Thursday, May 26, 2011

Traveling to Antiquity

The other day we caught Bettany Hughes' documentary Helen of Troy on PBS, based on her book of the same subject. Troy was founded in 3,000 B.C. in what is modern-day Turkey, and Hughes travels around the country to get some historical context. Anatolia is the site of the ancient capital of the Hittite empire, of which modern archaeology has discovered quite a bit-- including detailed records. I hope to visit the Museum of Anatolian Civilizations when I visit the area this week. Living in and exploring places where around every corner is a remnant of an ancient civilization is quite appealing to me. To have a paying job there would be my dream come true. I hope to find some way to call those ancient places "home," but God's will on the issue remains to be revealed.

My family knows and understands this. I love them very much, and will miss them very much next week. One way to say "goodbye" in Turkish (by the person who is departing) is "Allaha ─▒smarlad─▒k," which means "I leave you in God's care." That's what I pray for my family as I go.

Book Review (#10 of 2011)

Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations by Paul Krugman (1995). This book and the previous one I reviewed were not read with an e-reader, and it's a shame because I would have liked to have highlighted passages for easy copying & pasting here as I can with a Kindle book. I have now sold just about every book I own that is available as an ebook somewhere.

Early Krugman is remarkable for his bi-partisan criticism and attempts to give his opponents some benefit of the doubt. Krugman is basically dealing with three issues in this book:
1. The Great Stagnation of productivity since 1973 (see posts below).
2. Republican economic snake oil in the 70's and 80's.
3. The experiences of conservatives in power in the U.S. and the U.K. in the 1980s (and the beginning of the European common currency).
4. New economic thinking in the realm of trade and development in the 1980s.
5. Democrat economic snake oil in the late 80's and early 90's.

Krugman makes the point that how well or badly (depending on how you look at it) the economy performed in the 1980s and early 90's had almost nothing to do with the Reagan administration. Presidents and congresses don't determine the resources, capital, and technical knowledge a society possesses, and the Fed had more to do with the fluctuations in the 80's.

Krugman is concerned "policy entrepreneurs" took sound conservative theories from Milton Friedman, Martin Feldstein, and Robert Lucas and warped them into politically potent snake oil of "supply-side" economics. Much of what Krugman wrote in 1994 could have been written in 2011 (and indeed has been repeated by him ad infinitum). He is upset at Republicans for not better policing themselves in this regard.

Krugman also blasts Robert Reich and other Democrats that he calls the "strategic traders," who advocate a sort of industrial policy toward U.S. manufacturing. He criticizes Clinton too, for Clinton was a policy wonk that was deep in the weeds on this stuff. These policy entrepreneurs took the ideas of Krugman and other trade theorists of the early 80's and warped it into some mishmash about globalization and competitiveness. Great quote:

"If you hear someone say something along the lines of 'America needs higher productivity so it can compete in today's global economy,' never mind who he is, or how plausible he sounds. He might as well be wearing a flashing neon sign that reads: 'I DON'T KNOW WHAT I'M TALKING ABOUT.'"

Krugman's data-driven analysis is great, it makes me want to re-read some of his columns to see if he's not majorly contradicting himself these days.

Krugman's remarks on the Thatcher experience are rather crass, IMO. He notes that the U.K. had a productivity jump that the U.S. didn't have, but doesn't think it was necessarily because of the privatization and de-regulation pushed by Thatcher. He's critical of how that process was handled. This is a good book to read parallel with Commanding Heights because Krugman has a different take on the Reagan/Thatcher revolution.

He also bemoans the European experiment to create a common currency. Only Krugman would claim that Finance Ministers and economists from Europe could get together and agree on a course of action when none of them know what they're talking about. (This is a common Krugman remark).

Basically, Krugman states that the Reagan Administration was responsible for three things:
1. Cutting marginal tax rates, particularly for the top income earners.
2. Increasing government spending and the debt/GDP ratio.
3. Maybe the huge increase in income inequality between top and bottom (but this was seen all over the world...)

Krugman notes that the top marginal rates were probably too high, but still criticizes the cut as a politician would -- the tax cut benefited the rich more than the poor. But when you have a 70% MTR that needs to be cut, it's politically impossible because you can't cut the MTR for the lower-income earners by the same amount--and Krugman ignores that in his critique.

