Monday, February 04, 2013





A Different Kind Of Legacy


On a 30-minute podcast, Chris Mooney of Mother Jones asked Paul Krugman

Why are we currently so obsessed with deficits?

Krugman's answer was twofold: People make up their minds about economics based on heuristics and shortcuts—for instance, the misleading metaphor that likens government finances to the budget of an individual family—and Keynesianism can be complex and counterintuitive. It also runs up against the popular notion that the government shouldn't lean on the scales, because a fair system is one in which people get ahead or fall behind based on their own merits, without external help. As Krugman explained, that's not actually how it works at all—you can fail in this world for reasons that are totally beyond your control...

Where could people possibly have gotten the idea- or, rather, had the idea reinforced that government manage its finances like a household runs its finances?

Perhaps from a President who claims "Government has to start living within its means, just like families do. We have to cut the spending we can’t afford so we can put the economy on sounder footing, and give our businesses the confidence they need to grow and create jobs.”

But Wheaton College economics professor John Miller explains

Few families balance their budgets the way the guardians of financial rectitude are now demanding of government. Nearly all families spend more than they earn and borrow to do so. When a family takes out a car loan, a student loan, or a mortgage on a house, it’s spending money it doesn’t have.

Is borrowing the road to ruin? Not if the debt is affordable. That depends not just on the size of the debt relative to the income available to service that debt, but also on how the family spends the borrowed money. For instance, assuming the size of the debt is manageable, borrowing to pay for education is justified if the education improves the family’s earning potential and so helps provide the income necessary to service the debt.

The same holds true of businesses. They borrow to invest and operate, especially in the United States where corporations finance the bulk of their investments by borrowing rather than by issuing stock. While exact numbers are not available about the privately held Boch auto dealerships, rest assured that Boch’s company borrows to put the cars on his lot that he sells to the public or to build yet another dealership. That borrowing allows Boch’s and other businesses to spend more than they are taking in—Business 101.

Repeating the false analogy between household debt and public debt is not the only piece of conservative disinformation President Obama spreads.  As Roger Bybee pointed out during the presidential campaign, Obama has continually touted the growth of private sector jobs while ignoring the loss of public sector jobs, discouraging the understanding that recovery of the economy depends on employment growth in both areas.   And at a campaign event in Milwaukee, he contended "companies that are doing the right thing and choosing to stay here, they get hit with one of the highest tax rates in the world.  That doesn't make sense."

It doesn't make sense but it is disingenuous, especially with American corporations sitting on $1trillion+ in cash and enjoying record profits, for the President to point to high tax rates and ignore the unusually low effective tax rates paid by companies in the U.S.A.

Nor is it helpful for the President to maintain, as he did in his 2012 State of the Union address, "I also hear from many business leaders who want to hire in the United States but can't find workers with the right skills."  Of course, he hears that from them; it's the myth they want repeated, as the President had done on June 9, 2011 at Northern Virginia Community College when he claimed "the irony is that even though a lot of folks are looking for work, there are a lot of companies looking for skilled workers."  Try this for irony, Mr. President: American workers are skilled but are not being hired. Donald Bartlett and James Steele note

Sure, it was sad about all those people losing their factory jobs to imports, but foreign competition would make our remaining plants more competitive, and the upheaval would be just a pit stop on the way to a bright postindustrial America...

But there were fatal flaws in this theory. The first was that America's corporate leaders- executives and their boadrs- saw quickly that they could make enormous profits producing goods offshore rather than reinvesting at home.  Labor was cheap abroad, and the developing countries would do anything to get the jobs...

The other flaw in the theory, and the one that will be causing grief for working Americans for year s to come, is that while bright, talented people eager to work at a fraction of what bright, talented people need in the United States to maintain a middle-class lifestyle here...

The first of the service jobs to be outsourced in great numbers were the back-office operations of banks, investment houses, insurance companies, and any business that processed huge amounts of paper, from credit card charges to procurement manifests to legal exhibits... (and now) even the jobs requiring ingenuity and brain power are going too.

So it's not only President Obama's rhetoric, it is- at least in the case of the "free trade" he always has championed- policies which are antithetical to the progressive cause and middle class progress.  There will be a price to pay, inevitably, but it will be ignored by the nation's power players, spread throughout the population over an extended period of time, and will hit largely after Barack Obama passes from the political scene.



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