aides tell me that the commission’s role is designed to be purely advisory and nonbinding. At the same time, Chuck Schumer’s office declined to respond to my request for clarification on this point."

     http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/29/the-morning-plum-confusion-envelops-senate-immigration-plan/

     Ok, so there's some ambiguity. Maybe this is a good thing. After all if this commission won't be able to put a path to citizenship on hold indefintely-which is my strong suspicioun-maybe you want enough ambiguity so Rubio can justify it to his constiuency. Maybe we don't want too much clarity in this case.

    My best guess is that this is just a start. The President will speak today, though he won't release his own bill-as he doesn't need to, the White House has spoken against the commission. Maybe the final agreement will be a comrpomise between the White House position and the Senate proposal for the commission.

    I think by the end of the process we won't have someting that will short circuit the whole process. Listen to what immigration groups are saying:

    "That’s a legitimate worry, according to Frank Sharry, the executive director of America’s Voice, a group advocating for immigration reform. But he tells me that on a conference call yesterday, Democratic Senators reassured immigration advocates that this commission won’t be constructed in a way that will hold up the process for too long."

     "As Sharry put it, Democrats realize that they can’t “allow the commission to have a real veto” over setting in motion the path to citizenship. He noted that Dems see the commission as “something that gives the Republicans a talking point” to claim they are prioritizing tough enforcement, giving themselves cover to back a process that “won’t stop people from getting citizenship.” However, Sharry added: “The details of this are going to matter hugely, and we’ll have to fight like hell on the individual provisions.”

     "That said, Sharry concluded: “This is a left of center framework.” Indeed, the very fact that a path to citizenship for the 11 million is being discussed seriously by Republicans is alone a reminder of just how much the ground has shifted in this debate. This reflects just how much of a jolt the 2012 elections gave Republicans by bringing them face to face with the prospect of demographic doom."

    http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/28/the-morning-plum-the-ground-shifts-on-immigration/ 

    

What Joe Scarborough Doesn't Know About Economics

     Could easily fill the Pacific Ocean. What he doesn't seem to get is that whether or not his economic views are conventional or not, they are quite wrong.

     Yet his post on Krugman is all about how Krugman's views are totally outside of the economic mainstream. It really depends what your "mainstream" or "conventional" encompasses. If you mean the conventional view among Right Wing talk show hosts then it's quite conventional. Krugman argues that his views are not unconventional at all-among Keyensian economists:

     "Scarborough seems upset, and under the delusion that my more or less standard Keynesian views are way off on the fringe. Also, that the Swedish thingie is given by Norwegian royalty."

      http://krugman.blogs.nytimes.com/2013/01/29/my-talking-head-does-morning-joe/

      One suspects that part of why Scarborough is upset is because of Krugman's reputation among conservatives. Still the views he expresses in a Politico piece afterwards shows that Scarborough's views-whether or not their conventional are quite wrong.

     "Nobel Prize-winning economist Paul Krugman came on “Morning Joe” Monday to discuss his latest book and the state of affairs in Washington. Mr. Krugman's view is that Americans would be better off if its government ran deeper deficits and ignored its longterm debt. That, of course, runs counter to conventional wisdom across the Western world, which is exactly why the New York Times columnist believes Spain and Great Britain are suffering through endless recessions."

      "His argument also runs counter to what I have been saying in Congress and in the media since 1994. So it would be no surprise that the guy who wrote this, and this, and this and this over the past week would take exception to Mr. Krugman's words. But most of our viewers did not tune in to hear me talk over the Nobel Prize winner. They tuned in to hear Paul Krugman. So I
did my best to give him space."

      Read more: http://www.politico.com/story/2013/01/paul-krugman-vs-the-world-86822.html#ixzz2JNcqqKPV

      Again, who encompasses this Western world? In a way there are two questions: is he right that this is the conventional wisdom? Assuming it is, does this make it right? Of course not. History is replete with examples of the conventional wisdom of the time being wrong.

      I'm not sure that it's the conventional view of economists. It is certainly that of David Brooks' media. Yet how are people like Brooks, David Gregory, Bob Woodward, and Scarborough economists?

     "But maintaining calm was not as easy for Council on Foreign Relations president Richard Haass, who agrees with former Joint Chief chairman Michael Mullen, that longterm debt poses the greatest threat to America 's national security. Richard took exception to the suggestion that deficits don't matter and that longterm debt can be pushed to the side for years to come . Mr. Haass, Admiral Mullen and former Clinton chief of staff Erskine Bowles all believe that entitlements and debt are the most pressing challenges we face as a country over the next few decades."

   Read more: http://www.politico.com/story/2013/01/paul-krugman-vs-the-world-86822.html#ixzz2JNecdoxw

  So why should we input special knowledge of the economy to the Council on Foreign Relations president? If it comes down to it why should we believe him over a Nobel prize winner in economics. Same question for a former Joint Chief chairman? When they say it's the most pressing problem are they including unemployment and recession among the choices?

