Archive for the ‘Uncategorized’ Category

When Did Hillary Lose the Election? In 1964.

January 13th, 2017 No comments

The half-century story of Democrats’ abdication and decline

By Steve Roth. Publisher, Evonomics

On January 1, 1964, John F. Kennedy posthumously initiated the half-century decline of the Democratic Party, beginning its descent into this moment’s dark and backward abysm of slime. His massive tax cuts for the rich, implemented in ’64 and ’65, were the turning point and beginning of Democrats’ five-decade abandonment of its longtime winning formula: full-throated, unabashed, progressive economic populism. It was the signal moment when Democrats began to abandon the working and middle class. The working and middle class, betrayed and feeling betrayed, have now returned the favor.

Unapologetic progressive economic populism — starting really with Teddy Roosevelt’s slash-and-burn trustbusting, and turned up full-throttle in his namesake’s New Deal — had given Democrats three decades of electoral success. FDR lost two states and eight electoral votes in 1936. He got 523 out of 531. Over four campaigns, he never got less that 432. Eisenhower got a couple of terms as a very moderate Republican, really a progressive, but Democrats’ dominance of Congress and state governments seemed eternal.

Because: that economic populism also delivered success for America. The New Deal, combined with the government deficit spending of World War II, resulted in the greatest burst of widespread growth, progress, prosperity, and individual economic freedom in American history — before or since.

James Carville was certainly right: “It’s the economy, stupid.”

Democrats’ remaining progressivism under Johnson — civil-rights legislation, Medicare and Medicaid, and the wholesale movement of liberated women into the workforce — eventually pushed a hot middle-out economy into the demand-driven inflation of the 70s. That torrid growth brought government debt down from 120% of GDP in 1947, to 35% in 1980. (You know what happened after that.)

But even amidst that burst of growth and sustainable government finance, Democrats were abandoning the very source of their economic and electoral success. Kennedy’s top-tier tax cuts were a preemptive, voluntary abdication to trickle-down theory, before “trickle-down” even existed. When Reagan turned that dial to eleven, he was only occupying ideological ground that Democrats had ceded and abandoned to the enemy, long before. It was an epochal own-goal of historic proportions.

Democrats have been kicking the economic ball into their own net ever since. The obvious solution to the 70s inflation was to raise taxes, reducing government deficit spending, to drain off excess demand from a too-hot economy. Instead they acceded to the banker-industrial complex and the diktats of childish monetarism, again conceding the win to an economic belief system that is egregiously self-serving for the rich, and anathema to Democratic progressive economic populism.

That’s when the enthusiastic, progressive Democratic base stopped turning out in force. (Exception: Obama. For other reasons.) Progressive baby boomers have spent their whole lives voting against Republicans and their swingeing, destructive economic policies, not for inspiring Democrats. Think about the Democratic presidential candidates since 1964. McGovern was a true social progressive, but really a one-issue anti-war candidate. Bill Clinton did okay, within the confines of the post-Reagan economic belief system, which he never seriously challenged as FDR did. Obama didn’t either, in rhetoric or practice. His administration’s failure to prosecute a single prominent bankster is arguably the best single explanation for Hillary’s electoral meltdown.

Can you name one full-throated economic progressive Democratic candidate in the past half century? I’m not even asking for fire-eating. Here’s some help: Humphrey. Carter. Mondale. Dukakis. Gore. Kerry. (Are you still awake?) Aside from Obama, no Democratic candidates had the Democratic base flocking to the polls. (Compare: Republicans and their rabid Tea-Party base.) Add Hillary to that rather stultifying list.

Starting in the 60s, Democratic candidates stopped delivering an inspiring economic message. But the real failure was substantive. In their sellout to the enrich-the-rich supply-siders, Democrats abandoned the working and middle class, and the party’s winning legacy of widespread prosperity. The Democratic party elite bought into and helped promulgate an economic belief system (the “Washington Consensus”) in which distribution and concentration of wealth and income not only don’t matter, they can’t matter. The quite predicable results are upon us — decades of working-class wage stagnation, and wealth concentrations that are as high or higher than any period in modern world history.

It’s no wonder the Democratic base feels betrayed. They were betrayed.

Still: despite those decades of weak-kneed collaborationism, Democrats have obviously remained more economically progressive than Republicans. Clinton and Obama managed to raise taxes some, and Obama gave us Obamacare. And the economy has shown the results. Democratic presidents have delivered growth, progress, widespread prosperity, individual economic security, and true personal economic “freedom” that Republicans — the self-proclaimed “party of growth” — can only imagine in their fever dreams.

