Krugman: Welfare State Not To Blame!

Well that's a relief.  The New York Times' Paul Krugman assures us that the welfare state is not at the bottom of the current Euro crisis.  Some countries with big social protection expenditures like Germany are not in trouble, he tells us.  Anyway, back when the Euro was first proposed, a lot of conservatives were for it.



Then there is austerity.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.

Of course, he has a point.  But I would argue the bigger point.  Let us borrow a principle from environmentalism to do this: the Precautionary Principle.



The fact is that modern government pushes the economic system as hard as it can.  Partly the reason is to get cheap credit.  Partly the reason is to goose the economy to get revenues.  Partly the reason is to get out of a jam.  All of this violates the sacred Precautionary Principle, which says that you should know the outcome of technological actions on the environment before you barrel in.  How come that the party of the Precautionary Principle got us into such a jam with its non-environmental policies?  Surely the Precautionary Principle can be applied to all of life.



Instead what we get, every day, is some new subsidy program that just bandages some arbitrary economic wound.



Today is Veterans Day, and we are celebrating a veterans jobs bill that will give businesses a tax credit for hiring veterans.  It passed the US Senate on November 10.  It's nice to help veterans, but it would be better to have a solid stable economy in which all Americans can look for jobs and 9 percent of Americans aren't out of work.



Probably we won't get an economy like that until we have a proper separation of economy and state.  We all worship at the altar of the separation of church and state, although everyone wants his religion endorsed by the government.  Still, one of the defining ideas of the modern era is to separate throne and altar, to divide the powers of force and moral persuasion.  In the agricultural era the condominium of secular and religious power was endlessly abused, and as soon as God died, the idea got reborn in the modern secular religions like socialism and fascism.



Government makes a complete mess of the economy, because government is force and the economy relies on completely different principle: trust, the freedom of employment at will and consuming at will, and submission to the "creative destruction" of the marketplace.



And that is the problem at the bottom of the Euro crisis.  Everyone is busy trying to get the government to support their pet plan.  But if there was any virtue in those "pet plans" they would get funding without the intervention of government.



The current financial crisis represents the bonfire of the pet plans.  Some of them are subsidy plans like Fannie and Freddie.  Some of them are due to unaffordable pension and health care plans.  Some of them are just bad luck.



But there is no excuse for any country to have a National Debt over about 20 percent except after a bruising war.  A big National Debt is just asking for trouble.  And it will come.

It's the Freeloading, Stupid

It seems so stupid the way that tin-pot dictators screw up their nations' economies.  Don't they get it that debt default and inflation cause untold misery to millions?

Megan McArdle recalls how she, as an economics writer, used to rail at the Third World:

And the other journalists and I would cluck our tongues and say "Why can't they do the right thing when it's so . . . bleeding . . . obvious?"

Well, now we start to get it.  It's all too easy to for politicians of any stripe to hand out promises and goodies to their supporters.  The problem comes later on when the bill comes due and the supporters start to get really angry, and refuse to admit that their freeloading benefits have got to go.  Cue Greece, Italy, California, and now Ohio.  When voters get really angry, the politicians bolt.



If you want to know how things will develop, a good example is Vallejo, California, which recently emerged from three years in bankruptcy.  Here is the report from the liberal Huffington Post.

In an article on the state of California's legendary fiscal troubles, Vanity Fair scribe Michael Lewis pins the blame for the city's economic woes squarely on public sector pensions. "Eighty percent of the city's budget—and the lion's share of the claims that had thrown it into bankruptcy," wrote Lewis, "were wrapped up in the pay and benefits of public-safety workers."

At present the courts have been reluctant to cut public pensions, so the cuts will fall elsewhere.  There will be spending cuts and the firefighters are getting a new lower pension deal.  But here is the kicker:  "some creditors [will be] only getting back as little as five percent of the full amount they are owed by the city."



That will probably be the pattern.  A lot of spending cuts in jobs and libraries.  Some public employee give-backs.  And a real haircut to the creditors.



Call this the battle of the freeloaders.  Freeloader public employees want their pensions and health care. But the number of public jobs is going to go down.  Seniors demand their entitlements.  But they are taking a haircut in low interest rates on their savings accounts and facing a haircut on their bonds.



