Robert Reich Whistling in Hell

Robert ReichI really value optimistic people. But I don’t pay much attention to them. Two of my favorite political writers are Dean Baker and Eric Alterman, or as I think of them, the Depressing Duo. Or “Pessimistic Pair” if you prefer. Alterman perpetually looks like his first girlfriend just dumped him. Baker has transcended that and is on to that period when you are sarcastic about everything. But I read them because (1) they are brilliant and (2) they are right to be depressed. But sometimes, rarely, an optimist is right. So you have to pay attention.

There is an old Far Side cartoon I remember. It takes place in hell. Everyone is working very hard. There are all miserable. Except for one guy. He is pushing an over-filled wheelbarrow and whistling a happy tune. Two demons overlook the scene and one says, “I don’t think we’re getting through to that guy.” That’s how I’m feeling about Robert Reich today.

He posted an article that seems pretty compelling even if it seems on the far side of Pollyanna, TARP is Over, But the Bailouts Will Continue Until the Big Banks are Broken Up—And Washington Knows It. He notes that the chairman of the House Financial Services Committee, Jeb Hensarling—a Republican, of course—wants to break up the banks. And so does the Dallas Fed. So he argues that all we need is one more big bank loss and we will get a better banking system.

He is right that we need to break up the big banks. Reich points out that the system is unfair to the small banks who have to pay more to borrow than the big banks. This is because of the estimated $60 billion per year that the big banks get via implicit insurance from the government because they are “too big to fail.” As a result, there is a lot of power in all those little banks who would like at least a more level playing field.

So Reich is right to think that there may be some hope. But I find it hard to be too optimistic. As he points out, the five biggest banks control almost 44% of all bank deposits. This is up from 28% just ten years ago. These numbers indicate the need for reform. But they also indicate just how powerful these banks are. And once the country starts talking about all this stuff, these banks will start the full court press of their lobbying. Politicians like Hensarling will suddenly see that big banks are a good idea, and in 2023, the top five banks will control 75% of all banking.

But remember, “Oh, yes; the game was to just find something about everything to be glad about—no matter what ’twas!”

ACA Incentivizes Two More Asshole Companies

Don't Eat at Wendy'sAh, incentives! Economists love them, people respond to them, and politicians fuck them up. MSNBC is reporting that Wendy’s and Taco Bell franchises are cutting work weeks down to 28 hours to avoid penalties for not providing healthcare. This is understandable, of course. These are just business decisions. And they are not new.

Don't Eat at Taco BellAlthough I do not think that this was part of the thinking, ACA is becoming part of the corporate welfare system. By reducing work hours, these companies manage to make healthcare the government’s problem. But it is worse than this because it is likely to create a chain reaction. This is because it will affect the behavior of what we normally think of as good companies: the ones who will provide healthcare anyway. If their competitors manage to provide the same benefits (healthcare) without paying for it, these good companies will be at a distinct disadvantage. And thus, they are likely to stop providing the benefits.

Matt Yglesias talks about this today. And his take is that this eventually leads to a society in which everyone gets their healthcare through the government exchanges. In general, that’s true. But it also does this by reducing everyone’s work week down to below 30 hours. That might not be such a bad thing. After all, Americans work too much. What’s more, that is an easy way to get to full employment. But it doesn’t seem like the right way to achieve this goal. I think it would have been better to go with a single payer healthcare system and let people decide for themselves how much they want to work.

Regardless, mark Wendy’s and Taco Bell on your list of asshole companies to avoid.

First They Came With…

Martin NiemollerFirst they came with their Social Security,
and I didn’t speak out because it seemed like it would be good for the old and the economy too—a win-win.

Then they came with their interstate highway system, and I didn’t speak out because I knew that could be great for commerce.

Then they came with their Medicare, and I didn’t speak out because it seemed like it would be good for the old and the economy too—a win-win.

Then they came with healthcare for all, and there was only the crazies to complain because sadly they had not yet come with mental healthcare for all.

—with great apologies to Martin Niemoller
and grateful inspiration from Alex Jones

Once More: Government Is Not Business

Greg WaldenMeet Greg Walden, the Republican representative from Ogegon. He is an idiot. But he has lots of company. Like our “liberal” president. Do you remember when Obama said, “After all, small businesses and families are tightening their belts. Their government should, too.” Well, Greg Walden is using the same flawed argument in his new bill to eliminate the “trillion dollar platinum coin” loophole.

He writes, “My wife and I have owned and operated a small business since 1986. When it came time to pay the bills, we couldn’t just mint a coin to create more money out of thin air. We sat down and figured out how to balance the books. That’s what Washington needs to do as well.”