Krugman also points out that the deficits/debt that the Reagan years acquired weren't a drag on the U.S. economy, probably shaving only 3% off of what GDP would have been from 1980-1990. But the way the Administration cut investment spending in response to the deficits may have had other long-term effects.

It's hard to look at the data Krugman presents and say "Reagonomics is horrible," and Krugman never makes that claim-- he's simply blasting the supply-siders who claim that "Reagonomics solves all of our problems and creates magic increases in productivity" without any evidence to back it up.

I recommend this book highly, and would use it in certain classes without hesitation. 4 stars out of 5. More international perspective/context would have been better. To see how Krugman hasn't really changed all that much, read this recent column about him in New York Magazine.

Tuesday, May 24, 2011

Praying about the weather

Everyone has seen the devastation in Joplin, MO this week. Today the area (we're about 100 mile drive from Joplin) is forecast to have another "tornado outbreak." Everyone tweets about praying for Joplin, but how do we pray about the weather? Praying that a storm would "miss" or "avoid" a certain area means you're praying for the storm to hit other people, and I don't think many praying people realize that. Al Mohler, President of Southern Baptist Seminary, wrote a blog post about this a few years back, and I find it helpful (emphases mine):

"Why would God allow (tornadoes)? The fully satisfying answer to that question is known to God alone. But we do know this much – every atom and molecule of creation testifies of God’s glory, reveals His power and nature, and stands under the Lordship of Jesus Christ. God is not a divine spectator, watching planet Earth unwind and revolve...God remains the sovereign over all His creation.
"How should we pray? Well, we must not pray that the storm would avoid us, only to go elsewhere and harm others. I wonder if many Christians are listening to themselves when they pray storms upon others and claim an answer to prayer when the devastation moves elsewhere. This is unworthy of our Lord’s command that we are to love others even as we love ourselves. We must certainly pray for our loved ones, but we must also pray for those we do not know and will never meet on earth. Perhaps we should pray as Jesus taught us, praying that the Father’s will would be done, that all persons would be spared harm, and that Christians would respond in the aftermath of disaster with a clear Christian witness of care, assistance, and witness. We should pray that any ‘natural’ disaster would be an opportunity for Christian witness to the supernatural Gospel, and for Christian reflection on the beauty of the Savior. Remember this: Nothing can separate Christians from the love of God. Not (tornadoes), not pestilence, not even death."


Update: Mark 4 was part of my Bible reading today, and it gave me what to pray:
36Leaving the crowd, they took Him along with them in the boat, just as He was; and other boats were with Him. 37And there arose a fierce gale of wind, and the waves were breaking over the boat so much that the boat was already filling up. 38Jesus Himself was in the stern, asleep on the cushion; and they woke Him and said to Him, "Teacher, do You not care that we are perishing?" 39And He got up and rebuked the wind and said to the sea, "Hush, be still." And the wind died down and it became perfectly calm. 40And He said to them, "Why are you afraid? Do you still have no faith?" 41They became very much afraid and said to one another, "Who then is this, that even the wind and the sea obey Him?"

My prayer is for God's will to be "Hush, be still. "

Friday, May 20, 2011

Great Stagnation, continued

PBS NewsHour just did a segment on Tyler Cowen's Kindle Single, The Great Stagnation, which I reviewed here. I highly recommend watching it as Cowen is a beast.

A great mystery in economics is what happened in 1973 to derail us off the growth rate of potential output that the U.S. had seen since WWII. Potential output is determined by real factors of production -- human and physical capital, natural resources, and technical knowledge. While the trend has still been upward, it has not been at the same high rate. Cowen argues that the U.S. had basically picked all the "low-hanging" fruit (as described in my book review linked above) by the 1970s.

David Beckworth creates the nice graph of Total Factor Productivity illustrating what Cowen is talking about:
Note that we've had plenty of recessions since 1947, but those didn't have great effect on U.S. productivity growth. Populations grow and people keep learning and inventing things during recessions, etc.

Hypotheses abound about the Great Stagnation, but no one is certain. As previous post commenters have linked to, "supply-siders" argued that the stagnation problem could be solved purely by deregulation and lowering tax rates. Retrospectively, Peter Ferrara, Art Laffer and other Reagan mythologists argue that they actually solved this stagnation problem in the 1980s. Look closely at the graph for the effects the Reagan Revolution had on U.S. productivity. How about the similar Bush tax cuts on income and saving? See it? ("What do the data say?")

