Further Light and Knowledge

First I realize that there are only a half dozen or so of the oldtimers who have any interest in this, so I'll claim a point of personal privilege and indulge anyway. Lately i've devoted some time to two projects, reading Paul Krugman's latest book, "End this Depresson Now!" and reviewing everyone's posts from four years ago when the idea of another depression was novel.

First, to the book. It was a little slow at the start getting off the ground. Perhaps this is just the normal reaction of anyone who regularly reads his blog or is familiar with the arguments. But by the fourth chapter or so, I suddenly noticed that I was rereading paragraphs. The book filled in a lot of gaps for me and is a reasonably easy read. A few points I think I differ with, but nothing that changes his main arguments. For people who are not familiar with his blog or arguments, it is a pretty comprehensive statement of his argument. You will need to pay attention, but I don't think it is too arcane or difficult for a general audience to read. I recommend you get it at the library or buy a copy.

The second thing I did was to review the posts about the economy four years ago. IMHO my projections stand up pretty well. Unfortunately very little that we discussed as necessary to recovery actually got done. Which brings to my mind two questions. One, are wevulnerable to another crash? Two, how long will it be before a real recovery? My answer to the first question is that I think we are headed into another recession next year and there is still an uncomfortably large chance that such a recession, along with the mess in Europe, and some ideologically motivated missteps in the United States could lead to major downturn. For the second, the chance of a decent recovery in the next five years is essentially zero. welcome to the new normal.

I understaqnd that this is a bummer and no one wants to talk about it. Most discssions degenerate into political debates. I don't want that because I am also tired of the politics. So I wish everyone well and hope we all come out the other end all right.

Jamie

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"Now I troll back to my little cave where we no talk about things we no understand..." Malfalda

"Ummmm. Roadkill."

I really like Robert Reich (have you read Aftershock Jamie?) and his ideas. It's the middle class that drives our economy. The disappearing middle class and concentration of wealth is why everything is going to shit. It's really simple in my mind, grow the middle class and you grow the economy. The ultra-rich ceo's and executives need to take pay cuts and pay employees more.

Ultimately, I'm not even sure if that will work, and how do you do that anyway. Manufacturing, auto and industrial jobs, the mainstay of the middle class, just aren't as plentiful. I don't know that out-sourcing itself is killing the middle class, but it's not helping. So yeah, I know some of this sounds socialist-ic. But if the market won't support a more sharing-of-the-wealth attitude, then perhaps it needs to be forced in some way. I'm sure someone smarter than I can figure out a way to do that without being overtly communist.

Obama's stimulus package was one way to do it, but if the money is going to upper management of beneficiary companies and contractors while paying labor shit, then it just fucking adds to the problem.

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He never said it would be worth it; He only said it would be easy.

Krugman thinks things are slowly improving and will continue to do so. Can you explain why you disagree with him? Thanks.
http://www.nytimes.com/2012/09/07/opinion/krugman-cleaning-up-the-economy.html?_r=1

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"Let go of what you know and honor what exists."--David Bazan

http://www.equalitysblog.typepad.com

I admire Krugman’s work and generally am in agreement with him. The apparent disagreement comes from the circumstances of his op-ed piece you referenced and to a difference of outlook between Krugman and me. First, the purpose of the op-ed piece was to support the point in Clinton’s speech that the problems that created the crisis and that have held recovery back were slowly being overcome.

Krugman op-ed piece:
“Great line. But is the mess really getting cleaned up?
The answer, I would argue, is yes. The next four years are likely to be much better than the last four years — unless misguided policies create another mess.”

Given the purpose was to support the Obama campaign, Krugman didn’t go into a lot detail, but the caveat at the end is my starting point.

This is a very fragile recovery. In his book “End this Depression Now!”, Krugman states that if proper policies are adopted, we could be back to normal growth in two years, but at the present pace recovery will take five to seven years. Yes, things will be getting better over those years, but seven years is much too long. By the end of that period we will have lost a generation. In the book, Krugman makes the point that the damage of this depression is permanent, that many people will never recover and that the ability of the economy to grow will be permanently damaged. We will never make up what was lost the in that “lost decade.” So the scenario Krugman presents in the op-ed piece is not the Rosy Scenario we might hope for.

