On the internet many blog posts are followed by commentators.  Most of these commentators go by some made up name.  The names are clever, sometimes funny.  The comments–at least the ones that are serious–often add materially to the reader’s understanding.

Sometimes the comments are not only helpful, but funny as well.  With that in mind, here’s a comment to a recent post written by Dean Baker over at Center for Economic and Policy Research.  In his post Baker criticized TV host Fareed Zakaria’s argument that more investment is needed to help bring the economy out of its deep slump.  Baker said more investment will help, but the slump is so great it’s hard to see how just more investment will be able to counter the ‘shrinkage’ already imposed by the recession on the economy.

Anyway, a commentor named ‘izzatzo’ penned a comment entitled ‘supplysidus ignoramus.’  Here it is.

Mr. Zakaria comments that the stimulus was helpful, but then says that it is not the right medicine to boost the economy. He tells readers ‘In the real world growth depends on real factors:’

Patient: Doctor, every time I think about the economy and recession, all I can think of is the unemployed resources on the supply side. Do I have Supplysidus Ignoramus?

Doctor: Yes you do. I see a lot of it these days. It comes from reading journalists like Zakaria, Friedman and Samuelson who also have it, except theirs is genetic, like Type I Diabetes, not curable but treatable, where yours can be treated with diet, exercise and reading ‘real’ economics.

Here’s a little pamphlet to get started, entitled WHEN THERE’S NO GODDAMN DEMAND IT DOESN’T MAKE ANY GODDAMN DIFFERENCE HOW MUCH GODDDAMN SUPPLY THERE IS.”

Beezer here.  Too much.  Got to get this pamphlet.

We’ve quoted articles by ‘Girl Economist’ Maxine Udall before.  This time we’re going to reprint a brief article by Maxine entitled ‘Penny-Wise, Pound-Foolish.’

Basically, she quotes philosopher Bernard Mandeville and economist JM Keynes where both succinctly and firmly assert that productivity makes robust economies.  First from Mandeville’s commentary on his ‘Fable of the Bees.’

“As this prudent economy, which some people call Saving, is in private families the most certain method to increase an estate, so some imagine that, whether a country be barren or fruitful, the same method if generally pursued (which they think practicable) will have the same effect upon a whole nation, and that, for example, the English might be much richer than they are, if they would be as frugal as some of their neighbours. This, I think, is an error…

The great art to make a nation happy, and what we call flourishing, consists in giving everybody an opportunity of being employed; which to compass, let a Government’s first care be to promote as great a variety of Manufactures, Arts and Handicrafts as human wit can invent; and the second to encourage Agriculture and Fishery in all their branches, that the whole Earth may be forced to exert itself as well as Man. It is from this Policy and not from the trifling regulations of Lavishness and Frugality that the greatness and felicity of Nations must be expected; for let the value of Gold and Silver rise or fall, the enjoyment of all Societies will ever depend upon the Fruits of the Earth and the Labour of the People; both which joined together are a more certain, a more inexhaustible and a more real Treasure than the Gold of Brazil or the Silver of Potosi….

And here’s Keynes comment:

No wonder that such wicked sentiments called down the opprobrium of two centuries of moralists and economists who felt much more virtuous in possession of their austere doctrine that no sound remedy was discoverable except in the utmost of thrift and economy both by the individual and by the state. Petty’s “entertainments, magnificent shews, triumphal arches, etc.” gave place to the penny-wisdom of Gladstonian finance and to a state system which “could not afford” hospitals, open spaces, noble buildings, even the preservation of its ancient monuments, far less the splendours of music and the drama, all of which were consigned to the private charity or magnanimity of improvident individuals.

Apparently we are doomed to repeat history, except this time the Wall Street “knaves” get to shop and party while the rest of us get to be prudent, austere and (presumably) moral all the way to the soup kitchen. I’m sure they’ll figure out a way for us to pick up their tab when they run the economy into the ditch again, too.

And you thought economics wasn’t a morality play….”

Beezer.  The people demand austerity and ‘balanced budgets’ yet at the same time demand jobs.  Yet the reality is that private markets are still struggling to recover lost ground and almost three years after the financial collapse, unemployment remains at 9.6% and unemployment plus underemployment at 17%. 

Republicans assert the economy will recover most quickly if taxes are cut more, or at minimum sustained, while at the same time public budgets must be trimmed primarily from the services and support expenditures aimed at the public, specifically Medicare and Social Security.  Democrats basically agree with Keynes and Mandeville that jobs must be created and if it’s only the government that can do so, then that’s what the government should be doing–even if in the short term deficits widen.