By almost any economic measure — GDP or income growth, job creation, stock-market runups, deficit reduction, people in poverty…choose your measure — Democrats’ economic performance has unfailingly beggared what Republicans have offered up. That is true for any multi-decade period you choose to look at since World War II, or over the last century for that matter. It’s true at the national, state, and local levels. Republicans constantly promise prosperity and growth. Democrats consistently deliver it (at least compared to Republicans). They’ve kicked Republicans’ economic asses, decade after decade.

Bigger pie? Raise all boats? Talk to the Democrats.

But nobody seems to know that. Did you? And Democrats never even say it — much less repeat it endlessly over decades, shouting it from the rooftops to stir up the base as Republicans would. The old saw is apparently right: “A liberal is someone who won’t take their own side in an argument.”

Perhaps that failure is a result of progressives’ fussy squeamishness about people getting rich. They don’t really like that word. But voters do. A third of Americans’ think they’ll be rich someday. Fifty percent of 18–29-year-olds do. (About 5% of Americans actually are rich, with more than couple of million dollars in net worth.) That squeamishness explains the persistent “anti-capitalist” strain of American liberalism, which is such an electoral disaster at the voting booth.

Democrats have much to atone for in their failure to hold the line on progressive economic principles, their failure to wholeheartedly champion and defend the working and middle classes, their sellout and abdication to the bankster class. But they also have much to crow about. Instead, though, they’ve stood by for decades while Republicans have falsely claimed the “party of growth” moniker, contrary to all historical evidence.

It is the economy, stupid. Voters, Democratic and Republican alike, will tell you in surveys about all the things they care about. But when they walk into the voting booth, they’re going to choose the person who they think will make them, their families, and those around them more prosperous, comfortable, and economically secure. They vote for candidates who they think will deliver better lives — starting with people having enough money to pay the bills. The Republicans realized that forty-plus years ago, and they’ve been winning based on that ever since. “I’ll cut your taxes and deliver economic growth.” Full stop, drop the mic.

Trump showed us that fire-breathing populism wins elections. While his brimstone reeked of many things, economic populism was at the core of his rhetorical fur ball. Even as he prepared to betray the working class at unheard-of levels, he channeled that betrayal straight onto his vote tally. “Audacity”? Obama should grab a stool and go to school.

And Bernie showed us the same thing. His campaign was unprecedented in American political history, funding a full-boat national campaign and outspending Hillary by 25 million dollars, almost completely with small donations. His message of economic populism brought in more than 200 million dollars in donations from 2.5 million people. And he turned out the enthusiastic base, in droves. Presumably he would have done so on election day, as well. Are Democratic political operatives finally beginning to take note?

There is a path out of the wilderness for Democrats. It’s the path they’ve trod before, with huge success. It involves (for once) coalescing around a core message that resonates with all Americans, repeated endlessly over years and decades. “Equality” and “opportunity,” important as they are, are weak beer on the campaign trail. Most Americans change the channel.  Tell them what they want to hear:

“We make America rich.”

The double meaning is fully intended.


Are Poor People Consuming More than They Used To? Six Graphs

October 12th, 2014 5 comments

“Poor people today have air conditioners and smart phones!”

You hear that a lot. “You should be looking at poor people’s consumption, not their income. By that measure, they’re doing great.”

The basic point is very true. If poor people today have more and better stuff, can buy more and better stuff each year, maybe we should stop worrying about all those other measures that show stagnation or decline.

Does this measure tell a different story? Curious cat that I am, I decided to go see. I had no idea what I’d find.

The first thing I found: this simple data series isn’t available out there, at least where I could find it. Notably, the people who claim it’s so revealing don’t seem to have assembled it.

Consistent, high-quality expenditure data is available going back to 1984, from the BLS Consumer Expenditure Survey (CES). (Pre–2011 here. 2012 and after here. See “Quintiles of income before taxes.”) But you have to open a table for each year and pull out these numbers, which I did. The spreadsheet’s here. It’s simple, clear, and easy to work with, so please have your way with it. (Note: CES measures “consumer units” — “households” precisely defined for the purpose of measuring consumption. All the CES terms are defined here.)

The household spending measure is in nominal dollars. I converted the values to 2013 “real” dollars using the BEA’s deflator for Personal Consumption Expenditures. Here are the results (mean values; medians would be somewhat lower).