The truth (and my point) is that Congress, the President, the Fed, and political parties don't have much, if any, effect on U.S. economic productivity. They can help us better utilize capacity that we have, but not the magnitude of the actual capacity.

Strong Dollars and Bad ("Supply-Side") Economics

Conservative (academic) economist David Beckworth wrote a brief post in response to GOP leaders like Rep. Paul Ryan who are calling for "strong dollar" policies and a revival of talk of gold standard. "Hard Money Advocates are Their Own Worst Enemy." His basic point:

If you want our government to move from fiscal irresponsibility to responsibility, the only way to offset the huge decrease in output and surge in unemployment is through looser monetary policy. You can't have both "hard money" and "hard fiscal policy" at the same time without a massive recession.

A blogger at the Cato Institute recently wrote that the U.S. should do as Estonia did and massively cut government spending in response to its recession where the drop in tax revenues was creating deficits. Estonia is a "hard money" country with a currency board that operates almost identically to a gold standard. It eliminated its deficits via spending cuts to the tune of 14% unemployment(interestingly not mentioned by the Cato blogger).

Tightening the money supply, particularly now, would be akin to the mistake of 1937.

The "strong dollar = economic growth" argument has been around since the dawn of "supply-side" Republican thinking in 1973. This is perhaps why Paul Ryan and others have commented on the exchange rate. In 1973, Art Laffer argued that de-linking the dollar's exchange rate value from gold was the cause of double-digit inflation. (They then ignored all the other causes of the inflation.) We've since cured inflation without reinstating the Bretton Woods gold system, but the unsubstantiated claims have arisen again.

For example, the Republican Joint Economic Committee recently issued a report allegedly showing the relationship between the exchange rate value of the dollar and oil prices. The logic is basically "Since oil is priced in dollars and the Fed is printing more dollars, oil and gasoline cost more." This report was then relayed through the media as truth. However, well-known international macroeconomist Menzie Chinn took the JEC study apart on his blog. Chinn demonstrates how the authors would receive an "F" from any competent professor. Decades of econometric research has failed to make the link that the JEC study purportedly shows so simply. The JEC study is akin to me saying "as ice cream sales in the U.S. rise, so do car thefts. Hence, ice cream sales must cause car thefts." A multivariate model would quickly expose that the relationship is rather spurious-- there is something else (higher temperatures) driving both ice cream sales and car thefts (people leave their windows down when they park their cars). The JEC authors ignore the other causes of increases in oil prices-- namely good old supply and demand.

So, it appears to me the JEC authors are motivated by the same spurious argument about "strong dollar" policy.

Here's a graph of the (trade-weighted) exchange value of the dollar, measured against major foreign currencies:
We can see the dollar depreciated most rapidly after reaching its peak during the glory years of the Reagan administration. Reagan's Treasury Secretary, James Baker, roundly ignored the supply-siders pleas during the 1980s. In fact, the Plaza Accord under Reagan was all about intentionally devaluing the U.S. dollar. It depreciated even more during the Bush administration, but I don't remember Paul Ryan and others having qualms about it at that time. We've only now just reached the low we had reached before the Great Recession.

But it's not clear from the graph above why a "strong dollar" matters to the U.S. and to "supply-siders" so much. Perhaps it matters to foreign savers who buy U.S. bonds, as those dollar interest payments have become worth less in their own currencies. It matters to those in the U.S. importing foreign goods which are now more expensive. But it is also boosting U.S. manufacturing as the goods we produce cost less for foreigners to buy.

In fact, if the U.S. boosted its savings rate relative to other countries'-- which supply-siders are keen on-- standard economic theory says that the real exchange rate value of the dollar would have to depreciate. (You can't have lower real interest rates and a stronger dollar.) This is a contradiction of strong-dollar ideology that I don't think "supply-siders" reconcile at all.

It's not clear to me what logic, scientific evidence, or economic model Paul Ryan and company are basing their attacks on. The Federal Reserve is responsible for regulating the money supply, and when demand for money is high, as it is currently, it's the job of the Fed to increase supply in order to avoid recession. It's incorrect to claim that the exchange rate depreciation of the dollar is the sole cause of higher oil prices.