Beezer agrees with the Democrats, but also asserts that tax cuts aggravate deficits and should be returned to Clinton era tax tables.  The dynamics that produce jobs and income for the majority of Americans have little to do with tax cuts.

Of course the media doesn’t report these types of boring details.  To do so would interrupt the pablum they produce and re-label as ‘news.’

This from the House Committee on Transportation and Infrastructure. 

“The latest data tracking job creation and investment under the American Recovery and Reinvestment Act show that 91 percent of formula funds for highway, transit, and wastewater infrastructure are under contract, according to Rep. James L. Oberstar (Minn.), Chairman of the Committee on Transportation and Infrastructure. These funds are spent to reimburse contractors as they incur expenses in carrying out their contracts.

However, the tremendous success of the Recovery Act is now under fire by Republican leaders, who threaten to reverse the Act’s progress in creating jobs, and instead return to the failed policies that caused the worst economic crisis that the nation has faced since the Great Depression.

“In recent weeks, Congressional Republican leaders have threatened to cancel any unspent Recovery Act funds. If Republicans carry out this scheme, the federal program will no longer be able to reimburse contractors for work under contracts already in effect. States would have to rescind contracts with private companies, which would result in thousands of infrastructure projects grinding to a halt all over the country and cause countless layoffs,” said Oberstar.  

“Simply put, the Recovery Act rescued the nation’s economy from the failed policies of the Bush Administration, put people back to work, and is helping our economy get back on track. To reverse the Recovery Act’s success in creating and saving jobs by rescinding existing contracts is an irresponsible setback, unsound economic policy, and harmful to America’s middle-class families.”

Today, the Committee released its latest periodic report on the implementation of Recovery Act transportation and infrastructure programs with data reported as of September 30, 2010. The report shows that $35.3 billion, or 93 percent, of formula program projects have been put out to bid on 19,678 projects. Within this total, 91 percent, or 19,195 projects totaling $34.5 billion, are under contract.

“No matter how many times Republicans say that the Recovery Act failed, it doesn’t change the indisputable fact that virtually all reputable economists say it has been successful in creating jobs,” said Oberstar. “In fact, the nonpartisan Congressional Budget Office, which is widely respected on both sides of the aisle, confirms that as many as 3.3 million people are employed as a direct result of the Recovery Act.”

Additional highlights of the report:

• Across the nation, work has begun on 18,895 projects totaling $34.1 billion, or 90 percent of the available funds. Within this total, work has been completed on 9,789 projects totaling $8.1 billion.

• During the first year of implementation (February 17, 2009, through February 28, 2010), these projects created or sustained nearly 350,000 direct, on-project jobs. Total employment, which includes direct, indirect, and induced jobs, reached almost 1.2 million jobs. During September 2010, the Recovery Act created or sustained 87,000 direct, on-project jobs. Total employment in September, which includes direct, indirect, and induced jobs, reached 244,000 jobs.

• In total, direct job creation from these projects has resulted in payroll expenditures of $4.2 billion. Using this data, the Committee calculates that $717 million in unemployment checks have been avoided as a result of this direct job creation. Furthermore, these direct jobs have caused nearly $865 million to be paid in Federal taxes.

• Recovery Act investments will result in 35,399 miles of road improvement, 1,264 bridge improvements, and 12,234 buses, vehicles, and rail cars purchased or rehabilitated.”

Beezer here.  Instead of spending $35 billion, the recovery act should have spent $200 billion or more on these types of projects.  But instead of that, much of the money went to tax breaks that most folks didn’t even realize they got!

Former Clinton Treasury economist, and now a Professor teaching at University of California, Berkeley, J. Bradford DeLong, authors a blog that I regularly read.  Like Krugman, DeLong has an insightful mind and the ability to pen articles that are understandable.  Like Krugman, he often laces his articles with humour.

What follows is a brief lecture by DeLong.  After that I quote a comment which I found almost as interesting as DeLong’s lecture.  Both deal with our current recession and the reactions from various groups to the effects of the recession.  Among them the Tea Party folks.  (I’ve also added a sadly funny cartoon)

“John Maynard Keynes once famously observed, “Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.” During the crisis years of 2007, 2008, and 2009, it was the great British economist himself, along with three other dead men, who dictated the world’s response from beyond the grave: Hyman Minsky, Walter Bagehot, and Milton Friedman.

