Ideologically Driven Policy

Fuck America: Vote Republican!

The biggest political theory of the last 30 years is supply side economics. It was the basis of the policies of all Republican presidents from Ronald Reagan onward. The idea is that if the rich are given more money, they will use it to invest in business and thus create jobs. According to the theory, if you give money to the poor, they will just spend it. The rich, on the other hand, will help businesses to grow and this will help the poor.

The idea is nonsense as anyone who has ever run an actual business should be able to explain. Businesses expand when they see a lot of demand for their products. If a computer repair business has to turn away business for lack of resources, it will hire another tech to be able to take the extra work. This is as simple a notion as there is. Now it is also the case that in rare instances, a company may see a market opportunity but not expand to meet it because they simply don’t have the start up capital to do it. Maybe expanding would require buying more property and the cost of a loan is too high. But that is a rare case. In general, businesses are demand constrained.

But this isn’t a matter of conjecture. If businesses really acted the way that conservatives claim, then businesses should invest a lot more when profits were high compared to when they were low. That’s why I found the following graph from Dean Baker so interesting. It shows corporate profits and investment as a share of GDP since the end of World War II. The thing to notice here is that there is nothing to notice:

Profit and Investment as Share of GDP

In general: corporate profits don’t seem to have any effect on investment. In there is any effect at all, in the long term, it seems that high profits lead to lower investments, not the other way around. So it seems that the very basis for supply side economics is wrong. In fact, look at the 1980s. As taxes went down (not seen on the graph), the share of investment went down. When taxes went up in the 1990s, investment went up. I’m not saying that high taxes cause investment to increase. Rather, tax policy doesn’t seem to have much effect on investment at all.

Associated with this is the conservative obsession with budget deficits (at least when a Democratic is in the White House). Again, the argument against deficits is that government borrowing “crowds out” private borrowing and thus investment. It is certainly true that if the government is borrowing a lot of money while the economy is booming, borrowing costs may be high and thus cause the private sector to invest less than it normally would. The problem is that conservatives rarely complain about deficits when the economy is doing well. Instead, they complain about them at times like now when the economy could use government spending. Right now there is all kinds of money sitting around looking for places to invest. Unfortunately, there are few private sector takers for that money because businesses don’t see any reason to invest when demand is so poor.

Bobby Jindal was right when he said that the Republicans had become the stupid party. It is very strange. I understand that not everyone agrees about policy. But the Republicans have lost any grip they once had on good policy. Their policy is entirely driven by ideology. They don’t push free market solutions because they think that they produce the best results. They define free market solutions as good and don’t care what results come from them. That’s no way to run a country. We saw where such thinking brought the Soviet Union. That is where the Republicans are headed.

I Was a Middle Class Food Stamp Kid

7-11When I was a little boy, my family was on food stamps. My father, however, would tell you this is a lie. He would say that our family was never on any welfare program—most especially food stamps. And technically, he’d be right. The government never gave us food stamps that we could exchange for food at markets. Yet we were on food stamps. In fact, I don’t think it is an exaggeration to say that we were far more dependent on food stamps than any family that has ever used the program to supplement their budget for food.

All the time that I was in grammar school, my parents owned a 7-11 store. And it was located in a fairly poor area. It wasn’t that poor, because we lived there too. But there was a lot of low-income housing and so there were a lot of people in the area who received food stamps. And they spent some of those food stamps at our store. I would estimate that at least 5% of our total revenue came in the form of food stamps.

This is a critical aspect of the economics of such programs for the poor. There is a reason that the modern food stamp program—Supplemental Nutritional Assistance Program (SNAP)—is bundled with the Farm Bill: allowing people to buy more food is good for the people who grow the food, who distribute the food, who sell the food. What’s more, most of the Farm Bill is not direct cash payments to farmers; most of it involves things like price floors that make food more expensive than it would be in a free market. The idea always was that if the government was going to make food prices artificially high, it should offset the effect on the poor by providing subsidies (i.e. food stamps).

The House Republicans who decided to gut SNAP, of course, do not understand this. It reminds me of another recent conservative “scandal.” I’m sure you remember Mitt Romney’s famous words about the 47% of people who do not pay any federal income taxes. On Fox News, this was presented as, “Shouldn’t everyone do at least a little to support the government?!” But they never talked about the reason that the poor weren’t paying any federal income taxes: Republican tax policy. Because of their constant efforts to lower the taxes of the rich, they couldn’t help but also lower the taxes of the poor—many to the point where they paid none at all. I wrote about this in some depth almost exactly a year ago, Republicans Abuse Poor Coming & Going. So they use the poor to justify lowering taxes on the rich and once that’s done, they scapegoat the poor for not paying taxes.

In the same way, the Republicans conveniently forget about part of the justification for food stamps. So now they want to eliminate them while keeping the higher prices institutionalized. Once again: a government program that gives money to the rich is made less poisonous by giving a small fraction of that money to the poor. Once the program for the rich is institutionalized, they want to kill the program for the poor. It could be that the Republicans just don’t know the history of these programs. But I suspect it is more that they simply want to hurt the poor and help the rich.

