Monday, August 19, 2013


When I hear people complaining about government welfare, my immediate question to them is "what government program are you talking about?" There are many federal programs that can be considered welfare; for example Medicare Part D is welfare for the pharmaceutical industry. Every single time I have asked that question, the person is unable to name the federal program they are talking about. Food stamps? Not really welfare. They are in-kind benefits that are intended as a counterciclical economic program more than anything else. What people usually talk about is a program called Temporary Assistance to Needy Families, or TANF. Contrary to perceptions of an out of control welfare state, the annual TANF appropriation was capped at $16 billion dollars in 1996, and has stayed the same since. It is available only to those who are working or engaged in "work like activities." Although TANF checks are small, the program is very effective at eliminating extreme poverty. No one on TANF is living a life of luxury, contrary to Ronald Reagan's Alzheimered rants on the subject. 

TANF makes an investment in a more stable and productive workforce. This is something we should all want for our country. The fact is a majority of welfare recipients are single women with children, foster children, or children being raised by aunts/uncles or grandparents.  Hardly creating a "culture of dependency", TANF benefits, even small ones, can give children and their families the stability they need to be more productive in the future. As any parent will tell you, an investment made into a child is the best one possible. It has the best bang for the buck. 

So I’m proud to live in a country that provides poor and middle income children and their families with some supplemental income, some food assistance, access to early childhood education, reduced school lunch. What could be better for a child than food and books? This is really common sense, and all the science agrees. Research shows that children raised poor are more likely than not to stay poor, and those that are in families that receive assistance do significantly better than those that don’t. 

And we only spend 16 billion on the federal level and another 15 or so from all the states put together. This is 30 billion, or about 1/500th of America’s GDP. So when Repubs say that 1/500th of our nations wealth that is invested in poor children is too much, that we need to cut, and cut, and cut spending, and add eligibility requirements; that is a cruelty that I simply cannot comprehend. And for what? To get savings maybe totaling the cost of a dozen F-22 fighter jets? Just allowing that thought to cross my mind sends chills down my spine. Is that really where we are as a country? That we are considering cutting these crucial programs? Nothing could be more penny wise and pound foolish.

Saturday, August 10, 2013

Economics is a Dirty Job, but Mike Rowe shouldn't do it

One of the worst "zombie economics" (thanks to PK for that gem) ideas out there is that the current unemployment crisis is due to "structural unemployment", or some chronic flaw in the American economy where workers are not trained or available to fill open jobs. This is one of those ideas that despite having absolutely no empirical support, and having been disproven over and over again by professional economists, refuses to die and keeps trudging alone, eating the brains of innocent people along the way. This is a common theme among the pseudo-economists and media talking head flacks. Even Mr. Dirty Jobs himself, Mike Rowe, went on Bill Maher last week to dispense his anecdotes about how "there are tons of jobs out there that kids these days dont want to do because they are spoiled and lazy" etc. If structural unemployment were a real problem, there would be some sort of macro data to support it, such as rapidly rising wages in the sectors that were struggling to fill job openings. In the total absence of such data, all that remain are the folksy anecdotes of people like Mike Rowe. God help us if 21st century American policymaking is based off anecdotes instead of empirical data.

These people insist that the American workforce is hopelessly unprepared for the modern economy, despite the fact that we remain one of the most productive, efficient, and highest educated workforce's in the world. The problem is aggregate demand, not enough spending in the economy, pure and simple. As Warren Mosler likes to say, unemployment is simply the evidence that the government deficit is too small, and can be easily cured by a large tax cut or spending increase. If the government does not spend enough to cover the tax liabilities that it imposes on the country, combined with the net savings desire of the private sector, unemployment will result. If the private sector is net saving, as it usually does, that savings is unspent income, which means that some amount of goods and services will go unsold, leading to unemployment. Its really that simply folks. There are some times when the private sector can spend more than its income (go into debt) to support full employment even when the government is in surplus. However this is rare and unsustainable, as evidenced by the Clinton surplus and subsequent stock market crash. This also happened to a lesser extent in the Bush years; although Bush did run deficits, they were sufficiently supplemented by the housing bubble, so unemployment remained fairly low.

