The Ascendency Of Magical Economic Thinking In The Democratic Contest

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  • It is not difficult for me to articulate an honest argument for the progressive position. In brief summary, it goes something like this: The government is the right vehicle to provide enhanced social services to the less fortunate, and therefore the government must impose an appropriate amount of increased costs on the productive sector of society in order to fund a more generous level of government services than we currently have.

  • And then there is the dishonest argument, which can be summarized as: Costs? What costs? Vast new taxes and corresponding government spending will create a gusher of economic growth and new wealth out of thin air.

  • With all the leading Democratic candidates for President proposing greatly increased federal taxing and spending, it was only a question of time until this magical thinking came front and center into the political debate. And sure enough, it’s now here in full force.

  • But that’s not how this works. Which brings me once again to Elizabeth Warren. She’s the one with the endless list of some 50+ “Plans,” each one of them promising some large new government spending and bureaucracy and/or taxation to grow the compulsory sector of the economy. There will be vast new spending . . . . Clearly, the costs will be large. How could they not be?

  • The answer is simple: You simply announce that each of your new programs will “grow the economy.” And of course you then find that there is an extensive network of left-side journalists, intellectuals and pundits who will buy into this idea and repeat it endlessly, no matter how ridiculous it may be. . . .

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On The Promise Of "Green Jobs"

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Sometimes it seems like the biggest selling point advanced in favor of “renewable energy” is the promise of what are called “green jobs.” What are those? Proponents are often vague, but I suppose that the green jobs largely consist of the work of building, installing, and maintaining the vast future farms of windmills and solar panels, and related infrastructure like transmission lines. Since most of these jobs involve some combination of strenuous labor in remote areas and/or a high level of skill, of course they will be very high-paying jobs. Millions of them. What’s not to like about that?

President Obama was an early arrival at the “green jobs” party, tossing out a “plan to create 5 million new green jobs” as part of his 2008 presidential campaign. (Politifact in November 2016 struggles to figure out how many of those jobs ever got created, and if so, where they may be.) You won’t be surprised to learn that Obama’s ideas pretty much all consisted of some variety of government subsidies, programs, mandates, tax credits, “investments,” expenditures, and the like, e.g., a new “job training program for clean technologies,” a new federal “renewable portfolio standard” to force utilities to switch to wind and/or solar generation, extension of the “production tax credit” for wind and solar, and so on and on.

More recently “green jobs” promoters have further upped the ante. In January of this year, Francie Diep of Pacific Standard quoted the Center for American Progress as predicting that a federal “investment” of just $800 billion per year (!) toward cutting carbon emissions to zero would create 6.8 million net new jobs. Meanwhile, the International Labor Organization (part of the UN) put out a study in 2018 predicting that implementation of the Paris Climate Agreement would create some 24 million “net” green new jobs worldwide by 2030. It all sounds like a near-infinite bounty of new wealth.

Do you spot the fallacy here? . . .

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Two Alternative Approaches To Fundamental Economic Policy. Which One Works?

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The mid-term elections are upon us. Time to recognize once again that there are two alternative approaches to fundamental economic policy, and that one works while the other does not. For most of my life, both political parties opted to advance the approach that does not work. Today, that is much less true.

There can be many details and nuances to economic policy, but here I am talking only about the one big overriding fundamental issue, namely, which is better for economic success and prosperity: higher taxes and bigger government, or lower taxes and smaller government? They are opposites, and they can’t both be right. Today, the Republicans, and President Trump, whatever else you might think about him, are (mostly) advocates for lower taxes and smaller government. The Democrats are universally advocates for higher taxes and bigger government, although not all of them go to the same levels of extremism.

We’ve just been through a big real-world experiment to test the two competing theories. . . .

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Some Fun With Paul Krugman Quotations

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Now that Trump-era U.S. GDP growth has reached the 4.1% level according to the Bureau of Economic Analysis, shouldn't we go back and review a few choice quotes from Official Manhattan Contrarian Worst Economics Writer Paul Krugman?

It's been a long time since I've done any Krugman-bashing.  And why should we waste much of our valuable time on a guy who is so overcome with anger and invective that he has become a self-parody?  The answer is, occasionally you need to compare his prognostications to the real world to see just how wrong it is possible to be.  The operative word here is "occasionally."  I promise not to do it again for a while.