Wednesday, May 18, 2011

Book Review (#9 of 2011)

The Pursuit of God by AW Tozer (free PDF). This book is shorter than a Kindle Single, but I will call it a "book" anyway. I was using it as part of a discipleship time with a younger guy who is going overseas this summer. I treated each chapter/essay as sort of a daily devotional and found it very convicting, uplifting, and humbling. (I used GoodReader on the iPad for this as it gives you plenty of options for note-taking, highlighting, etc.).

Tozer is a pastor writing in the 1940s. He applauds the church's return to Scripture but bemoans the unintended side-effects:
"Thanks to our splendid Bible societies and to other effective agencies for the dissemination of the Word, there are today many millions of people who hold 'right opinions,' probably more than ever before in the history of the Church. Yet I wonder if there was ever a time when true spiritual worship was at a lower ebb. To great sections of the Church the art of worship has been lost entirely, and in its place has come that strange and foreign thing called the “program.” This word has been borrowed from the stage and applied with sad wisdom to the type of public service which now passes for worship among us."

Worship and Spirit-filled living are more than preaching and learning, it's about seeking God in all we do:
"How tragic that we in this dark day have had our seeking done for us by our teachers. Everything is made to center upon the initial act of “accepting” Christ (a term, incidentally, which is not found in the Bible) and we are not expected thereafter to crave any further revelation of God to our souls. We have been snared in the coils of a spurious logic whcih insists that if we have found Him we need no more seek Him."
Tozer's words on humility, meekness, holding possessions loosely, and emphasizing the emotional aspects of worship (as opposed to purely mental) were very timely for me. He closes each chapter with a very tough prayer. For example:
"Be Thou exalted over my reputation. Make me ambitious to please Thee even if as a result I must sink into obscurity and my name be forgotten as a dream."


His closing chapter is based on 1 Corinthians 10:31 and is aimed at the false dichotomy of secular and sacred. This is a very key point for those involved in a "business as missions" mindset. Whatever we do, wherever we work, whatever task we're assigned, we can worship as we do it. Work is worship. Some jobs are not as important as others, and we're not all equals in the tasks, but all jobs (and meals, and commutes, and diaper changes, and breaths, etc.) can be worship. I love how Tozer puts it:

"Paul's sewing of tents was not equal to his writing an Epistle to the Romans, but both were accepted of God and both were true acts of worship. Certainly it is more important to lead a soul to Christ than to plant a garden, but the planting of the garden can be as holy an act as the winning of a soul."
The “layman” need never think of his humbler task as being inferior to that of his minister. Let every man abide in the calling wherein he is called and his work will be as sacred as the work of the ministry.

His closing prayer:
"I want to live so fully in the Spirit that all my thought may be as sweet incense ascending to Thee and every act of my life may be an act of worship."

5 stars out of 5.

Tuesday, May 17, 2011

Book Review (#8 of 2011)

(I won't post a review for Book #7, but I did read a Book #7).
Matt Yglesias' Heads in the Sand: How the Republicans Screw Up Foreign Policy and Foreign Policy Screws Up the Democrats.

Yglesias turns 30 this week, which means this book was written when he was 26-27. How could a 26 year old know anything? There's a reason that Yglesias' blog is widely read and widely praised on right and left-- he's got a very good sponge for a brain. He mostly posts on economic and (domestic) public policy, but this book is entirely foreign policy-- namely, Iraq. Fiasco (my review) is still the must-read book on the Iraq disaster from the inside, but Heads in the Sand is great on a look at the public politics of the time.

Yglesias is bemoaning the neoconservatives' march to Iraq invasion, and how "liberal hawks" changed their ideology to go along. How a Left who had lost its moorings on foreign policy got trounced politically in 2004.

The author doesn't spend much time examining the roots of neoconservatism, only really examining how liberals adopted similar stances to it after the Persian Gulf War (1991), Bosnia/Kosovo (1999), and, more dramatically, 9/11. His citations read like my RSS reader, looking mostly at the arguments being made via influential print media and working papers by think tanks. He examines speeches by various liberal politicians to show their lack of coherent opposition to neoconservative doctrine of American hegemony. How Howard Dean was ostracized as a left-wing nut, when he was right all along about the Iraq war. John Kerry and other candidates in 2004 were feckless in how to respond to Bush on Iraq and got roundly trounced. Leading candidates in 2007 were making similar errors, but I think Obama has basically fulfilled much of what Yglesias prescribes for the next POTUS.