   "You can add my liberal co-host, Mika Brzezinski, to that group. Mika let out a gasp when Mr. Krugman suggested Medicare and Medicaid shortfalls should be ignored. She compared Krugman's "head-in-the-sand" approach to the one taken by climate change deniers. Krugman took exception, saying that no one could predict the future of entitlements so there was no need to worry until the programs became insolvent."

    Read more: http://www.politico.com/story/2013/01/paul-krugman-vs-the-world-86822.html#ixzz2JNgkEEXL

    Again, I'm not sure what makes Mika an economic expert either much less why she's a higher authority than Krugman on economic matters. The analogy is false and Krugman never so much said we should "do nothing" about entitlements.

    What's striking is no one in Scarborough's Murderer's Row of noneconomists seems to have ever even heard of the words structural deficit. There seems blissful unawareness that deficits go up during a recession-automatic stabilizers, and a drop in tax revenue-and that much of it will be made up when the economy gets back to health.

     Until then we shouldn't be preoccupied with this morbid obsession with deficits, though it is the conventional Very Serious People wisdom. This is not the wisdom of economists so much as people who are quite innocent of economic knowledge.

     

Eating Lunch With Nanute; Cassandra's Not Always Right

     Please join me in giving best wishes to the reader Nanute as he faces back surgery on Thursday. Let's hope and wish him and his wife and family the best as he receives this important surgery. He's certainly in my thoughts.

     Today Nanute as is his wont, surprised me by showing up at Baldiwn Public Library where I hang out write most of what you can read at this blog and took me out to lunch at just about my favorite place in the world: Popeye's Chicken. Another recent friend I've made, Linda Forrest was with me at the library when he showed up and she accompanied me-she had never met Nanute.

    She couldn't believe it when I ordered 9 pieces of fried chicken-wings, breasts, and legs with the intention of finishing it during one lunch. However, Nanute assured her that this is exactly what I would do-and, yes, I did indeed scarf the whole thing down.

    Another interesting thing was where the two of them tried to explain me-Nanute declared I'm a "savant." I'm never sure how excited to get about the term, it always seems like the word "idiot" properly is part of the word.

     He also suggested I'm an Obama apologist. Actually, I copped to it and he agreed with my admission. Yet, this is the whole point of this blog Diary of a Republican Hater. It was meant to be the anti David Brooks. I think Garry Wills was onto something, when he argued that the most informed voters are the frankest partisans.

     http://www.amazon.com/gp/product/0140055630/ref=ox_sc_act_title_2?ie=UTF8&psc=1&smid=A1ZMSWN8P7M5C4

      Certainly being either "bipartisan" or "nonpartisan" doesn't make you either a genius or well-informed. If I'm on the Pollyanna side regarding the President, I've been right often enough. I certainly will argue that I was both right about the election and on analysis of where things will go since the election.

      In case you've missed it, I agree with the Kristol Premise that says that elections have consequences and that the GOP will have to work with the President on his agenda much more than they want to believe.

      In the last few weeks prior to the election, Obama had suggested that if he were re-elected the GOP would be able to forget about beating him and being actually participating in governing the country. Boehner and company heaped scorn on this arguing that they would come out even more implacably against everything if the President suggests it as they had vowed to do the night Obama was inaugurated in 2009.

      Yet this is not what we've actually seen. What we've seen so far is the President has gotten everything he has wanted. We have higher taxes on the rich-I hope people have gotten over quibbling about him "breaking his promise" because the higher rates are $450,000 rather than $250,000. We also have seen the GOP raise the debt ceiling till mid May-well after the sequester issue and budget question will be finished.

       Today we saw Sandy Relief pass with 62 votes in the Senate-the obstructing GOP Senator who tried to make Sandy aid dependent on dollar for dollar cuts to "pay for it" was struck down. Now we alive immigration that is clearly going to happen.

        Here we see real bipartisanship happening. Yet, the Very Serious People have been faulting the President for not being bipartisan anymore. No more Kumbaya. Here we have the first real bipartisan moments since prior to the Gingrich Revolution of 1994.

        "President Barack Obama is encouraged by work in the Senate on immigration reform, and he will now use his bully pulpit during a speech in Las Vegas on Tuesday to push for concrete legislation, aides said on Monday."

       "Administration officials briefed reporters on the speech Monday evening, on the condition they not be quoted directly. Obama's speech, which was announced on Friday, will come a day after a bipartisan group of eight senators -- dubbed the "gang of eight" -- released a framework for immigration reform. "

      "The White House knew the Senate group was working toward an agreement, but they didn't expect it to come so quickly, and did not think the president would have a concrete example of bipartisan agreement to point to in his speech, an official said."

