Economics for by Dummies

I am more and more convinced that I missed the boat by not becoming an economics pundit. I had naively assumed that my substandard arithmetic skills would be a hindrance to understanding economics, and it certainly is a barrier to being an actual economist. But any idiot can be a pundit. And economic punditry seems a particularly fertile and lucrative field for the ability challenged.

Take, for example, Robert J. Samuelson. Please. He writes in the Washington Post,

Japan’s economic eclipse shows the limited power of economic stimulus and the exaggerated threat of modest deflation. There is no substitute for vigorous private-sector job creation and investment, and that’s been missing in Japan. This is a lesson we should heed.

I don’t want to get into a discussion of what happened to the economy of Japan in in the 1980s and 1990s, but here is an article I found from a link at Krugman’s blog that explains it more clearly than Samuelson’s does. See also Krugman himself.

Where I wanted to reach out and smack Samuelson in the head was at the sentence “There is no substitute for vigorous private-sector job creation and investment.” Well, duh. No one is arguing with that, dude. The argument is over how to somehow entice (notice my avoidance of the “s” word) the private sector to create jobs and invest, and what it is that is discouraging the private sector from doing those things now.

The argument that makes sense to me is that business is not hiring and expanding because people aren’t buying stuff, and it’s stupid to increase supply without evidence there will be an increase in demand. So the key to getting the private sector cranked up is to somehow get people to buy stuff. But Samuelson doesn’t see it that way.

Samuelson concludes,

The lesson for us is that massive budget deficits and cheap credit are at best necessary stopgaps. They’re narcotics whose effects soon fade. They can’t correct underlying economic deficiencies. It’s time to move on from the debate over “stimulus.”

Economic success ultimately depends on private firms. The American economy is more resilient and flexible than Japan’s. But that’s a low standard. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand.

First, I don’t think anyone argues that budget deficits by themselves stimulate the economy. The point, as I understand it, is that allowing the government’s budget to go into deficit is sometimes necessary to release money for other purposes, such as getting dollars flowing through the economy so that people buy stuff.

But this thing about “uncertainty” seems to be the new talking point dictated by the Puppet Masters to explain why the economy is stagnant. I’ve seen it crop up in several places lately. The argument is that businesses are not willing to spend money in expansion and hiring because they are so afraid the government is about to slap them with new taxes or regulations, and this uncertainty has turned American business into a twitching, thumb-sucking wretch, curled under its bed in fetal position, afraid to come out.

There was other nonsense about “uncertainty” repeated by some economists in the Los Angeles Times today. Kevin Drum explains in some detail why the uncertainty argument is nonsense. Ezra Klein argues that if the uncertainty theory holds water, it should have crippled the economy during the Clinton Administration even more than now. As you might remember, it didn’t.

Steve Benen says,

In my heart of hearts, I assume that most Republicans know their talking point on this is garbage. They’re using it, I suspect, because they can’t think of anything else — they can’t blame the economy on tax increases, since taxes have gone down not up, and they can’t blame the recession on Bush since they still support his economic policies. They need to figure out a way to blame health care reform, industry regulations, and the rest of the Democratic agenda, so “uncertainty” becomes a convenient catch-all.

But it’s still ridiculous. Businesses have been reluctant to hire because they need more customers. It’s really not a mystery.

In other words, “uncertainty” is the best argument the Puppet Masters can muster right now. I’d like Samuelson to explain (1) exactly why business is more hamstrung by uncertainty right now than it was in the 1990s or, for that matter, the 1960s; (2) even without “uncertainty” over taxes and regulations, why would businesses expand unless there is growth in demand; and (3) where does he think growth in demand will come from, considering business is not investing and hiring, if not from stimulus generated by government?

19 thoughts on “Economics for by Dummies

  1. Neither the White House nor Congress seems to understand that growing regulatory burdens and policy uncertainties undermine business confidence and the willingness to expand.

    I have also noted that the White House and Congress refuse to understand that the growing influx of unicorn-riding yeti is frightening Wall St. and blocking economic expansion. Perhaps for the same reason: it’s utter nonsensical fantasy.

    If growing regulatory burdens were the problem, why didn’t the economy grow and produce a gazillion jobs during the Bush administration, when deregulation couldn’t happen fast enough, and “uncertainty” was replaced by the clear agenda of a pro-business White House? Seriously, have these people been off-planet for the last decade?

