February 23, 2004

What's Going on with the Economy?

BRAD DELONG; ATLANTIC MONTHLY TOWN HALL; 7-8 PM TUESDAY FEBRUARY 24; WHEELER AUDITORIUM, U.C. BERKELEY CAMPUS, BERKELEY, CA.

Draft 2.0/as prepared for delivery:


What's Going on with the Economy?

In the mid-1990s labor productivity growth in America accelerated from 1.2% to 3.0% per year. At a rate of labor productivity growth of 1.2% per year, America is a land of diminished expectations: it takes 60 years for incomes to double, and lots of good things that we would want to accomplish seem far outside our private and public budgets. At a rate of labor productivity growth of 3% per year, America is a land of infinite promise: incomes double every 25 years, and our public--and private--resources seem ample, are ample.

We economists debate whether 1/6 (Greg Mankiw's estimate), 1/3, or 1/2 (my estimate) of the acceleration in productivity growth is due to better policies by the coalition that marched under Bill Clinton's banner, and how much by good luck with ongoing technological revolutions. We economists debate how long the boom in productivity growth will last--five more years? A decade? A generation? Longer? But I don't want to go there. I want to say that today America's productive potential is growing very rapidly, and America today should be an arena of enormous opportunity. I want to say that--to a substantial degree--this opportunity is being wasted by the Bush administration.

First, employment. Rapid productivity growth means that rapid demand growth is needed to keep us close to full employment. But demand growth has been only moderate. The Federal Reserve has done close to all it can to boost demand growth. George W. Bush and the Republican Congressional leadership have not. They have pursued huge tax cuts for the $300,000+ a year crowd. A tax cut that is a jobs program gets the money not to the $300,000+ a year crowd but to not-rich people who will quickly spend it, and so boost demand. Paul O'Neill and Ron Suskind tells us that the thinking--to the extent that there was thinking--was: "We want to reward our political base. Employment will probably recover anyway. So why not ram an upper-class tax cut through by claiming that it is a jobs program?" That's a gamble George W. Bush and company took. Those of us who are unemployed, fear becoming unemployed, or see our salaries stagnate because of the slack labor market--that's a gamble that we lost.

Second, income distribution. The past thirty years have seen an extraordinary widening of America's income distribution unaccompanied by any increase in income mobility. This means that we are less of a middle-class society than we were a generation ago. And as today's $300,000+ a year crowd strive to assure comfortable lives for their children, we will lose any claim to even aspire to equality of opportunity. Policies to boost equality of opportunity, increase mobility, and return us to a more middle-class society (like the ones that those of our predecessors who were white and male lived in in the first post-WWII generation) are desperately needed. But George W. Bush and his Congress are paddling as fast as they dare in the opposite direction.

Third, the future of the social insurance state. We don't want to see the young poor or the elderly poor dying on the street of diseases we know how to treat. We don't want to see large chunks of our elderly population living on cat food. We need to bring the federal budget into not balance but surplus--not this year or next year, when we still need the boost to demand, but soon thereafter. Because we will need a budget in surplus over the next twenty years to assemble the fiscal resources and the political will to deal with the retirement of the baby-boom generation, and with the continued rapid escalation of medical costs (which is also an opportunity, not a threat).

And this--I won't say that this is the Bush administration at its most feckless, because going blind into Baghdad is more feckless, replacing science with ideology in a fit of twenty-first century Lysenkoism is more feckless. But the Bush approach to the long-run budget is higher on the feckless scale than I ever thought I would see.

America is immensely strong. America is immensely productive. America is immensely inventive. What threatens us via Bush economic mismanagement--it is not anything that can be called "disaster." It is only the waste of opportunity--the opportunity to construct a great society. Nevertheless, I find this waste of opportunity to be heartbreaking.

Posted by DeLong at February 23, 2004 05:43 PM | TrackBack | | Other weblogs commenting on this post
Comments

No real reason to invoke the great society in the last sentence is there? I mean this is a good citique of the current administration. You're begging to make yourself defend Johnson's with the wording.

