Tagged: economy

The Right Doesn’t Understand Economics, and They Hope You Don’t Either

I just saw Ann Wagner, U.S. representative for Missouri’s 2nd congressional district on TV. First, she correctly pointed out “We can get more revenue is by growing the economy.” This isn’t a rare thing for a Republican to say, but it is correct. If you grow the economy, then more people will pay in taxes, and less will be unemployed and/or using government spending programs. That’s simply what happens when an economy grows (the opposite is also what happens when an economy shrinks). What she said next, though, is where a lot of Republicans get things wrong. Sometimes they get it wrong because they simply do not understand economics, but I think most of them just hope you don’t understand economics either. She continued with, “and the only way to do that is by reining in our spending.” I wanted to slam my head into the table when she said it. It’s utterly idiotic, and completely counter productive.

As I pointed out in my last post, which mainly dealt with government jobs, when you cut spending you cut someone else’s income. When the government cuts, they’re cutting directly into the profits of the private sector. The right does a lot of talk about how we should not become Greece, or not become Europe, but whenever they trot out this little line like Ann did, they are effectively telling us that we should in fact become Greece or Europe. Our media is not doing a good enough job at all in pointing out this hypocrisy. You see, when the recession hit, Europe did precisely what the Republicans are calling for. They enacted spending cuts, while the US as of now largely did not. While we didn’t spend enough to get us out of the recession quickly, we haven’t fallen into the same trap that Europe has. In 2011 alone, “Greece’s austerity package amounted to 11.1 percent of GDP. Spain’s was 3.1 percent. Great Britain’s was 2 percent. Italy’s was 1.8 percent.”

So what happened in Europe? For one, the recession deepened. “The euro zone’s fourth-largest economy, [Spain] which is grappling with the collapse of a decadelong housing boom, fell into its second recession in three years toward the end of 2011.” Spanish unemployment is 26%, and reaches as high as 55% for those under 25 years old. Greece is also struggling with 26% unemployment. The Eurozone as a whole has a 11.8% unemployment rate as of November 2012. Things have become so bad, some in Europe are being forced to pick through the garbages in order to eat.

The IMF also “found that budget cutbacks are much more damaging to economies recovering from recession than has been previously believed. The reason is that with interest rates stuck near zero, there is no room to lower them when fiscal policy is tightened, and thus no way to offset the pain of budget cutbacks.” It also said that these sorts of spending cuts in depressed economies act to deflate confidence, and that’s precisely because they can quickly decelerate economic growth or even at times turn it into an economic decline.

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Of Crabs and Men – How Economic Spite and Fear Gets Us Nowhere

“If I have it this bad, why shouldn’t they?” You’d think words like this only came from annoying toddlers, but I hear it all the time here, usually speaking about teachers, but more broadly it’s about all government employees. I had a discussion the other day with someone that claimed government employees never got hit by the recession. Not only that, but he argued that it’d be good if they did get hit even more. This isn’t the first person I’ve met with that sort of mindset, nor will it be the last.

First, this factually wrong, because pay raises were stopped and harsh budget cuts were enacted in state and local governments throughout the US. Many workers were laid off, and hiring was frozen, leaving  those lucky enough to have a job to pull things together and perhaps do the work of more than one person. The LA Times points to a report by the Nelson A. Rockefeller Institute of Government, “which calculates that while private-sector employment is down 3.1% from its peak in January 2008 and on the rebound, state and local government employment is down 3.4% from its peak in August 2008 and continuing to slide.” In addition to this, because of the commitment the public sector has to equal opportunity and affirmative action, the recession in the public sector is hitting women and African Americans the hardest.

It’s not only wrong, though. It’s dangerous, and there’s a great phrase for it. That phrase is crab mentality, and it refers to a scenario of crabs in a bucket. Individually they could escape, but they end up pulling each other back down. In the end none of them escape. This collective antagonism kills any chance that any will survive. It’s a very similar thing here, especially when you’re talking about a recession. Conventional wisdom is that during a recession the government will need to spend a bit more in order to jump start things and get the economy back on its feet. Conventional wisdom also says during this time, through no real fault of their own, many more people will need government programs. That’s just factually what a recession does, and that’s just factually how one gets out of a recession. Like the crabs, stuck in their bucket, though, we end up either not helping each other upward or even not letting our fellow humans climb. Like the crabs we end up pulling others downward.

When people are frustrated with their own lives they have a tendency to lash out at others. This translates to a feeling that government employees should be cut down even more. Let’s go over exactly why such a reaction would be terrible. Right now we’re not in the midst of a recession, but our unemployment still sits at 7.9%, and a lot of people are wondering exactly why we can’t lower that. Well, if you look at this chart you can see at least one reason:


And here’s what the Economic Policy Institute says about that graphic:

How many more jobs would we have if the public sector hadn’t been shedding jobs for the last three years? The simplest answer is that the public sector has shed 627,000 jobs since June 2009. However, this raw job-loss figure understates the drag of public-sector employment relative to how the economy functions normally.

Over this same period, the overall population grew by 6.9 million. In June 2009 there were 7.3 public-sector workers for every 100 people in the U.S.; to keep that ratio constant given population growth, the public sector should have added roughly 505,000 jobs in the last three years. This means that, relative to a much more economically relevant trend, the public sector is now down more than 1.1 million jobs. And even against this more-realistic trend, these public-sector losses are dominated by austerity at the state and local level, with federal employment contributing only around 6 percent of this entire gap.

