Among liberal economists, there is widespread belief that much more should be done to deal with high unemployment. Another fiscal stimulus is popular though everyone is resigned to the fact that it won't happen with the current Congress (and mute president).
Since fiscal policy is not an option, many liberal economists want more efforts on monetary policy. Granted, the federal reserve and Ben Bernake have been doing a lot, but to little effect on unemployment. What everyone seems to be saying then is that while the fed is meeting one of its two mandates (inflation) but not its other mandate (unemployment) it should do more towards the mandate it isn't meeting. The way to do this is the fed can relax its strict price stability goal and allow inflation to rise a bit in order to bring unemployment down.
The best articulation of how to achieve this is from Justin Wolfers and Betsy Stevenson. I won't explain it here, though it is very accessible so I encourage you to read it. Instead, I want to look at the things people site in opposition to doing this. There are some reasonable concerns.
First, Paul Volker, who broke the back of inflation during the early 1980s while Fed chair under Reagan, is worried that once you use inflation as policy, the expectations become ingrained. This makes it less effective as a policy in the future and also more difficult to control.
Ben Bernake echoes this when he talks about his reluctance to damage the feds reputation for price stability. If one time the fed diverges from its rigid price stability, the market will be less convinced of their price stability goals and therefore preventing inflation would be more costly.
The way Volker articulates it is more convincing. I think I still agree with Paul Krugman on this one - why worry about a potential problem in the future instead of the actual problem you have now? And yet the more I think about it, the more I wonder if it is dangerous in the long term.
Second, Ben Bernake also seems to think that any extra efforts by the Fed, whether it be QE3 or allowing inflation to rise, would cost a lot but get little in return. For example, letting inflation rise from 2% to 4% might only get a decrease of 0.25% in unemployment. I made up the numbers, but that is how I understand what he is saying. This one is really hard to argue against because I have not nearly enough economics training to say the models he is using are wrong. The best I can do is trust the many economists I read that think this isn't the case.
Third is general uncertainty. Paul Samuelson and Noah Smith make this point. We don't really know whether Volker and Bernake or Krugman, et al are right. Everyone has models. Some have a better track record than others (ie Krugman's liquidity trap), but even those we don't know for sure if they will continue to be right.
So there are real reasons to be cautious about more aggressive monetary policy. These issues all give me pause. I think I continue to lean towards doing more in the face of such terrible unemployment. But there are real risks and we should keep that in mind.
Saturday, May 19, 2012
Thursday, May 17, 2012
Debt and Deficits
I have written about debts and deficits before, but I want to put all of my thoughts on this in one post.
Republicans, including GOP candidate Romney, are making deficits and debt the big issue right now and are blaming Obama. There are so many things wrong with this.
First, the short term deficits are not Obama's fault. They are mostly the result of the recession and Bush policies (tax cuts and wars). One of the main drivers of current deficits and debt is the depressed tax revenue due to the recession. Also, spending has increased on safety net programs like food stamps and unemployment insurance, while much other spending is down (which is actually hurting the recovery). And of course the Bush tax cuts were not paid for and have contributed significantly to the debt.
In fact, the only thing you might blame on Obama is the stimulus and the bail outs. I don't know how much impact the bail outs have had, though Bush deserves as much of the credit for that as Obama. The stimulus was Obama's decision, and the right one. But this is a one-time expense, as opposed to what the Republicans are trying to say which is that Obama has grown government leading to continued deficits. The stimulus isn't that kind of spending.
These factors though are not long term debt problems. When the economy improves, revenue will increase and safety net spending will decrease. And there will be no more stimulus or bail outs.
But Republicans also make it seem like the debt problem is an immediate one. It is not. There is no risk from our current debt or deficits. We do have a different immediate problem - unemployment but Republicans do not seem interested in dealing with that. Maybe they will if they take over control of the government. Right now, they are happy to let unemployment continue so that it hurts Obama.
We do have a debt problem. However, it is in the long term. And it has nothing to do with the current factors driving our debt - revenue, safety net, etc. Instead, our long term debt problem is due to health expenses (medicaid and medicare) and maybe social security. Though to be fair, Republicans do have a plan to deal with that, though they achieve it by putting more costs on seniors instead of reforming health care.
Having said all this, Republicans are showing that they are using deficits to get gut government spending. If they were actually concerned about deficits, they wouldn't call for tax cuts. In fact, they might even call for some modest revenue increases (a truly balanced approach that the public supports). Instead, they are gutting government programs while also calling for tax cuts, making little progress on the deficit.
All of this means that Republicans, including Romney, are lying about the cause of the deficits, the timing on when the problem with the debt will affect us, and their actual intent on solving the problem. All of this is obvious and demonstrable.
And yet I have not seen an effective response from Obama or the Democrats. So instead, the public will think the deficits are Obama's fault, that deficits are an immediate problem, and that deficits can be solved with tax cuts. Awesome.
Republicans, including GOP candidate Romney, are making deficits and debt the big issue right now and are blaming Obama. There are so many things wrong with this.