That does sound reasonable, doesn’t it? The problem is that it is totally wrong. People make the mistake of assuming a whole economy is like its pieces. But it isn’t. Consider for a moment the paradox of thrift. In a family, you can balance your budget by spending less. This does not work in the economy as a whole. This is because my spending is your income. If everyone decides they are going to spend 10% less than they have been, then everyone will find that they are making 10% less than they have been. A family or business is not like the economy as a whole.

The same is true of the government. But it is a bit more complicated. If the government lays off an employee, they will save that money. But they will gain extra costs like unemployment insurance and other welfare programs. Plus, the employee will no longer being paying taxes to the government. And most of all, that person will not have as much money and so there will be less money in the economy to be earned and spent. Of course, this isn’t the only or even the main reason that Walden’s analogy is nonsensical.

Jonathan Chait notes this morning that businesses come and go, but governments are supposed to last. A small business that goes bankrupt does little harm to the economy as a whole. A government that goes bankrupt (or simply defaults on its debts) does an immense amount of damage. Chait goes on to take Walden’s example at face value:

But let us try to take Walden’s small business analogy seriously. Suppose the problem is that we’re a business whose expenses are outstripping our income. We propose some measures to correct it — say, cutting expenses when possible and also working some longer hours. But we have a business partner who listens to a lot of Rush Limbaugh and has some different ideas. He says increasing revenue by working longer hours — even a single longer minute when we have customers waiting in line at closing time — is totally off the table. He says the answer is to cut our employees’ pay and ban them from taking bathroom breaks. And he also informs us that, unless we approve the savings ideas he wants, with none of the savings ideas we want, he’ll refuse to pay vendors who have already delivered things to us, thereby ruining our credit rating forever.

This all boils down to something very simple: silly for silly. Everyone knows that the trillion dollar coin is a silly idea based upon a loophole in the law. But it is being used to counter a silly abuse of the debt ceiling. Paul Krugman put it very well. Obama, he said, “will, after all, be faced with a choice between two alternatives: one that’s silly but benign, the other that’s equally silly but both vile and disastrous.”

Ezra Klein, last night on The Last Word, asked if doing this wouldn’t be admitting that we now live in a banana republic where we were incapable of governing intelligently. I don’t know that I would use the term “banana republic,” but as long as our elected officials believe that the federal budget should be treated the same as a household budget, we will indeed be incapable of governing intelligently.

Bernanke’s Impotence Problem

Ben BernankeMatt Yglesias ended his reporting from American Economics Association conference yesterday with a discussion of, Romer and Romer on Monetary Policy Complacency. It is really important work, but I think that Yglesias is being a little too cool for school. I guess he just figures that anyone who knows anything of what is going on should understand the subtext of his article. I will make it plain.

The paper looked primarily at the two cases where the Federal Reserve did a bad job of managing the economy: the Great Depression of the 1930s and the stagflation of the 1970s. In both these cases, the people at the Fed understood what was wrong with the economy. The problem is that they convinced themselves that nothing could be done. As David Romer put it, “Fear of impotence is bad for performance.”

The reason this is important is that this is a good description of the Federal Reserve these past four years. It has been particularly telling, because the Fed Chairman Ben Bernanke spent most of the 1990s complaining about the lack of action by the Bank of Japan. He proposed a number of non-standard monetary policies that could have helped. But once he was in the position to do something about it in his own country, he did nothing—or as close to it as he could get without widespread criticism. Paul Krugman has long complained about this.

Some economists like Karl Smith believe that only using the Fed we could have gotten out of this recession. I don’t generally agree. I don’t think that Yglesias does either. But it is clear that the Fed could do a whole lot more to help the economy. David Romner’s comment seems particularly to apply to Bernanke: his fear of impotence (of his ideas over the years) is bad for his performance.

Public Sector Job Decline

Job GrowthYesterday, I saw the following graph that shows cumulative public and private job losses and additions. What it shows is that the there was a big loss in private sector jobs, but we’ve gained them all back. This doesn’t take into account the people who have been added to the workforce, but it does indicate that the private sector is on the mend.

Public sector jobs, however, have just seen a steady decline. That little spike was for the census, so don’t even consider that. This shows the lie of the Republican talking point that we have seen explosive government spending under Obama. Just to stay even, the government should have been steadily adding jobs because the country is growing.

Public and Private Sector Job Growth

You would never know this given the reporting on conservative media. You would never know it listening to conservative politicians. And this is one of the reasons our policy is so screwed up. We do not have an honest discussion because one side of the political spectrum doesn’t even concede the basics facts. Of course, if they did concede them they would say they it was a good thing, because they just know the government is too damned big!