Not Makers and Takers, Just People


One theme that emerged from this most recent election (and from the comment section of this post) is that the American electorate is divided into two categories – the makers and the takers. This being embodied by Mr. Romney’s “47 percent” comment (those who pay no federal income tax) and his post-election comment about President Obama’s victory being the result of him promising gifts. Fox News agreed with this line of thinking, which prompted Bill O’Reilly to say half the country just wants “things.”gifts

Where I disagree with Bill O’Reilly is that he believes only half the country wants “things” – the whole country does. Every single person wants some “thing.”   The nation isn’t made up of makers and takers – it’s made up of HUMANS. Take any Econ (micro) 101 class and at the core is the basic principle that people act out of self-interest. People make decisions to maximize utility, or as I had one Professor put it, “People make decisions to make them happier.”

It’s not that we have a nation of have’s and have not’s or makers and takers; we have a nation of people. People who want to maximize their wellbeing. So it shouldn’t come as a surprise when people vote in their own self-interest. Women, Hispanics, and the youth tend to vote more Democratic because Democratic ideals and principles align more closely with their self-interest. Conservatives can say Democrats are in the business of giving away gifts, but this same practice goes for Republicans as well.

The wealthy, the ones who vote Republican, are voting in their own self-interest. The Republican Party is committed to lowering taxes on corporations and top earners. They are committed to fewer environmental regulations. And they are committed to rolling back financial reform. All these are gifts to many Republican donors and voters. It’s pretty simple; both parties offer “gifts” – then the people vote accordingly.

The right doesn’t see it this way though because they believe their model is not just about helping the rich; they believe their model will benefit everyone – that wealth trickles down. It’s a convenient way of thinking, but it’s disconnected with reality. Taxes are at all time lows and have been on the decline since the 80’s, yet we’ve seen no economic boom, only an increase in income inequality. Lax environmental regulations have contributed to an increasingly warmer planet. And dismantling regulations like Dodd-Frank would get rid of the one piece of legislation attempting to prevent another financial collapse.

Republicans like to believe Democrats want people to stay reliant upon the government, which is why the left is usually more in favor of expanding the safety net. However, unlike the Republican model, the Democratic model has historically been successful. Democrats believe in the idea that wealth and prosperity do not stem from the rich or the ‘job creators’; they believe it starts with the average worker. And contrary to a lot of conservatives, this isn’t liberal dogma or some high-minded moral sentiment, it’s actually economically backed. Economies operate on simple supply and demand. As overall demand (or aggregate demand) increases the economy responds and grows.

Demand starts with the many, not the few. It starts with the average person spending their disposable income on goods and services. So in times of recession when people are out of work or their hours are cut, they have less disposable income and the economy slows. This is where government can help, it can step in and provide people with income assistance to not only ensure people can survive, but to actually help get the country out of its slump. It was government spending that got us out of the Great Depression, and although Republicans will disagree, economist are pretty much in agreement that Obama’s stimulus helped in this recovery. So it’s not that Democrats want people to stay reliant upon government, rather, Democrats realize government can help; government can do good.

The right can say Mr. Obama gave people gifts, but it’s no different than when Republicans offer gifts to their supporters. The only difference being that Democrats’ gifts have to lead prosperity in the past while the Republican gifting model has only lead to sharp income inequality, lackluster economic performance, and oh yeah, all those tax cuts that have done nothing but contribute to our debt.

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Why the Economy Doesn’t Matter


Okay – obviously it does. We still have weak economic growth, high unemployment, and a lack of consumer confidence. However, as Keynes pointed out decades ago, and as Paul Krugman recently referenced, due to “use, decay, and obsolescence” economies eventually fix themselves. Basically, as products, machinery, or equipment grows old, breaks down, or becomes obsolete – it needs to be replaced. This means businesses and individuals start buying more products, and the economy returns itself to normal.

I bring this up because so often the question in the Presidential race is who is best suited to fix this economy. Not to say this issue shouldn’t be addressed, but it overshadows so many other issues. Since we are in a recession, we as a country forget there are other problems and issues a President must address.

The United States is facing an education crisis; our standing on the world stage continually dropping. Not to mention there are underfunded and understaffed schools across the country.  Both sides have offered little more than campaign platitudes, and good feeling rhetoric like “Hire more teachers!” In fairness to the President though, he does have his Race to the Top initiative, which focuses on increasing funding for k-12 education. (He did a terrible job communicating details of the plan during the debate) Similarly, Democrats have been trying to increase funding for Pell grants, and are working to  keep interest rates low on student loans. Conversely, the Ryan plan slashes education, including cuts to programs like Head Start and Pell grants. Also, we have seen Republican Governors attempt to balance their budgets by getting rid of teachers and other public employees.