  2. Uncertainty is being played by conservatives like just another dog-whistle. As usual, they are trying to harness the electorate’s mounting insecurity into political gains. Never mind that it is directly because of conservative economic policies that we find ourselves in this mess.

    As long as Very Serious Pundits parrot this bastardized notion of insecurity without comment, the American middle class will find itself falling for the carefully crafted “certainty” of increasing economic pain and bigger bonuses for crooked capitalists.

  3. Samuelson is a clown. He even hates choo-choo trains. A week ago, in one of the stupidest articles I’ve ever read in a major magazine, he wrote in Newseek about how improving rail travel is impratical. I won’t go into depth as to the reasons, but in short, it was because we’ve invested so much time and money post WWII in suburbs, and cars that you drive around in, and how changing that would not help us and cost too much money.

    I realized after quite a bit of reading a little over a decade ago, that economics is NOT, I’m sorry to say, a true science, it’s more of a sort of faith.
    You can have two economists who went to the same school, took the same classes under the same Professor’s, wrote papers to meet the same requirements, graduated the same year, and be on COMPLETELY OPPOSITE sides of the spectrum as to what to do. No scientist I ever read said that protons were negative, and electrons positive, and that if your car battery is dead, to just try the cables willy-nilly until the car starts.
    But people can read the same religious book, whether it’s the Bible or the Koran, and come out as Catholics v. Protestants; Shia v. Sunni.

    And maha, if Megan McCardle can write about economics, not only could you or I do it, I would bet that the late, great Miss Lucy would be better at it than Ol’ Megan, the dumbest person to ever, EVER, write about economic issues in the history of the world. Jesus, the late octopus who picked 100% of the winning teams in this years World Cup matches, has a 100% higher rate of accuracy than the “Ol’ Megster.”

    As for the “Uncertainty Principle,” I’d put it this way to the idiots in the business community:
    Uh, which did you prefer? The ‘CERTAINTY’ that the economy and the financial system of the whole world was about to sink faster than a lead-infused turd- which you laid? Or, the ‘uncertainty’ that we have now about how to best maximaize the improving situation, and prevent you from the ‘certainty’ that you will again bring the world to the edge of the precipice due to your avarice?
    Hey assholes – hire people, and watch the economy and your profits go up!

  4. JR,
    It’s either the the one that begins with ‘social’ and ends with ‘ism,’ or “Supercalifragilisticexpialidocious.” In the rightie lexicon, the two words have the same effect in that both are made to fit a fictitious situation. One is easier to rhymn, though…

  5. First, I don’t think anyone argues that budget deficits by themselves stimulate the economy. The point, as I understand it, is that allowing the government’s budget to go into deficit is sometimes necessary to release money for other purposes, such as getting dollars flowing through the economy so that people buy stuff.

    It’s called the paradox of thrift.

    Right now, consumers are saying “I’m not buying X, Y, and Z – I need to save money!”

    And that’s wise.

    And businesses are saying “I’m not expanding X, Y and Z manufacturing – consumers don’t seem to be buying.”

    And that’s wise.

    But this means no one is spending money. The economy shrinks. Now, the economy can grow, with only the wealthy getting money – but if the economy shrinks, it’s likely that *everyone* hurts (and most likely, the poor and middle class hurt the most).

    Thrift, a good virtue, is nevertheless making things hurt because we’re in a recession. Hence, the paradox of thrift.

    Saying “Well, the government shouldn’t run (as big of ) a deficit now!” is stupid. It’s *even less* money in the economy, even fewer goods and services being exchanged.

    For the US, right now, saying “Let’s borrow money at nearly 0% interest, and buy necessary things like infrastructure” is *good* – pay road workers money, they can buy stuff, businesses start making stuff for them to buy, and start hiring, consumers get more comfortable and start buying, businesses start making even more stuff, etc..

    And, hey, *infrastructure*!

    You can get *some* good out of just mailing checks to people and saying “go spend these!” but build a new road, or repair a bridge, and you’ve got a new road, or a repaired bridge. And the raw materials, tools, etc., those are all boosting the economy, as well.

    Okay – but why don’t we wait until the economy is stronger before doing this? Why do it now, when we’re not bringing in much tax revenue?

