I Agree With Joseph Stiglitz
From his Politico piece dated yesterday:
Monetary policy, one of the main instruments for managing the macro-economy, has proved ineffective — and will likely continue to be. It’s a delusion to think it can get us out of the mess it helped create. We need to admit it to ourselves.
. . .
But how do we get America back to work now? The best way is to use this opportunity — with remarkably low long-term interest rates — to make long-term investments that America so badly needs in infrastructure, technology and education.
We should focus on investments that both yield high returns and are labor intensive. These complement private investments — they increase private returns and so simultaneously encourage the private sector.
. . .
There are things we can do beyond the budget. The government should have some influence over the banks, particularly given the enormous debt they owe us for their rescue. Carrots and sticks can encourage more lending to small- and medium-sized businesses and to restructure more mortgages. It is inexcusable that we have done so little to help homeowners, and as long as the foreclosures continue apace, the real estate market will continue to be weak.
These are, basically, the points I’ve been trying to make in this space over the past couple of days.
Stiglitz also makes some points about taxes that I agree with. I believe we need more revenue – but I want to see that incremental revenue raised in ways that make the tax code more efficient. So I favor reducing or eliminating certain tax expenditures (subsidies in the tax code) and raising taxes on activities with significant negative externalities. I’d support a lower-rates-and-broaden-the-base approach to corporate tax reform. I’m not even constitutionally opposed to modest upper-bracket tax hikes; I just don’t think that’s the be-all and end-all of tax reform.
In my dream world, the conservative faction would recognize the need for more tax revenue, and would be fighting to make sure incremental revenue was raised by increasing rather than reducing the efficiency of the code. In my dream world, the conservative faction would recognize the need for more investment in public goods that will increase productivity over the long term, as well as more efforts to tackle unemployment directly, and would focus on fighting the capture of these investments by special interests and winning efficiency-improving givebacks in exchange for agreeing to increase, not cut, domestic discretionary spending. (Give more aid to the states to retain teachers – but only if the states get something back from the public sector unions on benefits. Spend a trillion dollars on essential infrastructure – but get a temporary suspension of Davis Bacon rules. You get my drift.)
But that’s not the world we live in. So I wind up agreeing more with Joseph Stiglitz, a left-wing critic of the Obama Administration, than with anyone in the conservative faction.
And for that, no doubt, I’ll be attacked from the left because I don’t think monetary policy can do much more to get us out of this mess. Another point on which I agree with Joseph Stiglitz.
I am a reasonably intelligent and educated adult. I am also recently retired and have decided that it would be to my advantage to try and follow what is going on in the world. Although I am very liberal, unpractically idealistic I have found many of your articles on this site very informative and make me challenge and clarify what I believe in and why. However, when it comes to all of the “econo-babble” my ears start to buzz and I see spots before my eyes. Is there an explanation of “monetary policy” that a lay person could understand (Please don’t send me to Wikipedia to look it up, almost needed CPR when I tried to read that entry) ? I think I understand and agree with Stiglitz also, but can’t see how anything will work if we continue with total partisan deadlock in the government and total “community” disregard in our corporations many of our citizens.
— CLK · Sep 8, 04:56 PM · #
Why does proofreading only work after you hit the submit button? That last sentence should read “corporations and many of our citizens”.
— CLK · Sep 8, 05:50 PM · #
The basic explanation of monetary policy is that there are exactly as many dollars in the United States as the Federal Reserve Bank decides there are. The law of supply and demand can answer all your other questions about it.
— Chet · Sep 8, 06:37 PM · #
In my dreamworld, the Noah I used to love and read at “Gideon’s Blog” would come back to the future and tell this Noah that Joe Stiglitz is full of it. There is no empirical evidence that America needs all those “long-term investments” — how the heck does Stiglitz knows what America needs (versus the decisions of millions of individuals and business and yes, banks, who obviously know better). If there are opportunities for investment and the government is getting in the way of those opportunities (e.g. through excessive regulation or taxation) then the solution is less government. Which means less government revenue.
The conservative faction is focused right now on just the right ideas: as Rick Perry says, he wants to make Washington as inconsequential in our lives as possible. We don’t need more investment in public goods — we need to rethink completely how the government delivers public goods (e.g. changing our public education monopoly to a complete choice/voucher system).
— Fake Herzog · Sep 9, 02:15 AM · #
Well, that’s clearly a mistake. Insolvent government isn’t smaller government. You must have been asleep for the past 30 years, or something.
Given that about half of Perry’s state is on fire right about now, I wonder how “inconsequential” he would prefer the Federal government to be, these days. It’s funny how these “small government conservatives” have no problem carving out an exception for whatever issue affects them personally. What a failure of moral imagination. It’s not hard to imagine that if Sarah Palin were the governor of a burning state and Perry the father of a special needs child, it would be Palin begging for Federal largesse and Perry championing Federal funds for special needs children.