The next President is also likely to make two Supreme Court nominees, which means whomever wins this election, his stance on social issues will have a greater bearing on policy than normal. This is troubling, especially considering we have absolutely no idea what Mitt Romney actually believes on the issue of abortion, and in the debate, Paul Ryan hinted he would be in favor of overturning Roe vs. Wade. Furthermore, as state courts contemplate the issue of gay marriage, it is only a matter of time before the Supreme Court weighs in. Yes, jobs are important, but it is also important that women continue to have the right to make decisions about their body, and it is also important we work toward giving all persons equal rights regardless of sexual orientation.

Finally, as I’ve argued before, the greatest threat to this country is not the debt, it’s not China, and contrary to many Catholic groups, it’s not gay people – it’s climate change. Climate change not only threatens the lives  of people across the globe, but it has and will continue to devastate the world economy. The longer we wait, the more expensive it will be to fix, and the harder it will be to reverse. Addressing climate change will be the single most difficult task our country has faced. Not because we don’t know how to fix it, or it’s a problem on too big of a scale to solve – it’s because one of the political parties doesn’t even believe it exists. Even though the scientific evidence is overwhelmingly in support of climate change, the right insists it must be a left-wing conspiracy.

So as election day nears, remember, this country faces more challenges than just the economy. They are challenges of a type that being a businessman doesn’t automatically qualify you to address. As voters we should elect a President who believes in funding the eduction of future generations, not cutting it in the name of fiscal responsibility. We should elect a President who believes in protecting the rights of women and extending equal rights to all persons, not suppressing individual liberties to cater to the extreme wing of the base. And although both parties have stalled on the issue of climate change, for God’s sake, we should elect a President who sides with the scientists (and the rest of the developed world for that matter) and recognizes the threat is real, not one who believes the entire scientific community is pulling some giant prank.

P.S. I also believe Obama is better suited to fix the economy – See here, here, here, and here

What’s Really Holding Back the Economy?


If you ask Republicans, “What’s wrong with the economy?” or, “Why is there such little growth?” They all give a similar response. They say, “government is too big, it is spending too much.” They say, “the President is not creating a business-friendly environment – the President hates small businesses!”  According to Republicans, if only government would get out of the way, and let businesses do their thing then we would get the economic recovery America has been waiting for.

If this story were true, we would expect to see stagnate or declining business investment accompanied by skyrocketing government investment. This would illustrate an economy in which private sector growth is being hampered by too much government (the crowding out argument). The problem is, the ‘Obama hates small businesses and government is spending too much’ story does not line up with what is actually happening in the economy.

 

 

 

 

 

 

 

In fact, what’s happening is the exact opposite of what should be happening if the Republicans were correct. This graph shows non-residential investment, which can be understood as business investment, and government investment. Since President Obama’s policies have gone into effect, business investment has actually gone up, not down, as conservatives want us to believe. And government investment is actually at an all time low – not at socialist levels as our friends from the right continue to insist.

Now, I am not trying to say the private sector is back to normal and doing just fine, but the story that too much government is holding back this recovery just doesn’t align with what is actually going on. What’s actually going on suggests we need more government investment, not less.  The economy is struggling due to a decrease in government. This came mostly from sharp cuts to state and local governments, which in turn wiped out more than a million jobs.  It is precisely this “American style austerity” Republicans have been demanding that is hindering our economy, not government.

The proper response to the economy we face is not to blame government and decry any government expenditures, but to realize government can and should be used to help with this recovery.

Fiction vs. Reality: The Gun Control Debate


Fiction:  September 2008 – NRA ad alleges that then candidate Obama wants to levy a new tax on guns and ammo, as well as ban the use of certain guns.

Reality:  February 2008– Steven Kazierczak walks into a Northern Illinois University classroom with 3 handguns, a shotgun, and 8 loaded magazines. He opens fire killing 6 people including himself.

Fiction:  April 2009 – Glenn Beck says President Obama will, “slowly but surely take away your gun or take away your ability to shoot a gun, carry a gun.”

