Sign of the Times

The rhetoric from the right, which is all to often echoed by the maintream media, is that the Obama administration has moved policy so far to the left that it produced a backlash from a traditionally right-of-center populace. The latest object of right-wing scorn is the Federal Reserve's program of Quantitative Easign, meant to fight the growing specter of deflation while hopefully promoting employment. This policy has been roundly criticized by right-wing luminaries as varied as Ron Paul, William Kristol and Sarah Palin. So how far to the left is this policy? It is so leftist that in 2000 the policy was promoted, in an almost identical economic circumstances as a way of helping Japan out of its economic mailaise by no less prominent and raging a leftist than Milton Friedman:

David Laidler: Many commentators are claiming that, in Japan, with short interest rates essentially at zero, monetary policy is as expansionary as it can get, but has had no stimulative effect on the economy. Do you have a view on this issue?

Milton Friedman: Yes, indeed. As far as Japan is concerned, the situation is very clear. And it’s a good example. I’m glad you brought it up, because it shows how unreliable interest rates can be as an indicator of appropriate monetary policy.
During the 1970s, you had the bubble period. Monetary growth was very high. There was a so-called speculative bubble in the stock market. In 1989, the Bank of Japan stepped on the brakes very hard and brought money supply down to negative rates for a while. The stock market broke. The economy went into a recession, and it’s been in a state of quasi recession ever since. Monetary growth has been too low. Now, the Bank of Japan’s argument is, “Oh well, we’ve got the interest rate down to zero; what more can we do?” It’s very simple. They can buy long-term government securities, and they can keep buying them and providing high-powered money until the high powered money starts getting the economy in an expansion. What Japan needs is a more expansive domestic monetary policy. The Japanese bank has supposedly had, until very recently, a zero interest rate policy. Yet that zero interest rate policy was evidence of an extremely tight monetary policy. Essentially, you had deflation. The real interest rate was positive; it was not negative. What you needed in Japan was more liquidity.

All that's missing is a quote from Das Kapital, wouldn't you agree?

(David Beckworth via Brad DeLong)

Magic Spending Cuts

Fox News is touting a new AP-CNBC poll by loudly proclaiming that the public prefers the government balance the budget through spenindg cuts rather than by raising taxes: Poll: cut govt services to balance budget. But when you click through and actually read the article you find something quite different:

To ease surging budget deficits, Americans prefer cutting federal services to raising taxes by nearly 2-1 in a new poll. Yet there is little consensus on specific, meaningful steps — and a wariness about touching two gargantuan programs, Social Security and Medicare.
...
As for detailed cures, the poll shows little agreement — a problem that has long bedeviled lawmakers who often speak about taming federal deficits but seldom vote to do so. Given more than a dozen options for helping balance the budget, majorities backed just four: Reduce the number of federal workers, trim their salaries, cut overseas military bases and eliminate the tax deduction on home mortgage interest in exchange for lower income tax rates.

So as is typical with these things, the poll showed that the American public wants to eliminate the Federal deficit by taking measures that would barely put a dent in government spending while leaving the largest entitlement programs unchanged. On Social Security, for instance, the public is strongly opposed even to raising the retirement age:




There are some other interesting results, however, and some rather peculiar ones. For one thing, I'm not sure what the poll question about eliminating the mortgage deduction in exchange for lower tax rates has to do with balancing the Federal budget. As written the question seems to suggest a budget-neutral change in tax law. I'd wager that the response to the poll reflects the percentage of taxpayers who are currently servicing a mortgage vs. those who have paid off their homes or who rent.

More interesting, however, is the poll respondents' enthusiasm for cutting our foreign military presence. Given that Americans are opposed to cuts in Medicare and Social Security (even to raising the retirement age) the only big budget item still left on the table is defense spending. If the results of this poll are indicative, taxpayers are much more open to cutting the defense budget than out political leaders. This, seems to me, provides an opening for real spending reform some time down the line. I suspect the American public will have to wait for our political class to catch up, though. Defense spending is a peculiar "third-rail," more hallowed by the political class, it would seem, than by the public at large. No doubt the massive defense industry lines more than a few politicians' pockets in exchange for their fawning adoration.

Finally, though the Fox article suggests that Americans prefer cutting services to raising taxes "by a 2-1 margin" the poll actually reveals that 65% of American believe taxes "will have to be raised" to cut the deficit.



So 65% of the American Public isn't buying GOP nonsense about tax cuts "paying for themselves." This is good news for Democrats and the President... if they're paying attention. One of the most fiscally irresponsible policy decisions we could take at the moment would be to extend the Bush tax cuts for the wealthy. Sadly, the wheels of government seem to be turning in just that direction.

Question of the day: what is a terrorist

Fox News asks:

The dictionary says:

ter·ror·ism :
 /ˈtɛrəˌrɪzəm/ Show
Spelled[ter-uh-riz-uhm] Show IPA
–noun
1. the use of violence and threats to intimidate or coerce, esp. for political purposes.
2. the state of fear and submission produced by terrorism or terrorization.
3. a terroristic method of governing or of resisting a government.

So the answer is, no, Fox News. Those guys aren't terrorists.

Did Low Corporate Taxes Kill Ireland? (Or Did Feminism!)

It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: either they become Ireland or they become museums:

-Thomas Friedman, in 2005

Here is a staggering fact: right now, as I write this, every single citizen of the Republic of Ireland owes foreign creditors over $535,000.00.

