Economists know how to fix the U.S. economy. But according to Bill Keller at the New York Times, they’re being shouted down.
So for the past several weeks my airplane and bedside reading has consisted of sexy documents like “A Roadmap for America’s Future” and “The Way Forward” and “The Moment of Truth” and “Restoring America’s Future” and “Living Within Our Means and Investing in the Future.” I’ve also reached out to a few economists respected for the integrity of their science and their patience with economic illiterates.
The first thing I gleaned from this little tutorial will probably not surprise you: There really is a textbook way to fix our current mess. Short-term stimulus works to help an economy recover from a recession. Some kinds of stimulus pay off more quickly than others. Once the economic heart is pumping again, we need to get our deficits under control. The way to do that is a balance of spending cuts, increased tax revenues and entitlement reforms. There is room to argue about the proportions and the timing, and small differences can produce large consequences, but the basic formula is not only common sense, it is mainstream economic science, tested many times in the real world.
So what’s the problem? Why is our system so fundamentally stuck? Partly it’s a colossal, bipartisan lack of the political courage required to tell people what they sort of know but don’t want to hear. Partly it’s a Republican Party that, for its own cynical reasons, wants no deal with this president. Partly it’s moneyed, focused lobbies that swarm in defense of specific advantages written into the law; there is no comparable lobby for compromise, let alone sacrifice.
Is reasoned discourse such that much a lost art in America today? Keller extends his point to cover several areas of discussion — President Obama’s birthplace, global warming and what to do about it, vaccines, etc. He could as easily have added whether Rachel Carson murdered more people than Mao Zedong, cures for our education woes, and the designated hitter rule.
In the land of the blind, the one-eyed man has value; but in the land of the knee-walking turkeys the one-eyed man is just one more roost to crap on.
What is a rational person to do?
Millard Fillmore's Bathtub 
Morgan writes:
stuff, unemployment remained high all the way through the thirties, even rebounded upward in 1938, and the depression wasn’t over until the war started.
Yeah..it rebounded because the Republicans insisted on making cuts. Convenient isn’t it how you ignore that fact.
Was the depression over after the war started?
Yes..because the war was a massive infusion of cash into the economy by the government. In other words, it was a massive government stimulus plan.
Which is also one of those things that you’re conveniently ignoring.
I don’t quite get where your party has such a problem with the idea that getting the economy out of a depression/recession involves…wait for it….putting people to work. That getting out of a depression/recession involves putting money in the hands of *gasp* the average person.
Yes I know, the idea gives you Republicans the horrors because you want to live in this fantasy land that if you give money to the top 1% who already have more then enough money that they’ll magically create economic prosperity for everyone all by themselves.
Despite the fact that there is absolutely no evidence of that ever happening anywhere in the world ever.
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The whole truth is the New Deal had a dramatic effect in reducing unemployment and poverty, but the stimulus wasn’t big enough to pull the nation out of the Depression completely. (You should have read Krugman’s chart.)
The 1938 dip? Republicans complained that the deficits were too high, that government spending on stimulus had to be reduced and federal budgets cut, taxes on the rich reduced. Sadly, FDR went along, and the recession returned as Keynes would have warned, and totally destroying your claim that it would produce jobs instead.
You’re looking through the telescope of history backwards, Morgan.
Keynes and FDR actually met once. Keynes advised Roosevelt that the New Deal was not great enough, and needed to be increased dramatically. FDR didn’t take his advice.
Sad to have to have gone so far, but the full employment caused by World War II is exactly a demonstration that Keynes was right. The CCC camps closed down after December 7, 1941, because all the workers enlisted in the armed forces or got jobs in factories and other businesses supporting the war effort or replacing other workers who had gone off to war.
Government stimulus, if big enough, can even wipe out a Great Depression. Even if that stimulus is for the economically stupid purpose of fighting a war (see Henry Hazlitt’s Economics in One Lesson).