Minsky, an economist at Washington University in St. Louis, for warning that times of financial calm and economic growth led banks to step further and further out onto the ice of leverage — until finally they would step too far and fall through. Bagehot, the 19th-century Economist editor, for advising that when the bankers fell into the ice-cold lake it was essential that the government spare no expense to make sure that the network of banking survived, but needed to do so in a way that took the bankers’ fortunes away. Friedman, the consummate monetarist, for seconding Bagehot’s call for bank rescues in depressions — and calling for central banks to keep the money flowing. And Keynes, for his gloomy fears that central banks would not prove powerful enough to do the job — coupled with his overoptimistic hope that clever technocrats could then boost government spending to take up the slack.

But we are now into the “recovery,” and 2010 has been a very different year. Its horsemen are of a different breed entirely. Where Keynes and his ilk were optimistic believers in the power of technocratic governments to do good, this year’s horsemen are practitioners of more dismal sciences: believers that the market metes out judgments that we must suffer — and that it is our own flawed nature that makes us believe so. In short, it has been a year for Austrian economists Friedrich von Hayek and Joseph Schumpeter, for plutocrat and Great Depression-era Treasury Secretary Andrew Mellon — and, above all, for Friedrich Nietzsche.

There was silence in the seminar room. Richard Kahn broke it. “Do you mean to say,” he asked, “that if I were to go out tomorrow and buy a new overcoat, that it would increase unemployment?”

“Yes,” said the man in the front of the room, Friedrich von Hayek, “but it would take a long and complicated mathematical argument to explain why.”

That is how historian Robert Skidelsky describes Hayek’s visit to the proto-Keynesian economists of Cambridge University. It was the 1930s, and Hayek had met them in London to convince them that depressions were not to be avoided or cured, but rather endured. In his thinking, they were righteous karmic payback for past sins against the gods of monetary orthodoxy. Any attempts to cut them short or make them shallower would produce only temporary palliation, at the cost of a fiercer, deeper, and nastier further depression in the future.

Hayek’s fellow countryman, Joseph Schumpeter, went further: “Gentlemen!” he announced to his students at Harvard University (there were no ladies). “A depression is healthy! Like a good ice-cold douche!” If depressions did not exist, Schumpeter thought, we would have to invent them. They were “the respiration of the economic mechanism.”

Agreeing with Schumpeter was Herbert Hoover’s Treasury secretary, Andrew Mellon. In his memoirs Hoover was bitter toward many, but bitterest of all toward Mellon, whom he called the head of the “leave it alone liquidationists.” Hoover quotes Mellon: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.” Hoover opposed Mellon’s policies, he said, and worked to undermine them. But what could he do? He was, after all, only the president. And Mellon was Treasury secretary.

Think Mellon is just an anachronism? Then consider current British chancellor of the Exchequer, George Osborne, and his claim that today’s record-low interest rates in Britain are a sign of financial strength and not of anticipated prolonged depression: “The emergency budget in June was the moment when fiscal credibility was restored. Our market interest rates fell to near-record lows.” That is pure Mellon. It is definitely not Keynes. It is definitely not even Milton Friedman.

Friedman himself condemned Hayek, Schumpeter, and Mellon as devotees of an “atrophied and rigid caricature” of his own doctrines. “[T]his dismal picture,” said Friedman, led “young, vigorous, and generous mind[s]” to recoil. And both Keynes’s and Friedman’s flavors of postwar American macroeconomics, with its focus on government action to maintain stable growth, were the happy result.

Nothing has changed in the past few years to make Hayek’s, Schumpeter’s, and Mellon’s arguments stronger intellectually against the critiques of Keynes and Friedman than they were 60 years ago. On substance, their current victory is inexplicable. But their triumph, epitomized by the Tea Party movement and its hostility to government action, can be explained by our fourth horseman: Friedrich Nietzsche in his role as psychologist of human ressentiment.

Nietzsche talked about the losers — or rather, about those who thought they were the losers. He looked at those who saw themselves as weak and poor — rather than strong and rich — and saw trouble. “[N]othing on earth consumes a man more quickly than the passion of resentment,” he wrote. It drives us to madness.

Think of that when you consider this: The U.S. unemployment rate is stubbornly high, yet aid from a federal government that can borrow at unbelievably good terms could allow states to maintain their levels of public employment, and those public workers would then spend their incomes and so boost the number of private-sector jobs as well. But the voters are against that. No, they say. We have lost our jobs. It is only fair that those who work for the government lose their jobs as well — never mind that each public-sector job lost triggers the destruction of yet another private-sector job. It’s the underlying logic that has led to a wave of austerity across Europe that is now headed for America’s shores. And it’s the same logic that says, “It is only fair that homeowners lose their money” — never mind that everyone’s home prices will suffer. What does not kill me makes me stronger.

