Some readers have been wondering what the point of my last post was. The point is simple: growth must come from somewhere. The components of economic growth are personal consumption, business investment, government spending, imports, and exports.
If you want government spending to level off or even decrease, fair enough. If you still want more growth, something else has to increase to produce that increased growth.
Personal consumption isn’t a likely candidate. Personal consumption expenditures are already over-extended and our economy is already more dependent on PCE than other major economies.
I also think we’ve got to honest with ourselves. Exports aren’t likely to make up the difference. Germany, China, and Japan are already trying to do that. China has an enormous amount of over-capacity.
That leaves two candidates. We can import less or businesses can spend more. Whichever you pick, the policies you like should promote those objectives.
Don’t just tell me what you don’t like. Tell me what policies will accomplish your objectives.
government spending is not “growth”–not even if it is on war. What a bizarre notion. The money taxed for government to spend either comes from saved capital for from taxing economic activities. It is like saying giving a larger allowance to a child causes “growth”. Growth comes from creating more wealth, not taxing it and spending it.
Your argument is not with me but with the economists who calculate gross domestic product. You’re arguing with accepted definitions:
GDP = P + BI+ G + X – I
Well, where angels fear to tread, I will rush in.
1) Raise a tariff, but don’t call it a tariff. Call it the International Trade Fairness Protocol (or whatever). Create a formula that accounts for sub-living wages, environmental damage and currency manipulation, and apply it to all imports – the worse the environmental and labor standards, the higher the tariff. Europeans will presumably clear the bar, as will the Japanese. The tariff would fall most heavily on China and the 3rd world. Use the collected funds to advance the relevant causes.
Those affected will scream but since the purpose would not be to protect us but to aid exploited folks in those countries, we can plausibly claim it’s a human rights action not protectionism. (I mean by the standards of plausibility we generally apply to government actions. Truthiness rather than truth.)
2) Pass legislation that excludes any corporation (or hastily spun-off subsidiary) that off-shores jobs or hides cash overseas from bidding on any US government contract, or from receiving any income from the USG.
3) Impose a tax on financial transactions.
4) Support medical and pharma research likely to reduce costs in the future. If a successful product emerges, pay the creator a percentage of the medicare/medicaid/VA savings in addition to the market value of the product. As it stands it would be a disaster for big pharma if someone actually cured the common cold; incentivize them to do the money-saving thing rather than the money-making thing.
5) Identify desired technological breakthroughs – batteries, for example – and make it a contest with a considerable prize. Double the storage capacity of large batteries for cars, and the USG writes you a check for a billion dollars. This might focus the minds of both corporations and research universities. We wouldn’t be picking winners, we’d just be paying them a fat bonus if they succeeded.
6) Raise the minimum wage, putting more cash in the hands of those most likely to promptly spend it.
1) Greatly reduce all levels of legal immigration. Let green cards & work permits expire. Essentially, stop importing more people to do the jobs Americans aren’t allowed to. Seriously, they couldn’t find a black American comedian to take over for the Canadian on The Daily Show?
2) Make efforts to end illegal immigration, and to get illegals already here to leave – preferably voluntarily. Adding a border wall/fence may be helpful, or it may not. Frankly i suspect it’s main benefit would be to remind the ruling class that this is what the people want, not to be replaced by peasants while the country gets turned into Brazil or Mexico.
2a) Better than a wall for reducing illegal immigration, and in providing incentives for illegal immigrants already here to leave, would be to go after employers. Impose stiff civil penalties on companies employing illegal aliens. impose criminal penalties on people that hire illegals knowingly, or in a manner that could be considered negligent. A few months in a federal-pound-me-in-the-ass prison for some hiring managers would do wonders for the situation.
3) Change to laws so that illegal aliens can receive no government benefits. If necessary, hammer the states into submission.
4) See to it that birth-right citizenship is not automatically granted to the children of immigrants or visitors residing in the country, legally or otherwise. If it requires a constitutional amendment, or stacking the Supreme Court with Anne Coulter & Donald Trump clones, so be it.
Sit back and watch wages begin to rise again in a few years.
5) Review all trade agreements. Exit the ones that benefit US corporations to the detriment of US workers. I imagine that means leaving every single trade agreement we’ve ever been a party to. So be it.
