Institutionalized Insanity

Being mostly retired, my mental health depends a little too much on the machinations of the market. That's the selfish part. The rest, the sense of impending doom for our country, comes not just from there.

So the jobs numbers still are crap. Which is the perfect lens through which to view the political world. Republicans, no doubt, rejoice. Of that, I think there's no question: the less good the economy, the better their chances -- as they see it -- to win in 2012. That much is fact. The part that's speculation is the extent to which they've deliberately blocked Democrats' efforts, intentionally sabotaging the economy for political gain; about that, I can't be as categorical. But the fact that they still think the be-all and end-all (hmm.... end-all???) of economic policy is tax cuts suggests it's deliberate.

I recognize, and have written much about, the connection between Republicans and belief in the obviously false. Still, I have to think that among their leaders there must be some that can read. Or remember a decade or so back. For the last time we had spectacular growth and a balanced budget was after Clinton raised taxes. And the end result of Bush's cuts was massive jobs losses. Those are facts, too. Since it's never happened that tax cuts have led to budget balance or sustained growth, those guys are either fools or destructive self-aggrandizing cynics. To put it politely.

At least two Nobel-Prize-winning economists said from the very beginning that the "stimulus" was too small, too front-loaded, and too weighted with tax cuts. And ever since it's been in place, despite the fact that the Bushian trend of staggering job losses has been turned around, Republicans have done everything they could to block any more of it.

People use the term "job creation" like a magician uses a handkerchief. It's a multi-purpose deception. But the fact is that there's only one way that governments predictably create jobs: by spending money on projects. It was true when FDR did it, it's true when BHO has done it -- to the extent that he has, within the confines placed upon him by a Congress filled with idiots and deceivers. Cutting taxes on businesses -- already low -- is the wheel before the cart before the horse before the road. Businesses don't hire until there's demand for their products. Demand doesn't happen until people are working. If people are building roads, designing them, ordering materials; when they're inventing better batteries, if they're repairing bridges and spending wages, demand develops and businesses add employees to the economy. It's not complicated.

Clearly, it's too late now to get it right. The Republican deception machine has, as usual, been successful in its sleight of hand, convincing the public they're seeing something they're not. To the extent that he let himself be pushed around, President Obama deserves blame. But his were the right ideas. He just held back too much. He left too much rabbit in the hat.

And now, once again, it appears we're about to see the disastrous effects of tax cuts and spending cuts. But as opposed to when W strode into office with his self-declared mandate after losing the popular vote, and we were riding the wave of economic boom, this time we're barely back up on our knees from the knock-out blows he subsequently delivered.

Republicans have taken the opportunity to say the latest jobs report means no new taxes. What do you suppose they'd have said had the report been great? Without doubt: this proves we don't need new taxes. (Funny how they took credit when jobs were looking better.)

We're the classic definition of insane. We keep choosing the thing that's never worked, and we expect different results. In the truly insane, it's sort of excusable, understandable. In the case of American politics, it's just a deeply, deeply depressing spectacle of selfish stupidity and egregious gullibility.

Have a nice weekend.

Dining On Delusion

When we hear someone interesting say something thought-provoking, either my wife or I will say to the other, "We should have him (or her) over for dinner." We have quite a guest list.

My new hero, Bruce Bartlett, conservative economist and former economic adviser to Ronald Reagan, has once again thrown the cold water of reason on the fanned flames of fantasy finance.

When Republicans talk about economic growth, they tend to talk as if there is only one factor that affects it: tax rates. Thus, last week former Minnesota Gov. Tim Pawlenty, a candidate for the Republican presidential nomination, put forward an economic plan that he said would raise growth rate of the real gross domestic product to 5 percent per year from its historical level of about half that. His only specific proposal for achieving this ambitious goal was to slash tax rates on the wealthy.

Pawlenty would cut the top individual income tax rate from 35 percent to 25 percent, cut the corporate rate from 35 percent to 15 percent, and eliminate completely all taxation of capital gains, interest and dividends – the principal sources of income for the wealthy. Implausibly, Pawlenty asserted that despite reducing revenues by some $8 trillion over the next 10 years – from the lowest level of federal revenues as a share of GDP in 60 years – that his plan would balance the budget. I could find no data or analysis of how Pawlenty’s plan would actually achieve this goal.

My purpose today is not to criticize the particulars of Pawlenty’s plan, which is very much in the Republican mainstream, but rather to talk about the nature of economic growth and how one-dimensional the GOP view is. The truth is that economists know a lot about what causes growth and what policies will raise the growth rate, and tax rates have a far smaller role than most people and all Republicans believe.

[...]

To present the textbook view of what determines long-term economic growth, I turned to an actual textbook by Harvard economist Gregory Mankiw, who served as chairman of the Council of Economic Advisers for George W. Bush.

[...]

