Tag Archives: Krugman

Right-wing Mythology #1 and #2

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Contrary to the implication of the title of the game (to which I would like to see a sequel, hint hint Ensemble Studios… oh wait, Ensemble Studios doesn’t exist anymore), the age of mythology isn’t in the distant past. Mythology just takes a different form these days. Republican mythology is a particular brand of mythology in which socialists are a genuine threat rather than a largely ignored smattering of academics, and Newt Gingrich is a towering intellectual giant rather than a complete dumbass.

So I’m starting a new series called Right-Wing Mythology, in which I debunk a particular tenet of right-wing belief in the US. (Speaking of serieseses, I’ll probably do more Emphases on Twit here and there, but I don’t pay nearly as much attention to Twitter as I did back when I was unemployed, so, y’know.) Now, the focus here will be very specific: I won’t challenge every single untrue thing some wingnut commentator says. And I won’t address patently obvious things like “Obama is a Muslim,” because a) duh, he’s not, and b) even if he were it would influence my opinion of Obama to a slightly lesser degree than his preferred brand of soap.

No, the focus will be on “facts” that pretty much every conservative takes for granted, things that seem like common sense to them, if only because they’ve been living in the Fox News bubble for too long. Things like “the government is inefficient at everything ever” (to be addressed in a future entry) or “the Chinese are about to plunge their hands into our chests a la Temple of Doom and pull out all the money we owe them” (already addressed that, try to keep up). Other future topics will include Social Security, taxation, and maybe Ayn Rand or something, who knows.

Today, to start off, I’ll address two myths. The second one’s on the house. As is the first one.

Right-Wing Myth #1: Obama has massively expanded the federal government

How do you measure the size of the federal government? For simplicity’s sake let’s go with the two most obvious: federal budget and number of federal employees.

Conservatives do love to talk about Obama’s alleged fiscal irresponsibility. And indeed, the federal budget increased by about $452 billion between 2008 and 2011. That proves it! Well, not really.

Suppose a year ago it cost you $20 to fill up the gas tank of your car. Now it costs you $35 to fill up the gas tank of that same car. Is that because you expanded your gas tank? Of course not. It’s because the cost of gas increased.

Similarly, one of the biggest drivers of the budget increase since 2007—before Obama took office, one should note—has been the increasing cost of existing government programs, most significantly welfare and other need-based programs. And the reason those costs are rising is because more people need welfare. You may recall that we’re in a recession. How you feel about whether or not they deserve that welfare is irrelevant; despite Gingrich’s bloviations, Obama didn’t initiate or even grow those programs. They simply serve more people now, because more people live in poverty. Let’s look at the breakdown:

But whoa thar! you might say. Why is the “Other” category so enormous in 2009? Well, because of the stimulus, of course. But not so fast—it’s not Obama’s stimulus, it’s Bush’s. It’s the TARP program initiated under President Bush in 2008. It gets factored into the 2009 budget because the 2008 budget was passed back in 2007. You know how it is. In fact, the entire 2009 budget was passed back in 2008, when Bush was President, and as you can see, the budget did not suddenly balloon as soon as Obama signed his first budget for 2010. That’s all that really needs to be said about that.

But what about federal employees? Well, let’s look at dat chart too.

I guess you could say so, but Obama isn’t presiding over a government any larger than the one Reagan and H.W. Bush did. Incidentally, the vast majority of the increase in employees went to two departments: Health and Human Services (thus implying that the hirings there are the result of the same increase in welfare needs brought on by the recession and not by any deliberate action on Obama’s part), and Homeland Security. Say, that reminds me, who was the last president to add an entire executive department to the federal government? (Hint: it wasn’t Obama.)

Right-Wing Myth #2: The US government oppressively over-regulates business and stifles competitiveness on the global market

This is an easy one. The conservative trope, as you probably know, is that business regulation in the US is just redonkulous, and it’s totally punishing our valiant Galts, and that’s totally why they can’t hire more people, and also it makes America less competitive and it’s probably also why we, unlike Iran, have gays in our country.

Let me introduce you to something called the Ease of Doing Business Index, measured by the World Bank. This index ranks the countries of the world (except the ones where you can’t really do business, so North Korea’s out) in order of how “business-friendly” their regulations are. The US is fourth. Fourth most business-friendly. In the world. Only Singapore, Hong Kong, and New Zealand outrank us.

Those countries that are supposedly welcoming business with open arms, thereby just forcing US corporations to fire a bunch of Americans and hire a bunch of outsourced workers? Well, China is 91st in the world. India is 132nd.

Yeah, the US is ridiculously lax on business. Businesses get away with a lot, in case you haven’t noticed, such as bringing the economy to the brink of collapse and then facing absolutely no consequences for it.

Krugman reveals math’s insidious liberal bias

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In a post yesterday, Krugman took apart the irritating right-wing “job creatorz!” argument against high top marginal tax rates. He begins by describing reality:

The way Diamond and Saez do the analysis is to argue that because the rich are rich, their marginal utility of income is very low, which means that at the margin their income doesn’t matter for social welfare. So they should be taxed at the rate which maximizes revenue, which is 1/(1+ε) — where ε is the elasticity of labor supply from the rich. And since we have a lot of evidence suggesting that ε is quite low, the appropriate tax rate for the rich is quite high — 70 percent or more.

Krugman also has empirical evidence on his side, since a look back at the last half-century of American taxation shows little relationship between the top marginal tax rate and the rate of unemployment:

Unemployment and Taxes

Source: US Department of Labor

So the notion that it would be in our – the non-filthy-rich’s – best interests to keep slashing taxes for the filthy rich simply doesn’t comport with what actually happens when we do that.

