NDN Blog

Beastly Economics

The President seems to be wanting to talk about the conservative economic record at the moment. So this might be a fun time to remember what yesterday told us about two recurring, contradictory and economically rather silly tax nostrums trotted out by Republicans. These are the laffer curve and the starve-the-beast hypothesis, supported by Art Laffer and Milton Friedman respectively. The first turns up from time-to-time in the President's speeches as a justification for tax cuts. It argues that, up to a certain point, tax cuts cause higher tax takes because of changed incentives. The second, confusingly, means almost completely the opposite. It argues that tax cuts lower government revenue (and hence spending), starving the beast in question.) Which is right? Turns out - drumroll - it's neither.

A splendid post at the scarcely Keynsian Wall St Journal picks up new figures put out yesterday by the Administration explaining why the tax cuts don't pay for themselves:

"The congressional Joint Committee on Taxation, using conventional analyses, says making the president’s tax cuts permanent would reduce federal revenues in 2016 by $314 billion. That is more than 10 times what the Treasury analysis suggests tax cuts would generate."

(There is more on this at Brad De Long's ever excellent blog too, where he also agrees with Rob's post below on previously high deficit estimates.) And what of the beast? Yesterday's events shed less light on that, beyond the President's admission that little had been done on his watch to curb entitlement spending. Its common knowledge that spending has increased mightily under what the Economist calls his "Big Government Conservatism." But beasts aside, sensible economic theory isn't much surprised by this. Americans are at present getting roughly the same ammount of Government for less money. It makes perfect sense for them to then want more of it, because they don't have to pay as much for it in taxes. The rub, of course, is that future generations do, through the now 4th largest ever deficit. I'm afraid I can't find a WSJ article to back me up on this, so the CATO Institute will have to do instead. So there you have it. Taxes go down, so do revenues. Taxes go down, government spending does not fall, but deficits get bigger. Come in Mr Laffer, and Mr Friedman. Your time is up.

Silk Purse - meet Sow's Ear

Lots of intriguing economic issues bubbling around the press today, much of it summed up rather nicely in the leading Times editorial this morning, Another Mission Accomplished. Following his trip to Chicago, Bush will today wax euphoric over a slightly lower than expected budget deficit of$300bn. If you see some lipstick in the President's pocket, it might well be the beginning of a concerted campaign to pretty up his pig of an economic record.

Yesterday, the President spun the line a little further in remarks at the swearing in of Treasury Secretary Paulson. He put the best possible gloss on the latest job creation and unemployment figures, before concluding that all of this was "leading to higher wages and a higher standard of living for our people."

Luckily for us, the lie of this pig-polishing exercise on these three claims - the economy is doing well, $300bn isn't actually a bad federal deficit, and living standards are rising for "our people" - was nicely disproved before the lipstick was dry, in three excellent papers by the Center on Budget and Policy Priorities.

First, they point out that the current recovery is much weaker than the average for comparable recoveries since the Second World War, with the noteable exception of strong growth in the corporate sector. Second, they point out that any reduction in the federal deficit is a combination of expectations management (previous estimates were on the high side) and a strong tax take from (guess who?) the very richest Americans. Even given that - the administrations claim that the current is low by historical standards only works if you count times of war and reagan's fiscal recklessness. Without those, its a whopper. And, finally, they profile new data on income distribution for the last year in which figures are available. It is here that the President's phrase "higher standard of living for our people" comes into sharpest relief. It notes

"an exceptional jump in income concentration in 2004. The share of the pre-tax income in the nation that goes to the top one percent of households increased from 17.5 percent in 2003 to 19.5 percent in 2004. Only five times since 1913 (the first year that this data set covers), and only twice since World War II has the top one percent’s share risen by as much in a single year (in percentage point terms)."

So, there you have it. In as much as the economy is doing well it is doing well for our [wealthiest] people. Despite this a new campaign is clearly underway to gloss up the President's economic record, going into November. No ammount of lipstick should hide the fact that - for the quiet majority of Americans - this is an oinking economic recovery complete with little trotters and a pink twirl-around tail.




Bill Clinton: Football Star?

The NDN blog, like the rest of the world, will soon leave the World Cup behind. Before it does i have one odd story to recount. In between the headbutting, yesterday's final coverage on ABC featured the staple broadcasters cut-aways to politicians, player's wives and random pretty-girls-in-the-crowd. We had a jowly looking Chirac, an anonymous looking Sepp Blatter, and an Italian stepford wife. In the packed bar where I watched the game only one of these got any reaction at all. And that was President Clinton. And what a reaction it was. I kid you not: the President appears, and the crowd errupts in cheers. The whole bar then begins a boisterous chant of "OLE! OLE! OLE! OLE! CLINT-ON! CLINT-ON!". I make no particular political point about this, beyond the fact that i was amazed. A bar packed with Europeans - nay a bar at least half packed with FRENCH Europeans- cheering an American President. It was a pleasant reminder of the way things could be.

