2 weeks after Paris: How should civilized society defend itself?

This last Friday marked the 2nd week since the terrorist attack in Paris that killed 130 people, injured hundreds more, and shocked the world.

Terrorism is a complex, multifaceted issue that I hope to share my thoughts about over probably many posts. For now I just wanted to share my hope that international response, both foreign and domestic, is not overly reactionary.

I am not necessarily opposed to attacking the perpetrators of these disgusting acts, nor am I opposed to strengthening domestic security. In fact I always believed much of the money spent on Iraq could’ve been put to much better use here beefing up our security. However, we should not be overly zealous to go into war, nor should we turn away people, wall off our countries or cave to forces of xenophobia, racism and discrimination, (especially on religion).

For foreign policy, it’s best to say for now I feel there is a very cyclical nature to these acts. This barely scratches the surface of all there is too discuss, but I think it’s helpful to look at this chart recently put out by The Economist, noting global deaths from terrorism since 2000. Deaths from terrorism in Iraq were virtually non existent before 2003, then takes off and builds to 2007, tapering off afterwards. The global numbers follow this trend.

globalT

I find this quite intriguing, and it should be noted that while ISIS really took off in the aftermath of US withdrawal from Iraq, it existed, (with a different name) before 9/11 even happened, and conducted suicide attacks in Iraq as early as 2003. Despite the fact ISIS and Al Qaeda have a rivalous nature now, (what was an earlier form of) ISIS originally pledged allegiance to Al Qaeda.[1] Are both groups just separate arms of the same monster?

In the aftermath of the Paris attacks I saw comments about how we need to be angry not sad, and how this is a war on the West, or even civilization itself. That we must fight back, defend ourselves in this war. While I understand the knee jerk reaction, we, as civilized society, can’t proceed in such a manner. That is not what we’re supposed to do. The slow, often frustrating, rational and methodical methods we use were founded to hold down baser urges and to behave with thought and planning. To not behave based on anger, vengeance and impulse. It’s what makes a civilized society.

It also must be noted that terrorism wants a fight. They want to war with us. They believe we’re in a clash of civilizations. We should be very wary of potentially giving in to what they want.

This is also why we can’t abandon “Western ideals” on the home front. There have been a plethora of comments about how to proceed, including stopping all immigration and choosing refugees based on religion. I am not saying we can’t look into more stringent checks and security, including more international sharing of info, but stronger safeguards doesn’t mean closing off the borders. In fact, I feel if we are truly proud of our civilization we must uphold it, with even more support, when times are difficult.

This is why, difficult and painful as it may be, breaking the cycle, will probably have to be initiated by us. How? This can be discussed in a future time, but for now I simply say it will likely have to be us, civilized society, who starts the process of breaking the cycle, even if it’s not what feels right in the gut.

This is how civilization should defend itself.

 

 

References/Sources

1: http://www.vox.com/cards/things-about-isis-you-need-to-know/what-is-isis

http://www.economist.com/blogs/graphicdetail/2015/11/daily-chart-12

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Starve the Beast: Still hungry after all these years

With the 2016 Presidential election primaries going on we’ve been hearing a lot of about how we need to cut government spending. Sometimes for ideological reasons, but often because we just can’t afford it anymore. The money isn’t there, the programs are unsustainable, the government debt is too high etc etc These lines are spoken by our Presidential candidates to our neighbors. I have no doubt most truly believe in fiscal responsibility and worry about the debt and sustainability of programs. These cuts may be painful, even unwanted, but something needs to be done.

The unfortunate truth is our current situation has been the result of a political strategy, a long term plan to force cuts to government programs that have long been targets of conservative ideologues. It’s called “Starve the Beast” and the goal is to rack up large deficits, using tax cuts, to justify the dismantling of government programs under the guise “There’s just no money”. Sound far fetched or conspiratorial? It’s not, and the proof is out there in the open.

The Cato Institute, a limited government think tank, has put out two reports criticizing starve the beast as ineffective policy[1][2]. Bruce Bartlett, a conservative historian, wrote an article in Forbes criticizing the policy, (who by the way said it’s a “completely bankrupt notion that belongs in the museum of discredited ideas, along with things like alchemy.”)[3] Clearly the strategy does exist. It’s not a modern tea party invention either.

