We must decide not to be too busy or stupid to understand some macroeconomics

[koganbot]

Emailed this to Dave and Mark the day after the election:

As for yesterday's election, it went even worse than I'd feared (though so far it looks as if the Dems held onto the governor's office in Colorado, though just barely). My only thought, which is not necessarily correct as far as winning elections goes, but:

Of the commercials I saw (mainly while trying to watch YouTube; watching, say, Spanish-language TV could've been a different story), the commercials for Mark Udall, the Democrat, and loser, in the Colorado senate race, mainly attacked his opponent on social issues (Gardner's long opposition to abortion, his confusion around birth control, etc.), while the Republican commercials, for Cory Gardner, consistently attacked Udall on his economic policy. Of course what the Repub ads said was wrong, but that's not my point. We Democrats need to be running against the Repubs on economic issues. But — this is my opinion and my wish, and I'm sure that lots of people would consider it unrealistic — this means that at some point the Dems have to decide that a significant portion of the electorate isn't too busy or stupid to understand some basic, comprehensible, but counterintuitive principles of macroeconomics, if we're willing to take minutes at a time to teach them. Otherwise, the Dems have no good response when the Repubs simulate being responsible and thoughtful by attacking us for running up debt and deficit and accuse us of burdening the future with our current profligacy etc. etc. Of course, most Dems don't know macro either (and I hardly do, but I've got some sense from Krugman of the basic principles), and whom I mean by "Dems" and “Democrats" and "we" and "us" in this paragraph isn't altogether consistent...

This means that a significant number of Democratic leaders themselves need to understand a few core macroeconomic principles and be willing to communicate them to voters, and a significant number of us rank-and-file Democrats need to understand those principles and communicate them to other Democrats and to the independents and Republicans who are willing to listen.

I'm not claiming to understand macroeconomics enough to truly evaluate the core principles, but I think I know a few of them:

(1) If, in order to save money and pay down debt, everyone is cutting back expenditures at once, none of them will succeed in cutting their own debt. This is because your spending is my income and my spending is your income; so when a lot of people are cutting back, your and my and everyone's respective incomes will fall as far or farther than our cutbacks, we'll turn out to be worse off, and the economy will go into a depression.

(2) In these conditions, cutting taxes on private industry and the very rich will have little or no stimulating effect. This is because private industry and the rich are not going to invest in factories, goods, and services when demand is falling. Instead, they'll sock their savings away.

(3) But a government can counteract the debt spiral and the savings glut by stepping up and spending money. This will get the economy back on its feet.

(4) In the conditions I described in 1 and 2 (so, in these conditions, not in all conditions), this extra government spending isn't going to cause interest rates to rise or cause excess inflation. Now, not having studied macro, I don't claim to understand all the reasons here. But, for example (I'm quoting Paul Krugman), since the private sector has excess savings that can't be invested, government borrowing "gives some of these excess savings a place to go — and in the process expands overall demand, and hence GDP. It does NOT crowd out private spending, at least not until the excess supply of savings has been sopped up." (See here and here.)

(5) Overall (so, now not just talking about current conditions), if the economy is growing faster than interest on government debt, we're not burdening future generations by government borrowing or by deficits. (Which doesn't mean we should always run deficits. But that's a different matter.) I'm sure I'm being too simplistic in the way I've written this point. But I hope it gives a gist and that it's correct.

As I've said, I'm not claiming the expertise to evaluate the ideas I've written here (which are basically my attempts to copy what I've read). But the thing is, it isn't that Republicans and pseudo-responsible centrists have counter-arguments to these points. They don't know that the points exist.* Neither do most lawmakers, and neither does most of the populace. And neither do most of the people likely to read my livejournal, I'm guessing. (Not that many people read my livejournal.)

Anyway, while we may have the constitutional right to be ignorant, it's time we weren't. And billions of people will suffer and millions will die if we don't decide to learn something, and communicate what we know.

*There are exceptions, of course. Ben Bernanke is a Republican, for instance.

Comments

Krugman: wrong on the Ukraine

[rudipherous oxide (from livejournal.com)]

An irrelevant aside--except that it raises questions about where Krugman's political center is--Krugman is very wrong about the Ukraine:

Krugman, who is quickly jettisoning his reputation for thoughtfulness, published a second column on this topic in a row, showing that he has fully bought into all the propaganda “themes” emanating from the U.S. State Department and the compliant U.S. mainstream news media.

In Krugman’s mind, it was Putin who instigated the crisis with the goal of plundering Ukraine. Operating from that false hypothesis, Krugman then spins off this question: “why did Mr. Putin do something so stupid? … The answer … is obvious if you think about Mr. Putin’s background. Remember, he’s an ex-K.G.B. man — which is to say, he spent his formative years as a professional thug. Violence and threats of violence, supplemented with bribery and corruption, are what he knows.

“And for years he had no incentive to learn anything else: High oil prices made Russia rich, and like everyone who presides over a bubble, he surely convinced himself that he was responsible for his own success. At a guess, he didn’t realize until a few days ago that he has no idea how to function in the 21st century.”

But Krugman is not only operating from a false hypothesis – the reality was that the Ukraine crisis was forced on Putin, not that he went seeking it – Krugman also has a simplistic view of the KGB, which, like the American CIA, certainly had its share of thugs but also had a significant number of smart analysts. Some of those KGB analysts were in the forefront of recognizing the need for the Soviet Union to reform its economy and to reach out to the West.

https://consortiumnews.com/2014/12/22/the-liberal-idiocy-on-russiaukraine/

(Granted, Parry is no great shakes either.)