6) Impose a tariff regime designed to increase the fairness of trade. If the Chinese don’t have adequate environmental & worker safety laws, tax the fuck out of Chinese goods & services. Countries that have codes up to our standards or better either get no tariffs imposed, or perhaps even get a small bonus.
7) Review American environmental laws. If we actually want to build things here, we need to change our laws & regulations. Establish what we believe is the proper balance between mining/extraction/manufacturing versus the environment. Particular attention should be given to streamlining permitting across federal, state & local levels of government. It took about two years for Boeing to decide upon the need for a new plant to build 747s, buy the land, design the plant, move the earth, and build the largest building by volume ever built. That happened around the time I was born. They couldn’t get the initial environmental impact studies done in that time today. That is a sign of the problems we face in this country, and is a strong incentive for corporations to build plants elsewhere.
I could go on, but what’s the point? None of it is going to happen because rich people don’t want anyone else in the country to have anything of their own, and they own Congress and almost everyone who is likely to be President, including Bernie “I love Castro & the USSR more than America” Sanders.
That’s a bit of a sticky wicket. China has tougher environmental and worker safety laws than we do. However, they also lack a robust system of civil law so it’s practically impossible to enforce them even if they wanted to which they rather obviously don’t. But they have the laws.
BTW, Michael, I tend to agree with your proposals except for the last one. I remain unconvinced that the net outcome of a $15 minimum wage is not that a few people are helped, more people are hurt, and the black market for labor substantially strengthened.
I could probably be persuaded that an increase to $10 is okay.
The problem here is only government can act as the reducer of uncertainty so looking to businesses only is going to produce very limited results. If governmeny spending is off the table then we really have two options:
1) Implement a Tobin/speculation tax to reduce profits on said transactions and make productive investments relatively more attractive.
2) Direct the Fed to conduct reciprocal foreign reserve operations. For every dollar a currency manipulating country acquires we acquire an equivalent quantity of their currency, devaluing the dollar in relative terms and making out exports more competitive. From a market standpoint the currency units acquired would not exist.
That’s a bit of a sticky wicket. China has tougher environmental and worker safety laws than we do.
Fair point. Change the language to something like “if the Chinese don’t have adequate environmental & work safety policies….”
Seems like no one is ever interested in the devaluation-export option.
“1) Implement a Tobin/speculation tax to reduce profits on said transactions and make productive investments relatively more attractive.”
Ive always said we need more rock solid, productive investments made by government types in the Solyndras of the world. What could go wrong?
I had to laugh at the academic notion of public vs private goods expenditures. We’re too busy transferring money from the unconnected to the connected and handing out free beer for votes to be bothered with tending to infrastructure and the like. It’s welfare state.
Just look at NASA. Now it’s been turned into the global warming advocacy society, not a fount of scientific cutting edge. You might as well advocate digging holes (with spoons of course) then filling them up if you want government to be your engine of growth.
At least there is some “coming clean” in comments. Beggar thy neighbor trade protectionism. Trumpian immigration restriction. Father knows best government lead investment decision making. The In-N-Out wage policy. Not optimistic……….
Lost in it all is the assumption of a limp dirck private sector without consideration of the relative value add in public vs private expenditure of resources, regulatory drag, and simple demographics. And when the last one is working against you you don’t keep plowing head long deeper into the first two. We can’t afford it. Politically I don’t think we are there yet. Which means more of the same. I’m sure the pro-government types scoffed at the notion of Detroit going bankrupt, just as the IL and Chicago political class currently argue for more of the same. Not optimistic…..
BTW, speaking of Chicago – anyone heard much lately about McDonald being shot by Rahmbos cops? Yeah, me neither. I wonder what Obama and Hillary promised to make that problem go away.
Guarneri,
The condition under which I wrote that sentence is no additional government investment; the Solyndra reference doesn’t fit. We can probably increase useful private investment in a limited fashion by disincentivizing non-productive trading. A penny tax on transactions will reduce alpha on nonsense like HFT.
@howrediculous is absolutely correct, and the economists are wrong. First, the 2008 collapse could never happen, and then, the past eight years have been an episode from the Twilight Zone. We are supposed to ignore what they are wrong about (everything), and concentrate on what they know best (the unknown future).