As far as I can tell, these complaints about structural unemployment, are themselves the product of insufficient demand. When the economy is slack, what minor structural problems may exist become more acute, and thus win the attention of the talking heads. However if we are constantly focusing on workforce issues, we take our eye off the ball of aggregate demand. As I have said before, if the jobs are there, the skills will follow. This is how healthy economies usually work. In fact, if you believe in the efficiency of markets, as I do to some extent, structural unemployment should never really happen at all. What really bugs me is that these claims of structural unemployment serve to let bad economic policy makers off the hook. Even worse, all these talking heads are effectively blaming American workers for being inadequate, when it was really the reckless behavior of Wall Street, and the idiotic responses of Washington policymakers, that actually led to these 5 years of weak growth.

Aggregate demand is the momentum with which structural changes can be made. There is an order of things: first you get the economy going, then you change its structure. Its like pulling on the steering wheel of a car when the engine is off; without forward movement you cant change the direction anyway. From now on, Mike Rowe should leave econ to the experts, and stick to shoveling shit and doing Ford commercials.

Tuesday, August 6, 2013

Deflating inflation

Perhaps an area where modern monetary economics could grow into is about what to spend money on. For example, I think there is tremendous opportunity in making the argument of how our massive military spending does not cause inflation. We now spend over a trillion dollars a year on military, defense, and national security related items. This "welfare state for engineers and computer geeks" is money spent by the government that does not result in any commensurate production of goods and services to absorb to the new spending. Most of what this spending creates are intangible items such as "security"; what physical items it does produce are mostly either consumed abroad (bombs and bullets in wars), or not really used at all (ships, planes, all the other array of high-tech vehicles that we pay millions to design, billions to produce, whiz around the world a few times and then dump in the New Mexico desert). Then, when we spend trillions to pay all the millions of DoD, CIA, NSA, and DHS employees and their contractors, they take this money and use it to consume other goods and services in the American economy, without having produced any of their own for other people to consume. So at least half of what the federal government does is produce low-utility military surplus, and even this does not produce much inflation!

This gives you a sense of how truly large the American economy is, and how much more domestic spending we could be doing. In fact, if anything domestic spending would produce even lower levels of inflation than defense spending, because unlike defense spending, domestic spending does produce a commensurate increase in goods and services for its new dollars to consume. Some government investments, especially infrastructure and education, have enormous returns in the form of future efficiency and productivity. So as long as the new money spent by the government (injection of Net Financial Assets, or NFA) is accompanied by an equal increase in the amount of goods and services available for consumption, there will be no inflation!! In fact, because the modern American economy is so efficient, it may be possible for the money supply to increase, and the price level to actually stay the same or go down! Ha! Take that gold buggers!

Monday, August 5, 2013

Skills gap

While learning skills in college is important, the fact is that skills become obsolete. And in the 21st century, skills are becoming obsolete and an ever increasing pace, and many who are currently in the workforce are struggling just to keep up. Where jobs skills should be taught is in the workplace: by the employers, by the guild, or in an apprenticeship. That way once you have a job you have somewhere to go to update your skills without paying some outrageous tuition cost. This also helps to avoid having to make the blind leap across chasm between graduation and entering the workforce. Labor unions, before being systematically destroyed by Neo-liberal policies of both Republicans and Democrats since 1980, used to play this crucial role in the economy. Now, with unions mostly gone, every man is left for himself, to take on the financial burden of a higher education, and just blindly hope that a remunerative job somehow results.

College is really about learning how to think, because that can never become obsolete. Learning about the patterns of human nature through study of history, literature, art, philosophy, or psych/soc is invaluable. This teaches people to think differently, to ask why, to question norms, and to be suspicious of power. Any society that hopes to survive long term needs a healthy population of citizens who can think in this way. 

And when it comes to the labor market, I think Americans have comparative advantage in the humanities. Other cultures (East Asians) are very good at learning rote, mathematical, and technological skills, and for the foreseeable future are willing to put these skills to use for very low wages. But knowing how to think is not their forte, since they have seemingly tossed aside their philosophical heritage (Tao, Confucius) to instead acquire the technological skills that modern capitalism demands of them. We Americans should know better.