The Republicans won control of the House and picked up seats in the Senate in the midterm election on nebulous promises to slash spending and reduce the size of the federal government. House Speaker John Boehner has pledged to reduce spending to 2008 levels, as per the GOP's campaign manifesto, known as the "Pledge to America."
I've pointed out before that main reason the deficit has gone up is not because "spending has expoloded"--it has gone up some, as it always does during a recession--but because government revenues have dropped so much:
People being out of work is not only bad for them, it's bad for the economy and bad for the government, too, especially the federal deficit. If we want to cut the deficit, the most effective tthing we can do, it turns out, is to also handle our most pressing problem: putting people back to work!
The current downturn had led to the worst period of sustained unemployment since the Great Depression. This suffering is especially tragic because, like the Great Depression, it is entirely the result of misguided economic policy.
Unemployment corresponds to lost production of goods and services. Construction workers could have been providing safe and energy efficient housing to people who lack adequate shelter, but instead they were left sitting idle. Manufacturing workers, who could have been producing more fuel-efficient cars and appliances, are instead getting unemployment checks. Health care workers who could have been ensuring that people received adequate care and teachers who could have been in classrooms, helping educate our children, are instead spending their time looking for work.
This is an incredible loss not only for these workers who must struggle to make ends meet, but also for our economy and society. The CEPR Recession Waste Clock allows people to see the value of the goods and services that we have lost in this downturn. It measures the gap between potential GDP (as calculated by the Congressional Budget Office) and actual GDP.
Given the current unemployment rate of 9.6 percent, the amount of lost GDP as measured by this gap increases at the rate of $2.873 billion per day. This comes to $120 million an hour, $2 million a minute or $33 thousand a second.
You can also see the amount of lost output measured in units of houses, college educations, or personal mp3 players.
The calculation of lost output is based on the gap between potential GDP as estimated by the Congressional Budget Office and actual GDP. The projection going forward assumes the same quarterly output gap as the last quarter for which data are available.
In part of a fresh spate of conservative tendenticious ideological arguments against the stimulus, Robert Barro rehashes the same dubious WWII based analysis he used against the stimulus back in January 2009:
To realistically evaluate the stimulus, I've been using long-term U.S. macroeconomic data to estimate some key economic relationships: the effects on GDP from increased government purchases (the spending multiplier) and from increased taxes (the tax multiplier).
For spending, the main results come from fluctuations in defense outlays associated with major wars such as World War I, World War II and the Korean War. The data feature large positive values in the early stages of wars (extra spending of 26% of GDP in 1942) and large negative values in war aftermaths (27% of GDP in 1946).
Back in January 2009, Paul Krugman made severalposts (naming Barro specifically) refuting the idea of using wartime spending as a model for the effects of peacetime civilian stimulus spending. Krugman focuses on the impact of war time rationing which would have had a decisive anti-stimulative effect.
Additionally, Barro's equivalence of WWI, WWII and Korea is problematic. As this paper analyzes, Korea was funded by tax increases, not debt. War spending on Korea is even less comparable to ARRA than WWII.
Mainly though, I'd like to flog a dead hobby horse of mine by pointing out that this is a great example of the weakness of GDP/GNP as an overall metric of societal performance, wealth and health. War spending is not just as good as peaceful development spending, but GDP treats them as such.
This week, Rachel Maddow did an excellent segment on presidents and the debt:
There's just two problems--not for Rachel, but for the entire Democratic establishment, and frankly the entire supposedly fact-checked and "objective" media: (A) What took so long? and (B) Where's the endless repetition?
As you can see from the following chart (same underlying figures the second chart in last weekend's diary, "Everything Versailles says about the debt is wrong") Republican's haven't engaged in responsible budgeting since Ronald Reagan rolled into town 30 years ago:
It's not just that Republicans are "fiscally irresponsible." It's that they're constantly using Keyensian-style deficit spending to drive the economy, all the while claiming that what's driving the economy is the "free market forces" they've "unleashed." Of course, Keynes never said that government should run deficits all the time. They were supposed to run countercyclically--when non-governmental demand plummeted, the way it has since mid-2008. Running deficits all the time--not little ones--has a really bad effect on the economy, because it more than "unleashes" those magical "free market forces", it gets them turbo-charged, intoxicated and headed right off the nearest cliff.
I don't care how smart you are. You can't make good policy against a background chorus of constant lies.