Bartlett notes the first articulation of the idea came in 1978 by Alan Greenspan, (a stringent anti government devotee) who said to the Senate Finance Committee, “Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.” My emphasis added. This was quickly followed by support from conservative journalist George Will who said, “The focus of the fight to restrain government has shifted from limiting government spending to limiting government receipts,”and later Milton Friedman, (another fervent anti government adherent) chimed in with, “the only effective way to restrain government spending is by limiting government’s explicit tax revenue–just as a limited income is the only effective restraint on any individual’s or family’s spending.”[3]

In the 1980 Presidential debate Ronald Reagan said, “John tells us that first we’ve got to reduce spending before we can reduce taxes. Well, if you’ve got a kid that’s extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker.” [4]

So, starve the beast is very real and it’s not a new idea. Knowing this greatly aids understanding of Republican behavior since 1981, which is the next part of our story.

Reagan signed a large tax cut in ’81 but also greatly increased government spending, mainly defense spending. Cutting taxes and increasing spending, logic would dictate one result and sure enough under Reagan there were record deficits, a near tripling of the national debt[5] and our debt to GDP ratio rose from 30% to 50% As seen below this was not insignificant and started a longer upward climb.

reagendebt

 

I’ll address this more in another post, but it’s incorrect to place the blame on Congressional Democrats, and in fact Republican David Stockman, director of the Office of Management and Budget under Reagan, places much blame on the President himself, and said “That’s one of the mysteries of the time”[6] about why Reagan’s actions didn’t match his rhetoric.

Well, when you know about starve the beast it’s not a big mystery.

Then in 1990 a Democratic Congress passed PAYGO, which said all spending hikes/tax cuts must be offset with accompanying taxes hikes/spending cuts. Basically, maintain balanced budgets. In 1992 Bill Clinton ran on a platform of tackling the (Reagan) debt, and passed a budget that made cuts to spending, and increased taxes on the rich. Starting after 1990 the government budget leveled off and trended steadily towards upwards, going into surplus, the national debt leveled off, and it appeared we achieved fiscal restraint.

Enter George W Bush. After passing a $1.3 trillion tax cut by skirting PAYGO rules, in 2002 a Republican Congress let PAYGO expire, (they upheld it under Clinton) and then Bush with a Republican Congress passed more tax cuts, ramped up defense spending, passed a medicare expansion, made no cuts to domestic spending and in fact increased it.[7]

The result was obvious: Even larger record deficits, another huge swell in the national debt.

Fast forward to the 2009-2011 period. There was an incendiary outcry from conservatives/Republicans about how bad the government deficits/debt were and that we must reduce them. I heard this from lawmakers, the media, internet, classmates and friends. I was flabbergasted at the time. It was just under a Republican President and Congress that record deficits were racked up without a single peep, (except from Ron Paul) and never once was the question, “How will this be paid for?” asked. It’s of course no surprise why this happened: starve the beast.

Now the policy has reached it’s final stage: The push for massive cuts to government programs. There is no longer any pretense about it. In our last Presidential election, the Romney/Ryan platform, (which was Ryan’s “Path to Prosperity”) called for drastic cuts to medicare, medicaid and general gov spending. This is less draconian than his previous budget proposal “Roadmap for America” which called for massive cuts in medicare, medicaid, elimination of CHIP (health insurance for children in low income households) privatizing social security and an overall drop in spending to levels not seen since 1950.[8] A later Ryan proposal “cuts deep into spending on health care for the poor and some combination of education, infrastructure, research, public-safety, and low-income programs”and the article notes Ryan was “pushing these ideas in the late-’90s and early-2000s, too, when deficits were far less of a threat.”[9] Ryan, who is an Ayn Rand worshipper, clearly has an ideological motive, not budgetary.

Grover Norquist, a major influence on the Republican Party, has pushed since the 80s the policy of never ever supporting any tax increase. Norquist has famously stated his goal is to shrink government down to the size where it can be drowned in the bathtub, and that he wants the American we had “until Teddy Roosevelt, when the socialists took over.”[10] Yet again, clearly ideologically fueled.

These ideas are not new. It goes back to the New Deal which split the Republican Party: those who largely accepted the New Deal and those who didn’t. The former went on to dominate the party, winning the Presidential nomination every election from 1936-1976, except for 1964. The latter however was always there. Led first by Robert Taft the “Old Right” strove to halt the New Deal and ideally roll it back.  This carried on through Barry Goldwater, Reagan, the ’94 Republican Revolution, now Paul Ryan and the Tea Party. Goldwater brought military intervention, Reagan on brought social conservatism, each upsetting the previous wave, but all are united in a clear lineage of hoping to roll back government to before the New Deal.