Screen shot 2014-10-11 at 5.11.24 PM

By this measure poor people’s consumption is up 5% since 1984 — not exactly the rocket-ship prosperity growth for the poor that consumptionistas proclaim.

But truth be told, this isn’t a very good measure as it stands — because households have gotten smaller. For the bottom 20% that looks like this:

Screen shot 2014-10-11 at 10.08.20 AM

Declining household size means:

1. Per-person spending would trend up (if income per household is the same, with less people per household).

2. But: you have to adjust because living with more people is cheaper per person because of shared rent, utilities, etc. If you don’t, it looks like the average person in a four-person household consumes vastly less than a person in a one- or two-person household — which clearly isn’t correct.

I corrected for that with the household-size adjustment method used by the Pew Research Center. This standard method is somewhat synthetic (more on that below), but it also clearly yields a more useful and accurately representative measure of poor people’s consumption. Here’s what those results look like:

Screen shot 2014-10-11 at 5.10.15 PM

By this measure, things have gotten more better: poor people’s consumption is up 14% since 1984, compared to 5% using the other measure. But really, that’s still nothing to crow about; real GDP per capita grew 63% in that period — four times as fast.

Screen shot 2014-10-12 at 7.43.01 AM

More comparison: the real price of a share in the S&P 500 has increased 370% over that period. That’s not counting dividends.

To get an apples-to-apples comparison, here’s a look at annualized growth rates for various periods:

Screen shot 2014-10-11 at 5.29.11 PM

Poor people have gained a little bit of ground in absolute terms. But they’ve lagged way behind the rest of the country. Growth in every period except the 1990s Clinton heyday was moribund or negative — notably ’84–90, the last twelve years, and (especially) the last four years of economic “recovery.”

The consumptionistas are absolutely right: this is a really good measure.

And it tells exactly the same story as the other measures.

No child left behind?

– – – – – – – – – – – –

Before I leave you, some proleptic responses to the predictable objections:

But, the Brookings study! Many point to this study (PDF) by the (liberal!) Brookings Institution. The study devises and tracks a measure they call “consumption poverty.” Here’s the money graph:

By this measure, very few people these days are living in “consumption poverty.”

Here’s the thing: this study uses the same data set you saw above. But you’re looking at it through a very synthetic lens: a somewhat-arbitrary “poverty threshold.” What percent of people are below that threshold? Which means you gotta ask: Is that a relative or absolute poverty threshold? How does it change year to year? How’s it calculated? Etc.

To say it another way: This measure is some calculation steps removed from — it’s a second or third or fourth derivative of — the data as measured by the BLS. I’m not saying it’s a bad or un-useful measure. I haven’t gone into the weeds with it. And Brookings tells you exactly how the threshold is calculated. But you have to understand the lens’s multiple assumptions and hold them in your head while you’re peering through the lens.

The graphs above, by contrast, are much closer to “the facts on the ground.” Assuming you’re interested in those.

Worth noting: the people who might prefer the story told by the Brookings poverty-threshold measure are the very same people who are forever complaining about measures that use arbitrary (and relative) poverty thresholds. Just saying.

The inflation adjustment misrepresents poor people’s reality. The “real” consumption spending in the graphs is also filtered through a lens: the BEA’s price index for personal consumption expenditures. What if that index is wrong? It is based on “hedonic” estimates, after all: what’s the value (as opposed to price) of today’s laptop compared to 1990’s? Cars are far more reliable than they used to be; knowing that your car will start every time you turn the key has real value. Air conditioning is more valuable than box fans. And think of all the free digital goods that poor people have access to now — from Google to online banking to… Those have no “pricing,” so they’re undercounted or uncounted in this measure.

This is basically saying, “you should create your own, different Consumer Price Index.” It’s exactly the same argument as the ShadowStats craziness, but in reverse: there’s not more inflation than is shown in the CPI, there’s less — more deflation. There’s a “true” index that’s misrepresented by the rather remarkable and diligent efforts of BEA statisticians.

Scott Sumner is rather the poster-child for this position. He says exactly this:

we should ignore all the official data, and use our eyes.  Travel around the country.  Go into poor people’s houses.  … I think I do have a rough sense of the different sorts of consumption bundles purchased by different classes of people.

You should construct your own CPI index by holding up your thumb and squinting, eyeballing poor people’s consumption bundles. Because…the official CPI is not saying what Scott Sumner would like it to say.