The caveat is important. Suppose that “misguided policy” raises its head either with a Romney presidency, a Republican House, or sufficient Republican votes in the Senate to continue obstruction. The next debt ceiling increase could fail. We could fall off the “fiscal cliff” in January due to gridlock. Europe could implode. There are a dozen economic disaster scenarios which all have a reasonable probability of occurring and which have the same ending; Depression.

I view it with a “Weather Channel” approach. We have a “storm track” for the economy and a lot of models and predictions bunch for the consensus track, but there are some models predicting the storm going almost anywhere. I look at the consensus track and the probability of the alternate tracks, and the latter concern me. The probability of a very bad ending is much too high.

Jamie

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"Now I troll back to my little cave where we no talk about things we no understand..." Malfalda

"Ummmm. Roadkill."

I also am a big Bob Reich fan. I have not read "Aftershock" yet, but it's on my reading list. I used to teach labor economics and labor economists have to stick together; it's not a sexy field and nobody is ever going to win a Nobel as a labor economist. On the other hand, I made some good money testifying in discrimination cases and there is not much call for expert witnesses in general equilibrium theory.



You hit the nail on the head. As much as I would like to see it, pay cuts are not economically necessary; we just need to reduce income inequality by having the bottom 99.98% grow faster than the 00.02%. Perhaps a raise in the minimum wage and a big cut in corporate tax goodies?


American manufacturing labor is the most efficient in the world. There is no reason that with appropriate industrial and trade policies the United States could not develop a large dynamic technologically advanced industrial sector. About half of the growth since WWII is attributable to government funded basic research, the vary things that are being cut in the budget today. Try googling "Golden Goose Awards".



It's obvious by now that a market system has an built-in tendency to abuse, concentration, monopoly power, and greater inequality. The traditional remedy for this is government action. Government set the rules that allow the abuse (like repealing the Banking Act of 1933) and government can reregulate if it has the political will. If this is force, then so is policing weights and measures (you want a 16 oz loaf of bread? Bring a scale to the Walmart grocery!).

It's common in the United States to throw around terms like markets, capitalism, fascism, socialism, communism, and so forth with no regard at all to their meanings. If these have become meaningless pejorative terms, let's just label them invective and leave it at that. If they have meaning, let's use them properly. Government regulation of markets is not ipso facto socialism or communism any more than monopolistic health insurance systems are "markets".

Jamie

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"Now I troll back to my little cave where we no talk about things we no understand..." Malfalda

"Ummmm. Roadkill."

I thought about minimum wage increase, but opponents say that kills the small businessman. No experience with that, but I believe it is a valid argument. I don't know eliminating corporate loopholes would work either. It may backfire against the middle class because they'd get the short end of that stick.

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He never said it would be worth it; He only said it would be easy.

I started out as an academic, but I think I qualify as a small businessman, having raise capital, secured loans, hired and fired, and managed a business for over thirty years. That business involved ding the same for a lot of business clients. I'm just not impressed with the minimum wage argument. Now my son runs the business and I put in about thirty hours a week. We handle books, tax matters, loan submissions, audits, and payroll services for more than a dozen restuarants and food service businesses, which are supposed to the most sensitive to the minimum wage; so much so that they are allowed to pay less than minimum wage to "tipped employees" (and get a 100% rebate for the Social Security taxes on those reported tips). The major impact I see is that much of our welfare and tax programs (like earned income tax credit) have the principal economic effect not of benefiting the workers, but of enabling employers to hold down wages. The most successful food service business we handle pays kitchen staff about fifty percent more than local industry average and makes money.

Most of the corporate loopholes I have in mind apply only to a handful of companies, mostly monopolies or near monopolies. There are also industries such as coal and oil, agribusiness, insurance, banking and utilities where there are some smaller companies, but where most of the benefit of the tax breaks go to a dozen firms or less.

Most people who run a small business are well aware that what will put them out of business is not excessive government regulation, minimum wages or mandated fringe benefits and taxes, it's because they are caught in a squeeze from periodic credit crunches from the banking industry, competition from retailers like Walmart that squeeze margins below the level where small outlets can pay overhead, and a vastly overpriced commercial real estate market.

Today there is a greater chance of a small business succeeding in Europe than America, and upward economic mobility is greater there than in the United States. Apparently European style socialism produces a larger middle class, more small business opportunity, and higher economic growth than our system of crony capitalism and vulture finance.

Jamie

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"Now I troll back to my little cave where we no talk about things we no understand..." Malfalda

"Ummmm. Roadkill."