We are humans, social animals.  We can do better than that.

Blue Splitsville?

Our liberal friends are quick to detect splits in Republican ranks, particularly between the kind of Republican they like--the moderate, compromising kind--and the kind they don't--the social conservative kind.



Now Walter Russell Mead has unearthed a split in the Democratic ranks.  It has arisen in a police corruption case in New York City.  The folks at The New York Times are shocked, shocked that police out in the Bronx have been fixing tickets, and worse.  They were even more shocked when police, prompted by their union, demonstrated outside the courthouse where the accused ticket-fixers were being tried.



But here is the kicker.  Across the street from the courthouse was a welfare office, and the welfare recipients jeered at the cops: "Fix our tickets!" they cried.  Not to be outdone, the cops returned the compliment. "EBT! EBT! EBT!" they chanted.  "EBT," for you innocents, is the way that food stamps and the like are distributed electronically these days.



The fact is, Mead tells us, the folks in the Democratic coalition don't like each other.  The cops hate the welfare cheats, especially the way that they are not allowed to really police the poor, and the welfare chappettes obviously have hated police brutality since the invention of urban police forces.  The relation between the public service workers and the goo-goo liberals is interesting.  You might say that the liberals fill the pockets of the public union workers with cash to shut their mouths.  Scratch a policeman, a teacher, a welfare worker, a health worker, and you'll hear war stories of the scum they are paid to baby sit.  You need good money to put up with that and not actually do anything about it but just sit there saying "yes, sir, no, sir" to your liberal masters, never knowing what crazy twist they will introduce into the care of the poor next week.



One underappreciated component in the Democratic coalition is Wall Street.  The Wall Street guys are the middle-men that provide the cash for the welfare state in the form of bonded indebtedness.  Every public official needs a good relationship with his banker, and vice versa.  So it's a bit shocking that the young libs in the Occupy movement are blaming Wall Street.



Of course, there's a reason for that.  The young skulls full of mush actually believe the line that their liberal daddies give them about evil Republican fat cats on Wall Street.  They are too dumb to realize that all the bankers are Democrats.



Still, it's important to realize that all these people that hate each other, and are united only in their pursuit of money--taxpayers money.  That is why Democrats talk about nothing but revenue increases.



Unfortunately the money has run out, and so the folks in the Democratic coalition won't be getting the full amount they have in mind in the future.  There is every prospect that they will start to fight amongst themselves over the diminishing spoils.



No need to discourage that.

Movements, Crowds, and Obama

Everywhere we look we see movements, writes sociologist Peter Berger.  But what is a movement?  It is a crowd, but a special type of crowd, for "A movement is the preservation of a crowd experience over time."

But what is a crowd?  Quoting Gustave LeBon, Berger defines a crowd as a collective event, and

a crowd creates a sort of collective mind, which is impulsive, impervious to reason and potentially murderous. Put in different terms: The crowd is inherently de-individuating, dismantling the moral restraints of civilization and reverting to a primitive state of unquestioned solidarity. There is a lethal progression from crowd to mob to lynch mob.

 We can see the proto-crowd in the great apes and early humans.

Chimpanzees, our closest anthropoid relatives, engage in group dancing if faced with danger. So do tribal warriors as they go into battle... The individual surrenders his separateness to the sacred unity of the group, an experience often including possession by a divine being.

So it is with modern crowds and movements.  Berger isn't too pleased with this, and he doesn't like the Tea Party or the Occupy movement, preferring the "vital center, spread across the two major political parties, thus marginalizing the extremes to their right and left."  No doubt, and in this vital center, of course, the intellectual elite gets to call the shots.

But the point to get from this is that when any social animals experience themselves in danger they form into crowds, for in dangerous times you need to surrender some or all of your individuality for the benefit of the whole.  That is what happens in armies, and any fighting unit. The individual must be persuaded to accept his own death or injury in the process of fighting for victory, for if every individual thought only of his own safety, an army would dissolve when the first shot is fired.

The Tea Party spontaneously formed as conservative Americans sensed danger immediately upon the election of Barack Obama.  They came together in crowds, and formed a movement to "preserve that crowd experience over time."  That movement helped cause the big 63 seat change in the US House of Representatives in 2010.

