Economic myopia

Posted on October 18, 2010

I haven’t had a small rant in a while, so please ignore at will…..

NPR has a very good series outlining the challenge to any economist seeking to outline a prescription for fixing the economy and moving us out of the Great Recession.  The bottom line conclusion is that there are A) simply too many variables to draw any clear reliable cause and effect relationships and B) all economic arguments tend to carry with them more value judgments than the discipline pretends. 

The failure of the dismal science to recognize the reality before us is beautifully captured in the reports that tell us we are no longer in a recession.  As Einstein said, not all that can be counted counts.  Or in this case, the wrong things are being counted.

• While GDP figures may suggest the the end of the recession in a technical sense, continued high unemployment, an increase in the percentage of Americans in poverty (a very low bar, by the way), a widening wealth gap, a decline in real earnings tell a very different story.
• The 2010 Census Report shows the top 1% of the population controlling 33.8 of all wealth in the country while the bottom 50% controlled 2.5% and the bottom 90% (!) controlling just 28.5%.  The wealth disparity has not been this bad since the Roaring Twenties.  Half of the country has just 2.5% of its wealth — amazing.
• That top 1% also owns 50.9% of the stock and bond market, further accumulating capital and widening the gap.  Wait, it gets worse.  According to the Bureau of Labor Statistics, real hourly earnings have not increased in fifty years.

A friend of our daughter has an excellent, if depressing, piece in the Brown student newspaper: http://www.theindy.org/2010/09/30/old-politics-for-the-new-normal/.  The quote from Walmart’s CEO is devestating.  He said in a September Goldman Sachs Retail Conference:

I don’t need to tell you that our customer remains challenged…You need not go farther than one of our stores on midnight at the end of the month. And it’s real interesting to watch, about 11 p.m., customers start to come in and shop, fill their grocery basket with basic items—baby formula, bread, eggs—and continue to shop and mill around the store until midnight when government electronic benefits cards get activated, and then the checkout starts and occurs. And our sales for those first few hours on the first of the month are substantially and significantly higher.

The political debate in response to the crisis is disheartening.  There are people actually arguing that we should extend the Bush tax cuts for the wealthiest 2% of Americans, though it would cost us $700 billion and the CBO ranks it dead last on a list of economic moves that can boost the economy and help restore jobs.  If the Obama tax proposal is put in place, 98% of Americans will not see an increase.  Not a person at Tea Party rallies will pay more taxes, though guest speakers and architects of the movement like Glen Beck, Rupert Murdoch, and the Koch Brothers would pay more of a fair share. 

In terms of spending, even the Tea Party small government advocates can’t name the programs they would cut and certainly won’t touch their own entitlements.  Every sensible person knows that we have to make sacrifices — actual cuts in spending — and raise new revenues.  No politician will tell that plain truth.

The news that NJ Governor Chris Christie killed the tunnel project between New Jersey and New York, a project that would have produced 5,000 jobs and added much needed infrastructure to the single most densely populated area of the US, seemed an apt symbol of our decline.  The country that once built a highway system, dams, world leading manufacturing and universities, and sent a man to the moon can’t even build a  modest highway tunnel.  The stimulus package struggled to find “shovel ready” projects, went largely to tax cuts, and backfilled depleted state coffers.  It did not drive new jobs in the numbers needed.  It was too small.

More than a eighteen months ago, Paul Krugman correctly criticized the stimulus package as too small and predicted this backslide into recession when it ran out.  Indeed, in an excellent October 10th column, he argues that the stimulus package was too small to offset the decline in state and municipal revenues.  It bought us time, not recovery.  We needed much more and, like the Chinese, we could have been putting in place the infrastructure to support the next fifty years of American prosperity while creating jobs.  As Krugman concludes, the stimulus package didn’t fail — it was never tried in reality.

An unwillingness to sacrifice, a crushing multi-decade shift of wealth from working and middle class people to the very wealthy, and a failure of vision and ambition are being distorted and amplified in the funhouse mirrors of imbecilic political campaigns.  Those campaigns — often anti-immigrant, homophobic, pro-gun, and carrying the barely constrained taint of outright racism (one NY Times column argued that only 5% of signs at a recent Tea Party rally were racist.  Only 5%?!!!!), and usually about the moral failings of the opponent rather than for what the candidate actually stands, a sin of both parties  — represent a low point in our political discourse.