Reality:  April 2009 – Police officers in Pittsburgh, responding to a 9-1-1 call, were met with open fire by Richard Poplawski.  At the end of the shootout, 3 officers were dead and 2 others were injured

Fiction:  May 2010 – At the NRA National Convention, Sarah Palin said that if Obama and other Democrats thought they, ”could get away with it, they would ban guns and ban ammunition and gut the 2nd Amendment.”

Reality:  February 2010 – During a meeting for the biology department at the University of Alabama, a professor, Amy Bishop, pulled out a handgun and began shooting indiscriminately. She killed 3 people and injured 3 others.

Fiction:  August 2011 – Chuck Norris claims the Obama administration is, “an administration with a secretive itch for gun control…”

Reality: January 2011 – Jared Loughner opens fire on a Tucson crowd gathered to hear Rep. Gabriel Giffords speak. She is critically injured and 6 are killed.

Fiction: April 2012 – Mitt Romney spoke at the NRA National Convention and warned that if Obama was given a second term, “He would be unrestrained by the demands of reelection” and would use, “every imaginable ruse and ploy” to take away gun rights.

Reality:  July 2012 – James Holmes walks into a Colorado movie theatre and opens fire on the crowd. 12 are killed and dozens are injured.

Reality:  The unfortunate reality is that these right-wingers are wrong about the President’s gun control record. In reality, Obama has already signed more repeals of federal gun laws than Bush in his combined 8 years. As a candidate, he supported closing the ‘gun show loophole’ and creating stricter background check requirements for new gun purchases; on both accounts he has remained silent since taking office. In fact, the Brady Campaign, the nation’s largest anti-gun group, gave him F’s in all gun control categories.

Part of me wishes the crazies on the right were correct about the President’s gun control record, but they are simply fabrications. I am not in favor of a total ban on guns, but how many more innocent people need to be murdered before we enact actual gun control laws? How many more preventable deaths need to occur before we realize sensible gun control laws will not be the destruction of our Constitution? How many more massacres need to happen before we reject the notion that fewer gun control laws somehow create a safer society?  We have to stop perpetuating the myth that everyone having a gun makes everyone safer. It doesn’t. It just leads to the further loss of life.

You May Have Built Your Business, But You Had Help


For the past couple of weeks the Romney camp has been bombarded with new attacks about Bain Capital, along with an unrelenting demand for more than just one year of his tax returns (this is coming from both the right as well as the left). Needless to say, not a great few weeks for Team Romney. However, it appears Romney thinks he may have found some political ammunition with which to fight back.

Recent remarks by President Obama, at a rally in Virginia, left conservatives salivating at the political fodder delivered by the President. The right-wing ‘blogosphere’ has had a field day with the President’s line, “If you’ve got a business, you didn’t build that.” Conservatives are using these remarks to reinforce their line of attack that Obama doesn’t understand how the economy works, and they’ve even gone so far as to call him un-American. (See John Sununu)

Now, before I go into my usual Republicans are wrong, and have no idea what they are talking about spiel, I will say the President could have been a little more eloquent with his choice of words. Small business owners do have to work incredibly hard, and they do have to take risks, which are not inherent to other careers.

But… that does not mean what the President said was wrong. A little context needs to be added. The backdrop of this past week and half or so has been a discussion about taxes, specifically; ending the Bush tax cuts for the top income earners – or, in many cases, your business owners. The President has been asking for their tax breaks to end in part to address growing deficits, in part to hinder the burgeoning divide between the rich and everyone else, and in part to bring back tax rates to more historical norms when job growth was much stronger. But, it is mostly to ensure the top earners in America are paying their fair share.

And that’s the issue here. It’s not that the President is un-American, quite the contrary. The majority of the twentieth century marked an era where there was an understanding in America, a sort of social contract, that every person should do their part in making America great. This meant higher earners paid higher taxes. No one said this was socialism or the destruction of America, but rather ensuring the American dream stayed alive. It was for this reason we saw top marginal tax rates during this era close to 80 percent, a number unfathomable in politics today. There was a belief, which is true, that if you are successful it was made possible by the help of a lot of other people. So it only made sense for them to pay a little more in taxes.

That attitude changed though. We went from a society where the very wealthy paid their fair share, to a society of Gordon Geckos, a society where greed was believed to be good. We became a society where the wealthy no longer used their wealth to create a better country, but used it to grow their own bank accounts. Their influence went to creating a tax code filled with loopholes and deductions that disproportionately benefited themselves. It went to deregulating businesses at the expense of people and the environment. It went to creating a financial sector where risk was taken off of the investors and bankers, and put onto the average person. We became a country centered on making the wealthiest members of society even richer.