The Occupy movement is a similar movement on the left.  Its members feel danger in the threat of budget cuts, so they are crowding together to find the collective courage to oppose them.  They have chosen Wall Street as the symbol of their fear.  Walter Russell Mead writes that it is curious that the Occupy folk see Wall Street as the enemy, since Wall Street is as vital an element in the blue Democratic coalition as the goo-goo upper middle class, the public sector union employees and the welfare beneficiaries.

The trick, of course, is for your movement to be effective.  If it progresses immediately into a lynch mob then it may provoke opposition from another movement.  If it is too individualistic it may not accumulate the collective power to make changes.

The reason that the United States is dividing into two opposing movements is instructive.  It is because the current ruling class, the "vital center," has failed to govern well.  It has failed to moderate the demands of conflicting movements and interests to a level that can be comfortably afforded by the overall society.  Thus the United States is dividing into two extremes that feel profoundly threatened by the other.

President Obama seems to be doing his darnedest to accelerate the process.

Klein's Obamanomic Lament

Young Ezra Klein is a coming man in LiberalLand, and so he's the chap The New York Review of Books selected to push back on Ron Suskind's White House tell-all Confidence Men.





Take an Obama announcement in September 2010 where Treasury Secretary Tim Geithner was "looking sheepish," according to Suskind.

So I went back to the tape... I paid special attention to Geithner. Suskind’s right: his suit is too big. But he doesn’t look sheepish or ashamed. He looks, by turns, bored and interested. He clasps his hands behind his back. He nods attentively. He tries not to fidget. He looks like every experienced bureaucrat looks when they’re asked to stand like a prop near the president. Blank, and trying not to make any news. He failed.

OK, so we liberals can ignore Ron Suskind.  But Klein has bigger fish to fry: the failure of Obamanomics.  What went wrong?  It wasn't the clash of the "confidence men."  It was political reality.  Theoretically, if your program isn't big enough to turn the economy, you make it bigger.

If the initial stimulus is too small, you make it bigger. If your housing policies are too modest, you toughen them up. If the private sector sheds jobs and long-term unemployment becomes a problem, you begin hiring workers directly.

Sound great, but this ignores political reality.  The reality is simply that there is no way that Obama could have got a bigger stimulus through Congress.

When Obama angrily dismisses Romer’s umpteenth argument for more stimulus, it’s not because he disagrees. It’s because he can’t get it passed. “Enough!” Suskind quotes him as shouting. “I said it before, I’ll say it again. It’s not going to happen. We can’t go back to Congress again. We just can’t!”

And then there is Ben Bernanke; he's too "timid."  A more activist chairman could have goosed QE2 with a bigger boost.

This raises the question of whether the Obama administration made a mistake in reappointing Bernanke. If it had managed to install a more activist chairman at the Federal Reserve, then its inaction might have been more effectively offset by the Fed’s actions.

 Of course, what Klein doesn't do is question the caloric content of the Keynesian menu.  Suppose "stimulus" is just empty calories that leaves the economy hungry after a quick sugar high? Then a bigger stimulus wouldn't have made a difference.  Suppose that Fed easing just feeds through into inflation.  Suppose that supporting the housing market just puts off the inevitable need to clear the overhang of underwater mortgages?  Klein doesn't even consider that.



The reason the Republicans oppose the Obama economic menu is that we believe that Reaganomics showed that Keynesian fiscal and monetary stimulus isn't nutrititous for the economy.  When you have a big crash the Reagan menu says you need to cut government spending and lower tax rates and reduce government regulation.



The Obama menu says you should fatten up on subsidies to Democratic client groups, get ready to raise taxes on the rich, and boost government regulation on energy and health care.



Young Ezra Klein never even begins to wonder if that kind of food is economic poison.



But don't despair.  Ezra Klein is young.  But surely he is smart enough to know the difference between science and pseudo-science.  When he has reached the age of wisdom.

Good News on Employment

For donkey's years, we have concentrated on the Unemployment Rate as the measure of economic wellbeing.  But the Unemployment Rate has always been a problem.  As right now.