This week, the Chinese government announced that China's economy had expanded by a stronger-than-anticipated 10.7 percent in the last quarter of 2009 and that it had grown 8.7 percent for the entire year. This news, however, was not greeted with relief but with the skepticism that has typically met such news emanating from China in recent years. The Wall Street Journal ran a story on its front page with the headline "China Seeks to Tame Boom, Stirs Growth Fears."
This is a public service announcement in light of (a) the increased hyperventilation over the current deficit, and (b) the gathering storm to form a Catfood Commission to return senior citizens to the age of Dickens.
Versailles:
The GOP is the party of fiscal responsibility, and Democrats have to show they can reign in spending in order to prove they can govern responsibly.
Reality:
The GOP is the party of intentional fiscal disaster. They are destroyers of government in the short run as well as civilization in the long run. (See Natasha's diary from yesterday afternoon/evening, "The Destruction of Reciprocity.") They know that people--even a majority of Republicans and conservatives--want the government to spend money to make people's lives better in ways they can't do for themselves. The only way to stop this is to financially ruin the government. So that's what they've been trying to do ever since Reagan took office in 1981. This, in turn, is intended to force the Democrats to "act responsibly" by doing the most politically unpopular cutting for them. Barack Obama is just dumb enough to not only fall for this, but to break his arm patting himself on the back for being so virtuous.
The Data:
The most important measure of fiscal health for sovereign governments is not the size of the debt, but the debt-to-GDP ratio. Roughly speaking, fiscal responsibility consists of maintaining or reducing the ratio, fiscal irresponsibility consists of increasing the ratio absent a clear and compelling reason--such as fighting WWII, financing an energy transition to avoid catastrophic global warming, that kind of thing. (More accurately, the above should apply over the course of the business cycle, but for purposes of evaluating presidential performance, we're stuck with the rough approximation.)
So what does the record of fiscal responsibility since the end of WWII look like? Well, as it happens, we were predominantly responsible until Ronald Reagan took office in 1980, and predominantly irresponsible ever since. Exceptions: Nixon-Ford were (arguably) just a teeny bit irresponsible. Bill Clinton was significantly responsible:
That's as close to a laboratory controlled experiment that you're ever going to see in political history, and conclusion is utterly damning to the GOP.
Table of underlying data (from Wikipedia) on the flip.
Last weekend, Paul wrote an interesting piece using GDP comparisons between the US and China to demonstrate the failure of conservativism on its own terms, in that China gained ground on the US. Let's widen that, and present the overall picture of America's relative economic power. Using the World Bank's quick query engine, I gathered GDP data for the entire world, and selected countries, and used that to calculate each political unit's percentage of global GDP:
From a peak of 39% of world GDP in 1960 (the earliest data available for the US from this source), the US is now at 23% of the world in 2008. Power is a zero-sum game, and measuring relative economics instead of absolute, or relative only to yourself, this comparative metric is a decent approximation of where the geopolitical balance sits. The US is still by far the world's largest single national economy (though the EU as a whole is larger), but it is far down from the staggering levels it has had during the Cold War, or even the Clinton years. By this metric, it's interesting to see how the Bush years are a failure in conservative terms - America lost ground during every year of the Bush presidency. It's true that Clinton's increase relative US economic power in the world could be written off as the dot com bubble, but then, Bush had the housing bubble, and yet still didn't manage even one year over year increase.
From a liberal perspective this decline in relative economic clout might not be all bad. This may mean the world economy is becoming more democratic, that trade is having some good effect by distributing economic power more widely at least at the level of political units (leaving aside income/wealth distribution among individuals). The data supports this somewhat, as in this graph it is difficult to see who is making up all the ground the US is losing. China shoots up a few percent in the 2000s, but enough to account for the decline of America and Japan? So who else is making these gains? It's not the rest of the G8, as they're mostly down (red line, mostly because of Japan), nor is it Brazil and India portions of the BRIC.
It's true, Rush Limbaugh is a racist idiot and vicious propagandist. One of his recent exercises in inhumanity included telling New York Times reporter Andrew Revkin that he should "just go kill [himself]", as noted at Media Matters, after Revkin said that "probably the single most concrete and substantive thing an American, young American, could do to lower our carbon footprint is not turning off the light or driving a Prius, it's having fewer kids, having fewer children."
There is a wealth of material indicating that wingnut heads spontaneously explode when someone suggests that white Americans shouldn't have as many babies as possible in service to the noble goal of crowding out the lazy brown hordes coming to take our jobs. It's creepy, but not breaking news. When Revkin suggested, as a thought experiment, directing carbon credits towards discouraging people in America (and elsewhere, but we'll get to that) having children, Limbaugh's cranial pressure differential reached critical levels.