Posted by: SW on February 23, 2004 06:11 PM

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I dunno, I think "disaster" is not too strong a word when you consider the number of people hurt by these policies. Don't strain to put a happy face on things.

Posted by: Rowdy on February 23, 2004 06:16 PM

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What has happpened to us over the past 3 years is simply unimaginable. Those of us who have been academics since the McCarthy era know how fragile academic freedom is. An economy is less fragile; but the present administration is putting its resiliency to the test. We will pay for this fling with irrationality for a long time. We better hope that the acceleration in productivity lasts, and that the steady state rate is not 1.75 percent

Posted by: Knut Wicksell on February 23, 2004 06:35 PM

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Knut Wicksell wrote, "An economy is less fragile; but the present administration is putting its resiliency to the test."

I mostly agree, but don't forget Smith's point that "there is much ruin in a nation"---particularly one as wealthy as ours.

Posted by: liberal on February 23, 2004 06:42 PM

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Says it all. All I can say is, it sounds absolutely true to me (being no economist I can't verify it, but it feels right.)

Posted by: diana on February 23, 2004 06:43 PM

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I think the seeds of disaster are lost opportunities.

We used 9/11 not to bring the country together but divided it with distrust. We did not use it to build a strong and united world community but to follow our own agenda.

And economically we failed to use the tax relief to build a stronger and more united country. Instead we used it to reward the rich and business elite at the expense of the common good.

Maybe it could have been worded more strongly but that is what brought us to this point. Loud and often shrill rhetoric which fails to make a point. Speaking softly but succinctly should never be considered wrong.

Posted by: rc on February 23, 2004 06:51 PM

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That's an excellent summation of our economic malaise.

Preach it, brother!

Posted by: RT on February 23, 2004 07:19 PM

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Looks like it is going to be a fantastic event. I'm really sorry I don't live in the Bay Area anymore to be able to attend. I hope we get a full recap as to the goings on.

Posted by: non economist on February 23, 2004 07:47 PM

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How much better off would the employment picture be if Bush had pushed for a real stimulus package along the lines you suggest, rather than the tax cuts for the rich? By attributing to the productivity boom the need for demand growth, you leave readers/listeners wondering how much of the poor performance record really is this administration's fault. I agree with the point you make, and the Price of Loyalty bit is pretty damning--just trying to anticipate criticisms from the other side.

Posted by: Dimmy Karras on February 23, 2004 07:47 PM

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That's a good start towards the New-New Deal with a global reference. Productivity, income distribution, social safety net.

I wish John Edwards were able to see things about the economy in such concrete and compelete fashion as well.

You might want to add the matter of investment to the picture, however, some time soon.

Posted by: Bulent on February 23, 2004 08:26 PM

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You are claiming that we'd have a much better jobs picture if the tax cuts had targeted the working and middle classes. Can you quantify that in any way? It seems to me that there are global factors dragging down our domestic employment picture. If the laboring classes had more money in their pockets, that might have contributed even more to the booming job growth in China and India, because that is where the so much of the goods and services purchased by those tax breaks would actually come from. If the laboring classes had more money, yes there would have been more job growth -- in China and India. Yes this is hypothetical, but it is not unreasonable.

Posted by: camille roy on February 23, 2004 09:03 PM

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Rough translation: we need to run America just like Europe. Checked out their economic statistics lately?

Posted by: tbrosz on February 23, 2004 09:25 PM

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I'm on board with most of this.

While productivity improvements are what gets us richer and more comfortable, it often translates into... "Jenny, thank you for your 8 years here. Your data entry has greatly improved our firm... but the Turbovac 9000 (or Siddharth in Bangalore)will be doing that from now on. C-ya." Well, we need to get Jenny (and her kids) back on their feet, trained, and into the next higher-paying (in theory) job.