And this brings us to today; where the mere mention of business owners and job creators paying a little more in taxes is wholeheartedly rebuked and deemed as socialism, and to imply that successful people received help from the government is an attack on America itself. When in reality they did have help, and they should pay more. Job creators, like most of us, went to a public school or hired someone who went to a public school, which are paid for by taxpayers. They drove on roads and bridges built by public funds. They most likely advanced their business through the use of the Internet, which was created with the help of government research. (By the way, these are all points the President mentioned in his speech. Shocking – Romney took the line out of context.)

The point is that business owners are successful in part because of people and the government. It is for that reason they should pay higher taxes. Sure, job creators created their businesses, but they didn’t do it alone. In fact, they had a lot of help, whether they want to believe that or not. So it’s not socialism or class warfare to ask the rich to pay more – it’s American.

One Chart Republicans Don’t Want You to See


With the Supreme Court decision on the Affordable Care Act not coming until Thursday now, I feel the need to post once more on the healthcare debate.

Republicans have done a phenomenal job of selling the Affordable Care Act as the single most destructive piece of legislation passed by the Obama Administration. Even though the idea for the law was thought up by Republicans over 2 decades ago, and is full of Republican ideals like personal accountability and getting rid of freeloaders; Republicans still say it’s evil.  They’ve linked it to death panels, deemed it a job killer, and argued it is an attack on personal freedoms – how dare the government ensure all people have healthcare.

However, the most frequent and overused attack against the Affordable Care Act is that the law will create soaring deficits and an unsustainable national debt; it will place a burden of debt on our children and grandchildren.

(Just a side note: Republicans have to stop claiming every Democratic policy will explode our debt while their idea to solve all our problems is cut taxes – which will in turn increase the debt.)

They have repeated this line so many times that it has just become common knowledge: Obamacare increases the debt – Fact. Now, the reason I said Republicans have done such a phenomenal job selling Obamacare as destructive is that it is all a big lie. The Affordable Care Act will actually reduce deficits. The Affordable Care Act will actually save money. As the chart below shows, over time, Obamacare will actually work to reduce deficits.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yes, contrary to Republican talking points, Obamacare is actually fiscally responsible healthcare reform. So the Affordable Care Act is centered on personal accountability, and it cuts the deficit – tell me again, why aren’t Republicans on board?

Running a Business Doesn’t Qualify You to Run an Economy


There has been a lot of discussion about the new Obama ad, “Steel”, attacking Mitt Romney’s tenure at Bain Capital. The ad portrays Romney as a heartless capitalist pig who destroyed lives and killed jobs.  Republicans have criticized the President for the ad claiming he doesn’t understand capitalism. They de-legitimize it by saying for every negative story about Bain there is a positive one as well.  Meanwhile Democrats view the ad as highlighting the problems of capitalism.  Although I have written before about the pros and cons of capitalism I think this is a completely separate issue. I think both sides are wrong.  The ad is not about capitalism.  However, the ad is effective and legitimate for another reason.

Romney’s whole message is that he knows how to create jobs. He’s the businessman candidate who is going to take his business world experience and translate that into running the government and the economy.  Here’s the problem, (and here’s why the ad is effective) running a business and running an economy is completely different.   Successfully running a business means finding ways to cut costs, and increase profits.  Successfully running an economy means achieving full employment with consistent GDP growth. Cutting costs doesn’t lead to full employment though; it actually leads to the opposite. When Republican governors across the country came into office and decided to run the government like a business and reduce spending (cut costs) we ended up with massive lay-offs of teachers, police officers, and firefighters – not good for a struggling economy.

Similarly Bain cut costs but did so at the expense of the employees.  And although Bain had success stories, the job creation was just a product of making the business more efficient and cost-effective. Running a business is not about job creation it is about the bottom-line, which is fine, it’s just not ideal for an economy, especially one with high unemployment. The point is that many of the practices of a successful business would be detrimental if they were carried over to an economy, like that of cutting costs to boost growth.

So the takeaway from the ad is not that capitalism is bad, or Romney is some fat-cat.  The takeaway is that being a business person, and owning and operating a business does not qualify a person to run an economy. Running an economy and running a business are categorically different. Trying to run an economy like a business is not only misguided, but irresponsible.