In the ensuing October 20th rant, the same one where he suggested Revkin off himself, we get to the meat of Limbaugh's damage:
We don't even have to talk about getting married. We don't even have to talk about being a couple. I mean men have no say now, really, in whether a child is born or not, legally I mean. So would a man have any way of benefiting from the carbon credit?
If men don't have control over something, and especially if they can't benefit from it, Limbaugh is opposed. If you needed an object lesson today on why feminism remains relevant, well, there you are.
However, the fact-on-the-ground that many men do insist on control and the greater share of direct benefits from everything within their purview, gets at the underlying problem with Revkin's thought experiment. Just because Rush Limbaugh doesn't like you, it doesn't make you right in all particulars.
If anything, the population-climate question is more pressing in the United States than in developing countries, given the high per-capita carbon dioxide emissions here and the rate of population growth. If giving women a way to limit family size is such a cheap win for emissions, why isn't it in the mix?
Well, here's why. Because if you were really serious about reducing the birth rate, you'd be campaigning first and foremost for women's rights. If you aren't campaigning first and foremost for women's rights, then your push for greater contraception access will never get you where you think you want to go. Also, it can come off badly.
With Wall Street - and the Federal Reserve - in a headlong rush to declare the recession over, the economic data has indicated that the simple binary recession-no recession framework obscures more than it reveals. Yes, defined purely in terms of Gross Domestic Product (GDP), the recession looks to be winding down, with strong indications that GDP is about to turn positive after a long and painful swoon.
But GDP alone is a pretty poor proxy for the lived experience of many millions of people. Wall Street may be booming, the market rising, and many companies reporting strong profits relative to weak global economies. Yet that says little about any one national economy, even one as large and prominent as the United States (see my recent Wall Street Journal piece here http://online.wsj.com/article/SB20001424052970203517304574306414148814226.html).
Amidst a recent upsurge of happy talk about economic "green shoots," the Organization for Economic Cooperation and Development (OECD) released a sober reminder this week in the form of its Quarterly National Accounts figures (pdf) showing that the global recession deepened in the first quarter, while the New York Review of Books published a forum, "The Crisis and How to Deal with It" with Bill Bradley, Niall Ferguson, Paul Krugman, Nouriel Roubini, George Soros, and Robin Wells. It was from an April 30 panel discussion, but things have not improved so much as to render it outdated. Indeed, Huffington Post just published a followup report on the "American families" featured in his 30-minute campaign ad. They've yet to see any real help from his presidency. And while they are still patient and trusting towards him, the collective picture is not encouraging.
OECD first:
Gross domestic product (GDP) in the OECD area fell by 2.1% in the first quarter of 2009, the largest fall since OECD records began in 1960, according to preliminary estimates, and followed a fall of 2.0% of GDP in the previous quarter.
In the United States GDP fell by 1.6% in the first quarter of 2009, the same rate as in the previous quarter. Japan's GDP declined by 4.0%, following a 3.8% decrease in the previous quarter. GDP in the euro area was down 2.5%, following a 1.6% fall in the previous quarter.
Of the Major Seven* countries, only in France, where GDP fell 1.2%, did the rate of contraction ease in the first quarter.
Compared with the same quarter a year earlier, all the Major Seven* economies recorded a fall in GDP, and a marked deterioration on the previous quarter's year-on-year figures.
The United States contributed 0.9% to the total OECD fall of 4.2% between the first quarter of 2008 and the first quarter of 2009. Japan contributed 1.0%, the euro area (13 countries) 1.3%, and the remaining countries 1.0%.
* "Major Seven" and other groups of countries defined at end of diary.
Each month, the Federal Reserve releases its latest minutes of its last meeting along with its projections of economic activity (www.federalreserve.gov). The minutes just released indicate that its prior forecasts have been tweaked a bit, with update projections for unemployment over the next two years, GDP growth, and inflation. As new data become available, the hundreds of economists at the Fed revise and recalculate numbers, which means that any forecast rarely lasts more than a few months.
And yet, the Fed's forecasts - along with the World Bank, the International Monetary Fund, the Office of Management and Budget, the Congressional Budget Office and various others - are used to frame every single meaningful discussion about the economy. They become the fodder for media reports, for budgetary decisions made by companies, and for individuals who digest the sound-bites - "Fed predicts unemployment will level off at 9% next year" - that shapes their sentiment. Investors also turn to these signposts as markers to navigate a complex world.