— Chet · Sep 9, 12:33 PM · #
Chet,
“Insolvent government isn’t smaller government.” You are right about that; so we can both agree that Republicans and Democrats should have stopped spending so much money over the past 30 years ;-)
The federal government has no business, none, and certainly no Constitutional warrant, helping out parents of special needs children however special it makes you feel to think otherwise.
Meanwhile, I’d love to read one link from Noah sending me to a scholarly article about the need for government investment in American infrastructure in 2011. All that Japanese infrastructure spending has been working wonders:
http://www.nytimes.com/2009/02/06/world/asia/06japan.html
— Fake Herzog · Sep 9, 03:50 PM · #
Thank you Chet for your answer. However, I am not sure supply and demand addresses all of the other questions. It would seem that speculation and manipulation for individual good may actually have as much influence, if not more than supply and demand.
I have a couple of questions for @Fake Herzog. Sir I have seen responses such as yours over and over in discussions and I have a few questions that plague me as I read through those opinions. I would assume you are against the taxing of property and income that pays for our police and firefighters, correct?
If so then if someone broke into your house you would be OK if the little sneak went on his way and there was no one to investigate and retrieve your belongings? But what if you were in the mall with your family and a stray bullet hit one of your family, that would just be a sad consequence of life, because you know that you have that extra money you didn’t pay in taxes and know you would be safe from all of that government oversight hmm? Would the same be true if your house caught on fire, you would be able to put the fire out yourself right?
If your water supply ran brown and cloudy you would understand, because maintaining consistent water supply would cut into the water companies profits and they are free to make that choice, regardless of the consequences?
Now I know you could pull your gun out and protect your home and family, but could you supply your own water and electricity reliably? If you were able to dig that well or whatever and suddenly you started to feel ill, achey, and diarrhea you could afford to pay for the doctor, fully out of pocket, to figure out that you were being poisoned by the water? You would be happy to go on your merry way to the grave because the oil and natural gas companies are free enterprise and have no obligation to protect you from their contaminants, right?
What about if your son/daughter were bringing your 3 grandchildren for Thanksgiving and on the way someone crossed over the center line hit them head on and killed them all. The person who crossed over had only had a few drinks before he got in his car and really, really needed to call his friend and talk on his cell phone while he was hurrying to his next party. That would just be the breaks because you were free from all of those regulations of government?
Is that how I read all of this conservative antagonism to regulation and government? I am just wondering, I know that I am unrealistically idealist about safety and the environment so naturally I am curious how dropping regulations and government would be helpful and beneficial and we would all be better off?
— CLK · Sep 9, 03:52 PM · #
When one guy in Arizona trips a single power line, is it supposed to knock out power to large parts of two countries? You tell me if we could use some infrastructure spending. Christ, what an idiot.
— Chet · Sep 9, 06:23 PM · #
@fake herzog
Oh please, the same constitutional power that allows the government to spend money on national disasters also allows it to spend money on special needs kids.
“General welfare” isn’t exactly the most specific phrase in the world.
And I’m sorry but the cumulative effect of the decisions of businesses and banks won’t lead to a new interstate getting made, or a new school being built, or a new air traffic system being implemented, etc. etc. Yes, we have investments to make, and a number of those investments require the government to make those decisions.
— Console · Sep 9, 06:34 PM · #
Really, is this the best the Scene can do? Erect a number of bad straw men arguments just so I can knock them down? SIGH. If you insist…
CLK –
Like many modern-day conservatives, I consider myself a good federalist and would like a much smaller federal government so that states and local governments can do their jobs without Washington interference. In some cases, this might mean that certain states and localities might even have to raise more revenue than they currently do to provide the services their citizens demand. Certainly, I would consider police and fire protection public goods that can be provided by state and local governments (although keep in mind that there are more volunteer fire-fighters in the U.S. than professionals).
As for utilities, that is a more complicated story, but I generally believe we are better off with robust competition (where possible) and the private sector providing our gas, electricity, water, etc. Here in Chicago, the city provides excellent Lake Michigan water, although who knows how much more effectively and efficiently a private operator could do it. As for safety — just like any good or service provided by any business, there is no reason to systemically provide an unsafe product and that is why we have liability laws and a court system (another good use of taxpayer money). The arguments you make can be made reductio ad absurdum with any good or service not regulated currently by government (which includes a lot!)
The bottom line when it comes to “regulations and government” as you put it, is that conservatives believe — and we think the evidence backs us up (I could link to all sorts of studies that show lower tax rates, lower government spending, lower regulation = stronger economic growth) — that individuals and business are better off when there are fewer regulations controlling the economy and the government is small and it does just a few things effectively.
Chet —
Someday, I pray you will come to know Christ.