I think the krux of his book is found on Pg. 187:
"Bush looked at the accumulation of agreements, treaties and institutions that had built up during the Cold War and the Clinton years and saw a United States that had unduly constrained itself...acting from the beginning to...shed international obligations in the belief that U.S. military supremacy could...remake the world. Simply put, it didn't work... [Bush's] embrace of militaristic nationalism has not brought democracy to the Middle East and has not frightened Iran or North Korea out of conducting nuclear research [, etc.]... [T]he United States...cannot effectively tackle large problems except in cooperation with others and cannot secure that cooperation unless it acts in ways that other nations recognize as compatible with their own interests. A foreign policy that accepts more constraints on what we may try to do is likely to broaden the range of things we can actually do."

I lived in a Muslim country in 2003 and remember the run-up to war, listening to Colin Powell's UN speech over a worldband radio and thinking "These guys really believe Iraq is a threat, so I guess I have to trust them. They have more information than anyone else." I also read Tom Friedman's Longitudes and Attitudes, written around that time. Friedman was a liberal hawk who just wanted the Bush Administration to be forthright about invading Iraq to set up a democracy rather than using WMD as the excuse. Yglesias never mentions Natan Sharansky's The Case for Democracy, which President Bush and Condie Rice were publicly pushing at the time, and basically argues that non-democracies should be confronted with force.

Neocons today argue that Iraq the Model helped spawn the Arab Spring-- seeing Iraqis go to the polls and have great democratic freedoms inspired Tarhir Square, for example. Yglesias responded recently in this post:
"Trying to achieve this by invading Iraq and getting hundreds of thousands of people killed and displaced, rather than just using our financial leverage over Egypt to press for fair elections, was nuts. But here we are."
I think Yglesias might support an argument (mine) that already-observing existing democracy and secularism in an economically expanding Islamic Turkey along with greater interconnectedness through social media combined with certain key events, like Wikileaks' exposing how corrupt and comical people like Hosni Mubarak were to the general public, helped push change along--not the multi-trillion dollar Iraq fiasco. The U.S. abandoning its pursuit of Bin Laden and invading Iraq did little but solidify Muslim suspicions of U.S. intentions and probably fueled their own nationalism. Perhaps the U.S.-led invasion helped solidify the peoples of Egypt, Yemen, Syria, and Bahrain against their governments, but in a very unintended way.

I give this book 4 stars out of 5. I think Yglesias' neglect of Sharansky's obvious influence was glaring, as well as the rise of Blue Dog Democrats in Red states that pandered to the religious base-- the Christian Right was overwhelmingly pro-war-- which deserves mention in the politics. But Yglesias' elucidation of what a liberal foreign policy should be was very helpful to someone like myself. I am pretty squarely in line with Yglesias' outline.

Monday, May 16, 2011

Paging Mitch Daniels...

I remember in 1999 there was a gubernatorial race in Kentucky where the fairly unpopular Democratic incumbent was running for re-election, and the Republican party never really put out an official candidate against him. The woman who ran on the GOP ticket didn't have the endorsement of any major party official and was considered to be an embarrassment. The actually crazy erstwhile third-party candidate, Gatewood Galbraith, got about as many votes as she did, running on a platform of little else other than the legalization of marijuana and industrial hemp. (Voter turnout was quite low).

This reminds me of the current Republican primary situation in the absence of Mitch Daniels. The front-runner, Mitt Romney, spent last week getting blasted by the Wall Street Journal and National Review for his flip-flopping around about healthcare reform and individual mandates. Nevermind that in the past Tim Pawlenty and Newt Gingrich also previously supported mandates, and that Paul Ryan admits his own plan for Medicare reform implicitly includes an individual mandate. The political left also wants to inflict the Al Gore problem on Romney. The two leading conservative media organs have pronounced Mitt Romney unfit to lead in an extremely critical campaign area-- so who's left?

If you saw Newt Gingrich on Meet the Press yesterday, it was pretty clear why he's unfit for office. David Gregory had an easy time needling him about his personal life-- his extramarital affairs and three marriages. Tom Coburn was quoted as saying Newt was the last person in America he'd vote for-- ouch. Rough paraphrasing by me:
Gingrich: "I've made mistakes in my past, but I've matured since then."
Gregory's comeback: "You were 55 years old when you resigned in disgrace and married a woman you had an extramarital affair with after your wife was diagnosed with MS. Voters are supposed to believe you weren't mature then??"
Gingrich: "I hope voters will judge how great my current marriage is. I've asked God for forgiveness and reconciliation."