Students of history know that. Santayana’s Ghost has been weeping for the American economy lately, with good reason.
Reasons here, some of them:
“Haunted by Santayana’s Ghost: FDR warns about Republican hypocrisy and sarcasm, from 1936”
“Republican Policy: Forward to the Gilded Age”
“Ironic anniversary: Marshall Plan, April 3, 1948“
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Er, sorry Ed.
I should have said “kvetch at them” not what I did say.
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Oh and I forgot something, morgan.
If the income growth had remained fairer like it was before Reagan was President, Morgan, there’d be less need for all those government safety net programs you and your fellow conservatives so love to hate.
But no…that thought never occurs to you. Apparently you want the poor to remain poor so you can continue to bitch at them for needing help from the government.
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Morgan writes:
A good economy is one in which people prosper.
Well lets see what the Reagan/Republican economy has done since 1980, shall we:
http://ohforgoodnesssake.com/?p=19715
From 1947 to 1979, the people saw the following income growth:
Bottom 20% of Population (I.e. the poorest of the poor): 116%
Second 20% of Population: 100%
Middle 20% of Population: 111%
Fourth 20% of Population: 114%
Fifth 20% of Population (I.E. the richest of the rich): 99%
From 1980 to now this has been the income growth of the same groups:
Bottom 20%: 15%
Second 20%: 22%
Middle 20%: 23%
Fourth 20%: 33%
Top 20%: 95% (which drops to 31% when the top 1% is removed)
Top 1%: 261%
Gee…notice the change, morgan? We went from a society in which the top 20% had the lowest income growth to a situation where the top 20% far outstripped the other four groups and the top 1% saw their wealth increase by nearly 300%.
And you want to talk about “economic prosperity”? Exactly how do you have a good economy in which all the economic prosperity is going to the richest of the rich and the rest of us are left with the crumbs?
You’re right, Morgan, a good economy is one in which the people prosper.
WHICH IS WHY WE DO NOT HAVE A GOOD ECONOMY AND HAVE NOT HAD ONE FOR 30 YEARS.
Why? Because your party has so rigged the system in favor of the few to the detriment of…well..the country. And instead of being sane, intelligent and recognizing that you’d be a lot better off if that hadn’t happened and things went back to the level of fairness that they were at before Ronnie Raygun and the Republicans took power you sit there acting like a temporarily embarassed rich person who is going to have your fortune “stolen” by the government…..
when in fact your fortune, Morgan, was already stolen by the people and the party you’re so busy trying to defend. Why? Because unless you’re Bill Gates level rich, and you’re not, you’d have been a lot better off financially with the economic system as it existed before 1980.
That is your money that the 1% are using to make themselves richer then 50 King Midas’ combined. They took it from you. And you’re too blind to recognize that they’ve robbed you.
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The truth is that FDR tried a bunch of stuff, unemployment remained high all the way through the thirties, even rebounded upward in 1938, and the depression wasn’t over until the war started.
Bad stuff happened, FDR and his apologists blamed his predecessors. Just like Obama. If good stuff happened, FDR took the credit for being there when it happened, just like Clinton. During the years of the New Deal, the economy continued to suck and people were expected not to notice, as they’re still expected not to notice now.
Point it out, and people like James K. will turn the subject to “Oh yeah what about the other guys”…Ed will come back with “I don’t think you should be reading that because I don’t like what it’s pointing out.” All these things add up to pretty much a perfect definition of a failed plan.
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In 2008 Morgan and the conservatives didn’t even bother to reflect during that short period of reflection. Now they’re trying to kill the programs that cleaned up part of that mess, and the programs designed to prevent future such “accidents.”
It’s not that the 99% are silent, nor that the Occupy Wallstreet group has no agenda; it is that Republicans are deaf, and too often,
dumbstupid and dishonest.LikeLike
Morgan said:
A good economy is one in which the bulk of people prosper, not a select financial elite. Marie Antoinette was not beheaded because the French economy was doing well, you know?