What matters for business investment is not the corporate tax rate, but the ultimate tax rate on capital including the tax on the corporation’s owners, the shareholders. In 2003, that was almost 58 percent – 35 percent at the corporate level and as much as 35 percent at the individual level. Now, that combined rate is at most 45 percent because in 2003 the tax rate on dividends was reduced to a maximum of 15 percent.

Unfortunately, there’s no evidence that the 2003 tax cut did anything to stimulate corporate investment. Indeed, according to the Federal Reserve, nonfinancial corporations have increased their holdings of liquid assets to $1.8 trillion from $1.2 trillion since 2003. Thus it’s implausible that a further reduction in the corporate rate, as Pawlenty and other Republicans favor, would do much to raise investment.

[...]

The bottom line is that neither taxes nor spending by themselves are the most important government contribution to the investment climate; it’s the budget deficit. Consequently, a reduction in tax revenue which raises the deficit is unlikely to stimulate domestic investment because more money will have to be borrowed from abroad. Conversely, a tax increase dedicated to deficit reduction could well be stimulative, as was the case with the 1982 and 1993 tax increases. Contrary to Republican dogma, rapid growth followed on both occasions.

[...]

It's his conclusion that really is a cry in the wilderness, and one which I've hollered, too, many times. What's needed is the exact opposite of teabaggR fiscal policy, and their failures are going to kill us all:

If we want to raise the long-term rate of growth, we have to go back to the textbook and increase saving and investment, channel more public investment into education and basic infrastructure, and do everything in our power to promote scientific research and technological advancement. It’s not sexy and it takes a lot of time, but it works.

And yet it constitutes everything the Rs are cutting, in the name of enabling giveaways to the wealthy. But the most amazing part of all is that we stand around with teabags up our asses, watching it happen, thinking we're sitting on one of these.

Texas Hold-Em (Up)

A conservative friend recently touted Texas as a great place to live: low taxes, low unemployment, none of the budget problems facing places like California, on a roll. Sounded good. Until I read this.

These are tough times for state governments. Huge deficits loom almost everywhere, from California to New York, from New Jersey to Texas.

Wait — Texas? Wasn’t Texas supposed to be thriving even as the rest of America suffered? Didn’t its governor declare, during his re-election campaign, that “we have billions in surplus”? Yes, it was, and yes, he did. But reality has now intruded, in the form of a deficit expected to run as high as $25 billion over the next two years...

...The only thing that let Gov. Rick Perry get away, temporarily, with claims of a surplus was the fact that Texas enacts budgets only once every two years, and the last budget was put in place before the depth of the economic downturn was clear. Now the next budget must be passed — and Texas may have a $25 billion hole to fill.

And that reality has implications for the nation as a whole. For Texas is where the modern conservative theory of budgeting — the belief that you should never raise taxes under any circumstances, that you can always balance the budget by cutting wasteful spending — has been implemented most completely. If the theory can’t make it there, it can’t make it anywhere.

How bad is the Texas deficit? Comparing budget crises among states is tricky, for technical reasons. Still, data from the Center on Budget and Policy Priorities suggest that the Texas budget gap is worse than New York’s, about as bad as California’s, but not quite up to New Jersey levels.

It reminds me of the much touted (by GW Bush) "Texas Miracle" of public education. Amazing test scores, found to be quite literally fraudulent, as it was discovered that the Houston education supe, whom Bush appointed Education Sec, was booting out struggling kids before they had a chance to take the tests.

Frankly, given the dire straits in which my state and most others find themselves, the idea that any state, even the venal Texas, might have found a formula that works was -- swallowing hard -- encouraging. Well, maybe not that. After all, they're leading the nation in politicizing and Jesufying education. Still, any state that can maintain solvency in these times deserves a look.

So much for that.

It's a myth: if tax cuts and spending cuts is all you gots, failure is what you'll get, sooner or later.

Bruce Bartlett, Reagan's economist and a serious guy, says:

The reality is that Social Security, Medicare and Medicaid are where the real money is, and reducing outlays for these programs is very, very hard; not just for political reasons, but because they are highly complex programs and require changes in the law governing eligibility to reduce spending in the long run. Doing so in a way that can’t be gamed by beneficiaries or create massive unfairness is a major challenge.

Congress needs the best possible analysis and research to help it understand the nature of the programs it wants to cut and how to write laws that will achieve its goal. Fortunately, it already has an organization at its disposal called the Congressional Budget Office to do this. Established in 1974, it has 250 of the best budget analysts and economists in Washington and deep institutional knowledge of every facet of government spending. (A parallel organization called the Joint Committee on Taxation does the same thing for tax policy.)

Funny thing, that last paragraph: Rs like the CBO when it says what they want to hear. When not, they do what they always do when facts don't fit their fantasies: they ignore it. (Or lie about it.) Which is exactly why the crap up with which they always come never works. And why they don't care.

Or even notice, evidently.