First, the short term deficits are not Obama's fault. They are mostly the result of the recession and Bush policies (tax cuts and wars). One of the main drivers of current deficits and debt is the depressed tax revenue due to the recession. Also, spending has increased on safety net programs like food stamps and unemployment insurance, while much other spending is down (which is actually hurting the recovery). And of course the Bush tax cuts were not paid for and have contributed significantly to the debt.
In fact, the only thing you might blame on Obama is the stimulus and the bail outs. I don't know how much impact the bail outs have had, though Bush deserves as much of the credit for that as Obama. The stimulus was Obama's decision, and the right one. But this is a one-time expense, as opposed to what the Republicans are trying to say which is that Obama has grown government leading to continued deficits. The stimulus isn't that kind of spending.
These factors though are not long term debt problems. When the economy improves, revenue will increase and safety net spending will decrease. And there will be no more stimulus or bail outs.
But Republicans also make it seem like the debt problem is an immediate one. It is not. There is no risk from our current debt or deficits. We do have a different immediate problem - unemployment but Republicans do not seem interested in dealing with that. Maybe they will if they take over control of the government. Right now, they are happy to let unemployment continue so that it hurts Obama.
We do have a debt problem. However, it is in the long term. And it has nothing to do with the current factors driving our debt - revenue, safety net, etc. Instead, our long term debt problem is due to health expenses (medicaid and medicare) and maybe social security. Though to be fair, Republicans do have a plan to deal with that, though they achieve it by putting more costs on seniors instead of reforming health care.
Having said all this, Republicans are showing that they are using deficits to get gut government spending. If they were actually concerned about deficits, they wouldn't call for tax cuts. In fact, they might even call for some modest revenue increases (a truly balanced approach that the public supports). Instead, they are gutting government programs while also calling for tax cuts, making little progress on the deficit.
All of this means that Republicans, including Romney, are lying about the cause of the deficits, the timing on when the problem with the debt will affect us, and their actual intent on solving the problem. All of this is obvious and demonstrable.
And yet I have not seen an effective response from Obama or the Democrats. So instead, the public will think the deficits are Obama's fault, that deficits are an immediate problem, and that deficits can be solved with tax cuts. Awesome.
Tuesday, May 15, 2012
Where I Change My Mind on the Filibuster
Ezra Klein had a good piece on the filibuster today, and I think I have changed my mind. I don't think it is unconstitutional, as his piece suggests (instead, I am convinced by this piece at the Monkey Cage). What convinced me to change my mind is the point that the founders considered and dismissed the idea that legislation should require a super-majority.
In the past, I have felt that the filibuster helped prevent very Republican policies from being implemented. I have a good memory of the Bush years when Democrats needed and used the filibuster. I think it moderated, to a degree, Bush policies - and potentially moderated judicial appointments. Roberts and Alito are not moderates, but they are - or at least Roberts is - less conservative than people that could have and would have been appointed without the threat of a veto.
But I do think requiring a super-majority for legislation favors conservative causes generally - not because Republicans are bad people and use filibusters more frequently (the graph at Wonkbook doesn't show an obvious pattern - I would need to crunch the numbers to come to a real conclusion). Instead, I think it helps conservative causes because it prevents government action.
Conservatives more often want to prevent government from getting involved. In Robert Heinlein's science fiction book The Moon is a Harsh Mistress, one of the protagonists, a libertarian, makes a speech calling for the new lunar government to have high standards - super-majorities - for any law and low standards for erasing a law. I think that illustrates conservative views pretty well. Conservatives would be happy when in power to pass fewer laws and more importantly, when not in power to prevent laws from being passed.
So it is that I change my mind on filibusters. But I must say, there will be times, possibly as early as 2012 with a Republican president and Republican Congress and an abolished filibuster, that we will wish we had the ability to filibuster crazy conservative legislation.
In the past, I have felt that the filibuster helped prevent very Republican policies from being implemented. I have a good memory of the Bush years when Democrats needed and used the filibuster. I think it moderated, to a degree, Bush policies - and potentially moderated judicial appointments. Roberts and Alito are not moderates, but they are - or at least Roberts is - less conservative than people that could have and would have been appointed without the threat of a veto.
But I do think requiring a super-majority for legislation favors conservative causes generally - not because Republicans are bad people and use filibusters more frequently (the graph at Wonkbook doesn't show an obvious pattern - I would need to crunch the numbers to come to a real conclusion). Instead, I think it helps conservative causes because it prevents government action.
Conservatives more often want to prevent government from getting involved. In Robert Heinlein's science fiction book The Moon is a Harsh Mistress, one of the protagonists, a libertarian, makes a speech calling for the new lunar government to have high standards - super-majorities - for any law and low standards for erasing a law. I think that illustrates conservative views pretty well. Conservatives would be happy when in power to pass fewer laws and more importantly, when not in power to prevent laws from being passed.
So it is that I change my mind on filibusters. But I must say, there will be times, possibly as early as 2012 with a Republican president and Republican Congress and an abolished filibuster, that we will wish we had the ability to filibuster crazy conservative legislation.