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Kessler said:
Morgan responded with an Urban Legend:
The truth? We’ve already dealt with the urban legend (i.e. falsehood) that Morgan responded with — we print the facts here, Morgan, not the spin. The New Deal worked as advertised. Despite the urban legend claims of the writers in the Wall Street Journal article where Morgan spends way too much time worshipping, much of the post-World War II boom was fueled by publicly-subsidized housing, the greatest public-subsidized housing program in history (and still a model for how to make things work), the GI Bill, precisely as FDR asked, and contrary to the claims that Congress repudiated the program.
I note, of course, that Morgan offers no counter example, no evidence that cutting taxes for the rich has ever done an iota of good for creating jobs, stimulating an economy, building housing for the masses, or in any other way promoting democracy and equality of rights.
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Well lets see what a millionaire businessman Nick Hanaur says on this matter: (Oh and have fun calling him a hippie, alan)
http://www.bloomberg.com/news/2011-12-01/raise-taxes-on-the-rich-to-reward-job-creators-commentary-by-nick-hanauer.html
It is a tenet of American economic beliefs, and an article of faith for Republicans that is seldom contested by Democrats: If taxes are raised on the rich, job creation will stop.
Trouble is, sometimes the things that we know to be true are dead wrong. For the larger part of human history, for example, people were sure that the sun circles the Earth and that we are at the center of the universe. It doesn’t, and we aren’t. The conventional wisdom that the rich and businesses are our nation’s “job creators” is every bit as false.
I’m a very rich person. As an entrepreneur and venture capitalist, I’ve started or helped get off the ground dozens of companies in industries including manufacturing, retail, medical services, the Internet and software. I founded the Internet media company aQuantive Inc., which was acquired by Microsoft Corp. (MSFT) in 2007 for $6.4 billion. I was also the first non-family investor in Amazon.com Inc. (AMZN)
Even so, I’ve never been a “job creator.” I can start a business based on a great idea, and initially hire dozens or hundreds of people. But if no one can afford to buy what I have to sell, my business will soon fail and all those jobs will evaporate.
That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is the feedback loop between customers and businesses. And only consumers can set in motion a virtuous cycle that allows companies to survive and thrive and business owners to hire. An ordinary middle-class consumer is far more of a job creator than I ever have been or ever will be.
Theory of Evolution
When businesspeople take credit for creating jobs, it is like squirrels taking credit for creating evolution. In fact, it’s the other way around.
It is unquestionably true that without entrepreneurs and investors, you can’t have a dynamic and growing capitalist economy. But it’s equally true that without consumers, you can’t have entrepreneurs and investors. And the more we have happy customers with lots of disposable income, the better our businesses will do.
That’s why our current policies are so upside down. When the American middle class defends a tax system in which the lion’s share of benefits accrues to the richest, all in the name of job creation, all that happens is that the rich get richer.
And that’s what has been happening in the U.S. for the last 30 years.
Since 1980, the share of the nation’s income for fat cats like me in the top 0.1 percent has increased a shocking 400 percent, while the share for the bottom 50 percent of Americans has declined 33 percent. At the same time, effective tax rates on the superwealthy fell to 16.6 percent in 2007, from 42 percent at the peak of U.S. productivity in the early 1960s, and about 30 percent during the expansion of the 1990s. In my case, that means that this year, I paid an 11 percent rate on an eight-figure income.
One reason this policy is so wrong-headed is that there can never be enough superrich Americans to power a great economy. The annual earnings of people like me are hundreds, if not thousands, of times greater than those of the average American, but we don’t buy hundreds or thousands of times more stuff. My family owns three cars, not 3,000. I buy a few pairs of pants and a few shirts a year, just like most American men. Like everyone else, I go out to eat with friends and family only occasionally.