      "Another official said the Senate group may have been sped along by the president's announcement of his Las Vegas speech, but the White House does not suspect any ill will. Rather, it's a good sign that lawmakers are jockeying for credit for immigration reform, the official said. Regardless of order, the president wants to see action, and he will acknowledge the senators' announcement as a positive step."

       http://www.huffingtonpost.com/2013/01/28/obama-immigration-speech-_n_2569934.html

       I know, say the naysayers, but what about the House? It won't pass there. Really? How did the fiscal cliff, the debt ceiling and Sandy aid get done then? Listen to one of the House's most conservative members, Steve King:

      "Rep. Steve King (R-IA), one of the most staunchly conservative members of the House, said on Monday that he broadly agreed with a bipartisan Senate agreement that would reform the nation's immigration laws."

      "I agree with most of the language in the very broad guidelines," King said in a cheeky statement.

      http://livewire.talkingpointsmemo.com/entry/rep-steve-king-i-agree-with-most-of

       Cheeky or not, that's as close to an endorsement you'll get from a Steve King-his vote won't be needed. Meanwhile we see jobless claims down to a 330,000 4 week average. Again, being a Cassandra doesn't make you right. It's like being a market bear. Eventually you have to be right. It's pretty easy to be a seer that way. The future's so bright we're going to have to wear shades.

Monday, January 28, 2013

GOP Blames Message Not Ideas and That's Good News For Democrats

     Based on what we've heard from Republicans they seem convinced that it's just about better messaging. Implicitly, they seem to believe that they have a great message, that most Americans are in fact conservatives but they just have to give us the same win in better wine glasses.

     So in their recent pow wow, this is the conclusion for the GOP:

      "Days after President Barack Obama's inauguration, Republican leaders said on Sunday their party needed to change the way it communicates, not its ideas, to win back the White House."

       "Former Republican vice presidential candidate Paul Ryan, appearing in his first live television interview since the Nov. 6 election, said his party needs to demonstrate that Republican ideas can improve people's lives."

        "We have to show our ideas are better at fighting poverty, how our ideas are better at solving healthcare, how our ideas are better at solving the problems people are experiencing in their daily lives," the Wisconsin congressman told NBC's "Meet the Press" program.

         "Governor Bob McDonnell of Virginia, where Republican presidential candidate Mitt Romney campaigned aggressively and lost by 4 percentage points, said his party's message has failed to reach voters who don't pay close attention to politics."

        "I think they don't understand the conservative message," McDonnell told CNN's "State of the Union."

        "McDonnell said the party should look away from Washington and toward the country's 30 Republican governors for lessons on how to gain voters' support."

        "Representative David Schweikert of Arizona said his party has failed to connect with many Americans."

        "We are accountants," Schweikert said on ABC's "This Week," arguing that the Republican Party offers a more analytical approach to solving problems than Democrats. "Sometimes, though, being an accountant doesn't pull at the heart strings."

        "Republican leaders gathered in Charlotte, North Carolina, last week to address the party's future. There, Louisiana Governor Bobby Jindal, a potential candidate for president in 2016, told his fellow Republicans to "stop being the stupid party" and reject anti-intellectual strands within the party."

     http://www.huffingtonpost.com/2013/01/27/republicans-2012_n_2562579.html?ref=topbar

     Let's face it, if you're a Democrat, its just as well, if they're thinking this wrong about things this can only bode well. The GOP Governor model is also a mirage. Witness the Krugman take down of Jindal's supposed realism.

     He pointed out that while Jindal is talking the talk, he's walking the same old failed walk, calling for the end of the income tax while raising the sales tax-sans Herman Cain.

     "Mr. Jindal posed the problem in a way that would, I believe, have been unthinkable for a leading Republican even a year ago. “We must not,” he declared, “be the party that simply protects the well off so they can keep their toys. We have to be the party that shows all Americans how they can thrive.” After a campaign in which Mitt Romney denounced any attempt to talk about class divisions as an “attack on success,” this represents a major rhetorical shift."
 
      "But Mr. Jindal didn’t offer any suggestions about how Republicans might demonstrate that they aren’t just about letting the rich keep their toys, other than claiming even more loudly that their policies are good for everyone."
 
       "Meanwhile, back in Louisiana Mr. Jindal is pushing a plan to eliminate the state’s income tax, which falls most heavily on the affluent, and make up for the lost revenue by raising sales taxes, which fall much more heavily on the poor and the middle class. The result would be big gains for the top 1 percent, substantial losses for the bottom 60 percent. Similar plans are being pushed by a number of other Republican governors as well."
 
 
      Jindal's plan sounds suspicously the Herman Cain plan; 9-9-9.
 
 
 
     

Bipartisanship on Immigration: Are You Watching David Brooks?

       The routine of Very Serious People like Brooks, Bob Woodward, and friends is that no matter how much the Dems compromise and the GOP doesn't, at the end of the day, they admonish both sides for refusing to compromise.