Cuts in job training programs and underfunded education budgets have undermined the revitalisation of the workforce. These are high bang-for-your-buck investments, and the Bush record has been a disgrace in this area. Training and eduation are vital for turning technology advances and outsourcing of jobs, into recycled higher paying jobs for US folk.

Posted by: Adam Smith on February 23, 2004 09:26 PM

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"Says it all. All I can say is, it sounds absolutely true to me (being no economist I can't verify it, but it feels right.)"

Ladies and gentlemen, I present the ideal Democratic constituent. Heart in the right place, to be sure. Our education system works long and hard to get this result.

Posted by: tbrosz on February 23, 2004 09:27 PM

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in re consumption from India: because the benighted working class consumes mostly imports?

cough.

seriously, now:
- the tip-top of the income distribution has all the income it needs for consumption. their tax breaks go to investments -- some of which, I am certain, have been in India and China, with which nothing is wrong.
- the middle of the income distribution wants more stuff, and bottom end needs it. tax breaks there go more to consumption.
- the Fed tracks all the data you need to measure these effects yourself.
- a number of folks (e.g., at Michigan iirc) have done the analysis already, too.

in re our anti-European troll, I'm sorry to see your visit. though if US and European growth rates are direct effects of administration policy, shouldn't you be agitating for precisely DeLong's Clintonesque view?

I'll sign you up on the Republicans-for-Edwards list.

Posted by: wcw on February 23, 2004 09:35 PM

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While it might be beside the point of the current discussion I think that the tone of discussion often digresses to name calling. Democrat or republican, christian or atheist, american or european we all have a common concerns for the welfare of the human race and the planet. Being distracted by partisian name calling and ethnocentric arrogance does not further the point of intellegent discussion, which in the end is our common good.

So listen to your argument and if you hear yourself speaking against a person, race, or relgion rather than an idea you should check yourself before continuing on. Granted this may be too simplistic for some, finding common ground is the only way to have a truly useful discussion.

My friends and acquaintances are from too many religions, races, and ideologies for me to think I was magically born to the "right" one.

Posted by: rc on February 23, 2004 10:57 PM

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BD: "`So why not ram an upper-class tax cut through by claiming that it is a jobs program?' That's a gamble George W. Bush and company took."

Except is this quite right? My impression was they rammed through the tax cut and only later (as the economy soured) decided it was expansionary fiscal policy.... (Bush certainly was campaigning on the tax cut with the unemployment rate at 4%).

Posted by: Joe Mealyus on February 23, 2004 11:03 PM

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Anybody know where to find income-consumption curve estimates for the US? I can't find them but the ought to be around.

My hunch is that transfer of buying power back from rich to the poor, working and lower middle class would result in more spending on
-food
-housing services
-clothing
-health and educational services
-child care (from infant to HS age)
-household durable goods (appliances)
-recreation (family vacations, visiting state parks and rec areas, and stuff)

A lot of this would be domestic production of either goods for services -and relatively skilled high paid US produced services, as opposed to manufacturing burgers and fast food joints. With plenty left over for Indian and Chinese IT workers.

But anyone know where to find data to verify this hunch?

I heard E. Leamer give a talk once where he wondered why, if economics was such a respectable empirical science (Queen of the social sciences, don't you know?), there weren't reference books full of estimates like this that every economists would have at his ingertips. So, OK, where are these estimates? I want some empirical economic facts. I don't have them at my fingertips, and think that I should.

For haters of the WELFARE STATE HELL of the European (and Canadian?) labor market, check out

http://stats.bls.gov/opub/mlr/2002/06/art2full.pdf

Particulary look at employment ratios by age. The picture is not quite as one sided as some of the scare quotes on this thread indicate.

But why not look at the links this ann person has been posting on the posts about economic indicators? They seem to give the most relevant information -by almost every measure, this has been the worst, most limp and unpleasant, insecure and unprosperous postwar recovery. Even worse than Bush I. And a LOT worse. And what is unique about this recovery? My take is -completely insane and irrational economic arguments and policies from US admin.

