Tag Archives: economic policy

The Economy And The Evidence

Nick Hanauer has long advocated for economic policies buttressed by something called “evidence.” I first encountered him when he was pointing out that putting disposable income into the hands of the working class via a higher minimum wage actually strengthens economic performance and supports job creation, because–duh–manufacturers don’t hire people to make widgets that few people have the means to buy.

Hanauer recently addressed “Bidenomics.”

When President Joe Biden first promised to “grow the economy from the bottom up and the middle out” through public investments, empowering workers, and promoting competition, critics scornfully derided his agenda as “Bidenomics.” And when the president defiantly embraced this epithet by making it the economic centerpiece of his reelection campaign, even some allies questioned the wisdom of stamping his name on an economic recovery that is as misunderstood as it is strong. Despite record-low unemployment, rising real wages, strong GDP growth, and a rapid fall in the inflation rate to below both global and historical averages, only 36 percent of Americans say they approve of Biden’s handling of the economy. Given such weak approval numbers, “Bidenomics” might at first appear to be an ill-advised slogan for a reelection campaign.

But to dismiss Bidenomics as mere sloganeering is to miss the point: The Biden Revolution is real, and running on Bidenomics is key, not just to winning reelection, but to winning the battle to establish a new consensus over how to manage and build our economy in the decades ahead.

As Hanauer explains, a large and thriving middle class is the primary engine of economic growth. That’s the core proposition of Bidenomics– that prosperity grows from the bottom up and the middle out. It challenges Reagan and the GOP’s belief in “trickle-down.”

All available evidence supports Hanauer and Biden.

A recent article in The Atlantic examined the reluctance to trust that evidence. The article asked why America abandoned the greatest economy in history, and the subhead suggested potential explanations: “Was the country’s turn toward free-market fundamentalism driven by race, class, or something else? Yes.”

From the 1940s through the ’70s, sometimes called the New Deal era, U.S. law and policy were engineered to ensure strong unions, high taxes on the rich, huge public investments, and an expanding social safety net. Inequality shrank as the economy boomed. But by the end of that period, the economy was faltering, and voters turned against the postwar consensus. Ronald Reagan took office promising to restore growth by paring back government, slashing taxes on the rich and corporations, and gutting business regulations and antitrust enforcement. The idea, famously, was that a rising tide would lift all boats. Instead, inequality soared while living standards stagnated and life expectancy fell behind that of peer countries. No other advanced economy pivoted quite as sharply to free-market economics as the United States, and none experienced as sharp a reversal in income, mobility, and public-health trends as America did. Today, a child born in Norway or the United Kingdom has a far better chance of outearning their parents than one born in the U.S.

The rest of the article considers three theories for why America abandoned New Deal economics: white backlash to civil-rights legislation, the Democratic Party’s “cultural elitism,” and/or global crises beyond any political party’s control. It concluded that all of them played a role.

Whatever the reason, Americans seem to have a very hard time accepting the fact that “Bidenomics”–which harks back to New Deal principles–has produced an economy better than anyone predicted.

Yet the economy is ending the year in a remarkably better position than almost anyone on Wall Street or in mainstream economics had predicted, having bested just about all expectations time and again. Inflation has dropped to 3.1 percent, from a peak of 9.1. The unemployment rate is at a hot 3.7 percent, and the economy grew at a healthy clip in the most recent quarter. The Fed is probably finished hiking interest rates and is eyeing cuts next year. Financial markets are at or near all-time highs, and the S&P 500 could hit a new record this week, too.

The GOP demanded reductions in government spending. The White House disagreed, arguing that funding programs on infrastructure, domestic semiconductor production and clean energy would help inflation by expanding the economy’s productive capacity. The White House was right.

I’m currently reading a book on Modern Monetary Theory, which makes a point that Biden clearly understands: national budgets are nothing like household budgets, and failure to understand the difference leads to bad policy.

More on that book–and that theory– later….

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Of Death, Politics And Economics

The other morning, I read two completely different columns, on different subjects, that came together in a surreal sort of way.

The first was from The Atlantic, titled “The Anti-Vaccine Right Literally Brought Human Sacrifice to America,” and it began with a collection of quotes comparing Republicans’ reality-denial and elevation of economic concerns over public safety to human sacrifice.

The immediate panicky focus on resuming business as usual in order to keep the stock market from crashing was the equivalent of “those who offered human sacrifices to Moloch,” according to the writer Kitanya Harrison. That first summer, as Republicans settled into their anti-testing, anti-lockdown, anti-mask, nothing-to-worry-about orthodoxy, Representative Jamie Raskin, a Democrat, said it was “like a policy of mass human sacrifice.” The anthropology professor Shan-Estelle Brown and the researcher Zoe Pearson wrote that people who continued to do their jobs outside their homes were essentially victims of “involuntary human sacrifice, made to look voluntary.”