The Unemployment Rate today declined from 9.1 percent to 9.0 percent.  More of the same, it seems.  But if you look at the BLS Household Survey you see that employment has been rising solidly for three months in a row.  Here are the numbers.

Month	Employment (000s)	Change (000s)
Jul	139334
Aug	139296	-38
Sep	139627	331
Oct	140025	398
Nov	140302	277

There are no two ways about these numbers. They are good numbers and show that there is solid increase in employment in the economy.  So why has the Unemployment Rate stayed so high?  The reason is that the labor force is also increasing as more people start to look for work.  Here are the numbers.

Month	Labor Force (000s)	Change (000s)
Jul	153421
Aug	153228	-193
Sep	153594	366
Oct	154017	423
Nov	154198	181

The Unemployment Rate is the employment level divided by the labor force. If both employment and labor force are increasing at the same rate, in this case by about 300,000 per month, then the Unemployment Rate won't change.



There is more good news here.  Our friends in the mainstream media will doubtless soon find it necessary to tell us the good news.  In the past, in the early 1970s, early 1980s, and early 1990s, recessions and recoveries usually occurred during Republican administrations, so the MSM was delighted to put the worst face on the economic numbers.  But now that a Democrat is suffering from bad economic numbers things must change.  And the best way to do it is to show that the solid increase in job numbers is good news that is more important than the continuing bad news in the Unemployment Rate.

Freeloading: What We Give for Free

The big problem for humans as social animals is the question of free ridership.  For nothing destroys social cohesion like freeloaders.

We have seen how human societies deal with freeloading: through government force, through the notion of divine justice in religion, and through the free choice in economic relationships.

In fact though, society actually encourages the freeloading of people who aren't doing well.  We have a variety of ways of talking about this: helping the less fortunate, feeding the hungry, reaching out to the poor.  There is clearly a suspension of judgment.  Never mind how the poor got to be poor, let's just help.  Judgment, if any, is on those expected to help.  It is considered a moral failing not to help.   Judgement is not canceled; it is merely suspended.  It reappears as soon as we start to differentiate between the deserving and the undeserving poor, as George Bernard Shaw did so cunningly in Pygmalion.


In the abstract, we all sit around and wonder why we all can't just get along.  Noam Chomsky, famous leftist, told the Occupy Boston folks that they should "Occupy the Future."  Said he:

The Occupy outposts are trying to create cooperative communities that just might be the basis for the kinds of lasting organizations necessary to overcome the barriers ahead and the backlash that’s already coming.

The thing is, Noam, that everyone is in favor of cooperative communities.  That is what "human society" means.  The problem comes in the next moment.  For instance, your cooperative communities seem to be having a real problem with crime and pilfering.  Not to mention sexual assault.  According to reports the Occupy folks are investigating and dealing with these problems on their own without referring them to the police.

Earth to Noam.  When communities deal with crime without the police it is called vigilantism.

The whole idea is that government has a monopoly on force.  If someone has broken the peace, by sexual assault or by theft, then the peace forces are the only chaps supposed to deal with it.  It's called due process.  Law enforcement without the government leads to lynching.  And so on.

In other words, the newly created "cooperative communities" are already having to deal with the free-rider problem.  And one of the ways of dealing with freeloading is with force.  When force is needed you call in the government.

Years ago, a communications engineer told me that when a electronic communication works, that is a non-problem.  The whole point of communications protocols is to deal with cases where communication has failed.  The same is true of human society, or "cooperative communities."  What do you do when things go wrong?

One way that things can go wrong is that someone commits a sexual assault on another person.  WHen that happens you call in the police.

Another way that things can go wrong is when Democrat banker Jon Corzine bets the firm on Eurobond default and bankrupts the firm MF Global.  What do you do then?  Call in the government's bankruptcy court.

As soon as things start to go wrong, then the question of being free to do what you want and collaborate in communities any way you want comes into question.

Now it is obvious that the Occupy folks don't want to have government getting in the middle of their community affairs.  That's natural.  We capitalists don't like the government getting in the middle of our capitalist acts between consenting adults either.

But at some point, the freeloading has to stop.  We give freely to others.  Up to a point.

The point at which the freeloading has to stop is what we are all arguing about.  It is called politics.