        So it was that during the debt ceiling fiasco in 2011, though the President had offered Boehner 15% revenue for 85% spending cuts, Woodward ended up writing a book that faulted Obama for "not exercising leadership."

         Some of the VSP were complaining about the President's inauguration speech last Monday. Where was conciliation? The olive branches? The bipartisanship? The answer was that there was none. Paul Ryan claimed yesterday on Meet the Press that the election was a "status quo election."

       We've seen a lot of things already that prove this is not true. If it were then how do you explain that Obama's already gotten his tax hikes for the rich, the debt ceiling has been raised, Sandy relief and now we are hearing that the framework of a immigration deal that includes a path to citizenship and is comprehensive is in place?

       This is what bipartisanship looks like

      

      The reality is that bipartisanship is the effect of strength, not endless conciliation as Brooks and company claim. In the 80s Democrats thought Reagan was strong-popular with the public-so they worked with him.

       In his first term Republicans thought Obama was weak and so they tried to undercut him at every turn. Now he's shown that he isn't and they're realizing they have to work with him.

       If they don't then they simply won't get any input. The real lesson of House obstructionism is that it doesn't work. Boehner's GOPers refused to work with Obama on either debt ceiling deal of 2011 or the fiscal cliff deal. In both cases it ended up going through the Senate and then getting rammed through the House with Democratic support and small GOP support.

      Brinkmanship has paid the GOP a sorry return.

McCain Says He Supports Path to Citizenship, Dream Act

    .Foks what we seem to have here is an actual bipartian moment. I know, we've read so much about it, but never actualy seen it before. It's now pretty clear something is going to get done-no Boehner and company won't be able to kill it.

     From what McCain said Sunday morning, the legislation may be very comprehensive and give us exactly the kinds of reforms that liberals have been calling for years for.

     "Top senators, including Arizona Republican John McCain, confirmed on Sunday that a bipartisan Senate plan for immigration reform, expected to be unveiled next week, will include a pathway to citizenship for undocumented immigrants currently in the United States."

     "We can't go on forever with 11 million people living in this country in the shadows in an illegal status," McCain said on ABC's "This Week. "We cannot forever have children who were born here -- who were brought here by their parents when they were small children to live in the shadows, as well."

     "The comments mark a shift for McCain, who previously opposed a path to citizenship for undocumented immigrants, labeling such a plan "amnesty" in 2010, the same year he voted against the Dream Act. But he admitted Sunday that the GOP's poor showing among Hispanic voters in 2012 has caused the party to reconsider its position on immigration."

     http://www.huffingtonpost.com/2013/01/27/john-mccain-immigration-reform_n_2561614.html

     Recall that McCain is from Jan Breuer's "paper's please" law-that was mostly thrown out by the SJC last June. To be sure, there was a time-back in 2006-when McCain was more open to immigration reform.

     The contours of the deal are out:

     "According to the Associated Press, the bill would grant legal status and a path to citizenship for undocumented immigrants only after a series of additional border security measures were put in place. In addition, the package would include an e-verify program to prevent employers from hiring undocumented workers in the future, an expanded visa and guest worker program to manage future immigration, and a seperate streamlined path towards citizenship for undocumented immigrants who were bought to America as children."

      "The Democratic Senators working on the deal are Sens. Robert Menedez (D-NJ), Dick Durbin (D-IL), Michael Bennett (D-CO), and Chuck Schumer (D-NY). The Republicans are Sens. John McCain (R-AZ), Marco Rubio (R-FL), Jeff Flake (R-AZ), and Lindsey Graham (R-SC)"
    
       http://livewire.talkingpointsmemo.com/entry/senators-reach-bipartisan-immigration-reform-deal?ref=fpa

       What this does again is validate the Kristol Premise: elections have consequences and the GOP will have to work with the President much more than they had planned to. In the weeks before November 6, the President had said that if he wins again he thought that maybe the GOP would work with him more because they wouldn't have to worry anymore about beating him.

       At the time, Boehner and friends wholly dismissed this-as they did anything the President says-yet what is already clear is that this is nothing like the last 2 years.

       We already have the fiscal cliff deal that does what Republicans said they'd never allow, tax hikes on the rich, Sandy relief aid, the debt ceiling being hiked till May, and now immigration reform.
      
       While the media has been emphasizing how hard gun control will be, I predict that something meaningful will get done there too. Indeed, Greg Sargent pointed out on Friday the possibility of some GOP support for gun control.

        http://www.washingtonpost.com/blogs/plum-line/wp/2013/01/25/dont-write-off-gop-support-for-obamas-gun-proposals/

         Evidently assault weapons will be tough, but background checks are not just a no-brainer but a very popular no-brainer among even Republicans and NRA members. It will be tough for the GOP to do nothing on this either.