Mr. Reagan Your Keynesianism is Showing


This graph has circulated around the blogosphere and I think it says a lot.  In a previous post I mentioned direct government consumption (not tax cuts) was most beneficial to the recovery.  Maybe you are wondering why after an $800 billion dollar stimulus bill there has not been a robust recovery.   The reason: A lot of that bill was in the form of tax cuts and not direct investment.

The graph, although a bit ‘wonkish’, shows the amount of government consumption through the first couple years of both the recession under President Reagan and the recession under President Obama.  Government consumption means actual investments made by the government, so not tax cuts or safety net expenditures.  We see at the beginning of each recession government consumption was similar.  Then a year-and-a-half later Reagan continued government consumption while the President, up against a Republican Party with one goal of pre-mature debt reduction, was forced to cut government consumption.  The result: “Morning in America” in the 1980s and now a slow recovery with unemployment above 8%. We see the validity of Keynesian economics at work here.  Increased government consumption leads to economic growth in a recession. It worked for Reagan in the 1980’s and our slow but positive recovery is attributable to the government consumption done by President Obama; it was just not sustained long enough.

It is a shame the Republicans who praise Ronald Reagan do not follow in his footsteps.  Ronald Reagan may be known for Reaganomics but by all accounts he is “in effect much more Keynesian than Obama.

Ideology Before Facts


Everyone knows the economy is still recovering from the worst recession since the Great Depression, but here’s the good news; we know what works.  Research on the Obama stimulus package is in; the tax cuts did little to help the recovery while state fiscal relief and infrastructure investment did the most to boost the economy.  For the layman this means in a recession government spending works and tax cuts do not.

Conservatives want to argue that increasing government spending only crowds out the private sector and actually hinders the economy.  That just isn’t true.  As I have pointed out before the slow growth in the economy is due to a lack of demand.  This means people are not buying things and there are idle dollars sitting around. The “crowding out” argument can only be used during full employment when all resources are being utilized.  This is not our current situation.  Government is spending dollars not being spent; it is not taking away dollars from the private sector.

We know government spending works and it does not hurt the private sector, and we know tax cuts in a recession do not work.  So what does the GOP want to do? They want to lower taxes and cut government spending.  They are demanding these policies because Republicans want to (pre-maturely) shift the main issue from economic recovery to decreasing the national debt.  The problem is Republican proposals (the ones that cut taxes and reduce spending) actually increase the debt.

 

 

 

 

 

 

 

 

 

The GOP has become the party that puts ideology before facts. The Republican candidates’ plans solve neither of America’s biggest problems.  They want to decrease spending, which will hurt the recovery, and they want to cut taxes, which will have little impact on the recovery, but it will increase the national debt.

 

 

The Refutation of the “Republican Revolution” – Part 4


 

 

 

 

 

 

 

 

 

 

 

 

 

 

Let’s just dig right into this one.  The attack on The Affordable Care Act as socialized medicine is a tired line by the right.  The thing is The Affordable Care Act simply mandates having insurance.  It is more about insurance than actual healthcare.  So it is not government run medicine. There are not going to be government doctors.  “Obamacare” is actually modeled off the Heritage Foundation’s healthcare plan.  It is a right-wing idea.  Also, why is socialized medicine bad? I would love socialized medicine. We are one of the few modern countries who do not have a single payer type system… and what’s the result?  We have higher costs with poorer results.

The other line of attack on the President is that he redistributes the wealth. The main way government redistributes wealth is through taxation, which is allowed by the Constitution.  The problem is the President hasn’t raised taxes! The right really wants to believe Mr. Obama has raised taxes but the thing is he extended the Bush era tax cuts and instituted the payroll tax cut. Just yesterday he put out a plan to lower corporate taxes. So, at what point did the President take money from the rich to give it to the poor?

Liberals hate guns! (sarcasm)  Now, yes Liberals believe in gun control more so than conservatives but they do not want to ban guns.  Too be honest there needs to be a balance on this issue.  No judge wants to abolish the second amendment nor does any judge believe any gun should be made available to any person.  The Supreme Court is supposed to be representative of the population, therefore; there needs to be judges on the bench who are not entirely pro gun

I love how Republicans deem the President as pro-illegal-immigration.  Fact: The President has deported more illegals per year than President Bush.  The criticism is just absurd.

Finally, the President is not engaging in class warfare! That is just a line made up by the right so they can deem a tax increase as divisive.  I’ve written on this issue before, here.