How did this happen in a nation that free marketers from the CATO instutute to Thomas Friedman were just recently holding up as a model of 21st century economic development, and whose laissez faire policies were held in stark and favorable contrast with the Social Democratic welfare states of Germany and France?

Hery Farrell at Crookerd Timber thinks he knows: the genesis of the Irish economic catastrophe lies in the country's corporate tax rate. More speficially, Farrell finds fault in Ireland's low corporate tax rates:

The simplified political economy story goes as follows. Ireland had low nominal and even lower effective corporate tax rates. It also had low personal taxes, both because of the belief that this would foster entrepreneurship etc, and because the government used to periodically sweeten bargains between business and labor by promising tax cuts (which of course favored the rich more than the poor), inter alia buying off unions who might otherwise have started getting feisty about organizing the unorganized bits of the new Irish economy.
The result was that even with booming economic growth, the government faced a fiscal hole. This hole was filled by taxes on property transactions which, as the property market got ever more bubbly, became an ever more important source of government revenue. This provided the government with an extremely strong incentive not to deflate the bubble, reinforcing the already considerable incentives towards inaction resulting from cronyism between politicians and property tycoons, ideological notions about not interfering with ‘free’ markets etc.

Ireland followed the free marketers mantra to the letter: low taxes, lower taxes, even lower taxes, especially corporate taxes! But a government simply cannot function without some sort of revenue stream, so to make up for the revenue lost to lowered corporate taxes, the Irish government taxed property sales instead. And this new revenue stream proved so critical to the state that the Irish government was loath to turn down the tap when it became apparent that its tax base was over-reliant on a huge property bubble. There's no free lunch, as the Irish people have discovered much to their chagrin.

This may not be the whole story, but if even a libertarian like Megan McCardle thinks corporate taxes sunk too low in Ireland and produced an unmanageable investment surge, then its bound t be a very important piece of the puzzle.

Meanwhile, Ross Douthat offers another explanation:

To the utopians of capitalism, the Irish experience should be a reminder that the biggest booms can produce the biggest busts, and that debt and ruin always shadow prosperity and growth. To the utopians of secularism, the Irish experience should be a reminder that the waning of a powerful religious tradition can breed decadence as well as liberation. (“Ireland found riches a good substitute for its traditional culture,” Christopher Caldwell noted, but now “we may be about to discover what happens when a traditionally poor country returns to poverty without its culture.”)

That's right: Ireland's economic collapse owes as much to the ravages of unfettered capitalism as to a society that had pushed aside the simple, timeless truths of traditional religion and found itself adrift in a materialistic sea bereft of the guidance once offered by its moral compass. And how did Ireland lose its moral compass? By accepting birth control and allowing women to work outside the home:

Progressives and secularists suggested that Ireland was thriving because it had finally escaped the Catholic Church’s repressive grip, which kept horizons narrow and families large, and limited female economic opportunity.

There are times when Douthat comes accross as a rare island of nuanced subtletly in a sea of spittle covered, right-wing bloviating. There are other times, ilke this one, for instance, when you'd much rather put yourself in the path of Bill O'Reilly's spittle for an hour than read another sentence of Douthat's disingenuous, patronizing, moralizing, garbage.

Coulter Pwned

Ann Coulter gets her lunch eaten by a former Bush administration official in the following clip. The issue concerns the new TSA screening devices that have proven controversial because they can see through passengers' clothes.

It's good fun to watch:



Coulter's objection to the screening machines is typically vapid, Ann Coulter racist garbage: we shouldn't be screening everybody who goes into airports, just the swarthy foreigners.

I don't think it takes a genius to grasp the stupidity of Coulter's proposal: there's nothing a terrorist organization would love more than to know exactly what sorts of people will get screened by ariport security and what sorts will be let by with little more than a cursory glance.

Chump Change

In their first big vote since the 2010 elections, Republicans, who took over the U.S. House of Representatives riding a wave of (misplaced) populist anger over the U.S. debt, have shown their commitment to fiscal austerity by... voting to defund NPR? (and failing)

I'd like to believe that the Tea Party faithful who voted these clowns in to office are going to revolt when they realize that proposed GOP budget cuts over the next few years are nothing but a series of sad little partisan gimmicks that do nothing to bring down the deficit (or absurd proposals specifically designed to fail). However, eight long years of Bush deficits have taught me that these same people who were marching on Washington protesting the national debt will quickly lose interest in our soaring tax-cut fueled deficits once the GOP holds the purse strings.

Nancy Pelosi Keeps Leadership Post

Nancy Pelosi has been elected incoming House minority leader. This is a welcome event, in my opinion. For all the carping about Democratic losses in the House and Senate, it would be folly and wholly unjust to place the blame on Pelosi's shoulders. In fact, Pelosi showed effective and courageous leadership in the House, marshalling support for Democratic initiatives that progressives saw as important. It was the Senate, and particularly Blue Dogs in the Senate who ultimately let us down. Senate Bluedogs are responsible for the death of the Public Option in health care. They are the ones reponsible for the inadequate stimulus. They are the reason DADT has yet to be repealed. Pelosi delivered on all these priorities in the House. It was the Senate's failures that dismayed traditional Democratic supporters, and it is because of them that depressed turnout in the latest elections directly contributed to the recent electoral bloodbath. Had Senate Democrats shown half the spine of Pelosi and supported Democratidc positions and proposals with half as much enthusiasm we would not be looking at two awful years of gridlock and mindless, politicized investigations.

So keep up the good work, Nancy. Hopefully you'll be majority leader again in two years.