It’s true that we do spend a lot more than the average family. Yet the one truly expensive line item in our budget is our airplane (which, by the way, was manufactured in France by Dassault Aviation SA (AM)), and those annual costs are mostly for fuel (from the Middle East). It’s just crazy to believe that any of this is more beneficial to our economy than hiring more teachers or police officers or investing in our infrastructure.
More Shoppers Needed
I can’t buy enough of anything to make up for the fact that millions of unemployed and underemployed Americans can’t buy any new clothes or enjoy any meals out. Or to make up for the decreasing consumption of the tens of millions of middle-class families that are barely squeaking by, buried by spiraling costs and trapped by stagnant or declining wages.
If the average American family still got the same share of income they earned in 1980, they would have an astounding $13,000 more in their pockets a year. It’s worth pausing to consider what our economy would be like today if middle-class consumers had that additional income to spend.
It is mathematically impossible to invest enough in our economy and our country to sustain the middle class (our customers) without taxing the top 1 percent at reasonable levels again. Shifting the burden from the 99 percent to the 1 percent is the surest and best way to get our consumer-based economy rolling again.
Significant tax increases on the about $1.5 trillion in collective income of those of us in the top 1 percent could create hundreds of billions of dollars to invest in our economy, rather than letting it pile up in a few bank accounts like a huge clot in our nation’s economic circulatory system.
Consider, for example, that a puny 3 percent surtax on incomes above $1 million would be enough to maintain and expand the current payroll tax cut beyond December, preventing a $1,000 increase on the average worker’s taxes at the worst possible time for the economy. With a few more pennies on the dollar, we could invest in rebuilding schools and infrastructure. And even if we imposed a millionaires’ surtax and rolled back the Bush- era tax cuts for those at the top, the taxes on the richest Americans would still be historically low, and their incomes would still be astronomically high.
We’ve had it backward for the last 30 years. Rich businesspeople like me don’t create jobs. Middle-class consumers do, and when they thrive, U.S. businesses grow and profit. That’s why taxing the rich to pay for investments that benefit all is a great deal for both the middle class and the rich.
So let’s give a break to the true job creators. Let’s tax the rich like we once did and use that money to spur growth by putting purchasing power back in the hands of the middle class. And let’s remember that capitalists without customers are out of business.
(Nick Hanauer is a founder of Second Avenue Partners, a venture capital company in Seattle specializing in early state startups and emerging technology. He has helped launch more than 20 companies, including aQuantive Inc. and Amazon.com, and is the co-author of two books, “The True Patriot” and “The Gardens of Democracy.” The opinions expressed are his own.)
To contact the writer of this article: Nick Hanauer at Nick@secondave.com.
(By the way, Morgan and Alan, I dare you to contact him and try to convince him that he’s wrong.)
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Well I can think of one major time, Morgan. It’s how we got out of the Great Depression.
That would be a good urban legend for an honest UL-debunking website to take down.
A good economy is one in which people prosper.
Any policy that says it’s not okay for people to prosper too much — is not going to do anything helpful for an economy. Not unless you first re-define what an “economy” is. I don’t know what progressives are describing when they use this word. I don’t think they know either.
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Well I can think of one major time, Morgan.
It’s how we got out of the Great Depression.
Now can you point to any real world examples where austerity measures got anyone out of a recession/depression?
Oh wait, Morgan, you can’t.
Can you point to any examples where cutting taxes on the rich stimulated the economy and didn’t cause massive deficits?
Again…no you can’t.
You can live in your conservative fantasy world all you want, Morgan, but at least have the grace to let us adults run the real world.
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Tired of having their talking points refuted by “reality” conservatives have decided that it simply had to be eliminated as a concept. This is about as useful as deciding the “reduce speed to X” signs on mountain roads mean X+20. You get away with it until there’s a little ice. Then there’s a short period of reflection followed by a loud noise.
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…tested many times in the real world.
How many times, exactly?
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