Scott’s been going on about his superior CPI estimates for years. Karl Smith probably gave the best response, a year back:

basically anyone with MS Excel and a rudimentary knowledge of the subject matter in question can create a workable index…. a task that brilliant people have devoted their life to

The thing is, Sumner doesn’t even use a spreadsheet. He does it in his head. (Now that’s brilliant.) We should clearly do likewise, or just adopt his index — if we knew what it was.

Finally, note: the comparisons above — to real GDP and S&P growth — use the BEA’s GDP-deflator and CPI indexes, which are only slightly different from the PCE index used here for consumption. Almost-identical apples to almost-identical apples. Feel free to mess with that in the spreadsheet if you’re so inclined. It won’t get you much of anywhere.

The household-size adjustment is invalid. This is another lens interceding between you and the measured data, on top of the inflation adjustment. No doubt about it. But as with inflation adjustment, you can’t get around it. You can’t ignore shrinking household size any more than you can ignore today’s less-valuable dollars. And you can’t just divide household income by people per household, or people in four-person households look like they have vastly lower consumption than people in one-person households. That just isn’t reality.

One part you might reasonably question: The Pew size-adjustment methodology uses a chosen variable that can be from 0 to 1; they choose 0.5 based on some decent research over the years. I tried values between 0.1 and 0.9. Lower numbers lower and flatten the red line, and show a consistent upward trend from ’84 to ’01 (flat thereafter). But the basic story is unchanged.

– – – – – – – – – – – –

Look: no method is going to give you the perfect gauge of human well-being — the”obvious,” magic-bullet measure that conservatives seem to forever be after in their eternal Search For The Simple. This consumption measure is no exception. But advocates of this measurement approach are absolutely right: it’s much simpler and easier to measure than most other measures, and it’s a very good measure of how poor people are doing.

Bottom line: Poor Americans’ consumption grew, very slowly, over the past three decades. Meanwhile the rest of the country grew four times faster, and a typical stock-market investment grew at least 27 times faster.

Do with that what you will. Adjust your priors as appropriate, if that’s something you do.

Then take a look at some closely related measures that might tell other important parts of the big story:

How much of this picture is about young versus old? The population is aging; do we need to change the story this measure tells based on changing demographics?

Did poor people take on more debt to achieve that higher consumption? How has that affected their lifetime well-being?

 How much of that consumption growth resulted from government spending, and how much from the market doing its job of allocating resources efficiently? (i.e., to those who will value them highly?)

Are poor people working more hours to get that consumption increase? Do they have more or less leisure and family time?

How economically secure are people? What is the typical person’s chance of falling into this bottom-20% consumption group? How has that changed?

I’ll try to address some of those questions in future posts.

Cross-posted at Angry Bear.

Explaining “The most important chart about the American economy you’ll see this year”

October 4th, 2014 1 comment

See update at bottom.

Pavlina Tcherneva’s chart has been getting a lot of play out there:

Vox/Matthew Yglesias labeled it “The most important chart about the American economy you’ll see this year.”

Scott Winship at Fortune came back at it on methodological grounds, with the headline “No, the Rich Are Not Taking All of the Economic Pie (In 8 Charts).” He ends up with what he calls the “money chart,” supporting his headline:

Yglesias responded, and Winship responded to him.

The basic contention at this point: who is actually “explaining” the situation?

Do Scott’s corrections explain the situation better? Do they paint a 1. more accurate, and/or 2. more complete picture? By those two standards, is he more honestly and fully informative? Let’s run through his changes.

1. The household method as opposed to tax-unit method is at least a useful additional measure, and is arguably more accurate and explanatory. It’s also less complete because the data only goes back to ’79. But he completes it with Tcherneva’s (by this standard less-accurate) earlier data. It’s a useful addition to understanding, but with little change in the story it tells.

2. The full-business-cycle approach (as opposed to just showing expansions) is also arguably more accurate hence informative. But it (necessarily?) ignores the post-2007 period because the current business cycle isn’t over yet. By Tcherneva’s measure this period is far and away the most egregious demonstration of the inequality trend we’re examining. Scott could have included recent years, with visual and verbal caveats explaining that the cycle is not complete, so the measure that period is not directly comparable. It has less explanatory power, but that doesn’t mean it has none. Omitting the very period that by Tcherneva’s measure are the “money proof” of the trend (and so omitting explanations of that period) arguably explains less about that trend.

3. Looking at the non-elderly population is arguably more accurate and is at least quite informative. It paints roughly the same picture, though less extreme.