    Because economies *grow* and *shrink*, and tend to do so by percentages. We might be able to expect 3% growth. But that’s 3%, year over year. By spending more now, when the economy is weak, we make the economy bigger, and that means that the 3% we get next year is 3% of a bigger number. And that means we can erase the loss of GDP from the recession that much more quickly.

    I was wrong on the ‘S’ word!!!
    Well, as punishment I suggest 50 lashes with a wet egg noodle.
    ‘Exit, stAAAaaaAAAge left!’

  7. I wasn’t around for the Great Depression, but I seem to recall from history the Wall Street Blamed FDR and the democrats for creating a climate of business uncertainty – which was/is the conservative excuse why business didn’t pull out of the Great Depression.

    Actually, wholesale deflation went with the Great Depression. That meant that cash – paper with pictures of dead presidents – was INCREASING in value (how many widgets you can buy with that paper) as prices fell through the floor. Wages fell even faster, if you had a job, which meant that the fat cats did well through the depression without having to RISK anything with the construction of plants and purchase of equipment. And Wall Street did nothing but hoard cash until WWII broke out.

    So what? We are at risk of wholesale deflation again (read Krugman) – Wages are again falling, as in the Great Depression. Companies are again hoarding cash and not investing.. And the same excuse they used in the 30s is making the rounds – ‘Business Uncertainty’ – as the reason companies are not hiring. There are archived and searchable libraries of newspaper articles and editorials. Somebody needs to show how we are in a time warp..

  8. “Jesus, the late octopus who picked 100% of the winning teams in this years World Cup matches, has a 100% higher rate of accuracy than the “Ol’ Megster”

    Good one.

    Had Obama actually invested some time and intellect into the stimulus bill (instead of listening to Henry Waxman) he may have gotten something that worked a hell of a lot better. Unfortunately much of the stimulus money was spent propping up failing state and local governments, seemed like a good idea at the time but it was no more simulative than tax cuts for rich folks. Here we are two years later and the states are still going broke, localities are laying off teachers, cops, firemen, etc. Much more of the money should have been spent building tangible things like bridges, rails, green power plants, electric cars, stuff that actually creates jobs to build and continues employment to sustain. Construction jobs pay taxes that keep cops, teachers, fireman, etc employed. The percieved failure of the stimulus (I don’t think it was a total failure, but) is what cost the dems this midterm, they over sold it (the line about staying under 8% unemployment) and underfunded the portions that actually worked. And Nancy Pelosi and Harry Reid are staying in the leadership why?

  9. In our county, stimulus money was used for road repair. I’ll bet similar things happened in other places. Of course, this wasn’t funds given to private businesses.

  10. uncledad,
    Reid can go, as far as I’m concerned. And not a moment too soon. I’d rather have the oily, smarmy Whoreporeatsit Chuckles Schumer in there. He’s at least a tough politician who know how to play the game.
    Pelosi, on the other hand, was an outstanding Speaker. And before, when she was the Minority Leader, she did a great job. She’s one of the few Dem’s with guts and a spine.
    Of course, the greatest mistake she and the Dem’s made was in not starting hearings to impeach Bush and Cheney. It showed the world that despite all of our rhetoric, we are NOT a nation of laws. And any kindness she and the Dem’s extended then, will not be reciprocated in the coming days. Boner and his attack weasel Issa are straining at the bit to start in on Obama. As the late, great Bette Davis said in ‘All About Eve,’ “Fasten your seatbelts, it’s going to be a bumpy night.”

  11. “Pelosi, on the other hand, was an outstanding Speaker”

    Outstanding? I’d say she was very effective at getting legislation through, though most of it still sits in the senate, she and Harry did not seem to be working together, though I suspect Harry was just not working at all. I still think she should step down, in the end she’s a politician and it is the customary and least destructive thing to do. As we all know the dems are good at lawmaking but they suck at politics, the republicants are mirror images. Having Pelosi as minority leader will in my opinion guarantee minority status for the democrats, the republicants effectively dubbed her as the face of the failed “Pelosi/Obama agenda”, I don’t agree with that characterization but I also don’t deny that the dimwitted teabaggers and the drooling “independent” rubes in the middle bought it hook line and sinker.

    • Pelosi wasn’t perfect, but I think her biggest obstacle (beside the Blue Dogs) was Reid and the Senate. One reason it was hard to get the House Dems to agree on anything is that they didn’t trust the Senate to not completely trash their work. I don’t think she should be punished for matters out of her control, and I don’t see anyone likely to step into the spot who wouldn’t be worse.