So Unpopular, Yet Not
I have been driving myself crazy wondering how the Republican Party espouses such extreme and unpopular positions without paying a price. They opposed any efforts to give the economy a boost. They want to end medicare as we know it by turning it into a voucher program. They want to fix the budget imbalance with tax cuts only (even Republican voters want some balance).
The one thing they did a price over was the debt ceiling fight, though the only price is a low Congressional approval rating which may not turn into any real price at the ballot box. Think about that though - a party that controls one half of one branch of government (unless you add in the Supreme Court) is able to dictate demands on budgets by threatening not to increase the debt ceiling* and causing America to default on its debts. And it might do this twice. And still not pay by losing elections.
But Republicans don't pay a price because Democrats react so weakly. As a party, we are afraid to make bold but unpopular stands. And sometimes, if it is unclear what is popular or not, Democrats are afraid to say anything. And when Democrats do respond, it is gimmicky and unconvincing.
The democratic response so far to the budget debate was the Buffet Rule. Republicans are arguing that we need to only cut programs. Instead of showing how important government programs are, or reminding the public that the pain should be shared equally, Democrats propose a modest and symbolic tax increase. While Paul Ryan gets credit for being disingenuous about how his very real budget affects poor people, Democrats do nothing.
Republicans are presenting a very real, very ugly, and very unpopular vision of government. Democrats are largely sitting on the sidelines. This is why we might have a fully Republican budget in 2012. It is the Democrats own fault.
*I haven't commented on this before, though I have meant to. The debt ceiling is the most ridiculous Congressional invention. Congress passes a budget - voted on by both houses and signed by the president. Yet they also have a debt ceiling that restricts the level of government debt regardless of the budget just passed. So Congress can pass a budget that will clearly violate the debt ceiling, but the debt ceiling is still in effect - resting on the assumption that they will just raise it as a matter of course later.
In other words, they have to agree twice to spend the same money. Only Congress.
The one thing they did a price over was the debt ceiling fight, though the only price is a low Congressional approval rating which may not turn into any real price at the ballot box. Think about that though - a party that controls one half of one branch of government (unless you add in the Supreme Court) is able to dictate demands on budgets by threatening not to increase the debt ceiling* and causing America to default on its debts. And it might do this twice. And still not pay by losing elections.
But Republicans don't pay a price because Democrats react so weakly. As a party, we are afraid to make bold but unpopular stands. And sometimes, if it is unclear what is popular or not, Democrats are afraid to say anything. And when Democrats do respond, it is gimmicky and unconvincing.
The democratic response so far to the budget debate was the Buffet Rule. Republicans are arguing that we need to only cut programs. Instead of showing how important government programs are, or reminding the public that the pain should be shared equally, Democrats propose a modest and symbolic tax increase. While Paul Ryan gets credit for being disingenuous about how his very real budget affects poor people, Democrats do nothing.
Republicans are presenting a very real, very ugly, and very unpopular vision of government. Democrats are largely sitting on the sidelines. This is why we might have a fully Republican budget in 2012. It is the Democrats own fault.
*I haven't commented on this before, though I have meant to. The debt ceiling is the most ridiculous Congressional invention. Congress passes a budget - voted on by both houses and signed by the president. Yet they also have a debt ceiling that restricts the level of government debt regardless of the budget just passed. So Congress can pass a budget that will clearly violate the debt ceiling, but the debt ceiling is still in effect - resting on the assumption that they will just raise it as a matter of course later.
In other words, they have to agree twice to spend the same money. Only Congress.
Repeating Itself
I will admit that some of my criticism of Obama is based on hindsight - especially around the budget and economy. It seems clear to me that Obama should have talked about the economy way more and not spent as much time on budget deficits. But if I wanted to be more fair, I could recognize that at the moment, his decisions might have seemed like the right ones, even to me.
The problem is that Obama isn't learning from his mistakes. He is still not talking about the economy and instead is letting Republicans talk endlessly about budget deficits. If he learned anything, he would be out there every single day saying that we have an immediate and serious problem of unemployment and a potential long (or medium) term problem of deficits and debt. He would continue by saying that Republicans are ignoring the unemployment problem and pretending to be concerned about deficits so they can gut social programs - and somehow want to cut taxes at the same time.
My guess is that his hesitance is political. The election will be determined largely by the economy (though campaigns matter as well) and if voters think the economy is bad, the worse he will do. So he is doing nothing and hoping things outside his control make the economy improve. We'll see how that goes. Though if Europe has anything to say about it, that might be a disaster.
The problem is that Obama isn't learning from his mistakes. He is still not talking about the economy and instead is letting Republicans talk endlessly about budget deficits. If he learned anything, he would be out there every single day saying that we have an immediate and serious problem of unemployment and a potential long (or medium) term problem of deficits and debt. He would continue by saying that Republicans are ignoring the unemployment problem and pretending to be concerned about deficits so they can gut social programs - and somehow want to cut taxes at the same time.
My guess is that his hesitance is political. The election will be determined largely by the economy (though campaigns matter as well) and if voters think the economy is bad, the worse he will do. So he is doing nothing and hoping things outside his control make the economy improve. We'll see how that goes. Though if Europe has anything to say about it, that might be a disaster.
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