Ron Paul, meanwhile, is busy talking about how the only reason anyone uses heroin is because it's illegal and how the free market would have ended slavery and discrimination without the Civil War or the 1964 Civil Rights Act. But of course it has nothing to do with the fact that he's a racist, right? But Paul generates grass-roots support among Tea Partiers and even college students that the other current candidates do not. He's like the Gatewood Galbraith of this election.

I'm eagerly hoping that Mitch Daniels is strategically sitting back watching these guys destroy themselves before pitching his hat in the ring to save the party from itself. I've been saying this for a while now, but if Mitch Daniels isn't on the GOP ticket, I won't vote for it. And I suspect most non-Southern and centrist Republicans and independents probably won't either. I have no doubt that everyone from David Brooks to Tom Coburn to the Koch Brothers are calling Mitch's office daily.

I also have no doubt that if he does drop his hat in the ring, his InTrade value will skyrocket.

Run Mitch, run!

The market (via InTrade) current predicts that Obama will remain President but have to contend with a GOP-controlled House and Senate in 2012. I think that could actually be fantastic as well.

Friday, May 13, 2011

Reagan Mythology- Cartoon Edition

Blogger apparently crashed this morning and deleted this post. I'm posting it again. Mike Huckabee has apparently started producing some childrens cartoons retelling conservative stories. Here are previews of ones dealing with Reagan. You will either find it creepy, or funny, or both:

Notice how clearly Reagan explains the economic ills of his day in this one. His solution also original-- "vote for me:"

Wednesday, May 11, 2011

Strategery

In order not to seem like I'm bashing all forms of popular conservatism, here is a Cato Institute piece I really like entitled "How Bush Lost Bin Laden." (Cato is a libertarian "think tank," for those unaware.) I agree with every word of it, and then some.

Tuesday, May 10, 2011

More Reagan myth debunking

In the comments on my previous post, Ken linked to an article containing even more unsubstantiated claims and mythology of Reaganomics-- that Reagan's tax cuts singlehandedly lowered inflation, boosted productivity, and gave us 25 glorious years. The problem is that the data disagrees.

1. You can't decrease inflation by increasing the deficit, which Reagan did. Inflation in the long-run is determined almost completely by the growth rate of the money supply. The author sort of acknowledges this, but not exactly.

2. Via Paul Krugman, who did a series debunking Reagan myths a couple years ago:
Growth in per capita real GDP from 1950 to 1980: 2.2 percent per year.
Growth in per capita real GDP from 1980 to 2007: 2.0 percent per year.

Growth in median real family income from 1950 to 1980: 2.3 percent per year.
Growth in median real family income from 1980 to 2007: 0.7 percent per year.

Growth in labor productivity from 1950 to 1980: 2.3% per year.
Growth in labor productivity from from 1980 to 2007: 2.0% per year.
The greatest growth in productivity in America took place after WWII, at a time when the top marginal tax rate was in the range of 70-90%. (Kennedy cut it after Eisenhower would not, ironic!). There was a pickup in labor productivity in the mid-1990s. But this, of course, was after Clinton raised taxes which, following the Reagonomics authors' logic, should never happen. I'll let Krugman snark on this point.

The overall point that Ken wants to highlight is that Obama and Reagan have differing views of government. I agree. But conservatives/neoliberals who want to highlight this shouldn't peddle mythology that Reagan proved that cutting marginal tax rates automatically boosts productivity. They deceitfully neglect to point out high rates of economic growth during times of higher marginal tax rates. My point about Ferrara's Forbes Magazine piece was that he also neglects to mention the number of times Reagan increased taxes, including the payroll tax, and the ways he boosted the overall level of government spending and size of the federal work force.

Tyler Cowen would argue a la The Great Stagnation that the 1950s & 1960s saw the productivity gains because America was still picking the "low-hanging" fruit-- integrating its work force both racially and in gender, increasing human capital (GI Bill and the like), and experiencing the positive externalities of some of the "big" discoveries-- like the computer. But, that fruit was mostly picked by the 1970s-- it wasn't Reagan's fault that productivity was still pretty stagnant after his policies. But it's to his followers' discredit that they believe the myth that it somehow grew at a record pace.