But anyway, if it's been a long time since you have read anything by Krugman (and I hope it has), it may be fading into the recesses of your memory that he devoted considerable energy during the Obama presidency to excusing sluggish economic performance as having nothing to do with Obama or his policies.  Slow economic growth had nothing to do with Obama's overall hostility to successful businesses; nothing to do with expensive increases in unproductive regulations; nothing to do with the war on fossil fuel energy and coal; nothing to do with corporate tax rates that were uncompetitive in the international arena; nothing to do with dozens of phony prosecutions and shakedowns of financial institutions; nothing to do with wasteful spending and debt accumulation; nothing to do, in short, with what I described all the way back in 2013 as Obama's "War Against The Economy."   No, instead, slow economic growth was just the "new normal," a natural state of late-stage capitalism that was completely inevitable and just had to be endured -- or perhaps ameliorated a little by the preferred prescription of a blow-out round of entirely wasteful government spending.

You don't believe me that his predictions could have been so bad?  Then I'll give you a few choice quotes. . . .

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Is Portugal Experiencing A Surge Of Growth Caused By "Casting Aside Austerity"?

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Is Portugal Experiencing A Surge Of Growth Caused By "Casting Aside Austerity"?

I'm getting to this one a little late, but last weekend the New York Times had one of those big economic stories that just cried out for checking into the real data.  Here are the headline and sub-headline:  "Portugal Dared to Cast Aside Austerity.  It’s Having a Major Revival.  At a time of mounting uncertainty in Europe, the country has defied critics who insisted on austerity as the answer to the Continent’s economic and financial crisis."  Do real data actually back up this narrative?

Before getting too far, we should have a review of the defined term.  What is "austerity"?  From my post of August 18, 2013 ("The Horrors Of 'Austerity,' Singapore Edition"):  "[T]he term "austerity" is a befuddled Keynesian mixture of low government spending and taxes sufficient to cover all spending."  I've never understood why, in the progressive press, the alternatives for economic policy get divided between lower spending/higher taxes ("austerity") on the one hand, and higher spending/lower taxes ("stimulus") on the other.  What about lower spending/lower taxes?  You never hear about that one.  As my 2013 post noted, Singapore has long been the world champion of the combination of both low taxes and low spending, which have been accompanied by decades of world-beating economic growth, prosperity, and low unemployment.  (Singapore's GDP per capita is approximately equal to that of the U.S.)

So what does the Times have to say about Portugal?  

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Inside The Ignorant New York Times Echo Chamber

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Yesterday, the New York Times ran an article reporting on the goings on at EPA as the agency moves toward rescinding the Obama administration's regulations aimed at controlling the weather by tripling your cost of electricity.  The headline was "Trump Takes a First Step Toward Scrapping Obama’s Global Warming Policy."  Lede:

The Trump administration will repeal the Clean Power Plan, the centerpiece of President Barack Obama’s effort to fight climate change, and will ask the public to recommend ways it could be replaced, according to an internal Environmental Protection Agency document.

I noticed that there were a couple of hundred comments on this article, so I decided to take a look.  This was quite a revelation.  Of course, the comments ran about 30 to 1 negative to what EPA is proposing to do; but I expected that.  And of course, many of the comments had a high degree of anger and vitriol and name-calling in them; but I expected that as well.  No, the revelation was the extraordinary extent to which the commenters at Pravda show themselves to be completely ignorant and uninformed on the issues relevant to the debate.  But then, these people rely on Pravda as the principal source of information on this subject.  I guess I should not have been so surprised.

For example, a substantial number of commenters had somehow gotten the impression that implementation of Obama's Clean Power Plan would be an effective measure toward staving off a catastrophic global warming.  For example, we have this from "Austin Al":

The planet is cooking, so strong actions are necessary to reduce greenhouse emissions. Going backwards is not the answer. We need to cooperate to insure survival of the species, apparently Mr. Pruitt doesn't get it.