4. Post-tax-and-transfer measures are arguably more accurate and informative, but again with the completeness problem. And he should explain that the pre-’79 picture would look quite different if it displayed post-T&T data; the bottom 90% would have been getting more of the pie, which would make the inequality trend look more pronounced than it does in his graph.

I do wish he’d shown a graph as he suggested, including health/medical benefits in T&T (assigning a value other than $0), despite the methodological difficulties he points to. I have no idea how or how much this would change the picture.

5. Omitting capital gains (because they’re hard to measure) for the final “money chart” — suggesting that it’s the most accurate, complete, informative, and definitive chart — is a massive hit to accuracy and explanation. Cap gains are the very vehicle, the primary means, by which the increasing inequality we’re trying to understand is realized. “The data might not be accurate” begs the question: Is excluding that data more accurate? To use Scott’s own words, “assigning a value of $0 is surely not right.”

So some of Scott’s corrections help to usefully and informatively explain the situation better, or at least more. But to summarize the changes that are less informative or downright misinformative:

• The blatant inaccuracy of ignoring cap gains in #5. It completely misrepresents the situation.

• The omission of recent years in #2 — the very years where the trend is arguably most apparent and egregious. Hiding the elephant under the rug?

• The blithely dismissive headline of Scott’s first post.

With these combined, I hope Scott can understand why many see his post as an effort to pooh-pooh and obfuscate the whole subject — the very antithesis of “explaining.”

Part of that hand-waving, obfuscation, and general chaff-dispersal is the proleptic but of course you’re right” rhetorical ploy, right up front in Scott’s second paragraph:

Let’s stipulate that income inequality is at staggering levels in the U.S., and that income concentration at the top has probably risen (probably)

One really must ask: if income inequality is at “staggering” levels, how did it get there…if it hasn’t risen?

How do you square that staggering stipulated reality with Scott’s headline assertion: that “the Rich Are Not Taking All of the Economic Pie.”

I can’t see how to draw any other conclusion from this direct self-contradiction: he’s talking out of both sides of his mouth. I’ll leave it to my gentle readers to decide why.

Takeaway: obfuscation is the opposite of explanation.

Update: Scott has taken issue with my only-barely-implicit imputation of his motives. He’s right on that. I both regret that and apologize for it. I still think the import of his post (especially the “money chart” and title) — that inequality’s not that bad and not that important — contradicts his “staggering” stipulation, and is rhetorically pernicious. But that’s not the same as bad faith. I withdraw and apologize for any suggestion of the latter.

Cross-posted at Angry Bear.

The Global “Capital” Glut

April 17th, 2014 Comments off

No, I’m not talking about Piketty hitting the Times bestseller list. And it’s not just wild-eyed lefty Frenchman who are expressing concern about the state of world capital these days. Mitt Romney’s shop was beating this drum loudly more than a year ago.

One of the central takeaways from Piketty’s Capital in the 21st Century is the U-shaped long-term trend in the capital-to-income ratio, especially in rich countries. He uses “capital” synonymously with “wealth.” Here are the latest numbers for the U.S. from his compatriots Saez and Zucman (source PDF):

Screen shot 2014-04-17 at 12.46.35 PM

The economic relationship between wealth (or net worth, financial assets minus liabilities) and real capital  is a sticky one, even if you’re only considering “fixed capital” — structures, equipment (hardware), and software. It’s even more so if you consider  human skills, knowledge (i.e. patents), organizational capital, etc. (The line between organizational capital and “software” is getting especially blurry these days; what would Vanguard’s, much less Google’s, value be without their web presence?) And more so again if you consider natural capital like land and what’s on/under it.

But “Wealth in the 21st Century” wouldn’t have had quite the same ring to it, so let’s just go with it, with the knowledge that we’re talking about wealth (“financial capital”), and wealth has some indeterminate but somewhat representative relationship to real assets/capital. We can at least say, loosely, that financial assets are claims on real assets, or on the production that’s enabled by those assets.

So what about Bain Capital, Romney’s shop? Here from their December 10, 2012 report (PDF; hat tip to the always-remarkable Izabella Kaminska, and to Climateer Investing).

World awash in nearly one quadrillion of cheap capital by end of decade, according to new Bain & Company report

Their takeaways include:

The capital glut will be accompanied by persistently low real interest rates, high volatility and thin real rates of return.

Sound like secular stagnation to you?