  12. I really can’t argue you points, uncledad. It’s just that if the alternative is Hoyer, I would want to puke. And if, by some wierd confluence of events, Heath Shuler becomes minority leader, I’m going to hope the suicide prevention hotlines in my area are fully staffed, ’cause I’ll have them on speed-dial.

  13. Anyone want to laugh through your tears?
    Here’s the newest winner of the “Hypcrite’s Hypocrite Award!” Courtesy of Steve Benen at “Political Animal:”

    “HOUSE REPUBLICAN WANTS HIS GOVERNMENT-SUBSIDIZED HEALTH CARE NOW…. It perfectly reasonable for Andy Harris, like all Americans, to want health care coverage. He’s a husband and father of five, and I’m sure he worries about his family losing their health insurance, just like everyone else.

    The difference, in this case, is that Andy Harris is a newly-elected far-right congressman from Maryland. Yesterday, at an orientation session, he and his colleagues were told that their health coverage would take effect on Feb. 1, and Harris, an anesthesiologist who railed against the Affordable Care Act to get elected, suggested that’s not soon enough.

    He wants his government-subsidized health care — and he wants it now.

    “He stood up and asked the two ladies who were answering questions why it had to take so long, what he would do without 28 days of health care,” said a congressional staffer who saw the exchange. […]

    “Harris then asked if he could purchase insurance from the government to cover the gap,” added the aide, who was struck by the similarity to Harris’s request and the public option he denounced as a gateway to socialized medicine.

    Harris, a Maryland state senator who works at Johns Hopkins in Baltimore and several hospitals on the Eastern Shore, also told the audience, “This is the only employer I’ve ever worked for where you don’t get coverage the first day you are employed,” his spokeswoman Anna Nix told POLITICO.

    Harris spent months condemning the idea of Americans being entitled to taxpayer-subsidized health care coverage. Now that the election’s over, Harris suddenly feels entitled to taxpayer-subsidized health care coverage — and wants it immediately. (For the record, Harris and his family will probably rely on COBRA to stay insured until his coverage kicks in. COBRA, of course, is another government program that the right opposed.)

    That Harris apparently sought a public option for him and his family just makes the whole story that much more hilarious.

    Just to clarify, I don’t actually blame the far-right congressman-elect. He wants coverage for him and his family, and doesn’t want to have to worry about a 28-day gap in which he, his wife, and his kids would have no protections if they get sick.

    I do, however, blame the far-right congressman-elect for failing to realize that millions of American families want the same peace of mind he’s seeking.

    Harris wants to know “what he would do without 28 days of health care”? I don’t know, Andy, what have tens of millions of Americans, including millions of children, done without access to quality health care for years? Why are you entitled to government-subsidized health care, but they’re not? What will those families do after you repeal the Affordable Care Act? Wait for tort reform to magically cover everyone?
    What an embarrassment.”

    No, what an A$$HOLE!!!

  14. Once my other comment gets out of ‘moderation,’ this one’ll make some sense:

    I did some further research into Harris, the new Congressman from MD. It appears that his Great-Great Grandfather ran for Congress in the same state in 1910. He was a Veterinarian who ran on a platform vehemently opposing automobiles, and won the election handily.
    Upon arriving in DC for his orientation, the original Congressman Harris was pissed-off to find that he’d have to wait until February for his governement limo and driver.

    OK, I made this up.
    But is it at all unbelievable?

  15. The American middle class is the ‘consuming’ class. It was created when 35% of the work force was unionized, 1954. Decline since then (to 12%now) has been accompanied by growing social inequality, slashed salaries and a de-linking of rising productivity from rising wages. One could say that the death of the middle class has created this, actually natural, recession/depression.

    The so-called present Republican platform is pure humbug. They and we have allowed greed, power, ignorance, wealth, science, technology and religion to depreciate reality and deny potential to the point where I’m not sure we can any longer even identify reality.

    As to Japan’s economic eclipse…China spent 13% of her GDP on a stimulus package (we spend 6%.) Humbuggery, however, will have it that a stimulus does nothing to improve an economy. Hell, I can see China from my house at the beach so I can say with great authority that China appears to be enjoying a flourishing economy.

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