(Parenthetically, I will note that every time some pundit tells us that Americans are “losing faith in Biden’s handling of the pandemic,” I want to scream that the f**ing anti-vaxxers who are sacrificing the lives of their own voters are to blame for derailing his efforts. But I digress.)

The author of the article noted that the original concern about economic damage was “at least fundamentally rational, a weighing of social costs against social benefits.” But that original concern should have abated.

Today, however, the economy is no longer in jeopardy; unemployment rates and salaries have returned to pre-pandemic levels; GDP per person is higher than it was at the end of 2019; personal savings are growing, and businesses are starting up faster than ever; corporate profits and stock prices are at record highs.

The recitation of current economic realities was meant to emphasize the fact that the  “ongoing propaganda campaign against and organized political resistance to vaccination… has been killing many, many Americans for no reasonable, ethically justifiable social purpose.”

Almost immediately after reading that article, a reader sent me a column by Ball State economist Michael Hicks. It had nothing to do the political insanity surrounding COVID–it was instead an explanation of why Indiana’s economic future is grim.  Compare the Indiana data to the relatively rosy national picture relayed by The Atlantic.

Hicks began by noting that Indiana’s relatively good recovery from the effects of the pandemic, particularly in manufacturing and logistics, was largely due to the fiscal policy interventions of the Trump and Biden administrations, and that the state’s current, flush fiscal condition is “wholly a consequence of COVID stimulus.”

Otherwise, not so hot.

In 2000, Indiana ranked 24th in average wages nationwide, with the typical worker earning almost 88 percent of the national average. By 2019, we’d dropped to 35th in average wages per job, or just over 85 percent of the national average. In just the decade of the longest economic expansion in American history, Indiana’s per capita income relative to the rest of the nation saw its biggest 10-year decline in history. This sort of rapid declines in job quality and earnings are catastrophic for Indiana’s long-term prosperity, and addressing the decline is the number one policy issue facing the state.

To the extent that Indiana’s economy has grown, it is due to the performance of Indianapolis–the city our legislators love to shortchange.

Just to clarify this point, from 2000 to 2019, Indiana created 154,000 new jobs, but 195,000 of these went to the Indianapolis Metropolitan Area. No, that is not a math error. The non-Indianapolis portions of the state had 40,000 fewer jobs in 2019 than they did at the turn of the century, while Indianapolis grew much faster than the state as a whole. Only the highly educated, high-tax parts of Indiana are growing.

And how about that GOP fever dream that cutting taxes will fix anything and everything that ails you? (Probably including thinning hair and genital warts…)

Our overall business taxes, as reported to the Federal Department of Commerce ranked 8th lowest in 2000, dropping to 6th lowest by 2019. However, our taxes on manufacturing dropped from 25th to 4th lowest over the same period, while we shed 120,000 factory jobs.

No one can construct an honest argument that this has bettered the Indiana economy. This is mostly because cutting taxes on manufacturing necessarily means spending less on key public services, while shifting the tax burden to households and other businesses.

Indiana’s Republican super-majority (courtesy of gerrymandering) is pursuing both kinds of death addressed by these articles: anti-vaccine policies that will kill real people, and demonstrably stupid economic policies that will depress economic growth while making Indiana a less attractive place to live and work.

All while waging war on education and the urban areas that are critical to the state’s economic well-being.

Talk about sacrificing human and economic health to ideology!

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An Intriguing Analysis

Paul Krugman recently had a column that–almost incidentally–amplified the findings I reported on yesterday from Democracy Corp’s focus groups.

He began by noting that Biden simply doesn’t arouse the same degree of animosity that Obama did. Krugman leaves it there, but the reason for the moderation of vituperation is pretty obvious: Biden’s a White guy. Yes, he’s a hated Democrat/Socialist/Leftie/Whatever, but at least he’s not Black.

Krugman focused on the lower level of animus and hostility aimed at Biden by Republicans, and speculated over what that “low energy” opposition might mean for the prospects of upcoming legislative proposals.

Just about every analyst I follow asserted, almost until the last moment, that $1.9 trillion was an opening bid for the rescue plan and that the eventual bill would be substantially smaller. Instead, Democrats — who, by standard media convention, are always supposed to be in “disarray” — held together and did virtually everything they had promised. How did that happen?

