10/12/2011

10-12-11 - Some random politico-economics

I believe it's possible to slant recent events such that Greenspan is the central villain. He presided over both the .com bubble and the real estate bubble, fueling both with super low interest rates and his approval (eg. the "new economy" that can grow forever!). He presided over a Fed that did nothing to control the banks it was supposed to be monitoring. Perhaps most damning though is how he steered the Clinton presidency, which led to the creation of this entire modern financial era.

One version of the myth is that Clinton arrived at the white house all liberal and bright eyed, only to find it infested by a den of wolves who forced him into realpolitik compromises. One of those wolves was Greenspan, who met with Clinton and said something along the lines of "if you don't cut federal spending, I will raise interest rates". Which is basically a threat - if you don't do what I like (small government) then I will destroy your presidency by constricting the economy in an already recessed time. I believe the fact of this threat is public record though you may believe Greenspan's version that the reason behind it was "advice" that runaway government debt would force his hand to raise interest rates. In any case, what followed was deregulation, low interest rates, and the inevitable disaster.

Anyhoo, I don't really believe that reading of history, but it makes a good story.

One thing that strikes is all the articles these days that describe the "Great Recession" as a "unique time in American history" or "unprecedented income inequality". Uhh, hello? Did you go to high school? Maybe if you qualified that with the addendum "since WW2". Basically it was completely standard pre-1910 American economics, with the only exception being that our new modern government caught the crash and smoothed it into a recession rather than just letting the bubble pop. If they hadn't caught the crash it would have been a generic "Panic of XXXX" (1857, 1873, 1884, 1890, 1893, 1896, 1907, 1910, 1914, 1920, 1929) many of which were unsurprisingly similar to our current fuckup (massive speculation in a bubbled asset leading to a crash in the value of that asset which leads to a liquidity crisis and bank failures); we could have dropped our monocle in shock as the robber-baron speculators caused a run on the banks.

Ever since the 80's we've been talking about how we need to transform America into a new "information economy" or "service economy". With NAFTA, etc. whenever we lost jobs, the response would be we need new types of jobs, new education etc. I don't recall much effort by anyone to stop and ask - do we want to live in a service economy? I mean, at the moment we are even failing to have a healthy service economy, in the sense that there's lots of unemployment, so all the cries are just to *fix* the service economy. But really, even if it was fixed, if there were call center jobs and retail jobs for everyone, that's a pretty fucking bad world to live in. An "information economy" is inherently bad for almost everyone in it, because "intellectual property" is owned by the very few and is where all the money is.

I believe that raising capital gains taxes to match income taxes would help. Not only is it just inherently fair to tax all income the same way and would eliminate the tax rate dip of the super rich vs the merely rich (a low capital gains tax is a regressive benefit to the super rich, since the poor don't make any income from capital gains), it would greatly reduce capital movement.

I also think that "retirement accounts" and all that shit should go away. It's an unnecessary complexity. Instead just make the capital gains tax go down based on the length held. Maybe reduce by 1% per year held, so after 30 years the tax goes to zero. This further encourages "buy and hold" type investing.

I'm more and more convinced that massive rapid capital movement isn't actually good for anyone but the very top echelon of financiers. It creates panics and crashes in small emerging markets. It creates bubbles, and it sucks profit out of markets. Obviously capital markets are beneficial to get money to companies that need it. All structures that are permitted in society need to justify themselves as being beneficial to the greater good.

I believe that allowing bankruptcy to wipe out student loans would provide a valuable incentive to colleges to keep tuition low, and to keep education useful. Right now it's far too easy to go and get a $200k education in the cultural impact of deconstruction in gay/lesbian underwater basket weaving, and wind up in a position with no job and no hope to ever pay it back. Obviously it's the fault of the student for doing that, but they're children, they shouldn't be expected to make such a huge financial life decision in the summer after high school when someone is handing them a huge blank check. If the colleges had to underwrite the student loans themselves, they would have an inherent interest to provide good useful educations, and to simply refuse to admit students that shouldn't be going to college.

