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2013

it’s hard to think of a proposition that has been more thoroughly refuted by history than the notion that social insurance undermines a free society. Almost 70 years have passed since Friedrich Hayek predicted (or at any rate was understood by his admirers to predict) that Britain’s welfare state would put the nation on the slippery slope to Stalinism; 46 years have passed since Medicare went into effect; as far as most of us can tell, freedom hasn’t died on either side of the Atlantic.

When Europe began its infatuation with austerity, top officials dismissed concerns that slashing spending and raising taxes in depressed economies might deepen their depressions. On the contrary, they insisted, such policies would actually boost economies by inspiring confidence. But the confidence fairy was a no-show. Nations imposing harsh austerity suffered deep economic downturns; the harsher the austerity, the deeper the downturn. Indeed, this relationship has been so strong that the International Monetary Fund, in a striking mea culpa, admitted that it had underestimated the damage austerity would inflict.

Economics 101 tells us to be very cautious about attempts to legislate market outcomes. Every textbook - mine included - lays out the unintended consequences that flow from policies like rent controls or agricultural price supports. And even most liberal economists would, I suspect, agree that setting a minimum wage of, say, $20 an hour would create a lot of problems. But that’s not what’s on the table. And there are strong reasons to believe that the kind of minimum wage increase the president is proposing would have overwhelmingly positive effects.

Outside that bubble, a fair number of people have noticed that Keynesian economics has performed spectacularly in the crisis - it successfully predicted that deficits wouldn’t drive up interest rates, that monetary expansion wouldn’t be inflationary, that austerity policies in Britain and elsewhere would hit economic growth. And no, don’t tell me that Keynesians predicted that the Obama stimulus would produce full employment; serious Keynesians, like me, were more or less frantically warning back in early 2009 that the stimulus was too small. But in Ryan’s world everyone knows that Keynesian economics has failed.

we have a situation in which a terrorist may be about to walk into a crowded room and threaten to blow up a bomb he’s holding. It turns out, however, that the Secret Service has figured out a way to disarm this maniac - a way that for some reason will require that the Secretary of the Treasury briefly wear a clown suit. (My fictional plotting skills have let me down, but there has to be some way to work this in). And the response of the nervous Nellies is, “My god, we can’t dress the secretary up as a clown!” Even when it will make him a hero who saves the day?

2012

The key thing to remember - and what the GOP hopes you won’t understand - is that raising the debt ceiling only empowers the president to spend money that he’s authorized to spend by Congressional legislation; nothing more. Conversely, a party that refuses to raise the debt limit is saying that it’s prepared to inflict vast damage on America in order to achieve things that it couldn’t achieve through actual legislation - in effect, that it’s prepared to use vandalism to subvert the constitutional process.

Japan, which is spending heavily for post-tsunami reconstruction, is growing quite fast, while Italy, which is imposing austerity measures, is shrinking almost equally fast. There seems to be some kind of lesson here about macroeconomics, but I can’t quite put my finger on it If austerity worked, the bars for the UK and Italy would be positive. It spending didn’t work, the bars for Japan would look like Italy’s bar. (via Spending and Growth - NYTimes.com)

is there anything at all in Romney’s stump speech that’s true? It’s all based on attacking Obama for apologizing for America, which he didn’t, on making deep cuts in defense, which he also didn’t, and on being a radical redistributionist who wants equality of outcomes, which he isn’t. When the issue turns to jobs, Romney makes false assertions both about Obama’s record and about his own. I can’t find a single true assertion anywhere.

2011

right now, there are people declaring that our best days are behind us, that the economy has suffered a general loss of dynamism, that it’s unrealistic to expect a quick return to anything like full employment. There were people saying the same thing in the 1930s! Then came the approach of World War II, which finally induced an adequate-sized fiscal stimulus - and suddenly there were enough jobs, and all those unneeded and useless workers turned out to be quite productive, thank you.

the Austrian/Ron Paul types made some very strong predictions about inflation - and rightly, given their model of how the world works. In their version of reality, it really isn’t possible to triple the monetary base without dire effects on the price level. In my version of reality, of course, that’s not only possible but what the model predicts in a liquidity trap. So since we did indeed triple the monetary base with nothing much happening to inflation, the right lesson to draw is that their model is all wrong. Unfortunately, I see no hint that anyone in that camp is prepared to consider that possibility.

In Democrat-world, up is up and down is down. Raising taxes increases revenue, and cutting spending while the economy is still depressed reduces employment. But in Republican-world, down is up. The way to increase revenue is to cut taxes on corporations and the wealthy, and slashing government spending is a job-creation strategy. Try getting a leading Republican to admit that the Bush tax cuts increased the deficit or that sharp cuts in government spending (except on the military) would hurt the economic recovery.

This is the way the euro ends - not with a bang but with bunga bunga…. if you look around the world you see that the big determining factor for interest rates isn’t the level of government debt but whether a government borrows in its own currency. Japan is much more deeply in debt than Italy, but the interest rate on long-term Japanese bonds is only about 1 percent to Italy’s 7 percent. Britain’s fiscal prospects look worse than Spain’s, but Britain can borrow at just a bit over 2 percent, while Spain is paying almost 6 percent. What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies.

the way to understand the “Barney Frank did it” school of thought about the crisis is that it’s an attempt to turn a huge defeat for conservative ideas into a win. The reality of the financial crisis was that deregulation - which was part of a broader rightward shift in policies that played a large role in creating rapid growth in income inequality - led to an economic catastrophe of the kind that just didn’t happen during the 50 years or so when we had effective bank regulation. So the right’s answer is to claim not just that the government did it, but that it caused the crisis by its attempts to reduce inequality! It’s kind of a masterstroke, in an evil way.