The ever-present danger of asset inflation will contribute to an overall steepening of the investment risk curve… companies will need to strengthen their bubble-detection capabilities

In short, there’s a huge amount of money floating around out there relative to income and production. (In Steve World, all financial assets embody money, and the money stock is the total value of financial assets — including dollar bills, deeds, or other formal financial claims — regardless of how currency-like those things are. Equating currency and currency-like things with money is conceptually incoherent.)

With so much money around, is it any surprise that people are lending it cheap?

As usual I have much more to say on this but instead I’ll hand it off to Jesse Livermore, who recently wrote one of the clearest and most cogent posts I’ve seen in years on financial asset values, hence wealth. I’ve been meaning to link to it. Read the whole thing.

The Single Greatest Predictor of Future Stock Market Returns

Hint: it’s about what the herd does with all that money.

Cross-posted at Angry Bear.

ALEC: Destroying the American Economy, One State at a Time

April 14th, 2014 Comments off

The American Legislative Exchange Council — which authors ultra-conservative legislation and promulgates it to state legislatures nationwide — has a little index measure of states’ “competitiveness,” which supposedly results in greater prosperity for those states that rank highly.

Does it? Let’s let the numbers speak for themselves:

Screen shot 2014-04-14 at 8.14.01 AM Screen shot 2014-04-14 at 8.14.11 AM Screen shot 2014-04-14 at 8.14.31 AM Screen shot 2014-04-14 at 8.14.47 AM Screen shot 2014-04-14 at 8.14.58 AM Screen shot 2014-04-14 at 8.15.25 AM

Source (PDF).

Cross-posted at Angry Bear.

The Global Labor Glut

February 17th, 2014 30 comments

Ryan Avent’s excellent post at The Economist finally provides me the impetus to respond to Josh Mason’s comments on my recent post.

I suggested:

 What we have instead of a Global Savings Glut is:

1. A Global Labor Glut: more human effort and ability available than is needed to provide goods that provide high aggregate marginal utility, and,

2. A global financial and political system that — despite the reality of #1 — fails to transform that abundance into maximum aggregate human utility via reasonable distribution of that abundance.

Josh sed:

I think your conclusion that unemployment must be a glut of labor is both wrong and politically destructive. By turning this into a labor-market problem, you are implicitly accepting Say’s law and rejecting the principle of aggregate demand. And you are wrong factually. All factors of production are in excess supply in a recession, not just labor.

What you are saying here is that changes in (realized or desired) balance sheet positions never affect the real economy. I’m sure you don’t think that’s what you’re saying, but it is.

Josh may be right. But I really don’t think that’s what I was saying, and my gentle readers will know that it’s very much not what I want to be saying. I think he’s framing my argument in terms that implicitly concede the exact false assumption I was dismantling in my post — that more saving causes lower rates so more borrowing so more investment.

This gets messy so I’ll just say: We have the amusing situation where Josh and I — who as far as I can tell agree on almost everything — are mutually accusing each other of sleeping with the enemy.

In any case, what Josh thinks I’m saying is certainly not what Ryan Avent is saying, when he says exactly the same thing I was saying:

…full employment is no longer compatible with full utilisation of capital. The “great savings glut” story may indeed be a tale of insufficient investment opportunity. The return on capital is low because the return on labour is low: because society is allowing the market to become glutted with labour, none of the potential high-return capital investments are economical. The global savings glut might well be thought of as a global labour glut.

This is an abundance versus scarcity argument, not a production-causes-income argument. The dominant resource — effective, efficient, productive human labor — is not scarce. As productivity steadily increases, it’s ever more abundant.

And the takeaway? I’ll leave that to Ryan:

Fiscal expansion could help, but the gain from fiscal policy is likely to be limited unless it is structured to try and reduce labour supply. That’s right, reduce labour supply.

In other words, the very anathema of the right: paying people not to work.

The ultimate goal of increased productivity is straightforward: more stuff, less work. The problem is that those who own the stuff don’t want the people who don’t own the stuff to slack off or get a larger share of the stuff. They only like that mantra when it applies to them.

And they don’t understand the inexorably destructive arithmetic of their selfish rivalry in a high-productivity economy — that their refusal to share the wealth, their frantic hoarding, results in us all having less wealth. It’s a classic coordination failure, a tragedy of the common good.

I’m pretty sure Josh agrees with me (and Ryan) on that 100%.

Cross-posted at Angry Bear.

It’s Working: Pubs’ Polls Plummeting

October 4th, 2013 Comments off

Give the Republicans enough rope and they’ll hang themselves? It seems to be working.