Console —
The problem with the phrase “general welfare” is that it needs to be read in context. Why would Section 8 of the Constitution mention the general welfare in item 1 only to go on in items 2 – 17 to list specific powers? I think there is only one reason — those powers detailed in 2 – 17 are what Congress is specifically authorized to do by the Constitution. This was a subject that the Framers discussed quite extensively. Here for example is Madison on the subject:
“Mr. MADISON. It is supposed, by some gentlemen, that Congress have authority not only to grant bounties in the sense here used, merely as a commutation for drawback, but even to grant them under a power by virtue of which they may do any thing which they may think conducive to the general welfare! This, sir, in my mind, raises the important and fundamental question, whether the general terms which have been cited are {428} to be considered as a sort of caption, or general description of the specified powers; and as having no further meaning, and giving no further powers, than what is found in that specification, or as an abstract and indefinite delegation of power extending to all cases whatever — to all such, at least, as will admit the application of money — which is giving as much latitude as any government could well desire.
I, sir, have always conceived — I believe those who proposed the Constitution conceived — it is still more fully known, and more material to observe, that those who ratified the Constitution conceived — that this is not an indefinite government, deriving its powers from the general terms prefixed to the specified powers — but a limited government, tied down to the specified powers, which explain and define the general terms.
It is to be recollected that the terms “common defence and general welfare,” as here used, are not novel terms, first introduced into this Constitution. They are terms familiar in their construction, and well known to the people of America. They are repeatedly found in the old Articles of Confederation, where, although they are susceptible of as great a latitude as can be given them by the context here, it was never supposed or pretended that they conveyed any such power as is now assigned to them. On the contrary, it was always considered clear and certain that the old Congress was limited to the enumerated powers, and that the enumeration limited and explained the general terms. I ask the gentlemen themselves, whether it was ever supposed or suspected that the old Congress could give away the money of the states to bounties to encourage agriculture, or for any other purpose they pleased. If such a power had been possessed by that body, it would have been much less impotent, or have borne a very different character from that universally ascribed to it.
The novel idea now annexed to those terms, and never before entertained by the friends or enemies of the government, will have a further consequence, which cannot have been taken into the view of the gentlemen. Their construction would not only give Congress the complete legislative power I have stated, — it would do more; it would supersede all the restrictions understood at present to lie, in their power with respect to a judiciary.
[snip]
{429} There are consequences, sir, still more extensive, which, as they follow dearly from the doctrine combated, must either be admitted, or the doctrine must be given up. If Congress can employ money indefinitely to the general welfare, and are the sole and supreme judges of the general welfare, they may take the care of religion into their Own hands; they may a point teachers in every state, county, and parish, and pay them out of their public treasury; they may take into their own hands the education of children, establishing in like manner schools throughout the Union; they may assume the provision for the poor; they may undertake the regulation of all roads other than post-roads; in short, every thing, from the highest object of state legislation down to the most minute object of police, would be thrown under the power of Congress; for every object I have mentioned would admit of the application of money, and might be called, if Congress pleased, provisions for the general welfare.
The language held in various discussions of this house is a proof that the doctrine in question was never entertained by this body. Arguments, wherever the subject would permit, have constantly been drawn from the peculiar nature of this government, as limited to certain enumerated powers, instead of extending, like other governments, to all cases not particularly excepted.”
— Fake Herzog · Sep 9, 08:40 PM · #
What makes you think I didn’t? I’m nothing but you in a couple of years, Herzog, if you have it in you to continue your intellectual development.
Regardless I’ll accept your remarks as conceding my points.
— Chet · Sep 9, 09:04 PM · #
This is the same James madison that made the lousisiana purchase…
— Console · Sep 9, 11:03 PM · #
Console,
The Louisiana Purchase was made by Jefferson (although Madison supported him), and interestingly enough, the Constitutionality of the purchase was indeed an issue at the time. Look, there might be a lot of good ideas for Congress to do X or the President to do Y — but if they aren’t Constitutional then the answer is to pass an Amendment so they become Constitutional.
— Fake Herzog · Sep 9, 11:22 PM · #
Buying things is a power specifically delegated to Congress in the Constitution. (Fascinating document. Imagine the things conservatives might learn if they read it.)
— Chet · Sep 10, 03:30 AM · #
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On the subject of infrastructure spending, I wonder if the people supporting it understand that a government assertive and confident of its ability to intervene in the market in that way would also have been a government too assertive and confident of its ability to intervene in the market to allow millions of jobs and entire industries to be exported to other countries.
Our elites have been preaching a sort of learned helplessness on major economic policy for years now. They shouldn’t be surprised to find such an attitude has negative consequences.
Mike
— MBunge · Sep 11, 04:14 PM · #
Thank you! I have been giving up hope that conservatives might get a clue. When even Rand Paul cannot balance the budget with spending cuts alone, we might need to consider some revenue enhancements. And externality taxes and loophole closures are a good way to go.
I would note that if we had a carbon tax, we could have the private sector do the infrastructure investments. Public transport was once profitable, and with high enough gasoline prices would be profitable again.
As for doling out money to the states for teachers, no thanks. Make the federal tax code more progressive and cut off aid to the states. The states can raise their own revenues. The states just cannot levy progressive taxes (save for land taxes) without the rich moving out. Progressive federal taxes = possible federalism.
— Carl M. · Sep 13, 02:35 PM · #