Haste does indeed make waste. Finding myself with too little time to put together a more ambitious set of comparisons, I blindly grabbed the wrong pair of data sets, one in constant dollars, the other in current ones. So, I'm demoting my original misleading material below the fold and replacing it with this chart showing how the ratio between the Dow Jones Industrial Average and the GDP has changed over time:
While it does show--in comparison to the original chart, now below--is a similar increase in the Dow vs. GDP since 1980, what's striking is that this is part of a quite varied history preceeding it. The most obvious conclusion that I can draw from this is that it's simply too simple or crude a comparison to get our hands around what's really going on, in part because there are now many other, more exotic markets in which big investors place their money, and in part because volume of funds matters as well as price.
I was, of course, aware of these facts, but it's often the case that added dimensions aren't necessary to get at important facts. It's downright spooky, for example, that public opinion scholar James Stimson was able to identify underlying cycles that account for the vast majority of coherent cyclic change in American public opinion across dozens of issue areas. This time, however, not so much. So the question is: what should I be measuring???
From a macro-economic point of view, the most important way to think about the debt is as a percentage of GDP. Put simply: how big is the governments' debt compared to the size of the whole economy--the tax base available for paying the interest, and hopefully paying down the debt. And if we start off by thinking of it that way, then the record is strikingly clear: throughout the heyday of "big government," the size the debt shrank consistently--if not uniformly--under every post-WWII Administration, until Ronald Regan:
It's equally notable that the size of the debt shrank under Clinton as well, while rising under both Bushes. This is important for at least two immediate reasons:
(1) It shows that even with the incredibly foolish bailout package, our debt levels should remain managable, if the next President is sane (i.e. not a Republican). This doesn't mean we have no problems. It just means that this bailout, however odious, is not a crushing blow that destroys all hope.
(2) It reminds us of the basic argument we should have been making ever since 1984: so-called "conservative," supply-side, voo-doo economics does not work, and drives the government into needless levels of high debt. (As opposed to the WWII debt, which was quite necessary.)
Bush's State of the Union was jam-packed with old Republican lies about economics, less as direct assertions that can be fact-checked in a bullet-point manner, but more as deep, insistent, persistent framing. Republicans get away with this for a variety of reasons (they get away with just about everything, don't they?) but one of the big ones is that progressive activists really don't grasp just how bad Republicans are when it comes to the economy.
And so, to make that point rather emphatically, I've put together a table, comparing what the economy would be like under three different scenarios-all involving smooth, unvarying rates of growth. One takes the average growth rate under all Presidents since 1932, another takes the average growth rate under all Democratic Presidents since 1932, and the last takes the average growth rate under all Republican Presidents since 1932,
I don't want to spoil the surprise by saying anything more. The table is on the flip....
In my first diary yesterday, I questioned whether, as Chris argued, another wave election victory for Democrats, based primarily on the Iraq War, would be enough to produce a genuine realignment, and the overthrow of the conservative coalition. I picked up on David Sirota's diary about a three-country expansion of NAFTA, and agreed that this sort of politics had proven deadly for Democrats in 1994, but disagreed somewhat about why and how.
In my second diary, I looked at Naomi Klein's reframing of "free market" conventional wisdom in her new book, The Shock Doctrine, and a 7-minute trailer for it. The "free market" is not natural, inevitable, noncoercive and beyond politics-as, for example, neocon Frances Fukiyama argued in The End of History--but rather the product of deliberate anti-democratic interventions carried out when societies are helpless to resist.
This is, of course, one of the key dynamics in Iraq. Although Saddam was a brutal dictator, he kept Iraq's basic social contract intact. Iraq was a Western-style welfare state, based on its oil wealth, with a highly educated middle class. The oil law we are trying to impose is central to changing all that, transferring enormous wealth to oil companies, and leaving Iraq with a vastly impoverished public sphere. (Which, of course, opens the way for "faith-based initiatives" of the Hamas, Hezboolah, even bin Laden persuasions.) The oil law is a key requirement of the Iraq Study Group recommendations- recommendations which some have proposed should form the foundation of the Democrats' alternative to Bush's endless war.
The fact that this oil law could be nonchalantly accepted in such a manner is indicative of how poorly we understand the nature of the political struggle we are in. Stealing Iraqs oil wealth-for that is what the oil law does-should be anathema, morally repugnant to us. That it is not is a reflection on our general ignorance of the "free market" dogma and its impact on the rest of the world. We simply fail to focus on the oil law because we do not see that larger movement of which it is part-a movement to extract as much wealth as possible from the poor people of the earth, which is what "free trade" is actually all about.
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