Paul Krugman points out a very similar thing here:

His assessment is that if public employment mirrored the growth under Bush that by the time he wrote this (April 25, 2012) we’d have 1.3 million more government workers, and our unemployment rate would be less than 7 percent. That’s a almost a full point lower than it is now, and he wrote this a year ago!

In Wisconsin this fight against public workers came down to a fight about collective bargaining. Despite the fact that there’s really no correlation between collective bargaining and state budget deficits, that right just had to go.

Here’s what The New Republic says about the rollback in rights:

What proponents of the rollback in public-sector bargaining rights are unable to explain is how taking rights away from some American workers will improve the lot of others. How will denying collective bargaining rights for teachers, social workers, or parks employees in Wisconsin create good jobs in the private sector? How will taking away the rights of prison guards to bargain collectively in Ohio keep manufacturing jobs in the United States? How will reducing the pensions promised to government workers (often in return for their agreement to forego salary increases) create retirement security for private sector workers whose paltry 401Ks are unable to support them? How will holding down public-sector pay stop the erosion of the American middle-class—of which public-sector workers constitute a significant proportion?

What proponents of cutting government employment are unable to explain is how taking away jobs and cutting pay will help improve the lot of others. How will it helps a small business owner to have one more potential customer lose his job? How will it help him to have another potential customer get a cut in pay? What needs to be explained to everyone who proposes something like this is the interconnectedness of our entire economy. We are not islands with no relation to each other. Your spending is my potential profit. A cut in your pay is a cut in my potential profit. If that teacher you’re so jealous of gets her job cut, then that means every business she shops at gets their business cut. It’s all connected.

A solid example of this is found in the numbers released last week that show the US economy shrunk by .1 percent late last year. The reason for this? Government spending cuts. A lot cheered because those are spending cuts in our bloated defense budget, and I’d likely agree, but we shouldn’t cheer about an all around cut at this point. Cuts should still be made up elsewhere with spending, so that someone can at least chase that profit and we can all experience more hiring and more growth. Every cut we make at this point represents a cut to someone’s income or job somewhere.

Krugman goes further in blaming that shrinkage on the shrinking government sector. He says that “transfer payments like Medicare and Social Security are rising (although unemployment benefits are falling), but government purchases of stuff — mostly at the state and local level, where the stuff in question includes hiring schoolteachers — has been in fairly rapid decline.”


What this shrinkage translates to is, according to him, a possible 1.5 percentage point higher unemployment than what we should have right now.

The result of his absolutely historic spite and fear throughout our state, local, and federal governments is seen here:

We’ve hit a historic decline in our government at one of the absolute worst times to do it.

John T. Harvey does a good job of pointing out exactly why the private sector needs the government to spend. He points out that the real drivers of economic growth are in Investment and Government Spending. Since WWII, government spending has been an affective counterbalance to business cycle falls in investment. When a recession hits, government spending, without any sort of legislation attached, goes up simply because of less tax receipts and more people qualifying for things like unemployment. It’s this spending that makes these recessions less severe and damaging to the country overall, and it’s at least partially why we didn’t experience another Great Depression.

So, we really should not give in to fear and spite. I realize that a lot of people now are working themselves to the bones, perhaps with two or three jobs, and not seeing much in the way of raises. Seeing someone else doing ok can be hard, but we must not let that mean we should take it from them. That hurts us all in the long run. It’s like cutting off your nose to spite your face. Pulling down your fellow humans as they try and escape from the bucket into the middle class during this recession does nothing but doom us all to continuing stagnation. Instead of looking to one another to see what we should cut down at this time, we in the private sector should really be looking to one another and seeing how we can come together to demand better. After all, the “U.S. corporations’ after-tax profits have grown by 171 percent under Obama, more than under any president since World War II.” The money is there. We just have to demand it. And then things will grow, because we all have more to spend.

Neil Cavuto Thinks People On Food Stamps Aren’t Being Shamed ENOUGH

Fox News’ Neil Cavuto did a typically Neil Cavuto-esque piece on his show lamenting once again how the filthy poors have it sooo easy:

Cavuto starts off by pointing out that spending for food stamps is currently at $78 billion and that due to things like rising costs of food, some people have the audacity to suggest spending should be even higher!

He then brings on Michelle Malkin to provide some obvious “common sense” commentary. Malkin mentions a report conducted by the National Academy of Science requested by the USDA, whose conclusion was that stipends need to be higher because in certain places, like urban areas, it’s more difficult to afford healthier food. Malkin says that these “federal bureaucrats” don’t seem to understand that we need the stigma associated with food stamps, “otherwise people will buy crappy foods.” (This part’s a bit confusing because I thought the whole point of buying “crappy food” with food stamps is cause it’s usually “crappy food” that people on food stamps can afford?)

Cavuto follows up with this brilliant line:

“Well, we put a sheen or gloss to it now where we actually make it like a Norman Rockwell type of benefit where we glorify food stamps.”

You have got to be kidding me. Who the hell is “glorifying” the idea of being on food stamps? It’s reasonable to say that the vast, vast majority of people who are on food stamps are on them not because it’s a great way to build up prestige, but because they need them. I grew up on food stamps, and believe me, Neil, I’ve never bragged about that fact to any of my friends.

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