Friday, May 06, 2011

Debunking Reagan Mythology - Forbes Magazine and Peter Ferrara edition

A friend's blog linked to this piece by Peter Ferrara in Forbes Magazine that is so full of omissions and mythology I have to think the editors at Forbes just say "What's the nuttiest right-wing thing we can think of to print today?" Other conservatives smarter than myself have pointed out that Forbes has gotten pretty nutty, and harmful to the conservative (or neoliberal, as many prefer) cause.

In short, Ferrara claims that Reagan delivered to us 25 of the greatest years in the history of the planet. He was a tax-cutting, de-regulating, inflation-fighting machine whose policies are "exactly the opposite" of President Obama's. Anyone can arrange "facts" to say what they want, like Ferrara does.

Reagan did inherit an economic mess, namely the problem of high inflation. But it was Jimmy Carter's Fed appointment- Paul Volcker, who Ferrara refuses to mention by name-- that did the inflation-fighting and induced the deepest recession since the Great Depression. Once that dragon was slain, the Fed was able to loosen its grip on the money supply, and the economy took off.

Perhaps the biggest contributor to the economic growth of the 1980s was the dramatic decrease in the price of oil. The inflation-adjusted price of oil fell from $99.11 in 1980 to $28.70 by 1986.

That's a huge supply-side boost that had nothing to do with monetary policy (and the inflation rate during this period was well above our current rate--another omission by Ferrara). It had more to do with the end of OPEC embargoes and the fact that Reagan cozied up to Saudi Arabia to break the cartel's hold. One can argue this point as a benefit of Reagan, but the fact that the Saudis use the money to build Wahabbist mosques that influenced Saudi terrorists to commit 9/11 and still indoctrinate jihadists in Afghanistan and Pakistan tend to suggest this was not a good long-run decision for America.

Ferrara seems bent on purporting the myth that Reagan was the Deregulator in Chief. Reagan did indeed deregulate, but the process of deregulation was initiated by Gerald Ford, and most of the heavy lifting was done (very ironically) by the Carter administration. Most of the deregulating was already done well before Reagan.

Ferrara trumpets the Reagan tax cuts without mentioning that Reagan actually signed tax increases into law in 7 of his 8 years in office. Why? Because of the yawning deficits caused by tax cuts that David Stockman and Art Laffer promised us would "pay for themselves" (the "magic asterisk"). I outsource to Brian Goldsmith of The Atlantic:

In 1982 alone, (Reagan) raised taxes twice, including the largest peacetime tax increase in American history. He raised payroll taxes, gas taxes, and corporate taxes. In fact, Reagan raised taxes every year he was president but the first and the last. He also raised spending by nearly a quarter in real terms -- more than double the increase under President Clinton. He added a new Cabinet department (Veterans' Affairs). In all, Reagan grew the federal civilian workforce by about 200,000... The national debt skyrocketed from $700 billion to nearly $3 trillion. And, as Michael Kinsley has written, "[the Democratic] Congress did not force Reagan to spend all this money. His total budget requests exceeded the amounts Congress appropriated."
I find it interesting that Ferrara omits that Reagan signed the payroll tax increase into law because of projected shortfalls in Social Security and Medicare. Ferrara now blasts Obama for wanting to do the same. (Do you get the drift, here?) Reagan tripled the federal deficit.
While Reagan's worshipers blame the deficits on a Democratic Congress, the data say otherwise.

The 1986 tax reform that Ferrara points to as a Reagan achievement was in no doubt initiated by Reagan's Treasury but much of the credit goes to Bill Bradley and other Democrats in Congress for writing the final legislation. This is pointed out in Alan Blinder's Hard Heads, Soft Hearts (my review).

Worse, Ferrara seems to think the 25 glorious years would have been uninterrupted in 1990 without those silly Bush tax hikes. Those were due to the yawning structural deficits the Reagan administration left.

Many Reaganites credit the dramatic U.S. GDP growth in the 1990s to Reaganomics. Alan Greenspan, a Reagan friend, credits it more to Bill Clinton and Congress raising taxes to balance the budget, causing long-term interest rates to fall and allowing the Fed to support a boom. I don't believe either, but to claim it was all somehow due to Reagan is a huge stretch. Let's credit China and India's growth to Reagan, too. It's just as plausible with the "facts" Ferrara uses.

Most sad is Ferrara's choice to use Art Laffer's 2008 book to argue that the 25 glorious years created immense wealth. What happened to that wealth in 2008 and 2009? The wealth accumulated from the mid-1990s disappeared. Remember that Art Laffer back in 2006 was claiming that there would be no recession, that housing prices would never fall (see him at the 1:18 mark).