I believe the most basic fundamental thing that we should do to fix the US economy (aside from the obvious things like eliminating off-book derivatives and restoring bank/investment separation and so on) is to make it cheaper to employ Americans.

It's simply too expensive to employ Americans. You can try to prop up our manufacturing sector in various ways, but you have to get to the root cause. It's insane how expensive labor is here, even only semi-skilled labor, vs. buying manufactured products.

I believe the best way to reduce the cost of employees is to get rid of all the additional costs to the employer. Health care, workers' comp, pensions, 401k's, all of this nonsense that employers in America have to administer and pay for. If these were provided by the government, the total cost for them would be the same, but it would be paid by corporate profits whether you hired those workers or not, so you may as well hire them here rather than outsourcing. You would greatly reduce the incremental cost of adding a new employee, which would encourage business to hire. Furthermore, without having to worry about so much hiring and firing paperwork, businesses would be more willing to hire in times of uncertain growth.

Ideally you would get to a scenario of no hiring/firing paperwork at all. This would make it far easier for businesses to find the best employees, and easier for employees to move on to better jobs without fear of being without health care for a while or whatever.

You might note that the heavy social welfare countries don't exactly have lively agile businesses. I believe that is not the fault of the government providing social care, but rather because those countries tend to also have very heavy regulatory structures that make doing business difficult and expensive. My proposal is to make small businesses much much easier to start and run, and much cheaper.

There's this whole modern movement to "save money" (for the government) by pushing the maintenance of social welfare programs onto the businesses (health care, retirement, etc.) But that doesn't actually save money for society, it just makes someone else pay it. The proponents will say they "reduced taxes" but they also reduced your pay check because the business now has to cover those costs. And it's worse than that, because it increases the cost per employee to the business, it makes them prefer to hire fewer people, or outsource some work, or just buy pre-made pieces from overseas.

4 comments:

sylvain-v said...

> Ever since the 80's we've been talking about how we need
> to transform America into a new
> "information economy" or "service economy". With NAFTA,
> etc. whenever we lost jobs, the response would be we need
> new types of jobs, new education etc.

That's the worse shit that can happen to one's country. It happened in France in the 80ies ; now we have little industry - only in high end narrow economic market for big corporation, nothing for the public: that is mostly imported from China.
Same in the UK, where they sold everything for petrol and finance: now they too are in big trouble.

One country needs people to buy locally-made products to keep low-education level jobs. These jobs are not in services nor finance.

billyzelsnack said...

We just have to admit that the days of low unemployment are never coming back. Productivity is already too high.

The first step towards a solution is to either require workers to literally have one arm tied around their backs or just admit that we don't need so damn many workers to create the shit we need.

cbloom said...

That's a complex issue.

Obviously places like France have tried things like limitted work weeks to try to require employers to hire more people to get a certain amount of work done. That is generally a failure partly because they have to compete on a global market against people who don't have the same restrictions, but also because it limits personal freedom which is not a win.

Other places like the Scandinavian countries seem to be doing okay with long vacations and sabbaticals and generally less work hours than the US, but that may be just because of low populations and high education levels, and immigration is straining that.

Certainly in the simplistic analysis if consumer demand is roughly constant and productivity keeps going up, you have a problem. But that has so far largely been staved off by an orgy of debt spending and artificial demand manufactured by advertising and a new vain consumerist norm. (that is, people keep buying and buying for no good reason, and that allows the junk factories to keep running).

Generally as long as we have massively poor people all over the world competing in a global market with first world nations, things will be massively fucked up.

cbloom said...

Let me be clear though that I don't agree with the "doom and gloom" suggestion that we can't have a healthy economy/society for whatever reason right now. I don't believe that at all. Just cutting the obvious corruption from the government/financial system would do wonders. A few more small reforms and I think we could be quite healthy.

old rants