Or, from "winthropo muchacho" of Durham, NC:

The power industry knows full well the consequences of continued unabated carbon emissions to the atmosphere and deliberately chooses profitability over the health of humankind and numerous other species threatened with extinction.  It's that simple.  

From "RLW" of Chicago:

To all of you out there who have children and grandchildren, be aware. This Trump presidency is on the way to destroying the planet for your grandchildren and all who follow.

From "SR" in the Bronx:

[T]heirs is a homicidal streak, that will roast us all in a stormy cauldron of hurricanes, ozone, and CO2 that no witch trio would want.

OK, NYT readers: Do you have any idea how the CPP is supposedly going to stop the "planet" from "cooking" and avoid "roasting us all" and "insure the survival of the species"?  The CPP has as its goal the reduction of greenhouse gas emissions from the U.S. electric power sector by about 30%.  The electric power sector is about 40% of U.S. greenhouse gas emissions, so the overall reduction in U.S. emissions from this regulation, assuming that it is fully implemented and that it completely works as intended, is about 12%.  Can we please calculate how much global warming by the year 2100 will be avoided by this reduction?  If you think that the whole "GHGs cause global warming" thing has not been proved and is a scam, your answer will be "zero."  But I ask you to assume for purposes of this question the accuracy of the worst-case models used by the U.S. government associating GHG emissions with increasing world temperature.  

Patrick Michaels and Chip Knappenberger at Cato undertook that exercise when the CPP was announced back in 2015.  For their calculations, they used the government's own model, known as MAGICC.  The results:

The EPA’s own policy analysis model, called MAGICC*, tells us how much global warming will be prevented by the new plan:  0.019°C by the year 2100 (based on procedures similar to those we detailed here).  That’s the amount of temperature change a person will experience in about every second of life. It is simply impossible to detect this change in any global temperature history.

Even that is an overestimate of the actual impact of the plan.  The EPA has also published a “base case” which includes emissions reductions expected from existing state and federal regulations.  The difference between the plan and the base—i.e., the future temperature savings directly attributable it drops to 0.009°C—let’s be generous and call that 0.01°C. 

Yes, this whole thing is to avoid 0.01 deg C of anticipated warming.  Frankly, it's pathetic.  No world temperature measuring system in existence or conceivable could even measure if such a reduction of previously-anticipated warming (over nearly a century!) had been achieved.  Of course, you can scour the archives of the New York Times, and you will never find this information.  

And how about the economic impact of the CPP?  The whole idea here is to force premature closure of a few hundred perfectly functional power plants running on coal and oil, and their replacement with new sources, many of which will be much more expensive and intermittent solar and wind facilities.  It's impossible to put a precise number on the costs, because the CPP leaves it up to states and utilities how they will respond to the new strictures.  But it's hard to imagine that the costs could be less than several hundred billion dollars.  These costs will go into your electric bill.  Is there any possible way that this could be anything but a gigantic negative for the American household?

Well, here is how a few commenters at Pravda view the economics.  From "leptoquark" in Washington:

It's so sad that Trump et al. would cede the enormous economic opportunity available in cleaning up power generation. He, and the GOP, can't hold back the country forever, though. At least the dam seems to be breaking on electric vehicles.

So in leptoquark's calculus, spending hundreds of billions to replace cheaper energy with more expensive energy is "ceding an enormous economic opportunity."  From "Jim" in California:

That the Trump-Pence administration, claiming to possess keen business acumen pursues a fiscally idiot policy of pouring funds into high cost coal energy is beyond idiotic.

Jim has somehow got the idea that EPA is proposing to "pour funds into high cost coal," rather than simply rescinding regulations that restrict coal.  From "Blue Moon" in Old Pueblo:

China will pick up the slack by developing green energy alternatives; the U.S. will be left behind. China will wind up being the key in staving off global warming and climate change . . . .    

It's the old theory that the way for the people to get rich is for the government to waste as much money as it can as fast as it can.  Where did we learn that economic theory?  Oh, I remember -- Paul Krugman!  But here's the news for Blue Moon:  while China is putting out press releases about some Potemkin village wind and solar projects, what it is actually doing is flooding its own territory and the world with coal power.  

They read their Pravda every day, and they think they know what is going on in the world.  Sad.