Government spending (G) should be subtracted not added, but I will play along. Let us take all the other variables down to 0, and we now have only government spending. What do we have, nothing. The government does not produce anything of value. The Social Security check, the EBT card, the food stamps, and almost everything else cannot provide food, shelter, or clothing.
(Government cheese can be eaten, but it is not actually produced by the government. You could eat the checks, but it would not be very filling.)
If government spending were additive, explain Venezuela, Cuba, Libya, and Nigeria to start. You may use visual aids. All these places need is a little cash to get them going. Oh wait, Venezuela and Nigeria are oil rich countries.
Things are produced for the purpose of making sales. Government spending = sales. More spending = more sales until we hit the inflation barrier.
Dave,
It appears those opposed to government spending have no answer to your question but to deny its validity.
Government spending = sales. More spending = more sales …
and therefore, government spending = Venezuela.
The game is only sustainable if you have a fabulously rich country that has an exceedingly large store of wealth. Venezuela did not. Venezuela believed the beautiful theories, and they are now learning that no matter how much the experts agree that fantasy is reality, it ain’t.
When you go to wipe your ass and there is no toilet paper, it does not matter what excuse the experts devise. You still have a shitty hand.
(Not all government spending is a cost. Certain infrastructure projects and open source intellectual property are value added, but Solyndra is not. Nationalizing and upgrading the electric transmission lines would mostly be a cost, but laying in new access avenues for alternate energy plants would add value.)
You cannot compare Venezuela to a developed country which is what we’re discussing. They have much different problems than we do. Our economy is fully monetized, capitalist and typically produces more than we consume. Venezuela’s monetary system is a mess, its economy is akin to a mercantilist tribal system and produces far less than it demands.
In the U.S. government spending stabilizes by purchasing things that would otherwise go unsold, hence sales = incomes without inflationary consequences. In Venezuela sales also equal incomes but government, whether under socialists or conservatives, has done nothing to address chronic supply-side problems. It can increase incomes buying more but it can’t increase sales because there’s no spare capacity.
Meanwhile in the U.S. capacity utilization is still down 10+ points from before the GFC. Even before we typically utilized less than full capacity. We’re trillions poorer because those goods and services aren’t being bought.
The economy has been growing because the credit supply has been growing. This is the reason for NIRP and the elimination of cash. A financialized economy can only grow when the credit supply is growing, and this means old debt is being replaced by new debt, the service for the old debt is being financed, and new debt is being assumed.
It is beside the point as to which of the variables you manipulate. The result is the same. There are no flows or velocities. It is expansion, and any oscillations would be akin to a spring moving back and forth. (It is a linear motion, but you can plot it as a curve.)
The problem is that at some point the gig is up for somebody somewhere, and it looks like it will soon be the Chinese. What follows after that is unknown, but a few reasonable scenarios could be constructed.
NIRP will fail. The only place left to find borrowers is in the sub-sub-prime pool, and if that is the plan, it would be best to just send them checks. Otherwise, the financial system is going to use these worthless assets as a foundation, and there will be another collapse. Of course, you need them to build the Ponzi scheme that is called flows and velocity because this is what really expands the economy.
You have a dog chasing its tail, and that is the government at work. Occasionally, it drops a turd. The turd adds value as manure, but mostly, it is just the dog wasting its time and energy.
Investment in the means of production is how you properly expand an economy, but this requires a sound or mostly sound monetary system. If you can get a mostly sound monetary system (including banking regulations), many of the problems will begin to disappear or lessen. For the remaining problems, I would be open to Fed operations to even out foreign currency manipulations or tariffs if needed, but an examination of US regulations would need to occur first.
The opportunity to begin making the changes was 2008, but now it will probably need to wait until the next collapse.
@Ben Wolf
Of course, you do not want to apply these beautiful theories to Venezuela, Cuba, Nigeria, Libya, Mexico, Greece, or any other country without an existing enormous store of wealth, and the reason is simple. They are garbage. They do not work. They have never worked, and they never will work.
The past eight years have been a bust for every equation economists have been able to throw at the problem. The best they have been able to do is to redefine the inputs and outputs to solve the problem. Sorry, I can call my grandma “grandpa”, but that don’t mean she has a dick.
I would love to have President Sanders for another eight years of this nonsense. I would love to see what crap you all pull out of your asses.
I forgot about Chicago. They are trying to do the same thing with bonds. That appears to be going real well.