Helping the poor necessarily helps the middle class and rich. The poor have to spend any money we give to them so it really does work its way through the economy. When I was a kid, I saw very clearly that the food stamp program helped my middle class family. And the legislators who originally started the food stamp program understood how it helped the (now) mostly rich farmers. But it doesn’t work the other way. Giving money to the rich is an extremely poor way of distributing money throughout the economy. Given how inefficient it is, you really have to hate the poorer classes to favor farm subsidies over food stamps.

Sane Conservatives Not So Sane

Norm OrnsteinI will admit that there are some conservative commentators that are not completely loony. Examples are: Josh Barro, Ross Douthat, David Frum. Another is Norm Ornstein. I just saw him on Up with Steve Kornacki. And he said something that I hear from these kinds of conservatives all the time. The panelists were talking about the supposed New New Left movement that Peter Beinart has been pushing. One thing that Beinart reported was that young people are the only group who prefer socialism to capitalism. It was on that point that Ornstein had to bring out his “Reasonable Republican” talking points.

Ornstein said, “There’s an opening for someone who’s a little more libertarian. While you get a narrow plurality of millennials saying they prefer socialism, there’s an antipathy toward government there in a lot of ways.” I’ve heard this same kind of thing so often that it is becoming funny. Let’s just start with it on the broadest of terms. The millennial generation is not interested in socialism out of any ideological commitment to a revolution of the worker. Their interest in it is simply a populist desire for a system that works better for themselves. Whenever conservatives are faced with a real populist movement, their response is always the same: libertarianism! I think this comes from the fact that that right wing pseudo-populists have always been bought off with libertarian platitudes. But that isn’t going to happen with the millennials because they are actual populists who have actual economic needs.

Americans always claim to dislike government. But that’s just the same as our dissatisfaction with the phone company: we wish it were better but that doesn’t mean we want to stop having telephone service. What’s more, younger Americans don’t generally think that the government is bad by nature; they think that government is run badly. This is why they didn’t vote for Mitt Romney, even though he ran explicitly as a technocratic libertarian. They knew that he would just be another slash and burn conservative.

And that gets to the great conservative propaganda campaign. When Republicans get into power, they do two things: rack up huge amounts of government debt and provide as bad of service as possible. Thomas Frank discusses this in depth in The Wrecking Crew. It gives Republicans two big advantages. First, it allows them to make their ridiculous arguments like, “Government is not the solution to our problem; government is the problem.” Because they do everything they can to make sure that government is the problem. Then, the debts they create are used to stop Democrats from enacting good policies while they are in power.

Notice that while Bush Jr was creating huge new giveaways for the pharmaceutical industry, there was very little complaint from the supposed small government aficionados. It was only when a Democratic president wanted to help troubled homeowners with their mortgages that government debt became a problem. Admittedly, Norm Ornstein is not playing this game. But he is more than happy to benefit from it! He wants people to think that government is bad so that they will go along with his libertarian ideas about how to run the society. This is the fundamental problem with the old school conservatives: they still believe the same things as the crazies.

Ronald Reagan almost had it right. It wasn’t nine terrifying words, it was eleven: “I’m from the Republican controlled government and I’m here to help.”

Of Cages and Michael Faraday

Michael FaradayAccording to legend, 190 years ago Joseph Smith found those golden plates from which he translated the Book of Mormon. There is no doubt that there were no golden plates. But that still leaves an important question: was Smith delusional or was he just a charlatan? I tend to think the latter. What really makes me think that is the fact that Smith put together the Book of Mormon witnesses. If he had been simply delusional—prone to religious visions—he would not have felt compelled to justify his loony story. As a con, Mormonism is far more interesting than it is as a religion. As a religion, it is a throwback to much earlier faiths. By the start of 19th century, there was much more interesting religious thought and it just isn’t found in Mormonism. This isn’t to say that Mormonism is a bad religion. I figure that most religions started as one form of a con or other.

Singer Nick Cave is 56 today. Here he is with the Bad Seeds doing “Red Right Hand”:

Other birthdays: political activist Christabel Pankhurst (1880); Tommy Lasorda (86); Jeremiah Wright (72); singer Debby Boone (57); and comedian Sue Perkins (44).

The day, however, belongs to the great physicist Michael Faraday who was born on this day in 1791. In physics, we tend to only celebrate the theorists, but Faraday is one of the few exceptions to this. His experimental work led directly to the development of Maxwell’s equations, which are pretty much the beginning and end of of electromagnetism. Among Faraday’s many discoveries was electromagnetic induction. This is the process by which changing magnetic fields create electric potentials. In other words, if you apply a magnetic field to a circuit, it will cause a current to start. Faraday is an example of how one doesn’t need to know mathematics to do physics. Of course, he clearly had great mathematical reasoning ability—he was simply never trained in its formalism. My experience teaching physics was that students who claimed to understand the physics but not the math actually understood neither.

Happy birthday Michael Faraday!