OK by the unemployment rate only, this one is not so bad. But from anne's posts, everything else stinks compared to other recoveries -employment by either survey, long term unemployment, real income, employment ratios, hours worked, ratio of unemployment of youth in the labor market to adults.

And we do know that the unemployment rate may be low because people are bailing out of the labor force into disability and early retirement. So that might be a misleading indicator. But let that go, and look at the minuses and plusses overall. Not a good balance.

Anybody have any good stats for this recovery, other than the not-so-bad unemployment rate?

Posted by: jml on February 23, 2004 11:39 PM

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"And this--I won't say that this is the Bush administration at its most feckless, because going blind into Baghdad is more feckless, replacing science with ideology in a fit of twenty-first century Lysenkoism is more feckless. But the Bush approach to the long-run budget is higher on the feckless scale than I ever thought I would see."

It seems to me you have a choice - cut the lefty fluff (sentence 1, e.g.) and focus on your actual point (sentence 2), or keep it in, and let any non typical-Bay-Area-lefties who happen to wander in conclude that you're just another Berkeley Prof they don't need to listen to.

For that matter, you could even throw in a bit on the Bush Administration's poor record on free trade. It may not be as important as the stuff about the income distribution and social insurance, but it might not quite as pleasant for the audience as your other points....

If this was Harpers Town Hall, I wouldn't change a thing; in fact, I'd suggest "more florid." Get out the old KM style manual.

Posted by: Joe Mealyus on February 23, 2004 11:40 PM

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I meant "anne". Some one made rather snotty and sophomoric fun of "anne" for copying too many links into the posts. But I found those posts extremely relevant and informative, and hope that anne keeps it up.

Along with the other macro finance aces who post here.

Who is the one who pronounced the tax-refund-advance-fueled nano-recovery of early last fall a "dead-cat bounce"? Does the host hand out awards for those kind of excellent calls?

Posted by: jml on February 23, 2004 11:45 PM

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What I am most concerned about as an under-employed, over-educated young person is that the jobs that are being created in this economy have little to no security, tend to be less well-paid, and offer little in the way of side-benefits. And--thanks Brad DeLong for your lucid explanations.

Posted by: scotus on February 24, 2004 02:56 AM

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Brad, says "I find this waste of opportunity to be heartbreaking."

Try sleeping at night with three kids in college?

Posted by: John on February 24, 2004 04:17 AM

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As of last night the S&P 500 was 15% below its
level when Bush took office.

Bush is in danger of being the first president since Hoover to have the market down 4 years after he took office.

the stock market is the presidents report card

and the capitalists are saying that bush is an economic disaster.

Posted by: spencer on February 24, 2004 05:43 AM

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Do not forget what Bush has done to scientific research.

It is so bad that the Nobel price winners are taking out ads complaining about how his policies are damaging our scientific research -- what
productivity and our standard of living depends on.

Posted by: spencer on February 24, 2004 05:49 AM

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Tax cuts and Productivity

Mr. Bush tax cuts have gone primarily to the investor class in a period of overcapacity and slack demand. Given these characteristics, what can the investor class be expected to do with their money? Certainly, they will not expand capacity.

Instead they have three options. One, invest to expand productivity to reduce the cost per item made. Two, invest in overseas venues where items can be produced more cheaply. Three, invest in emerging technologies. Thus, one of the primary effect of the Bush tax cuts is to boost productivity. Unfortunately, boosting productivity in a period of excess labor will exacerbate the labor oversupply. An unintended effect of more money with the investor class is to speed up offshoring, because the investment capital to do so is readily available.

To address the job loss situation, we need to have new emerging industries that can utilize those workers. The investment for those ventures should be available due to the tax cuts. However, those industries are not yet mature enough to start creating large numbers of jobs today. This is a long term strategy that does not address the current labor surplus. Future jobs will emerge from capital invested today.

