Paul Ryan, Back Asswards
"I think literally that if we raised the federal funds rate by a point, it would help push money into the economy."
In order to raise the fed funds rate, you have to actually remove money from the economy. Thanks, Paul Ryan, for proving that no Republican understands economics.
Recession and Fiscal Policy (but not Vice Versa)
Just for fun (click to embiggen):
The chart is total US government spending and deficit, as a % of GDP, since 1946. What I see there is a federal deficit that stays pretty constant - actually, declines readily - except in times of recession (and war - have a look at '02-'03 for a significant jump). Lesson? Recession-fighting may be the single most important element of responsible fiscal policy.
Wall-Marx, or, I Am An Economic Creationist
Don Boudreaux, via Bryan Caplan:
And It said "Let there be higher wages. And there was."
[...]
So why are so many people enthusiastic about statutes such as this one [the living wage]?
Proponents of such legislation are economic creationists. They do not grasp the fact that beneficial economic arrangements emerge - and emerge only - without being designed by an altruistic higher power (namely, government). Widespread prosperity and economic order are taken on faith as resulting from the conscious intercession of a sovereign superior whose incantations, ceremonies, and commands work miracles.
I gladly admit that I am such an "economic creationist." But what does that really mean?
It means that I am not a member of the cult of free markets. Whereas Boudreaux and Caplan are of the conservative school of thought and hold that economic progress is the only worthwhile measure of human progress, I believe that social progress is equally so - and, importantly, that it is often but not always the product of economic progress.
Instead, I subscribe to a Keynesian school of analysis that sees more than raw economic activity as its primary measure of well-being. Crucially, in addition to the productive, there is also a distributive element to economic activity. And unlike the Chicago school of analysis, I do not believe that free markets distribute economic product to maximum social welfare. Market failures - information and coordination efficiencies in particular - are pervasive in society and lead to perverse outcomes in some situations.
The market for labor is one of those situations. Particularly at the very lowest wage levels, potential employers have immense power over potential employees during the bargaining process, especially when unemployment is high and other candidates are plentiful. Potential workers are rarely able to form effective bargaining groups at that wage level, and so they receive the short end of the deal every time. The minimum or living wage is the classic case of good government standing up for a group which cannot organize to defend its interests against a more powerful group. Hence, its social efficiency is high, as it transfers dollars from an entity with low marginal utility of income (the employer) to one with high marginal utility (the employee).
There is also very little argument against its economic efficiency. In a standard bargaining process, we understand that there is a broad range of prices at which the arrangement would be beneficial to both sides. For a worker at around $7 per hour, we assume that Wal-Mart or whoever is making a profit off this employee - not at all unreasonable. So if the employee's value is, say, $15/hour or $20/hour, then there is considerable upside for a bargain to be struck without making the deal unprofitable or inefficient for either party. Hence, a minimum wage standard increases social welfare dramatically without reducing economic welfare by much (admittedly there will be a few marginal workers who may lose out, but that is sometimes the price of policy).
If that is "economic creationism", so be it. A world full of inefficiencies is also a world full of potential free lunches.
(Photo: L'Hibou)
The View From 1943
Michal Kalecki, 1943 (emphasis mine):
A solid majority of economists is now of the opinion that, even in a capitalist system, full employment may be secured by a government spending programme...
It may be objected that government expenditure financed by borrowing will cause inflation. [But] if the government intervention aims at achieving full employment but stops short of increasing effective demand over the full employment mark, there is no need to be afraid of inflation.
The entrepreneurs in the slump are longing for a boom; why do they not gladly accept the synthetic boom which the government is able to offer them? It is this difficult and fascinating question with which we intend to deal in this article.
The reasons for the opposition of the 'industrial leaders' to full employment achieved by government spending may be subdivided into three categories:
- dislike of government interference in the problem of employment as such;
- dislike of the direction of government spending (public investment and subsidizing consumption);
- dislike of the social and political changes resulting from the maintenance of full employment.
Every widening of state activity is looked upon by business with suspicion, but the creation of employment by government spending has a special aspect which makes the opposition particularly intense.
[The traditional importance of business] gives the capitalists a powerful indirect control over government policy: everything which may shake the state of confidence must be carefully avoided because it would cause an economic crisis. But once the government learns the trick of increasing employment by its own purchases, this powerful controlling device loses its effectiveness. Hence budget deficits necessary to carry out government intervention must be regarded as perilous.
[S]ubsidizing mass consumption is much more violently opposed by these experts than public investment. For here a moral principle of the highest importance is at stake. The fundamentals of capitalist ethics require that 'you shall earn your bread in sweat'—unless you happen to have private means.
But even if this opposition were overcome—as it may well be under the pressure of the masses—the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow.
[Capitalists'] class instinct tells them that lasting full employment is unsound from their point of view, and that unemployment is an integral part of the 'normal' capitalist system.
[...]
[Under fascism, the] dislike of government spending, whether on public investment or consumption, is overcome by concentrating government expenditure on armaments. Finally, 'discipline in the factories' and 'political stability' under full employment are maintained by the 'new order', which ranges from suppression of the trade unions to the concentration camp. Political pressure replaces the economic pressure of unemployment.
[...]
It may be shown, however, that the stimulation of private investment does not provide an adequate method for preventing mass unemployment ... the rate of interest and income tax would have to be reduced continuously.
It looks at present as if business leaders and their experts (at least some of them) would tend to accept as a pis aller public investment financed by borrowing as a means of alleviating slumps. They seem, however, still to be consistently opposed to creating employment by subsidizing consumption and to maintaining full employment. This state of affairs is perhaps symptomatic of the future economic regime of capitalist democracies.
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business—as a rule influential in government departments—would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow....
Should a progressive be satisfied with a regime of the political business cycle as described in the preceding section? I think he should oppose it on two grounds: (i) that it does not assure lasting full employment; (ii) that government intervention is tied to public investment and does not embrace subsidizing consumption. What the masses now ask for is not the mitigation of slumps but their total abolition. Nor should the resulting fuller utilization of resources be applied to unwanted public investment merely in order to provide work. The government spending programme should be devoted to public investment only to the extent to which such investment is actually needed. The rest of government spending necessary to maintain full employment should be used to subsidize consumption (through family allowances, old-age pensions, reduction in indirect taxation, and subsidizing necessities). Opponents of such government spending say that the government will then have nothing to show for their money. The reply is that the counterpart of this spending will be the higher standard of living of the masses. Is not this the purpose of all economic activity?
(Photo: Tony the Misfit)
Campaign Cash
I included only the highest-raking candidate from each party, and counted Charlie Crist as a Democrat. Democrats have the cash-on-hand edge, but the GOP is catching up (source):
Cash, however, is not always the cause of electoral success - often it is simply an indicator of how things are already going. More on that later.