Screen shot 2013-10-04 at 12.44.00 PM

Yeah, it looks like Dems have taken a hit from this whole business, as Republicans hoped they would. But like the debate in general, it’s very much not symmetrical.

Combine this with the Pubs’ internal discord: are they reaching the point that the Whigs came to in 1852, where they couldn’t even nominate their own incumbent president as their candidate?

This is is just one polling outfit; I don’t have the time to compile or compare others. But given the magnitude of the move, I’d be surprised to see polls that directly contradict this trend.

Cross-posted at Angry Bear.

Currency is Equity, Equity is Currency

April 27th, 2013 3 comments

This is utterly brilliant:

Twitter / izakaminska: Why equity is a type of privately issued currency

Steve Randy Waldman has been here before, with the idea that currency issued by government (ultimately through deficit spending) is “equity” in government, or in America. But this reverses it beautifully, with the notion that private equity issuance is also currency issuance. Google stock is currency.

I won’t recap the argument here; you really need to read it. Just some thoughts:

I think different words might help make it clearer. I would say that there are many units of exchange in the world —  dollar bills, t-bills, stock shares, etc. Financial assets. They have various characteristics, a key one being limits on what they can be exchanged for. In general when we say “currency” we mean physical tokens that can be exchanged for (small quantities of) real goods. But we confuse things by not realizing that “currency” is a somewhat vaguely defined subset of “units of exchange.”

(Key distinction: the “units” I’m talking about are not measurement units like inches, degrees, or “the dollar” — units of account. Rather, in the sense of discrete units, chunks. As when a factory produces a certain number of units, which can have their value described relative to a unit of measurement/account, such as the dollar. More on the distinction between “unit” and “medium” of account/exchange here.)

You can’t buy a car or a government bond with quarters. So are quarters currency? Likewise, you can’t buy a pack of gum with a treasury bond — but you can use it to buy Fed reserves (if you’re a bank). Is the bond currency? You decide. But both quarters and bonds (and Google shares) are units of exchange. (This is why I’m still struggling with JP Konig’s “moneyness” concept: it seems to hinge on a single axis of “liquidity,” when in fact different units of exchange are differently liquid.)

We can also call these units of exchange “financial assets.”

I do not define a “bushel of apples” as a unit of exchange or a financial asset, but as a unit of commodity. Ditto an ounce of gold. Because in my definition:

1. Units of exchange/financial assets cannot be consumed by humans to produce human utility, and

2. Their creation requires no (or vanishingly little) input to production.

Returning to a previous (excessively long) post, these units of exchange/financial assets embody exchange value — money. Hence (alert: precise definition here) money is exchange value as embodied in financial assets. Money does not, cannot exist, absent such embodiment. A bushel of apples does not embody money: That bushel has exchange value, but the value is not embodied in non-consumable, only-exchangeable form.

Not sure how much this will help others, but it’s working for me.

Cross posted at Angry Bear.

Does Saving “Fund” Investment?

February 27th, 2013 6 comments

If this blog has any tiny claim to any important influence, it might be that anonymous and magisterial commenter JKH used the comments section here to first bruit his insight (both tautological and profound) that S = I + (S – I).

He revisited that construct and concept again recently, and I’ll leave it to you to explore his very interesting thinking.

But I do want to address a central issue in that discussion: the notion of “funding.”

JKH quite properly uses standard flow-of-funds accounting terminology to explain that private-sector “saving” “funds” both its “investment” (buying/creating drill-presses and such), and its acquisition of newly created financial assets.

Quite properly, but: it’s important to understand what that key accounting verb (“funds”) actually means. It describes an after-the-fact and arguably largely arbitrary accounting allocation of income streams to outflow streams.

Imagine 2011, a year in the life of BFC Corp.:

Profits (revenues – expenses): $100,000
Net Borrowing (borrowing – loan payoffs): $100,000

Investment (spending on drill presses and such): $100,000
Dividends paid to shareholders: $100,000

Looking back: Of the $200K in inflows, which part “funded” the investment spending on drill presses? What funded the dividend payout? The accountant’s allocation decision, absent any other information, is after-the-fact and completely arbitrary. Funds are fungible — especially when viewed in retrospect.

Before-the-fact conditions and restrictions might well give justification for a given after-the-fact accounting allocation decision. If BFC decided in 2010 to spend X% of profits on drill presses in 2011, and that X% came to $100,000, an accountant after the fact might quite reasonably say that the drill-press purchases were “funded” by that year’sprofits.