Much of the post-stimulus commentary emphasizes the lessons Democrats learned from the Obama years, when softening policies in an attempt to win bipartisan support achieved nothing but a weaker-than-needed economic recovery. But my sense is that this is only part of the story. There has also been a change on the other side of the aisle: namely, Republicans have lost their knack for demonizing progressive policies.

Krugman is careful to note that the decrease in demonization applies to policies (after all, lots of Republicans still believe that Democrats managed to steal a federal election at the same time they were sexually exploiting and then feasting on small children…) But as he notes, there’s been an absence of “bloodcurdling warnings about runaway inflation and currency debasement, not to mention death panels.”

True, every once in a while some G.O.P. legislator mumbles one of the usual catchphrases — “job-killing left-wing policies,” “budget-busting,” “socialism.” But there has been no concerted effort to get the message out. In fact, the partisan policy critique has been so muted that almost a third of the Republican rank and file believe that the party supports the plan, even though it didn’t receive a single Republican vote in Congress.

Krugman notes a number of possible explanations: the obvious hypocrisy of screaming about deficits under Obama and then incurring huge ones via tax cuts for the rich; the fact that none of their past, dire warnings of inflation under Obama–or their rosy predictions of a boom under Trump–materialized (although, as he points out ” inconvenient facts haven’t bothered them much in the past.”)

Or perhaps Republicans no longer know how to govern. They are trapped in a culture war of their own creation. As Krugman notes, while the Democrats were fashioning legislation and hammering out policy compromises, Republicans were screaming about Dr. Seuss and Mr. Potato Head.

In short, the prospects for a big spend-and-tax bill are quite good, because Democrats know what they want to achieve and are willing to put in the work to make it happen — while Republicans don’t and aren’t.

I have been extremely happy with what the Biden Administration has done–and failed to do–thus far. This is a highly competent operation. What is undoubtedly true, however, is that one reason the path has been smoother for Joe Biden is simply because his skin is white.

And that is an incredibly sad commentary on the current state of America.

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The Economy And The Parties

Talk about your provocative headlines! The New York Times opinion page recently ran a column titled: “The Economy Does Much Better Under Democrats. Why?”

The column began with an acknowledgement  of the limited control presidents exert over the economy. After all, presidents are at the mercy of numerous global and other realities, as the pandemic is currently illustrating.  Furthermore, economic performance is determined by literally millions of decisions made every day by businesses and consumers, many if not most of which have little relation to government policy.

So why is there an undeniably “stark pattern” showing that the economy has grown significantly faster under Democratic presidents than Republican ones?

It’s true about almost any major indicator: gross domestic product, employment, incomes, productivity, even stock prices. It’s true if you examine only the precise period when a president is in office, or instead assume that a president’s policies affect the economy only after a lag and don’t start his economic clock until months after he takes office. The gap “holds almost regardless of how you define success,” two economics professors at Princeton, Alan Blinder and Mark Watson, write. They describe it as “startlingly large.”

Since 1933, the economy has grown at an annual average rate of 4.6 percent under Democratic presidents and 2.4 percent under Republicans, according to a Times analysis. In more concrete terms: The average income of Americans would be more than double its current level if the economy had somehow grown at the Democratic rate for all of the past nine decades. If anything, that period (which is based on data availability) is too kind to Republicans, because it excludes the portion of the Great Depression that happened on Herbert Hoover’s watch.

If the disparate results are too clear and too large to dismiss, the reasons are far less obvious. (As the King in “The King and I” liked to say, “It’s a puzzlement.”)

The authors of the study considered and discarded several possibilities. They threw out  Congressional control, because the pattern held regardless of which party was running Congress;  deficit spending also couldn’t explain the gap, because–contrary to GOP rhetoric–during the past 40 years, Republican presidents have run up larger deficits than Democrats.

If Congressional partnerships and deficit spending couldn’t account for the differences, what might? The authors concluded that the difference could be explained by the willingness of Democrats–but not Republicans–to respect  that pesky thing we call evidence.

As they note, Democrats have been far more willing to consider the lessons of economic history–to see which policies have been shown to actually strengthen the economy, and to replicate those approaches. Republicans, on the other hand, have “clung to theories that they want to believe — like the supposedly magical power of tax cuts and deregulation.”

In other words, Democrats have been pragmatists; Republicans have been ideologues.

As the authors note, since 1980, Republican economic policy has boiled down to a single measure: large tax cuts, tilted heavily toward the rich. That may work in countries with very high tax rates, but the United States has had very low tax rates for decades.

