Boom, Bust or What?

The NYT Magazine has a long piece on the US economy, featuring Summers and Hubbard here.

4 replies on “Boom, Bust or What?”

I might have been a little surprised if either gent had strayed off his ideological script – but they did not. And given their actual academic backgrounds (neither are scientists nor engineers – before becoming economists) their mantras are to be expected. They just do not get it! Why?

If you do not manufacture stuff, sell it, and repatriate a surplus – then in the longish term you go into economic decline and eventually into economic regression. That is what has/is happening to what we know as western developed economies. Its an inexorable process. Once it begins it cannot be halted. Sure, you can slow the process, but not by QEs nor cutting entitlements. Both may appear sound in theory (for completely different reasons), but we live in a real world not a textbook model one. Folk need money to live. So how do they get it? Neither gent came close to even addressing this contemporary conundrum.

Those who can, engage in waged employments. Those who cannot, need assists. The residue? As I said, a conundrum.

‘When that happens, though, West said the edge will very likely go to Summers’s path. There is little popular support for Hubbard’s drastic solutions. Just as Summers and Hubbard held on to the ideals of their upbringings, tens of millions of middle-class Americans won’t just let go of the retirement benefits that they have expected to collect their entire lives. As both men know, you can’t separate economics from politics’

Older voters vote, and, by jaysus, older voters value accrued entitlements. Economic theory needs to be revised to take proper account of demographics, because the supply of us human beans is a stock/flow problem too.

On Thursday, Mario Draghi, ECB president, in response to a question on growth and austerity, said that in the early period of the crisis, governments in a rush to correct public finance imbalances, put more focus on increasing taxes than cutting spending because it was the easier option.

He said taxes should now be cut where feasible — to have a bigger impact on economic activity than offsetting spending cuts.

In economics of course, there is no simple cause and effect and Larry Summers makes a credible argument that higher taxes did not stifle growth in earlier postwar decades while the Bush tax cuts during a time of easy credit coincided with years of poor job creation.

Nordic countries come to mind in terms of high taxes but their citizens demand and get high standard public services.

There were other factors in the George W. Bush period such as outsourcing and the loss of million of manufacturing jobs.

The term middle class covers a range of of incomes.

Stagnant real earnings and increasing university education costs impacts a lot of people and while Glenn Hubbard is correct in saying that the deficit cannot be closed by soaking the rich, a tax system skewed towards the wealthy and the outsize gains of for example Ron Johnson, a hired hand and former Apple manager, who was fired as CEO of JC Penney. He earned almost 1,800 a store operative wages, according to Bloomberg, which cannot be good in any democracy.

Tax levels of 90% do not need research to show that they could have an impact on entrepreneurship but US taxes are very low and its foolish to suggest that the likes of Steve Jobs needed very low taxes.

In a society where some Medicare recipients are for small government, not a lot of them would know that for example the development of Silicon Valley depended on Cold War public defense spending and NASA. Ditto for the development of fracking technology.

Google today is seeking to eliminate its corporate tax obligations at a time when funding for US public research is being cut.

The US National Science Foundation funded the mid-1990s research at Stanford University that helped lead to Google’s creation. Taxpayers also paid for a scholarship for the company’s co-founder, Sergey Brin, while he worked on that research.

As my mother used to say: Eaten bread is soon forgotten.

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