Because some are unemployed, unemployment is good — we need more of it. Because some have lost their wealth, wealth destruction is good — we need more of it. That is a psychology that Friedrich Nietzsche would have understood all too well. For, as he put it, “If you gaze long into an abyss, the abyss will also gaze into you.”

Beezer here.  As you might expect, the lecture drew a string of thoughtful comments, some critical about DeLong’s use of quotes.  But one commentator, mg, weighed in with some observations that I found plausible and corresponded with my own experiences.

“ Delong’s description of what drives them IS perfectly rational. They derive a great deal of psychic income from being roadblocks, from frustrating other people through their passive-aggressive refusal to allow action. There are more reasons than just this, but I think it’s a large animus for the movement.

There are ignorant people who are motivated by simple slogans, like “You can’t use debt to solve problems caused by too much debt.”

There are tribalists who are, a priori, against anything proposed by “liberals.”

There are plutocrats (and their hirelings) who are doing very well under current circumstances, thank you very much, and absolutely don’t want the government, which is in disrepute, to gain any credibility by solving problems created by plutocrats. If that happens, government might actually gain the ability to take action, like regulation that will stop them from looting the system.

And there is a large cohort of people, 50+ years old, generally doing OK economically, who are being discarded by the system, whatever dreams they had unrealized, and who are seething with anger at resentment about it, and see nothing wrong with taking that anger out on other people, even if they don’t consciously realize that’s what they’re doing.

I know the first and last cohort quite well, because I interact with them on a daily basis. And I can, after one minute of conversation with one of them, figure out which camp they belong in. Both groups of people are perfectly nice and pleasant, until they start talking about the economic situation. The angry people can’t discuss it without angrily and bitterly denouncing others. They usually have a scapegoat, like the government, and I’ve heard Arabs used several times (75 years ago it would have been the Jews). And they are totally uninterested in rational discussion: the government caused this, the government can’t fix it, end of story. I used to think it was because they’d spent most of their adult lives listening to Rush Limbaugh, and had been brainwashed into believing the government can’t do anything right, but it never explained the anger to my satisfaction. Delong’s explanation does (it also, at least somewhat, explains why people would spend the majority of their adult lives listening to Rush Limbaugh et al, but that’s another topic).

I agree that it’s oversimplifying to a degree, but I think he nails an important motivator for what is seemingly irrational behavior. The one thing I’m not sure Delong realizes is that most of these people are actually OK economically. Sure, they’ve lost, or are in danger of losing, their jobs, but they’ve been pretty prudent, and socked away a fair chunk of change, plus they’ve usually paid off their houses, and are either getting SS + Medicare, or are in striking range of it. They can afford to indulge in this sort of behavior, even if they’d rather not have to.”

Beezer.  These explanations for the reactions of various groups are interesting.  But as with any such observations, it’s all opinion.  Tea Party supporters no doubt contain members that don’t fit well into any of the categories addressed here.  We are not uniform, after all.  And even within groups that are easy to identify in the main, under the surface are many important differences.  

Beezernotes is basically a series of narratives comprised from writings across the internet, selected by Beezer.  The point is that very few of these posts are original to Beezer, who’s basic training is print journalism.  It’s reporting, not academic.

Due to the recession, most of the posts deal with the financial world.  This has been the primary narrative of Beezernotes, but not the only one.    This preface is entered just as a reminder about what Beezernotes is, and is not.

That said, there are two sub themes in the financial world, deflation/inflation and trade surplus/deficit, that provide a lot of gist for what’s in Beezernotes and in many other blogs on the internet.  Understanding these two themes is important to understanding the recession.

Economist Paul Krugman, of Princeton, the New York Times and the Nobel Prize, addresses in a very succinct way what’s important to remember when considering these two sub themes.  From a NYT blog post by Krugman:

“One Size Doesn’t Fit …

Many of the reactions to my writing, both in comments here and more generally, seem to be along one of the following lines:

(a) You say devaluation/inflation is good — but how did it work out in the 1970s/Zimbabwe? Hah!

(b) You say Germany is being evil by running a trade surplus — but you praise it in Iceland. Inconsistent!

What such comments betray is a mindset that relies on slogans, not models — or, more kindly, a failure to appreciate that economic policy requires that you pay attention to circumstances.

Thus, on the devaluation issue: devaluation is helpful when your problem is one of inadequate demand, so that an improvement in the cost-competitiveness of your industry can help you expand. It’s not good if you’re suffering from an overheating, inflation-prone economy. It depends on the nature of your unhappiness.

On the trade issue: the world’s problem is that it’s facing a deleveraging shock, in which highly indebted players are being forced to cut spending sharply; what we need is for those not deeply in debt to spend more to compensate. Iceland is in the first category, Germany in the second.