Alternately: Imagine BFC “set aside” $100,000 from 2010 profits for future drill-press purchases by “funding” a drill-press holding account on their books, debiting their 2010 profits to “fund” that holding account. (Maybe it even created an actual external bank account to hold and segregate those funds, though that’s not actually material to this discussion.) It then spent down that holding account in 2011 to buy drill presses. Were those purchases “funded” by 2011 profits or borrowing? The proper accounting answer here is “neither.” Looking backwards you might/could/would say that they were funded, ultimately if somewhat arbitrarilly, from 2010 profits, or from the holding account. Either is accurate, depending on how you telescope your “funding” pipeline, in both time and account-space. (This is all rather like discussions of the Social Security Trust Fund.)

When we say, in a backward-looking flow-of-funds statement, that “X funded Y,” that is an ex-post description that is informed, and arguably justified — but not fully or authoritatively determined — by knowledge of before-the-fact intentions.

So when we say that “…the marginal dollar borrowed by a nonfinancial business [post-’85] was simply handed on to shareholders, without funding any productive expenditure at all,” we are making a statement about what “funds” what. We’re saying that all the borrowing went to payouts, and all the profits went to investment. The reverse could be equally accurate, given that shareholders from ’04 to ’08 were paid about $200 billion more than their companies earned in profits.

Let’s try this on the level of national/international accounts, and sectoral flows. Here’s mythical 2011 accounting for Bandalaria:

Assume (purely for simplicity in explaining the “funding” concept) that:

1. There is no net trade surplus or deficit, and the country’s capital account balance sheet remains unchanged.

2. The central bank does not increase or decrease its holdings on net.

3. The financial system does not increase or decrease its loan book to the private sector.

That leaves two sectors, with (looking back) no accounting impact from the above:

• Federal government (Treasury)

• The nonfinancial private sector (nonfinancial firms and households)

What do Bandalaria’s net money flows look like?

From Treasury -> Private
Deficit (purchases minus taxes): $100 million

From Private -> Treasury
Treasury bond purchases : $100 million

Looking back, how would you describe these flows? Are are the bond purchases “funding” the deficit, or is the deficit spending “funding” the bond purchases?

The correct answer is “Yes.”

Likewise: when JKH says (my words actually) that saving (income – expenditure) by the private domestic nonfinancial sector “funds” both its investment spending and its net acquisition of new financial assets (including government bonds), his description is perfectly correct.

But he would equally correct if he said that government deficits (less trade deficits) “fund” some of the investment, or (all of) the acquisition of new financial assets (notably government bonds), by the private domestic nonfinancial sector (or some of each).

Obviously, the two accounting-based descriptions, both accurate, have very different rhetorical implications.

This just reiterates the point I made in the post to which JKH responded with his revelatory identity: accounting tells us nothing about economics, except that it often tells us when economic thinking doesn’t make any logical/arithmetic sense.

I guess my main point here, perhaps obvious to many, is that accounting descriptions — choices about how to describe the past in accounting-speak, especially regarding “saving” and “funding” — are, inevitably, rhetorical hence normative. Or at least, those choices of descriptions have inevitable rhetorical hence normative implications.

Or to put it simply: accounting is normative.

My impression is that many economic discussions and disagreements, especially in the “MM” worlds, are at their root disagreements about what “funds” what (frequently compounded by imprecise sector definitions with different parties using different implicit definitions), and the rhetorical hence normative implications of those competing descriptions.

Cross-posted at Angry Bear.

Leading Economists Vote on Raising the Minimum Wage

February 26th, 2013 Comments off

I’m delighted to see the U Chicago IGM Forum ask a really useful, non-softball question.

The panelists are evenly split on whether an increase to $9 would make it “noticeably harder for low-skilled workers to find employment.”

A 4:1 majority thinks that weighing the costs and benefits, “this would be a desirable policy.”

I note how many who commented bring up the EITC, suggesting that an increase in that support might be better than a minimum-wage increase.

I note further that they apparently haven’t read the very good reasoning and research suggesting that the two together very effectively address the problems of each.

But Paul Krugman has. And his surprise helps explain why the others haven’t thought about this:

Second — and this is news to me — the usual notion that minimum wages and the Earned Income Tax Credit are competing ways to help low-wage workers is wrong. On the contrary, raising the minimum wage is a way to make the EITC work better, ensuring that its benefits go to workers rather than getting shared with employers. This actually is Econ 101, but done right

Cross-posted at Angry Bear.