         What we are seeing is that bipartisanship is the outgrowth, not of going David Brooks and singing Kumbaya as the President tried to do at the start of 2009, but of playing tough with the GOP and letting them know that they will lose if they don't negotiate in good faith. It was Reagan's popularity in the 80s that made Democrats work with him so much and Obama's is now forcing the GOP to do more as well.

        
       


      

Saturday, January 26, 2013

Bill Mitchell vs. Tim Duy on Necessary Fiscal Illusions

     Bill Mitchell here with the MMT view on fiscal matters regarding the Treasury and public debt. Here he speaks of the platinum coin:

     "I won’t mention the Trillion Dollar coin option, which was introduced by those sympathetic to Modern Monetary Theory (MMT) – follow the trail from HERE. This option seems to have been kidnapped by others who are seeking to claim glory for the idea as well as others who are apoplectic about the idea (Austrian schoolers, New Monetarists, etc)."

     "But that obvious option aside, the students would have been better introduced to the intrinsic nature of the fiat monetary system that operates in the US and then the institutional overlays that have been put over the basic monetary system."

     "An understanding of the former (without the institutional constraints) leads to the conclusion that the US government is never revenue constrained because it is the monopoly issuer of the currency.
For many reasons, none of which have any solid rationale in terms of contributing to the effectiveness of the government mission in advancing public purpose, the US legislators have chosen to place a series of voluntary constraints on their governments. The constraints create labyrinthine accounting structures which force the sovereign government to issue bits of paper (treasury bonds) to the private sector, which then lead to bank entries, that are subsequently reversed when the government spends.
The fact that the funds to purchase the bonds came from the government anyway via past deficits – meaning that the government is just borrowing back a portion of its own spending and then spending it again – seems to escape most commentators."

      "Further, in the recent period, the US federal reserve has been buying those bonds in huge quantities anyway (quantitative easing), which just goes to show how ridiculous the elaborate institutional machinery is."

     "A decomposition of the federal budget in those terms would have served to demystify the appearance of financial constraints and to reveal that they are voluntary in nature and mostly irrelevant hang-overs from when the US participated in the Bretton Woods system of fixed exchange rates (the so-called “gold standard”). That monetary system was abandoned in August 1971, when the US suspended gold convertibility (with the US dollar)."

     "The reason that these meaningless constraints – from a financial perspective – have remained is because they serve the ideological agenda of those who have been able to influence the design of public policy and administrative practice since then. If you go back through the documentation in various nations you will find references to “the need to impose fiscal discipline” etc"

   The conservatives knew that by forcing these unnecessary constraints – in particular, by forcing governments to match their net spending positions (deficits) with bond-issuance ($-for-$) to the private sector, they would then be able to construct the fiscal position in terms of debt. The next devious step is to conflate public debt with private debt, and the household budget with the government budget.

     http://bilbo.economicoutlook.net/blog/?p=6891

     This all sounds very similar to something Tim Duy wrote during the platinum debates. Here we put to one side that politically speaking Obama was right to dismiss it.

     "This realization hit me this morning, working on my last piece. Begin with the effectiveness of monetary policy at the zero bound. Or, more accurately, the lack of effectiveness as the Federal Reserve is swapping one zero-interest asset for another. Rarely do we take this to its logical conclusion for fiscal policy: If there is no difference between cash and Treasury bonds, why should we issue bonds at all? Why not simply issue cash? In other words, at the zero bound, what is the argument against monetizing deficit spending?"

     "And then we come to the platinum coin, which threatened to expose the illusion that cash and debt are different at the zero bound. By extension, the platinum coin threatened to expose as folly any near-term deficit reduction plan. If you could issue a coin to support near term spending without inflationary consequences, what exactly is the rational for tighter policy now? There is none - but that would run directly contrary to the conventional wisdom among Very Serious People on both sides of the aisle that the debt needs to be addressed right now."

    "And just think about what it would mean for the Fed if it became evident that, even if only temporarily at the zero bound, deficit spending could be monetized with no impact on inflation. The lines between monetary and fiscal policy would blur further, threatening the existing state of affairs in Washington. Monetary policymakers would face an increasingly hard time defending their need for independence as akin to an Eleventh Commandment."

     http://diaryofarepublicanhater.blogspot.com/2013/01/the-platinum-coin-debates.html
     Here he sounds just as skeptical about the supposed problematic nature of the coin. Yet he concludes that we must maintain it as a necessary fiction:

        "Ultimately, I don't believe deficit spending should be directly monetized as I believe that Paul Krugman is correct - at some point in the future, the US economy will hopefully exit the zero bound, and at that point cash and government debt will not longer be perfect substitutes. Note that Greg Ip disagreed with this point:

I disagree. The Fed does not have to sell its bonds, or the $1 trillion coin, to control inflation (though it may do so anyway). It only needs to retain control of interest rates, and that does not depend on the size of its balance sheet
 
      The difference is that Duy seems to think that there is a benefit in continuing to act as if this fiscal restraint exists.
 