The point is that I know technocrats, and these people aren’t - they’re faith healers who are making stuff up to suit their prejudices. You can say something similar, although a bit less pointed, about the Obama administration. The line from people there, including the president, has been that it was too technocratic. But the real technocrats - people like Christy Romer and, well, me - were saying right from the beginning that the stimulus was too small, etc.; people like Geithner who opposed stronger action were basing their position on gut feelings about confidence, not number-crunching.

If I say that Paul Ryan’s mother was a hamster and his father smelt of elderberries, that’s ad hominem. If I say that his plan would hurt millions of people and that he’s not being honest about the numbers, that’s harsh, but not ad hominem. And you really have to be somewhat awed when people who routinely accuse Obama of being a socialist get all weepy over him saying that eliminating protections against pollution would lead to more pollution.

what Britain needs is for everyone to pay down debt, said in obvious obliviousness to the fact that if everyone cuts spending at the same time, income must fall. But then, this kind of obliviousness is very widespread, and my experience is that if you try to point out the problem - if you try to explain that my spending is your income and vice versa - you get a belligerent response. Y=E is seen as a political statement, which in a way it is if one side of the political spectrum insists on believing things that can’t be true.

In the first act, bankers took advantage of deregulation to run wild (and pay themselves princely sums), inflating huge bubbles through reckless lending. In the second act, the bubbles burst - but bankers were bailed out by taxpayers, with remarkably few strings attached, even as ordinary workers continued to suffer the consequences of the bankers’ sins. And, in the third act, bankers showed their gratitude by turning on the people who had saved them, throwing their support - and the wealth they still possessed thanks to the bailouts - behind politicians who promised to keep their taxes low and dismantle the mild regulations erected in the aftermath of the crisis. Given this history, how can you not applaud the protesters for finally taking a stand?

What Tom describes as the centrist position both parties know they should adopt, but refuse to do because of partisanship on both sides, is in fact the actually existing position of the Democratic party - a position that Republicans denounce as “socialist.” I know that admitting that Barack Obama is already the candidate of centrists’ dreams would be awkward, would make it hard to adopt the stance that both sides are equally at fault. But that is the truth.

Republicans claim to be deeply worried by budget deficits. Indeed, Mr. Ryan has called the deficit an “existential threat” to America. Yet they are insisting that the wealthy - who presumably have as much of a stake as everyone else in the nation’s future - should not be called upon to play any role in warding off that existential threat. Well, that amounts to a demand that a small number of very lucky people be exempted from the social contract that applies to everyone else. And that, in case you’re wondering, is what real class warfare looks like.

Look at the IRS data on returns for the 400 highest incomes in America (pdf) - specifically, Table 43. If you look at the numbers since 2004, you’ll see that in a typical year between 30 and 40 percent of those super-high-income players paid an average tax rate of less than 15 percent; most of them paid less than 20 percent. Bear in mind that for the very wealthy the payroll tax - the main burden on working-class Americans - is trivial, because of the cap on Social Security and the fact that it only applies to earned income. And what becomes clear is that the Obama/Buffet claim is absolutely, totally true.

Not long ago, a political party seeking to change U.S. policy would try to achieve that goal by building popular support for its ideas, then implementing those ideas through legislation. That, after all, is how our political system was designed to work. But today’s G.O.P. has decided to bypass all that and go for a quicker route. Never mind getting enough votes to pass legislation; it gets what it wants by threatening to hurt America if its demands aren’t met. That’s what happened with the debt-ceiling fight, and now it’s what’s happening over disaster aid. In effect, Mr. Cantor and his allies are threatening to take hurricane victims hostage, using their suffering as a bargaining chip.

The point here is not so much the $2 trillion, which makes very little difference to real US fiscal prospects; it’s the fact that S&P stands revealed as not understanding basic analysis of budget estimates. I mean, I don’t think I would have made that mistake; real budget experts, like the people at the Center on Budget and Policy Priorities, certainly wouldn’t have. So what we just saw was amateur hour. And these people are pronouncing on US credit-worthiness?

What Eurosclerosis? “More detailed analysis shows that the remaining gap comes from lower employment rates in Europe for the young and old; prime-age workers, especially men, are if anything more likely to be working in Europe. And you should note that this European performance comes despite the fact that tax levels and levels of social benefits are vastly higher than they are here. Any US politician proposing even a partial move in Europe’s direction would be accused of being a job-killer. Somehow, though, the jobs survive.” (via The End of Eurosclerosis - NYTimes.com)

the signature initiatives of Republican presidents - the Reagan tax cut, the Bush tax cut, the Medicare drug benefit - have all been unfunded deficit-raisers; the signature initiatives of Democratic presidents - the Clinton tax hike, Obamacare - have all been deficit-reducing. (Yes, the stimulus - but that was intended to be temporary, and has in fact proved too temporary; and Bush I’s tax increase was an exception, but the GOP has made it clear that nothing like that will ever happen again.)

2010

2009

2008

2007