Thus, we have a job loss recovery. The job loss has had a negative impact on revenues because there are more unemployed that need benefits and the tax burden is shifted onto fewer workers. The fiscal policies of Mr Bush are unsustainable. A danger is that the fiscal situation will deteriorate and make stimulus unaffordable. The failure to address the labor over supply as a separate issue has been the biggest failure of the Bush administration.

Posted by: bakho on February 24, 2004 06:10 AM

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Ignore the issue of when the recession began and just focus on the recovery.

The thesis behind the supply -side tax cut is that it is suppose to lead to greater business investment.

In the 4th quarter, two years from the economic trough, real business fixed investment was 3.4%
above its level at the bottom. In the previous
six recoveries -- excluding the aborted 1980 cycle -- two years from the bottom investment was up an average of 15.4%. Even the rebound in real personal consumption has only been two-thirds of prior recoveries.

But even by the supply-siders own citeria, the bush economic program has been an abject failure.
But the same thing happened under Reagan it just they have used the "big Lie" to claim success.

We have experimented with supply-side tax policy for almost 20 years now and by any objective measure it has been almost a complete failure.

Posted by: SPENCER on February 24, 2004 06:25 AM

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"We have experimented with supply-side tax policy for almost 20 years now and by any objective measure it has been almost a complete failure."

What if the objectives are to redistribute the tax burden in a more regressive fashon and to "starve the beast" so that government will be forced to cut popular services/entitlements that the right wing opposes?


Posted by: TexasToast on February 24, 2004 06:42 AM

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One thing is clear. Higher productivity doesn't necessarily benefit the worker who, for whatever reason, is more productive. And echoing another comment, how do we conclude that greater demand will necessarily be of benefit to this same worker? Both phenomena purport with standard economic theory, but are they true in today's international environment. Initially, there is more product and wealth created, but where does this additional product and wealth per worker go? To whom does it accrue? Given the incresing disparity in incomes, it would appear to accrue to the CEOs, the stockholders, and those at the upper end of the income stratum.

To what end is all this extra productivity if it does not accrue to those who are performing the work, those who need to support their families. Isn't this reliance on demand a very crude sledge hammer? Growth, even if it occurs will not necessarily result in sufficient jobs and it will certainly not result in a more equal distribution of income. And what is the result on the planet from all this additional consumpiton. I think we should be concerned not only with the level of consumption but the nature of that consumption.

Posted by: tstreet on February 24, 2004 06:55 AM

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Joe Mealyus, Bush has actually made 4 different arguments over time for the same policy: cutting taxes, particularly at the high end.

The first argument was that the surplus projectios proved that we were being "overcharged" and we deserved a refund (remember the 4 dollar bills?).

The second argument, post-November, 2000, was that we needed the tax cuts to prevent the emerging weaknesses in the economy from turning into a recession.

The third argument, made in 2001, was that we needed tax cuts to get out of a recession.

The fourth argument, made in 2003, was that we needed more tax cuts to generate jobs.

tbrosz, you might spend some time actually learning about Europe, which, to begin with, isn't actually one place but a number of countries. You might recognize that most countries in Europe have made a choice: that a little higher unemployment rate is a reasonable tradeoff for a number of other social benefits: more vacation time, less neurotic fixation on productivity in the workplace, more cost-efficient health care that doesn't leave 15-20% of the public uncovered and reduced to hospital emergency room visits for basic healthcare needs, and so on.

You may like or not like the outcome, but based on such quality of life indicators as infant mortality rates and lifespans, most countries in Europe are doing just fine with their approach.

That said, Brad isn't advocating anything resembling the policies of most countries in Europe; he's advocating policies resembling the proven sucessful policies of the clinton adminstration....

Posted by: howard on February 24, 2004 08:01 AM

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Or it could be the productivity increases come simply from bosses saying, "You need to work more hours if you want to keep your job." In today's employment climate "As you command, master," is the only safe response to that ultimatum.

Posted by: Mark Wise on February 24, 2004 08:33 AM

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"Rough translation: we need to run America just like Europe. Checked out their economic statistics lately?"