    
     

Birds of a Feather: Sumner, Limbaugh and the AEI


     Sumner thinks that Obama has been unmasked:

     "Clinton said the era of big government is over. Obama seems determined to prove Clinton wrong. (Don’t ya just love it when progressives insist Obama is a centrist. Yes, he’s right in the center of progressivism.) This data has support for both sides. It shows that a country can be fairly rich, and still have a very large government. But it also suggests that if Obama pushes the size of government substantially higher, there may be a price to pay. We’ll still be rich, but not as rich. More like France than Switzerland or Norway. I’m not sure how voters would react to that outcome."

    http://www.themoneyillusion.com/?p=18942

    Aha! He's not a centrist!! For me I never considered him a "centrist" at least as Sumner defines a centrist. Obama's a liberal. Interestingly, my argument over the last 2 years was with liberals who didn't think he was a real liberal. They thought he was a centrist or even a conservative. So far from feeling that Obama has been unmasked I feel vindication in his forceful stand for liberalism. I'm glad he is a liberal and I welcome the end of the Reagan Revolution.

   What's striking in Sumner's little missive is how similar it sounds to what Rush Limbaugh said. He too thinks Obama has been unmasked.

   "There should have been something for everyone in President Barack Obama’s second inaugural address. For liberals, a full-throated call to arms. For conservatives, vindication."

   "Obama settled once and for all the debate over his place on the political spectrum and his political designs. He’s an unabashed liberal determined to shift our politics and our country irrevocably to the left. In other words, Obama’s foes — if you put aside the birthers and sundry other lunatics — always had him pegged correctly."

    "If you listened to Rush Limbaugh, Sean Hannity and Laura Ingraham, you got a better appreciation of Obama’s core than by reading the president’s friends and sophisticated interpreters, for whom he was either a moderate or a puzzle yet to be fully worked out."

   Read more: http://www.politico.com/story/2013/01/rush-limbaugh-was-right-86641.html#ixzz2J78cbdqV

    If the political defeat of conservatives gives them vindication, more power to them. I think it vindicates liberals but hey, you say tomato I say... I have a hard time seeing how someone like Hannity who spent the last year predicting a Romney landslide is suddenly a seer because he was wrong and the Reagan Revolution is over but hey conservatives are sophisticated people. Way too much so for a simple minded liberal like me to understand.

   Still reading Rush and Sumner the question begs: Did Scott write this after hearing Rush or do great minds just think alike?

    In our last piece we looked at Sumner's not so impressive attempts to somehow suggest that there's some meaningful correlation between less government spending and more wealth.

    http://diaryofarepublicanhater.blogspot.com/2013/01/sumner-on-government-spending-and-wealth.html

     This effort has inspired the American Enterprise Institute who no doubt need some reason for optimism these days.

      "Sumner’s big point is that the few countries that continued to gain on America were either more aggressive, pro-market reformers (Chile and Britain), or were developing countries that adopted the world’s most capitalist model."

     "See, few expected this. In 1980, there were plenty of forecasters who thought the American standard of living would decline over coming decades. Just look at all the dystopian films back then: Blade Runner, Soylent Green, Americathon, Escape from New York. Gloomy stuff."

     "But by the mid-1980s, those films were giving way to ones depicting a much sunnier tomorrow such as Back to the Future, Part II and the Star Trek revival. Indeed, from 1983-2007, U.S. real GDP grew by 3.3% a year, 2.2% on a per capital basis. Now, this was not as fast as the 1950s and 1960s when GDP growth averaged near 4%. But as Sumner explains, “Growth has been slower, but that’s true almost everywhere. What is important is that the neoliberal reforms in America have helped arrest our relative decline."

    "And the key reforms, by the way, are lower marginal tax rates and less intrusion by government into markets and the private sector via deregulation, eliminating price controls, and privatization.
Why would the president want to reverse course instead of recommitting America to the successful policies of the past decades?"

     http://www.aei-ideas.org/2012/04/i-wish-obama-could-time-travel-back-to-1980/

     The fact that they can actually ask this question seriously-not a joke-shows why the GOP and conservatives are in such bad shape. They truly believe we've been living in a golden age.

      I left this comment in response to Sumner's post that claimed Reaganism was some big success-he actually uses the words "amazing success."

     " Is this a trick question? Obviously most Americans missed the golden age he’s looking back on so nostalgically. I think the fact that you ignore things like median income is a problem for your analysis Scott."

     "You believe that consumption per capita is a better gauge which using shows that Americans haven’t been doing so bad. Yet most Americans think they’ve been doing pretty bad, certainly over the last 10 years.