But just for funsies, Krugman also calculates what the ideal top marginal tax rate would be even if it were true that the 1% are benevolent and wise job creators:

But what if the rich in their Galtian goodness supply something nobody else can? Call it J, for jobcreation. Doesn’t the imperative to encourage J mean that we should keep their taxes low? Actually, no.

[...]

The optimal thing, from the point of view of the non-rich, is to set a tax that makes the cost of hiring rich people to produce J equal to the true marginal cost of that J, a cost that includes the fact that buying more drives up the price of inframarginal purchases. And if you grind through, you find that the optimal tax is … 1/(1+ε). Even if the rich are uniquely able to supply the magic of jobcreation, they should face much higher taxes than they do.

And this is all perfectly standard economics — indeed, Econ 101.

Needless to say, the conclusion that we should draw from all this is that Jesus hates Paul Krugman.

What was lost

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Krugman brings updated figures on the lost economic potential that has resulted from the recession:

Potential vs Real GDPWhat the general public needs to understand is that one of the defining features of a recession is that the economy has the potential to produce more – and to employ more people and pay them more wages – than it is, but the people in control of the capital are choosing not to fully utilize it. It’s not necessarily the result of some conspiracy among business owners – although that’s hardly unprecedented. When it comes down to it, the behavior of the market is the aggregate of millions of individual decisions made by property-owners and businesspeople in pursuit of their individual interests as they perceive them.

So even though all of those businesspeople could turn the economy around if they collectively decided to start producing more, none of them individually are going to make that decision, because everybody else’s reluctance to produce more makes for low consumer demand.

That’s why the government has to step in! This point can’t be emphasized enough. Increasing demand, which the government can do simply by spending a lot of money on the right things, leading businesses to hire more workers to address that demand, and ultimately to higher wages as workers are (ideally) allowed to share in the renewed economic prosperity, should be the government’s top priority, not reducing deficits.

The alternative is our current situation, where, for just about four years now, a chunk of the productive capacity of our nation is going to waste. As Krugman says:

So next time someone tells you that it would be irresponsible to engage in more stimulus, monetary, fiscal, or both, ask: in what universe is wasting almost a trillion a year, not to mention the human costs, a responsible thing to do?

The Big Lie: Corporations, confidence, and cash

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Scrooge McDuckIn my previous post, I briefly mentioned that the concept of “confidence” in a business sense is largely a big scam to excuse corporations from any measure of social responsibility. This lie works in conjunction with another, which is that corporations don’t have any liquid money to spare, to mendaciously explain both why corporations currently aren’t hiring workers in reasonable numbers, and why they’re clamping down on lending.

This last bit is itself a bit misleading – corporations are lending, albeit not as much as before the recession; they’re just not lending to you. They’re not strained for the cash they need to pay more workers or to provide loans, yet Republicans claim otherwise in order to justify a massive number of tax cuts, tax shelters, and tax amnesties for corporations and the super-wealthy. Cut taxes for the rich, the GOP claims, and suddenly the rich and their corporations will have the money they need to start hiring people and investing in our nation.

Let me repeat: This is a gigantic lie.

Corporations have lots of cash, in fact, and the cash that they’re not investing they’re basically sitting on. Unfortunately for us, the only investing they’re doing that could actually benefit the general public is in the federal government, which would be great if the federal government were actually willing to borrow a bunch of money and re-invest that into infrastructure and jobs. But they’re not, because the GOP’s a bunch of assholes and Obama’s a centrist hack.

Graph: Excess Reserves of Depository InsitutionsThe graph above shows the excess cash reserves of US banks. Before the recession, banks were lending out and re-investing virtually every dollar they were holding for their account-holders. Now they’re not, but again, this is not because they don’t have enough cash to do so. Banks alone are sitting on about $1.5 trillion in liquid cash. According to Krugman, corporations other than banks are following the same pattern – taking in more cash than they’re willing to invest or lend back out.

This is a major reason that the recovery has been so lackluster – money sitting around in corporations’ bank accounts, rather than moving through the economy, does virtually nothing to stimulate growth. And a whopping ten percent of the US GDP is sitting around in the banks’ cash reserves alone! And yet, according to the Republicans, the solution is to give banks and other corporations even more cash, so that they can sit on that, too.

As Krugman points out in the most recent link, when Republicans do acknowledge all this cash going unspent, they explain it with the aforementioned “confidence” lie:

On the contrary, the fact that corporations aren’t investing as much as they could has become a major right-wing talking point, with repeated claims that companies are holding back because of political uncertainty. Actually, they’re holding back because they don’t see enough consumer demand — but in any case, cash is not the problem.

This makes sense – there’s not enough consumer demand because there are 24 million unemployed Americans who, being unemployed, can’t afford to consume as much as they could if they had a decent job. It’s obvious to anyone who isn’t willfully ignoring it – if you add 24 million more paychecks to this country’s economy, that’s a lot of money that’s going to get moving again, consuming and buying products and thus stimulating the corporations to grow and hire even more workers.

As it is, they’re stuck in a rut where they don’t want to hire workers. It’s worth pointing out that they’re not suffering nearly as much from this economic situation as the lower classes and the unemployed, so again, I think this is a simple refusal on their part to take on any measure whatsoever of social responsibility. These corporations are arguably the engine that drives the US economy, they’re sitting on an enormous percentage of our country’s money, and yet they feel they have a right to ensconce themselves in their castles of wealth and privilege and let the rest of us rot. Keep that in mind when the Republicans tell you we should give them even more cash.

I’ll let Krugman take the conclusion here:

What our economy needs is direct job creation by the government and mortgage-debt relief for stressed consumers. What it very much does not need is a transfer of billions of dollars to corporations that have no intention of hiring anyone except more lobbyists.