Let's take your question to the data, Mr. Reality Check:

"The euro-zone1 industrial new orders index increased by 5.7% in December 2003 compared with the previous month, Eurostat, the Statistical Office of the European Communities, estimates today. The index fell by 0.1% in November3 2003 after a rise of 1.2% in October. EU15 new orders also increased, by 5.3% in December 2003, after rises of 0.1% in November3 and 1.1% in October.?"

http://europa.eu.int/comm/eurostat/Public/datashop/print-product/EN?catalogue=Eurostat&product=4-24022004-EN-AP-EN&mode=download

How about unemployment?

2003m01 2003m02 2003m03 2003m04 2003m05 2003m06 2003m07 2003m08 2003m09 2003m10 2003m11 2003m12
Euro-zone 8.7 8.7 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8
Euro-zone (12 countries) 8.7 8.7 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8 8.8
EU (15 countries) 7.9 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0 8.0

[Source: Eurostat]

I can't say I am happy about 8-9% as an unemployment rate, but it's certainly not that bad if you put things in perspective. The OECD standardized unemployment rate has gone up in the US from 4.7 in 2001 to 6% in 2003 (a 1.3% increase). Meanwhile in has gone up from 8% to 8.8% in the Euro zone (vs. a .8% increase).

http://www.oecd.org/dataoecd/41/13/18595359.pdf

Labor cost index (ya know, European labor markets are sooooo inflexible)?

2002q04 2003q01 2003q02 2003q03
Euro-zone 111.3 105.9 111.3 108.8
EU (15 countries) 110.4 107.8 110.9 109.0

[Source: Eurostat.]

Anyway, Professor DeLong's post was not about trying to imitate Europe's social institutions, but rather strengthen America's own type of institution, or at least not undermine them, willingly, or not...

Posted by: Jean-Philippe Stijns on February 24, 2004 09:02 AM

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The presentation is very strong, but I wonder if it could not be made stronger still by talking about the structural problems which create, for example, pressures to income and wealth disparity. It isn't that the rich are getting richer that is the problem, it is that we have structured the economy so that they must continue to get richer.

Posted by: Stirling Newberry on February 24, 2004 09:11 AM

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I have a problem with the demand-driven paradigm that Professor DeLong proposes.

A large part of the population has fulfilled basic needs. Consumption tends to go into things that do not build the society, such as larger homes and SUVs. In an ideal world, incomes for this portion of the population would only increase to the extent that they funded better education, health care and other services that do not pollute or waste resources-- and, of course, to make retirement more secure.

There is a portion of the population that does need more "things". People who live ten to a room. People who don't have toilet facilities, much less a PC. Middle class tax cuts don't help these people. And yet, without these people, our restaurants would close, our fields would go unpicked, and our political class would have to clean their own houses and take care of their own children. (Heaven forfend!)

At the moment, the present system serves. But as the pressures to reduce pollution increase, as Third World incomes (and hence the appetite for consumer goods) increase and as polarization of incomes and the decline of work cast more and more middle class people into poverty, we will need leadership to find more delicate tools than aggregate demand.

Posted by: Charles on February 24, 2004 09:14 AM

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Your critique is important but misses the point that the Bush administration does not share your goals for economic policy. The Administration is not striving towards the greatest good of the greatest number but is derived from a pseudo-religious ideology which focuses on rewarding the rich for their goodness. How do we know they are the good and deserving ? - God has blessed them by making them wealthy.

Posted by: RuthWA on February 24, 2004 10:20 AM

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Further to my last post, refer to the body of economic thought promoted by the religious right in voluminous writings. These writings may not be taken seriously by academic economists but they are tremendously influential amongst people within the fundamentalist camp and these people vote!

Posted by: RuthWA on February 24, 2004 10:26 AM

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RuthWA:
Could you provide a link or a reference. What writings are you talking about? I would like to see an example.
I assume it is not Calvin. I've read his sermon on "Thous Shalt not Steal" and I think that anyone who thought the SEC was overreaching after Enron might just be guilty of an infraction by Calvin's standards.