Reagan also granted blanket amnesty to 3 million illegal immigrants and his administration illegally funneled weapons to Iran, while at an earlier point also funneled weapons of mass destruction to Saddam Hussein to fight Iran. Not very helpful for the American long-run.

There are reasons that progressives I know think that conservatives are blatantly dishonest, and Reagan mythology is one of them. I know Peter Ferrara has to know all of the above about Reagan. Ferrara likely seethes that Reagan raised the payroll tax to pay for Social Security because Ferrara wants to destroy Social Security. The problem is, smart conservatives keep calling him out on his bad math.

Tuesday, May 03, 2011

Book Review (Kindle Single) - The Great Stagnation

Tyler Cowen's The Great Stagnation was the conversation-leader at the beginning of the year. Everyone read it, wrote columns about it, or blogged about it. Pundits still refer to it and debate it quite often. If I were assigning a book for students or faculty or policy makers to read and discuss, this would be at the top of the list.

Cowen's hypothesis is that much of the U.S.'s growth in the last 200 years has been by picking the "low-hanging" fruit:
1. As U.S. expanded westward, it acquired more resources ("free land").
2. Women and minorities gained acceptance and entered the workforce. Uneducated populace became more educated in 20th century.
3. There were gains in technology that had positive externalities.

#1 and #2 have basically peaked. We've also seen declines in high school graduation rates since the 1960s. So, we appear to have pretty much gotten the benefit of increased labor force participation and society-wide education. #3 just isn't happening like it did during the Industrial Revolution. Cowen argues that while the internet makes us more productive, it doesn't get us the GDP growth we expect. Facebook, Twitter, Apple, etc. are putting out great innovations, but these aren't creating many jobs or income (GDP). One could argue that iPods have destroyed as many jobs as they have created. Cowen is libertarian-slanted, so he doesn't gripe about this-- he's simply pointing out that if we're expecting a high rate of GDP growth we're setting ourselves up for huge disappointment.

"Life is better and we have more stuff, but the pace of change has slowed down compared to what people saw two or three generations ago."
So, Cowen notes that we're consuming less and focused more on emotional, spiritual happiness. The internet makes us very happy very cheaply, which means when we lose our jobs or lose income, we may be slightly more content and accepting of that. Median wages have stagnated.

The funny thing is, getting away from materialism on such a large scale—whatever the virtues of that switch—really, really hurts. It is the hurt that we in America are living right now.


Why it matters:
If the government expects GDP to grow at a 4% rate over the next 50 years in making its calculations about how much tax revenue it will has to spend, and instead we get something like 1% growth, interest rates will go up and we'll have overbuilt various sectors. Retirees won't see their stock portfolios grow like they'd like and may have retired too early.

Cowen makes the empirical point:
"The larger the role of government in the economy, the more the published figures for GDP growth are overstating improvements in our living standard...For better or worse, we used a lot of this new low-hanging fruit to build big government. Big government was one of the final creations from these new technologies."
We're all going to be disappointed. Cowen points to Japan's two "lost decades" as an example of a wealthy country managing economic stagnation without coming apart at the seams, and suggests we learn from Japan's example. Yikes!

Cowen uses his Stagnation hypothesis to explain the recent financial crises and recession. Everyone expected much greater GDP growth than was possible, and so they overinvested. Sooner or later, this causes a crash. Even now, people are expecting more GDP growth than what is possible, and this is causing frustration with an inevitable "jobless recovery," The Great Stagnation explains why the last few economic recoveries were "jobless."

Cowen's prescriptions:
1. End protectionis policies and allow gains from trade to happen:
"If fewer Americans make cheap plastic toys, maybe more Americans can search for technological breakthroughs or in some broader way contribute to that enterprise."
2. Have a societal shift away from idolizing sports and entertainment stars and idolizing scientists instead. If it becomes "cool" to be a scientist, we'll get more of them and more technologies invented. I agree with this, and this thought has affected my behavior heavily in the last 5-6 years.

I give this book 5 stars. Everyone read it for a reason. Kindle Singles are great things.

Sunday, May 01, 2011

Chasing Sexy Carrot

I think about this story a lot (PDF- from Blue Like Jazz). And here is a YouTube re-telling:


I think about this story all the time.