Tag Archives: economics

A Do-Nothing Senate

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Recall the mandate to move to the right of center that our Congress received in the 2010 elections, when the people transferred 63 seats in the House of Representative and 6 in the Senate from the Democrats to the Republicans—a majority of those transfers to Tea Party Republicans, hence the mandate to move to the right.  Despite that outcome, though, the Senate remained under the control of the Democrats.  What has the Senate done in response to those instructions from its bosses?  The figure below, from The Wall Street Journal, tells the tale of the Progressives’ insubordination.

This illustrates the work the House has done these last two years in response to those instructions and the (not insignificant) numbers of House Democrats who actively supported that work.

On top of this dereliction, the Senate has refused to do its own work:

[T]he Senate failed to pass any budget in 2012. Or 2011. Or 2010. …more than 1,200 days.

And

The Senate also failed in 2010 and 2012 to pass a single appropriations bill.  …that hadn’t happened before in the 150-year history of the current spending process.  This year the Senate even failed to enact a national defense authorization bill, which almost never happens.

Senate Progressives have announced that they’ll continue their refusal to perform in 2013 [emphasis in original]:

Chuck Schumer (D, NY) warned that Democrats will stop any attempt at bipartisan tax reform next year, calling the idea “obsolete.”

We can’t afford even two more years of this Progressive refusal to perform, much less four more years of an incumbent President’s arrogance.

The Current State

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…of our economic “recovery.”

Here are some numbers, from The Walls Street Journal.

  • GDP grew at a (preliminary) 2% rate in the third quarter…
  • That rate means that growth for the first nine months of this year was only 1.7%
    • Slower than last year’s 1.8%
    • Which was slower than the year before’s 2.4%
  • Consumer spending provided most of the third-quarter lift…but consumers can’t continue if the overall economy doesn’t grow fast enough to raise incomes faster
  • The other big third-quarter growth driver was Federal government spending
    • Rose 9.6%
    • Overall government outlays rose 3.7% and accounted for about 0.7 percentage points of that 2% GDP increase
  • Economist David Malpass calculates that growth in private output was closer to 1.3%. The private economy isn’t “doing fine…
    • Non-housing related investment contracted by 1.3%.
    • But business investment is a leading indicator of future job and wage growth.

Finally,

  • [T]he typical growth rate at this stage of the previous nine recoveries (13 quarters) averaged 16.8%
  • The rate for this recovery is 7.2%.
  • That’s about $1.2 trillion in foregone output.

Consumption and Inequality

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Some on the left worry about income inequality as though that matters.  It is, though, equality of opportunity that provides everyone the path to increasing prosperity.  Even though we begin life with an equal endowment of inalienable rights—including the right to seek our own happiness as John Adams described it—it is the implementation of those rights, equality of opportunity, that lets us capitalize on and so to maximize, our unequal endowments of ability, temperament, luck.

One way to assess the increasing prosperity of all is to look at consumption.  Hassett and Mathur do this in their paper, “A New Measure of Consumption Inequality,” a copy of which can be found here.

Some numbers will illustrate.  First, a snapshot of the general situation:

Per cent of Total US Consumption

 

Year 2000

Year 2010

Bottom Fifth of Households by Pretax Income

8.9%

8.3%

Middle Fifth

17.3%

17.1%

Top Fifth

37.3%

38.6%

That’s remarkably stable.

Now, the trend in consumption:

Increase in US Consumption from 2000 to 2010

Bottom Fifth

14%

Middle Fifth

6%

Top Fifth

14.3%

Despite the recessions of the early 2000s and since 2008, household consumption actually has increased, and the bottom fifth by pretax income increased their consumption by quite a bit, despite the claimed unfairness of income inequality.

Now, some illustrative items of consumption, focusing on the bottom fifth of American households:

Per cent of Households with the Indicated Item

 

Year 2001

Year 2009

Computer

19.8%

47.7%

Dishwasher

17.6%

30.8%

Microwave

74.9%

92.4%

Washing Machine

57.2%

62.4%

Air-Conditioning Equipment

65.8%

83.5%

6 Rooms (Other than bath) in the House

21.9%

30.0%

 

Odd, that—overall relative share, by those unequal income groups, of consumption of items like these has remained quite stable across over time.  Moreover, despite that income inequality (which has grown, as it typically does, during recessions, does not act as a limiting factor in consumption capacity.  Apparently unequal incomes don’t matter that much to well-being.  Household quality of life for is improving for all groups.

Of course, this does not mean that the lower income groups don’t need help—they often do, especially during economic dislocations; their resource margins are much thinner.  But that help is most effective as temporary hands up, not in the form of permanent wealth redistribution programs.  The latter simply address a non-existent problem.

Economics

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We’re well aware of the role of economics in our daily affairs and in the aggregated domestic affairs of our country.  The quality of our economy directly relates to our and to our nation’s prosperity.  But what is the role of economics in our foreign and defense policies?  Our economy is no less critical there.

General George Marshall once said

The only way human beings can win a war is to prevent it.

A successful economy plays a role in this prevention through a number of pathways.

The role of economics in foreign policy

Included among the paths is the ability to aid our allies, our friends, and those who wish to leave their current orbit and if not align with us, at least to begin to chart their own independent course.  A strong economy makes this possible.  The surplus from that can fund support for those nations struggling to get free of their current restraints—both their own and those from foreign domination.  Our strong economy, through the trade relationships our businesses create, can aid other economies as they struggle through their own recessions—and their resulting stronger economies can, through those same trade relationships, then aid our own in similar circumstance.