I realize that this isn’t how some understand economics; they want it to be stable prices and free markets, hallelujah and amen. But life, and economics, aren’t that simple.”

Beezer here.  Krugman is a talented, award winning economist who just happens to have the gift of sorting out the chaff and thus reducing what are often complicated dynamics into relatively understandable explanations of events.  Beezer often cites Krugman because Krugman’s predictions of what will happen have been spot on.  Will Krugman always be right?  Most probably not. 

But even when he inevitably falls short, a reader will understand where Krugman has gone wrong because Krugman is understandable.  You don’t need a thorough understanding of differential calculus to follow his reasoning.  And no doubt Krugman will explain his failure as well as he explains his successes.

His post today basically asks that readers keep an open mind and always accept the truth that the world is not a simple, predictable place.  Circumstances need to be understood.  Composition needs to be understood.  And thanks to people like Krugman, sorting out both is explained and, if need be, itemized.

Wonderful Thanksgiving at the Beezer household and, it is hoped, at yours too.  Now on to Christmas!

Bruce Bartlett, domestic advisor to President Ronald Reagan, Treasury official under the first President Bush and Ron Paul (R-Texas) staffer on the House Banking Committee, is not a liberal.

But he’s becoming increasingly critical of his party’s ideology.  In a Fiscal Times article entitled ‘Starve the Beast: Just Bull, not good Economics,’ Bartlett does a good job dismantling and exposing this slogan’s emptiness. 

“It ought to be obvious from the experience of the George W. Bush administration that cutting taxes has no effect whatsoever even on restraining spending, let alone actually bringing it down. Just to remind people, Bush inherited a budget surplus of 1.3 percent of the gross domestic product from Bill Clinton in fiscal year 2001. The previous year, revenues had been 20.6 percent of GDP, spending had been 18.2 percent, and there had been a budget surplus of 2.4 percent.

When Bush took office in January 2001, we were already well into fiscal year 2001, which began on Oct. 1, 2000. He immediately pushed for a huge tax cut, which Congress enacted. In 2002 and 2003, Bush demanded still more tax cuts, even as the economy showed no signs of having been stimulated by his previous tax cuts. The tax cuts and the slow economy caused revenues to evaporate. By 2004, they were down to 16.1 percent of GDP. The postwar average is about 18.5 percent of GDP.

Spending did not fall in response to the STB (starve the beast) decimation of federal revenues; in fact, spending rose from 18.2 percent of GDP in 2001 to 19.6 percent in 2004, and would continue to rise to 20.7 percent of GDP in 2008. Insofar as the Bush administration was a test of STB, the evidence clearly shows not only that the theory doesn’t work at all, but is in fact perverse….”

Beezer here.  Bartlett also addresses a corollary argument this group uses.

“The Moore-Vedder article argues strenuously that tax increases must never be considered no matter how big the deficit is. The reason, based on research Vedder has been updating since the 1980s, is that tax increases always feed the beast, leading to spending increases larger than the tax increase. Originally, he said that spending would rise $1.58 for every dollar of tax increase, leading to an increase in the deficit rather than a reduction. Vedder now says that spending only rises $1.17 for every dollar of tax increase.

By this logic, the tax increase enacted in 1993, which raised the top federal income tax rate to 39.6 percent from 31 percent, should have caused a massive increase in the federal budget deficit. In fact, it did not. Spending was 22.1 percent of GDP in 1992 and it fell every year of the Clinton administration, to 21.4 percent of GDP in 1993, 21 percent in 1994, 20.6 percent in 1995, 20.2 percent in 1996, 19.5 percent in 1997, 19.1 percent in 1998, 18.5 percent in 1999, and 18.2 percent in 2000.

And contrary to another commonly-held Republican idea — that all tax increases reduce revenue via the Laffer Curve — revenues rose from 17.5 percent of GDP in 1992 to 20.6 percent in 2000.

According to Republican mythology, repeated by Moore and Vedder, the budget was balanced only because Republicans got control of Congress in the 1994 elections. But the deficit had already shrunk from 4.7 percent of GDP in 1992 to 2.9 percent in 1994. Budget experts who don’t shill for the Republican Party generally agree that the budget reforms and tax increases of 1990 and 1993 — which were both enacted against strenuous opposition from almost every Republican in Congress — deserve the bulk of the credit for bringing down spending and the deficit with tough budget enforcement rules and higher taxes…….

Starve the beast is a crackpot theory, and its flip side that higher taxes invariably feed the beast is no better. They are just self-serving rationalizations for Republican budgetary irresponsibility.”