While I have no doubt many pushers of tax cuts do believe it will boost the economy/is morally right, it can’t be denied that starve the beast has been a factor in pushing for them, especially from influential Republicans like Greenspan, Friedman, Reagan, Norquist, and Paul Ryan. It really is a brilliant strategy. 1: It makes cuts to government spending far more acceptable. Social Security has gone from the third rail of politics to mainstream debate, now that it’s “no longer affordable”. 2: It gives the Republicans an easier time governing. 3: It allows them to be the party of lower taxes, while saddling Democrats with the pain of “fixing” the mess and be labelled as tax hikers. 4: Tax cuts are always a popular notion, so it keeps the idea entrenched, especially when they favor the wealthy. 5: It draws in moderate, well meaning people who may not like it, but feel we need to get spending under control.

So when you hear about how we need to cut programs, understand this budgetary situation was forced upon us, and has been driven by ideology. This isn’t saying we can’t ever touch government programs, just know the history that lead us here, and what motivated it. Democrats have been accomplices in all this. They passed PAYGO, spending cuts, accepted cuts to welfare, cuts on the wealthy in exchange for puny tax credits, budget sequestration and from the start of the Obama administration were eager to discuss a “grand bargain” and making changes to social security. It all stems from the belief of balanced budgets, and deficits as bad. While this post has addressed the politics behind deficits, in another post I’ll address the economics of deficits, and why we shouldn’t automatically hate them.

 

References/Sources:

1: http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2006/11/cj26n3-8.pdf

2: http://object.cato.org/sites/cato.org/files/serials/files/cato-journal/2009/11/cj29n3-7.pdf

3: http://www.forbes.com/2010/05/06/tax-cuts-republicans-starve-the-beast-columnists-bruce-bartlett.html

4: http://www.washingtonpost.com/wp-dyn/content/article/2006/05/07/AR2006050700924.html

5: https://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm

6: https://reason.com/archives/2014/04/24/rand-paul-is-right-jimmy-carter-was-thri

7: https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/historicaltables_0.pdf

8: http://www.cbpp.org/research/the-ryan-budgets-radical-priorities

9: http://www.usnews.com/opinion/articles/2013/03/12/right-and-left-slams-paul-ryans-path-to-prosperity-budget

10: http://www.thenation.com/article/rolling-back-20th-century/

 

October ’15 Jobs Report: Good news, but recovery has just begun

The October 2015 jobs report has been released and there’s some good news.

Unemployment is down to 5%. 271,000 jobs were created that month with hiring happening “across the board”, more part time workers continue to find full time work, and wages which have been stagnant, if not falling, for most since 2009, were up in October and now are up 2.5% for the year. [1][2] This was a good report, and the slow but steady US recovery seems to be continuing. So much so, the Fed seems ready to start raising interest rates in December.

The Fed raises interest rates when they feel the economy is heating up, to keep inflation in check. Seems they plan to move gradually. John Williams of the San Francisco Fed says the moves would be early and gradual to avoid a “run up” of inflation, (that it’s better to move before inflation heats up), and if the economy weakens “We can stop raising rates” but also says “the economy is already near full employment”. [3] Clearly they feel the economy is getting to a strong point, but is the picture really so rosy?

As it’s been widely reported, a lot of the fall in unemployment since 2009 has come from people leaving the labor force. Let’s say there is a labor force of 100 people. 90 are employed, 10 are not. The unemployment rate is 10% Let’s say one of these unemployed people stops looking for a job, they are no longer “unemployed”. The labor force now has 99 people, with 90 working, 9 unemployed, leading to a new unemployment rate of 9.1% The number fell, despite no job creation.

Since 2008 the US labor force participation rate, (working age persons who are either working or looking for work) has fallen dramatically.

LFPR1

To get a bigger picture of how drastic the fall has been here’s the LFPR since 1948

LFPR2

We see here the fall in LFPR since the Great Recession has been massive. In fact as of October 2015 it stands at 62.4% the lowest number since 1977. More on this in another post, but for now I’ll just say despite the millions of jobs created since the crisis, millions have also left the labor force. This started to level off only in 2014.

What about inflation?