It may be that Republicans actually believe in their own prescription, despite the repeated failure of tax cuts to provide the promised economic stimulus and/or job creation. Or it may be–as cynics suggest–that the parties are simply playing to their respective bases of support– responding to the interest groups that support and finance them.  Democratic-leaning groups (like labor unions and civil-rights organizations) favor policies aimed at achieving broad-based economic growth; Republicans are pandering to wealthier supporters (those we used to call “country club Republicans), who favor policies that will shift income in their direction.

It will be interesting to see whether Republican ideology shifts as the  GOP becomes increasingly the party of whites without wealth or a college education–and as significant numbers of those suburban “country club” Republicans desert a GOP that is firmly in thrall to bigots and crazy people.

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Trashing The Economy

Schadenfreude would be appropriate if real people weren’t being hurt.

Recent business news included the planned overseas move by that icon of Americana, Harley-Davidson. Although a quote attributed to the CEO to the effect that Trump is a moron who knows nothing about either trade or economics turned out to be bogus, the  decision to move production offshore sends a not-dissimilar message.

As Paul Krugman noted in a recent column, Harley-Davidson may be an icon, but it isn’t really a big economic player.

Nonetheless, I think the Harley story is one of those anecdotes that tells us a lot. It’s an early example of the incentives created by the looming Trumpian trade war, which will hurt many more American companies and workers than Trump or the people around him seem to realize. It’s an indication of the hysterical reactions we can expect from the Trump crew as the downsides of their policies start to become apparent — hysteria that other countries will surely see as evidence of Trump’s fundamental weakness.

No President can be an expert on all of the subjects on which a President must make consequential decisions. Most of those who have occupied the Oval Office have compensated for that reality by surrounding themselves with credentialed, expert advisers. But then, most of Trump’s predecessors were mentally stable enough to recognize that a need for advice about a highly technical area isn’t tantamount to an admission of inferiority.

There’s a reason the Trump Administration is filled with incompetents and sycophants–increasingly from Fox News–and even then, has seen unprecedented turnover.

And what Trump’s alleged experts have to say about the controversy offers fresh confirmation that nobody in the administration has the slightest idea what he or she is doing.

About that trade war: So far, we’re seeing only initial skirmishes in something that may well become much bigger. Nonetheless, what’s already happened isn’t trivial. The U.S. has imposed significant tariffs on steel and aluminum, causing their domestic prices to shoot up; our trading partners, especially the European Union, have announced plans to retaliate with tariffs on selected U.S. products.

And Harley is one of the companies feeling an immediate squeeze: It’s paying more for its raw materials even as it faces the prospect of tariffs on the cycles it exports. Given that squeeze, it’s perfectly natural for the company to move some of its production overseas, to locations where steel is still cheap and sales to Europe won’t face tariffs.

Opposition to tariffs used to be a hard-and-fast position of (what used to be) the Republican Party. It was a position I heartily endorsed, for reasons that Krugman alludes to and all Americans will soon begin to appreciate. That Harley and other companies would choose to move in reaction to those tariffs was entirely predictable.

But while it’s what you’d expect to see, and what I’d expect to see, it’s apparently not what Trump expected to see. His view seems to be that since he schmoozed with the company’s executives and gave its stockholders a big tax cut, Harley owes him personal fealty and shouldn’t respond to the incentives his policies have created….

So what do Trump’s economists have to say about all of this? One answer is, what economists? There are hardly any left in the administration. But for what it’s worth, Kevin Hassett, the chairman of the Council of Economic Advisers, isn’t echoing Trump’s nonsense: He’s uttering completely different nonsense. Instead of condemning Harley’s move, he declares that it’s irrelevant given the “massive amount of activity coming home” thanks to the corporate tax cut.

That would be nice if it were true. But we aren’t actually seeing lots of “activity coming home”; we’re seeing accounting maneuvers that transfer corporate equity from overseas subsidiaries back to the home corporation but in general produce “no real economic activity.”

As real economists and business reporters have documented, those tax reductions have once again failed to “trickle down” to the workers they were supposed to benefit. Most have been used in corporate stock buy-backs. Meanwhile, Congressional Republicans are voting to rob Social Security and Medicaid and make access to other social welfare programs more difficult–just as the Administrations uninformed trade war policy threatens to tank the economy. We are already seeing a weakening in consumer spending.

There is a (very unattractive) part of me that is watching this train wreck as vindication–this is what happens when you turn government over to people who ignore history and evidence and scorn the “effete elites” who actually know what they’re doing.

Schadenfreude.

But then I think of all the people who will suffer needlessly thanks to this clown and his circus…

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