Bush: Incoming

An intriguing article in this morning's New York Times highlights President Bush's day-long forray into Chicago, at least partly to "Spotlight Good Economic News". The piece continues:

"The trip coincides with the release of the unemployment report for June, which is expected to show fairly strong job creation. Administration officials are using the visit to spotlight the economy."

This spotlighting sounds like a fun game. Can anyone play? Because it seems awfully generous of the President to spend his whole day highlighting what CNN is noting as job growth being "weak again", and "a weaker labor market than Wall Street predicted." Someone in the Whitehouse Press Corp is going to get it in the neck if that is the best headline he gets all day.

There is some debate among economists as to exactly how good or bad the current job figures seem to be. As this solid article in The Street points out, it depends on which set of figures you chose to believe. But, as the article goes on to say and as we at NDN have said before, the real question the President has to answer is not on jobs, but on wages and living standard:

"The difference of a few hundred thousand jobs occupies the headlines. But it is the hourly wage portion of the nonfarm payrolls report that will provide more clues to the state of the economy .... [because] the dual pressures of intense global competition for jobs and high productivity levels make it difficult for the hourly wage earner to demand increases."

All of this is backed up by the recently released May personal income and outlays figures. These show paypackets flat. Again. But don't take our word for it. Take the word of an article published today in that noted cheerleader for progressive causes, Fortune Magazine

"This is serious trouble because America's great economic story is that living standards keep rising, especially when times are good. But living standards are not rising right now. That is the kind of deep disruption that over time can lead to economic and political crisis."

Perhaps this would be a bit of economic news worth spotlightling. What say you, Mr. President?


Interdependence Day

It might be two days out of date, but Sebastain Mallaby's unusually sane article on trade and energy security will age well. He points out how wrong-headed - not to mention economically illiterate - the energy policies of the world's big powers have become. Remembering 1990s vintage interdependence can help reverse the drift.....

Mallaby notes that The US wants to make more of its energy at home. This can only make the country less safe, by making itself more vulnerable to energy supply disruptions in one country (i.e. itself). Meanwhile Russia pointlessly antagonises its neighbor by meddling with their gas supplies, and China equally pointlessly buys up African oil fields they could otherwise have access too on world markets. Ultimately Mallaby hits the bullseye:

"There's no sense in these nationalistic conceptions of energy security. As Daniel Yergin has written recently in Foreign Affairs, real energy security requires setting aside the pipe dream of energy independence and embracing interdependence."

Its pleasing to see someone making this argument for greater interdependnce, particularily so on the day the Doha round finally, and tragically tanked. Their collapse is just one more, latest example of a failed response by politicians to the challenge of globalization. More interesting is how Peter Beinart recently pointed out in a pangyric to Tony Blair's final year, how progressives in the 1990s crafted out a different, better approach.......

"Blair's vision predates September 11. He began developing it in the late '90s--in the wake of the East Asian financial crisis and the Kosovo war. In those two disparate events, Blair saw a common thread: interdependence....For Blair, the lesson was that, in a globalized world, countries export their problems--often across continents. And, as a result, Great Britain and the United States could only ensure their prosperity and security by more aggressively helping other countries govern themselves."

And this is not an approach that Beinhart has cunningly crafted onto Blair. It is one the British Prime Minister developed himself, in his visionary Chicago speech in 1999. Then dubbed "The Blair Doctrine", it is worth reading both as a critique of the current administratios policy and a hopeful template for progressives in the future. Sadly, this approach is everywhere in retreat. Our only bright hope is that its ressurection has rarely been needed more.

Misgoverning Philosophy

This morning's Post has an excellent overview of yesterday's Court decision. It hones in on why the judgement should properly be seen not just as slap in the face on the issue of guantanmo trials, but as a Governing Philosophy Rebuffed.

The Supreme Court has struck at the core of his presidency and dismissed the notion that the president alone can determine how to defend the country...  For many in Washington, the decision echoed not simply as a matter of law but as a rebuke of a governing philosophy of a leader who at repeated turns has operated on the principle that it is better to act than to ask permission.

The use of that phrase "governing philosophy" strikes a chord here at NDN. A central contention of our meeting last week was that the Republicans have given us bucketfulls of evidence that theirs has now failed. But two things further things strike us. First, the brazen response of Tony Snow when he said yesterday: "I don't think it's ever been the goal of the administration to expand executive authority. We don't have `expand executive power' sessions." As Think Progress points out, it seems pretty clear that the Vice Presiden't couldn't disagree more. But even more than the landgrab for executive privledge, it the historical analogy which really stands out. Bush now sits joins Nixon (wiretapping Vietnam protestors) and Reagan (gun-running for the Contras) in the short-but-dismal list of Presidents handslapped by the Court for over-reaching their powers.  And what can be more instructive of this President's failed agenda than the company he keeps?

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