Though unemployment was down to 5% in October, inflation was just .2% and despite steadily falling unemployment through 2015 towards acceptable numbers, inflation has averaged .03% over the year so far. [4] However, do the rising wages mean inflation is coming soon?

The EPI put out this report noting 3.5 – 4% growth in nominal wages would be consistent with the Fed’s 2% inflation target, so until nominal wages are consistently rising in that 3.5 – 4% range, there’s not much inflation fear. We are nowhere near that range yet. [5]

EPI1

I wonder, given the drop in LFPR, if there is still a lot of “slack “in the labor market, so even if job growth became strong enough that more people started re entering the market, there’d still be plenty of people looking for jobs, more looking than are jobs available. If this is the case there’d be little inflationary pressure.

Is there reason to believe significant labor market slack exists?

Let’s look at the employment to population ratio.  “The employment-to-population ratio is the best measure of labor market conditions…”said Paul Ashworth, chief North American economist for Capital Economics, and “The ratio expresses more clearly how many people find working to be a ‘good or attractive deal,'” said Tyler Cowen, economist and director of the Mercatus Center at George Mason University.[6] Of course many working age people don’t want a job because they are in school, or retired. So let’s use the ratio for just ages 25-54. This will leave out college students, retirees, as well as those nearing retirement. This is a measure of the “prime” labor force. Here is the E-P Ratio, 25-54 since 2008. As we see there is still a lot missing since 2008, and is currently at a level not seen since 1986 (seen in the 2nd graph). I believe this shows significant slack exists in the labor market still.

25-54 LF

25-54 LF2

The Fed may think the recovery is nearing the point of heating up, or heading there soon, I’d say the recovery has actually just barely begun.

 

References/Sources

1: http://money.cnn.com/2015/11/06/news/economy/jobs-report-october/

2: http://www.bls.gov/news.release/archives/empsit_11062015.pdf

3: http://www.usatoday.com/story/money/markets/2015/11/10/san-francisco-federal-reserve-john-williams-interest-rates-economy/75538364/

4: http://www.usinflationcalculator.com/inflation/historical-inflation-rates/

5: http://www.epi.org/nominal-wage-tracker/

6: http://money.cnn.com/2012/10/18/news/economy/other-unemployment-rate/index.html

 

 

 

Welcome to “The World at Large”

Hello everyone!

My name is Brian and this is my blog, The World at Large.

This is going to be an economics focused blog, but will touch on various topics like politics, world events, history and anything else that comes to my mind…could be music to books. I will try to keep things economics related, or at least tinged, since that is the intent of this blog, but sometimes this may not be the case. I will strive to keep political “social issues” economics related, otherwise it won’t be here.

So, a few quick things to get this started.

I got the name when deciding I would shift from just a purely economics blog, to…well, the world at large. This reminded me of the Modest Mouse song, and it’s lyrics about drifting (“If the world’s at large why should I remain?”) made me think about the huge body of economic work out there, and how much of it is marginalized, forgotten about, unknown or ignored by mainstream economics. I hope to provide a fuller view of things.

So who am I? I have a Bachelor’s in Political Science, and have always had a casual interest in economics, which really took off in 2009 courtesy of the Great Recession. I was in college at the time and already far along with my major so never really gave economics a thought to pursue, outside of a few classes. So I read a lot on my own time, books and online. Nothing with reality really seemed to “sync up” with what I was taught and read, so began my journey.

My economic views (and thus to a decent extent political/governmental views) have covered both mainstream left and right, (Krugman to Friedman) Austrian, and now Post-Keynesian…this school of thought being what I feel is correct. This will be greatly expanded on over time.

I have taken several economics classes: Micro and Macro at the intermediate levels, labor economics, money & banking, trade as well as international political economy. I’d say I’m fairly well read in economics. I have read textbooks by Mankiw and Mishkin, articles by Krugman, works by Friedman, works by Austrians (Mises, Rothbard, Hayek) and numerous articles, blog posts and reports from libertarian institutes (Cato) to leftist (EPI, PERI, Levy) and in between. It’s amazing the universe of information available to us today thanks to the internet.

My favorite economists are:

Mainstream: Joe Stiglitz, Paul Krugman, Thomas Piketty, Robert Shiller

Non mainstream: L Randall Wray, Steve Keen, Robert Pollin, Dean Baker

Historical: J.M. Keynes, Irving Fisher, Hyman Minsky, Joan Robinson

Hope you enjoy!