Posted by: jml on February 24, 2004 01:05 PM

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Would any one believe me about ten years ago -- or say in 1999 -- if I said ordinary Americans ought to pay attention to the matter of elimination of poverty world-wide or else they themselves might face the threat of poverty sometime soon?

I say the prescription again: A New-New Deal with a global reference.

Posted by: Bulent on February 24, 2004 01:13 PM

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Charles: "At the moment, the present system serves. But as the pressures to reduce pollution increase, as Third World incomes (and hence the appetite for consumer goods) increase and as polarization of incomes and the decline of work cast more and more middle class people into poverty, we will need leadership to find more delicate tools than aggregate demand."

bulent: "I say the prescription again: A New-New Deal with a global reference."

How's that for delicate?

Posted by: Joe Mealyus on February 24, 2004 02:11 PM

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Jean-Philippe Stijns: European unemployment rates

I always find comparing unemployment rates suspect. They are measured according to different definitions of (un)employment. One reason why for example the German rate has a bias towards higher values than the US rate is that certain people are counted as unemployed which would not be counted as such in the US. The German administration has recently floated the idea of using the ILO standard in an attempt to bring its number, and thus the perception of high unemployment, down.

When you include (in the US) the "marginally attached" workers -- essentially people who want to work but have not made specific efforts to look for a job in a reference period for various reasons, like no jobs available, inability to secure transportation or child care, etc., you will get the U-6 rate, which is around 11%.

Posted by: cm on February 24, 2004 02:23 PM

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howard: "Bush has actually made 4 different arguments over time for the same policy: cutting taxes, particularly at the high end."

Thanks for the refresher. So I think the idea that the Bush administration was thinking "why not ram an upper-class tax cut through by claiming that it is a jobs program?" is not quite right. I'd say they were thinking "why not ram an upper-class tax cut through by claiming that it is a tax cut?"

"Taxes are too high" is a simple argument, popular with voters who often think taxes ARE too high. Arguments for a certain level of taxes on high-income people are much more complicated, and not as popular. How do you explain (i.e. as an economist to a lay person) the problem with an economic policy that has no real economic-policy rationale - no fiscal policy rationale, no less-government-is-better rationale....

Posted by: Joe Mealyus on February 24, 2004 03:13 PM

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JML
Christian conservatives have produced a large body of literature on the economy. Until academic economists start paying attention to that literature (and to the agenda inherent in the literature), they will not have a coherent understanding of the economic policy of the Republicans.

As a start, go to www.theocracywatch.org and follow the link to "the economics of the religious right." I am sure that there is more recent work by political scientists and sociologists but see the chapter on economics in the book by Professor Michael Lienesch, "Redeeming America, Piety and Politics in the New Christian Right", 1993, University of North Carolina Press.

For the purposes of searching google and Amazon.com, use the phrases "biblical economics" and "Christian economics".

Also look at the research on www.yuricareport.com and on David Neiwert's blog - both for general political background.

Posted by: RuthWA on February 24, 2004 03:37 PM

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RuthWa, I think you give Bush too much credit. Many of his supporters may be Dixie Taliban, but not Bush. I don't believe there is a true religious bone in his body. His is a darker agenda.

Posted by: Malcolm on February 24, 2004 07:57 PM

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I'd like to point out that Prof. DeLong presents three main components: Employment, income distribution, "social insurance state".

In that framework, aggregate demand and distribution of tax burden and the relationship between the two are secondary issues.

And I think that framework of employment/income distribution/social safety net is a good start towards a "New-new Deal with a global reference".

