This one also is by Steven Kyle. (BTW… to readers. PGL and I both believe he should be one of the Angry Bears. Hopefully the Big Bear, Angry Bear himself, will feel the same and Steven will get his own set of keys.)
Max Sawicky’s Five Boxes of Populist Economics
Over at TPM Café Max Sawicky cites five points of departure for populist economics:
1. Trade is most prominent, but it may be the least important of my top five. Measures to protect better-paying jobs in the U.S. are feasible but only promise results to a limited extent.
2. Deficit dementia. The dirty secret in economic policy is that most economists, radical, liberal, moderate, and conservative, understand that the Federal budget need never be balanced, that moderate deficits can be sustained indefinitely. The implications of tolerating deficits of two percent of GDP — over $200 billion in today’s terms — rather than a deficit of zero are huge.
3. Social Security. Forget “there is no crisis,” the clarion call of anti-Bush campaigners. The new slogan should be, there is no problem. No benefit cuts are necessary for the foreseeable future. If anything, there is a projected shortfall of income tax revenue required to repay debts to the Trust Fund, as per current law, as well as for maintaining other Federal programs.
4. Health care. There is no crisis. There is, rather, huge projected growth in demand for an ever-expanding menu of treatments, and the burden of managing efficient, ample, and fair public sector finance of this care.
5. The Imperial Fed. Our true economic overlords, the Federal Reserve Bank’s Board of Governors, have arrogated to themselves the right to ignore their mandate for full employment, elevating slow-growth anti-inflation policy over the unparalleled benefits of tight labor markets.
I think these are a fine place to start but I would certainly add a sixth:
6. The government can and should use tax and spending policies to engineer societal goals which market based solutions can’t or don’t achieve.
High on my list of these goals would be to engineer a more equitable distribution of income. The social and economic costs of avoiding this issue are very high – our own past and the history of many other countries confirm that. Another would be to engineer a better distribution of wealth, particularly human capital, by making sure that all schools were well funded and making college affordable for anyone who is smart and hard-working enough to get in. I am certainly all in favor of using tax policy to engineer environmental goals (as is my Econ 101 textbook) but also political ones – e.g. if we had appropriate tax and research subsidies in place since the 1970’s we wouldn’t need a huge defense establishment to invade Middle Eastern oil exporting countries. (Of course you could reasonably argue we don’t need it anyway but I am giving the conservatives the benefit of the doubt on that one.) There are a whole list of other goals each of which could be debated but the general principle is one which has been derided by the right for years and should be unambiguously reaffirmed.
And as for Max’s number 2 I would be happy just to HAVE a fiscal policy in the sense of setting a goal for fiscal balance and implementing decisions to get us there. As it is for the past six years we have had a “policy” which consisted of first cutting every tax that it was politically feasible to cut; second, cutting social spending and increasing corporate subsidies to the extent politically possible; third, borrow the difference from whoever would lend us the money (China, Saudi Arabia, etc. in addition to the usual domestic creditors). This “policy” is simply the sum of each individual decision on taxing or spending and isn’t really a policy at all in the global sense.
That is why Max’s number 5 has some added emphasis in my book – The Imperial Fed actually does have a policy – to the extent our government actually thinks about the future consequences of its actions they are the only game in town – So setting their goals in a socially beneficial way is very very important. But let’s count our blessings. Ben Bernanke may be closer to a “Germanic” central banker than I would like – but at least he is a competent person who has devoted his life to the study of monetary policy. That is more than we can say about a lot of Bush’s appointments including some of the names that were floated for the Fed job before it went to Bernanke.