Another path is through the capacity to support the economic development (and through that, the social and political development) of less fortunate nations, both those in the developing world and those whose development has been stunted by being trapped under foreign domination—the follow-on condition of those nations just broken free.  Our economic strength here is especially useful in guiding the political and social development of these nations as well as their economic evolution.  By aiding these nations to develop as democracies with free market economies, we not only help them to find their own strength and prosperity, we deny the nations of tyranny the resources they need for their aggression, and we push those tyrannies back from our own shores.  This also is facilitated by our very success at home, which demonstrates the superiority of our economic methods.  As above, this is possible only from our own economic surplus.

A third path is to work with nations that are committed to the principles of free enterprise, and of freedom generally (which collection will overlap greatly, but are not coincident with, the group comprising our friends and allies), to strengthen all of us economically and politically and thereby to build, further, a bulwark against those tyrannies, who otherwise would become tempted to test us in battle, and perhaps win.

A fourth path is as a magnet for immigrants who want to come here share in our success—economically, to be sure—that’s the proximate magnet—but also our success politically and culturally.  These immigrants are a prime source constant renewal for us, in energy and in problem-solving.

The role of economics in defense policy

A strong economy creates the ability to fund, conduct R&D for, and equip our national defense system.  Without a successful national defense system, we very quickly will have no economy to defend, no nation to defend.

A strong economy enables the next step—the ability to fund the actual use of our national defense system, which usage is by its nature destructive of that system and which destruction must be replaced during the conflicts and after them.  Yes, we will be tested in battle, even though the means of testing will evolve, as the events of 11 Sep 2001 and after have demonstrated.

A strong economy gives us the wherewithal to preposition equipment and supplies near flash points.  These are, to be sure, targets, but they’re useful in the power projection phase of conflicts, and they can be useful in delivering quick reaction forces to the flash location(s) when they start to ignite.

A strong economy creates the ability to help other nations develop their own defense capacity: arms support, arms development support, and so on.  Such defense arrangements also can support economic success in the recipient nations: a common constituent of arms sales agreements is the assembly of purchased weapons in the buying nation’s factories, which represents employment for the citizens of those nations.

Related to the above, a strong economy facilitates reciprocal R&D agreements with our allies and friends.  This leads to greater commonality of key supply items, which simplifies the logistic problems inherent in coalition war.

A strong economy facilitates our maintaining a force with the technology and the numbers to enable us to hold open the world’s sea lanes.  This, by itself, creates a virtuous circle: free and easy transport of trade goods over the world’s waterways facilitates free trade, which leads to greater prosperity and stronger economies for all concerned, which leads to increased free trade and an easier time maintaining and improving those forces guarding the sea lanes.

Notice, too, that all of this adds up to a forward defense of our nation so as to minimize the likelihood that the initial, critical blows of a conflict land in our homeland.

In the end, the very success of our economy—our evident prosperity and freedom—serves as an empirical example of the rightness of our way of life.  It becomes a magnet drawing other nations to our methods, or at least to try them, it draws other nations to send their sons and daughters to our universities, where they not only will learn the academics of our institutions (whether economics, or science, or engineering, or philosophy, or…), but simply by being here through much of their formative years, these students also will learn the American way of life through immersion in it.

Moreover, our free market, capitalist economy, founded on individual liberty, individual responsibility, and individual ownership of property—our bodies and our real and our intellectual property—is what gives us the moral strength and the prosperity to constantly grow, to steadfastly maintain our freedom, to aid others, whether our neighbors or those wanting out from under.

Pick One

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David Wessel, writing in a recent Wall Street Journal, reports that

Chief executives of more than 80 big-name US corporations…in a statement to be released on Thursday, say any fiscal plan “that can succeed both financially and politically” has to limit the growth of health-care spending, make Social Security solvent and “include comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.”

Then Wessel himself makes this remark [emphasis added]:

The declaration differs sharply from those of several other business groups, which urge Washington to deal with the deficit and avoid across-the-board spending cuts and tax increases set for year-end—but avoid any stance on the politically charged issue of raising taxes.

This is an all too common conflation of two separate questions, but it’s amazing to see it coming from a Pulitzer Prize-winning economics journalist.

Of course raising tax revenue is different from raising taxes: the latter is merely one way to achieve the former.  But Wessel compounds his confusion by repeating it:

The CEOs who signed the manifesto deem tax increases inevitable no matter which party succeeds at the polls in November. “There is no possible way; you can do the arithmetic a million different ways” to avoid raising taxes, said Mark Bertolini, CEO of Aetna.

Notice that: Wessel directly contradicts the CEOs in their statement, which he quoted above.  And then he carefully provides his confused “paraphrase” of raising taxes outside another direct quote.  Yet Wessel then notes the following:

The executives didn’t endorse Mr. Obama’s proposal to raise the marginal income-tax rates for the top 2% of taxpayers or any other proposal.  Rather, they called for an overhaul of the tax code that, among things, would eliminate or reduce deductions, credits and loopholes (known as “broadening the base”), and one that also would bring the Treasury more revenue than the existing code does.

It’s no wonder Americans are having trouble sorting through the question of tax reform when the so-called experts can’t even trouble themselves to keep matters straight in their own writings.