     "While I know that the Marco establishment is rather cavalier about something as ephemeral as the American people’s own opinion about how the economy is doing-I know “there’s no such thing as public opinion”-it seems to me that if people don’t think they’ve been doing so well, but consumption per capita suggests they’ve been doing fine, then maybe there’s something wrong with the consumption per capita gauge as a better metric."

      http://www.themoneyillusion.com/?p=5164&cpage=4#comment-222957

Sumner on Government Spending and Wealth

     It's not entirely clear what Sumner's point is on a recent piece about the level of government spending vs. wealth in various countries. He seems to be trying to suggest there's some sort of meaningful causality between somewhat lower government spending and more wealthy countries. of course, since then then he's been arguing that this is not what he was actually driving at.

    First of all he admits the fact that in comparisons between richer and poorer countries, richer ones have governments that spend considerably more.

    It’s widely known that governments in rich countries spend much more than governments in poor countries, even as a share of GDP. There are a number of possible explanations of this pattern. Perhaps rich countries choose to consume more government services, such as education, health care and pensions. Or maybe it’s hard to extract a lot of tax revenue in poor countries where corruption in endemic and many people are peasant farmers or unregistered small businesses. (The fact that the least corrupt rich countries (the Nordics) are especially adept at collecting tax revenue is suggestive.)

    http://www.themoneyillusion.com/?p=18942

     However, he thinks the more interesting question is the level of spending differentials between different rich countries.

     He puts up a couple of lists, one ranking countries by wealth per capita and one by government spending as a percentage of GDP. From this he draws these observations:

  "1. Germany is a fairly typical rich European Country. Of the 15 countries richer than Germany, only three have larger governments (Austria, Netherlands, Sweden). Of the 8 countries poorer than Germany, only two have smaller governments (Taiwan, Japan.)"

  "2. It appears that among the very rich countries of the world, the correlation between per capita GDP and size of government reverses. I can’t be certain, but I think this is even true if you exclude the 4 petro-states (Norway, UAE, Qatar, Kuwait.)"

   "3. Part of this reversal may be due to wealth causing less government spending. Once the basic services are provided, a gusher of oil wealth leads to more non-government consumption."

    "4. Part of this reversal may be due to high taxes reducing work effort. Many of the richest countries (excluding petro-states?) have both lower taxes and longer working hours."

    "5. What are we to make of the exceptions?

     a. Some rich countries have policies that encourage female employment, despite high taxes. Sweden doesn’t have a marriage penalty discouraging wives from working, for instance, and provides lots of childcare. Others have quite market-friendly policies, despite the big government. This is especially true of the Nordics. Thgis might explain their relatively high productivity, despite high taxes.

    b. One country on the list is arguably still developing. Taiwan will likely move into the richer group over time. Its relatively low level of income does not reflect a lack of work effort, but rather low productivity.

   c. Japan is the real puzzle here. Like Taiwan, hours worked are pretty long, much higher than Western Europe. This suggests the Japanese workers are extraordinarily unproductive. Some might point to low female labor force participation. But that just means that Japanese females are very unproductive. You could argue that they are at home taking care of the chilren, except that they aren’t having any children.

  "6. This reversal of correlation at the top end often shows up in comparisons of similar neighbors. The US is richer than Canada, and has a slightly smaller government. Australia is richer than New Zealand, and has a significantly smaller government. Switzerland is richer than Austria, and has a smaller government. Norway is the richest of the Nordics, and has the smallest government. Belgium is ethnically part French and part Dutch, and both its size of government and its wealth is midway between the two. Spain is richer than Portugal and has a smaller government."

   "7. The East Asian rich tend to have small governments. South Korea was a bit too poor to make the list, but its government spends only 30% of GDP. It will be on the list quite soon. This pattern has huge implications for where the world’s biggest economy (no, not the US anymore) will end up on the list."

    "8. I predict that within a few decades the US will no longer be regarded as an outlier. It will no longer be regarded as a very rich country with a surprisingly small government."

     "9. Clinton said the era of big government is over. Obama seems determined to prove Clinton wrong. (Don’t ya just love it when progressives insist Obama is a centrist. Yes, he’s right in the center of progressivism.) This data has support for both sides. It shows that a country can be fairly rich, and still have a very large government. But it also suggests that if Obama pushes the size of government substantially higher, there may be a price to pay. We’ll still be rich, but not as rich. More like France than Switzerland or Norway. I’m not sure how voters would react to that outcome."

    "10. Sweden’s government is vastly larger than the Swiss government, and yet from an American perspective the two countries seem quite similar. Do both liberals and conservatives overrate the importance of big government? I.e. are conservatives wrong that it would wreck the economy, and are liberals wrong that lots more government spending would greatly improve quality of life? If so, why isn’t Switzerland a hellhole, and why isn’t Sweden poor?"

     http://www.themoneyillusion.com/?p=18942

     I think the commentator, Alekseyev , gets it right when he says:

    "Given that some of the countries here are city-states and some are avowedly non-militaristic, I really wonder how good of a list this is. For example, nice for Hong Kong to have 18% GDP spending, but how does that figure change if you were to adjust it for the security services provided by the mainland Chinese?"