Posted by: Bulent on February 24, 2004 08:32 PM

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Every element of change levys variable gradations of stress against any given situation. The current economic landscape is maintaining its fragile health because economists are working night and day to educate the public.
Greenspan's 2006 exit is traumatic enough without adding an international political power play. Investments will enjoy an almost seamless transition with Bob Rubin, and if he is half as successful as Greenspan (who strengthened the Dow by 400% since taking his chair in 1987) we might have a chance.
Of course, we had a growth minded adminstration for 2/3 of that time, and inflation was only starting to play toward the end.
Income mobility and social insurance are fast becoming impotent, and as a society we are being dissociated from their importance. The work of Eisner suggests that deficit and dollar votes are not as crucial as experience is now showing us. And the Journal today was trying to sugar coat the labor outsourcing issues.
Prof. DeLong, I only wich I were there in Wheeler with you tonight. We need to hear what you say. Hopefully there will be tapes. Thank you.
Good night all

Posted by: Paul Miller on February 24, 2004 09:57 PM

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Joe Mealyus says "How's that [A New-New Deal with a global reference] for delicate?"

The New Deal dealt with stimulating aggregate demand, which has all the attendant problems of pollution and so on. My point is that one must stimulate demand very selectively. In China, one might want to create demand for solar cookers to get rid of the manure-powered cookers that contribute to the smog. In the US, one wants to destimulate demand for large vehicles. Where does that money go to?

So, not delicate enough. The next "New Deal" will be--socially and intellectually-- the hardest thing that humanity has ever accomplished.

Posted by: Charles on February 24, 2004 11:27 PM

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It was nicely delivered, as well. I also thought that you handled the question from the unemployed woman very well. A good performance, although I wonder how much it was preaching to the converted.

Posted by: Tim on February 24, 2004 11:55 PM

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"..Where does that money go to?.."

At first, the answer to that question appears to be easy: Mass transit; hybrid vehicle research; intelligent highways.... not to mention possible areas of expenditure like expanding higher education covereage towards a hundred percent of the age group...

Posted by: Bulent on February 25, 2004 12:41 PM

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I do not understand the obsession with productivity of academic economists to explain economic growth (sorry prof. Bradford-Delong). If a company X closes its plant and fires 10.000 workers in the US or Europe the calculation is simple: 500 million/year savings in payroll, 50 mil. to have the Chinese produce the goods, 50 mil. overhead for middle managers and consultants (coporate courtiers) to supervise the Chinese, 200 mil. shareholder value and 200 mil. board member value, as the goods are sold for the same price consumers typically do not benefit. Now the company generates the same output/added value with a lot less people, so productivity has increased enormously, even if the Chinese employ 20.000 to produce the same goods. Somehow national productivity figures give a wrong image of reality, they hardly seem an engine for real world growth. Every top 500 company has implemented the above scenario in a more or less degree, that makes a large chunck of the US and EU economy.

Posted by: schelfhw on February 26, 2004 12:00 PM

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Correct me if I am wrong, but growing labor productivity is perfectly compatible with falling wages. E.g., labor saving devices increase output but decrease the demand for labor.

A hundred years ago, we responded to that problem by artificially restricting the supply of labor. We legislated the eight-hour day.

Trading with poor countries also decreases the demand for labor. Labor intensive processes are outsourced abroad.

What is the best way to deal with this problem today, Brad?

Wouldn't a nice dose of inflation (to bring real wages down, and thus restore full employment) together with a plan to subsidize those fallen wages by expanding the earned-income tax credit, be one way to go?

What other alternatives are there?

Working-class Americans would really like to know.

Posted by: Luke Lea on February 26, 2004 01:04 PM

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Folks, demand economics is inherently short term. Therefore it should be applied in careful combination with supply economics, which is inherently long term. Rather than denigrate supply side theory, why not work to simplify the tax code, return more power to the states, cease whining about job loss, re-educate and re-train yourself to find a new career, and basically start taking care of yourselves rather than grovelling to government for special treatment and assistance? Whoever said government was obligated to help those of us who are too lazy to better ourselves?

Posted by: Pete and Nancy Burgess on February 28, 2004 06:50 AM

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Does anyone have a solid refutation of what is in Jerry Bowyer's book, "The Bush Boom"? I would like to hear it. Please drop me some email with some links. I am currently gathering the best possible pro-Bush info, and then plan on critiquing it.

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