    "And military aside, this is a very dubious data set over which to build policy implication theses. It’s hard to understand what lessons can a country like United States, Germany or France learn from Singapore or Hong Kong. It’s equally hard to understand what an energy-resource barren Japan can learn from UAE or Norway."

     "There is just so much more to GDP/capita equation than the level of taxation and government spending. But maybe that’s what the hodge podge result and very weak correlation actually shows."

    Sumner ended up spending a lot of time in the comments section explaining what he didn't mean-not what many people took him to mean:

    " Everyone, I do know that government spending is not a good metric for total government involvement in the economy, as I indicated in the post. Many readers seemed to assume I was trying to make some sort of argument that I never made."

     "Alekseyev. You said;

    “For example, nice for Hong Kong to have 18% GDP spending, but how does that figure change if you were to adjust it for the security services provided by the mainland Chinese?”

    "Much less than you’d think."

     "I agree that it’s tough to make comparisons between widely dissimilar countries. Still I found it interesting that the positive correlation between size of government and wealth seems to reverse slightly at the very top. Maybe others don’t find that interesting. Years ago when I predicted Singapore and Hong Kong would become very rich, almost no one believed me. Now that they have, the same people tell me that it’s meaningless. But is it?"

     In a piece he wrote afterwards he's still trying to convince us that he wasn't saying anything you might think he was saying:

     "I added some graphs to the previous post on income and government spending. Many readers assumed I was trying to explain why some countries are richer than others. Not so. I did that elsewhere"

      http://www.themoneyillusion.com/?p=19010

      Linking to that previous post where he did make the argument we only thought he was making here but did make then, it's an apology for Reaganism, with the very ambitious title:

     America's Amazing Success Since 1980: Why Krugman is Wrong.

     http://www.themoneyillusion.com/?p=5164

     Right away, he lowers the bar for what he needs to achieve by offering a comparison. He doesn't so much tell us how great the last 30 years have been as argue they're better than Europe:

     "Suppose you had gotten a room full of economists together in 1980, and made the following predictions:

      "1. Over the next 28 years the US would grow as fast as Japan, and faster than Europe (in GDP per capita, PPP.)"

      " 2. Over the next 28 years Britain would overtake Germany and France in GDP per capita.
And you said you were making these predictions because you thought Thatcher and Reagan’s policies would be a success. Your predictions (and the rationale) would have been met with laughter. Indeed around that time most of the top British economists signed a petition asserting that Thatcher’s policies would fail. For those of you not old enough to remember 1980, let me explain why. Labour rule of Britain had reduced their economy to a shambles. The government ran the big manufacturing corporations and labor unions were running wild. They had 83% MTRs, 98% on capital. There was garbage piling up in the streets of London. Britain had been the sick man of Europe for decades, growing far more slowly than Germany, France and Italy. The US wasn’t doing as badly, but certainly wasn’t doing that well either. We had also been growing much more slowly than Europe and Japan. Unlike Britain, we were still richer than most other developed countries, so this convergence was viewed as partly inevitable (the catch-up from WWII), and partly reflecting the superior economic model of the Germans and Japanese."

    Actually it depends what metrics you prefer. What Britain did have prior to 1980 was a very low rate of unemployment. Whatever the benefits you might claim that Thatcherism brought, it came at a high price. How much was the story less about an improvment in Britain and the U.S. and more about a deterioration of say France?

   Indeed, Sumner ultimately again lowers the bar considerably:

   "Several commenters mentioned median income rather than GDP/person. The median income data does show slower growth than GDP/capita, partly because of increasing inequality, but partly because of statistical problems with the data (health benefits are excluded, etc.) I believe consumption data is far superior to median real income, and that shows Americans doing much better. Will Wilkinson has posted on this. The consumption data also show a much smaller increase in inequality. But I was primarily interested in international comparisons, for which all I had was GDP data in PPP terms. The point was that countries that did more reforms did better than those that did fewer reforms. I am not denying that growth in US living standards slowed after 1973, rather I am arguing that it would have slowed more had we not reformed our economy."

    It certainly is not easy to say the U.S. has had "amazing success" since 1980. The picture changes a lot starting in the Great Recession that begun in 2007.

   P.S. Interestingly, now, you perhaps can talk about our "amazing success"-though again, largely comparatively, how have we fared so much better than both Britain and the EU? What correlations would Sumner point to there? One I will point to is our relative lack of austerity.

    http://diaryofarepublicanhater.blogspot.com/2013/01/the-s-says-were-better-now-than-4-years.html