By James K. Galbraith, Professor of Government/Business Relations at the Lyndon B. Johnson School of Public Affairs, the University of Texas at Austin. His most recent books are Inequality and Instability and The End of Normal
Here is a brief summary of the state-of-debate over the Sanders economic program and the growth projections made by Professor Gerald Friedman.
Major points
1) The growth projections have no bearing on the desirability of Sanders’ program, which consists of major structural reforms in health care, education, and public investment, in public governance and in the distribution of the tax burden.
2) The original mudslinging by four past Chairs of the Council of Economic Advisers was based on nothing, except that Friedman’s growth numbers looked high. No analysis preceded that claim.
Lesser points
3) The Romers believe that the economy would recover along a baseline track, irrespective of whether there was stimulus or not.
4) Jerry Friedman probably does not believe this, but is working in the Keynes tradition of underemployment equilibrium, according to which one-time changes in the scale of public activity generate permanently higher levels of output and employment. This is consistent with the view that the New Deal and WWII ended the Depression, which did not return after the war ended.
5) There could be a “math error” in the Friedman paper; if so it should be acknowledged and corrected. But the Romers’ main complaint is a point of theory, which holds, in their words, that “temporary spending could cause a temporary boom, but its effect on the level of GDP a few years after its end will be, to a first approximation, zero.” This is a point of theory, and it is not holy writ.
6) A counter-example may be helpful. Suppose a temporary jobs program establishes an employment history and income stream for a household, sufficient to make them “creditworthy” going forward, when they weren’t before and would not have been otherwise. In that case, the higher level of activity initiated by the public program devolves upon and can be sustained by the private sector afterward; you don’t return to the prior status quo even though the public program comes to an end.
7) As a matter of history, the effect of forced saving under price control in WWII on household balance sheets worked in this way. During the war there was far more income than could be spent on civilian goods at current prices. Since price controls forestalled inflation, households had a strong incentive to buy and hold Series E or “Victory Bonds.” After the war, these bonds served to anchor the financial standing of American families, and therefore helped lay the foundation for postwar growth.
8) The return to fiscal balance over ten years in the Sanders program as it stands would probably produce a drag on growth. There may also be other bumps-in-the-road that would have to be dealt with as time goes on.
9) Returning to point (1): these matters have no bearing on the desirability of Sanders’ program.
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Which reminds me of a new word I learned recently;
Hysteresis, which among other things relates to the fact that the damage done to local economies will not be automatically reversed, and return to ‘normal’ by eliminating the source of the damage.
For instance, all those Wal-Mart stores being closed will not result in the sudden revival of the small businesses driven out of existence by their Wal-Mart’s arrival.
Hysteresis is one of the reasons that Sanders plan, or something very much like it is necessary, because decades of neoliberal policies have so damaged our economy, that no ‘adjustment’, no matter how clever will revive it, and any change significant and effective enough to do so will appear revolutionary by definition.
Please pardon a deep dive down a tangential rabbit hole, but when I see ‘hysteresis’ I start to salivate:
hps.cam.ac.uk/whipple/explore/acoustics/lissajoustuningforks/
Sorry, you’re going to have to drop a few more crumbs if you expect me to pick-up that trail.
I’m deeply ashamed.
hysteresis – Lissajous – memristor.
(Your life will not be probably not be measurably better or worse if you don’t follow the trail. However, memristors were predicted from inspection of a chart, similiar to the periodic table of elements. That’s a win for contemplation. The use of memristors is projected to revolutionize computing. And, nature being utilitarian, I expect discoveries in neurology when we get the tools to test with.)
Hey guys, – reality bites-
Thanks to GATS, TiSA, GPA, and so on, Example:
http://www.iatp.org/blog/201602/obama-undermines-climate-efforts-in-solar-trade-dispute
Gov. spending now has to be globally bid,
no more New Deals!
-Your pal,
WTO
Steve H – Fun reference to particle physics at the end of the day. Still have on my list to buy or build a tetra harp to feel some new vibrations.
Dont expect much application of physical science to political science in the short or medium term. It is the cult of personality cycle in its crescendo.
Now back to the article. I do not think you can rapidly replace losses create by corruption easily. The rule of law must be enforced with all classes not just the middle or lower for stimulus to succeed.
A goal is useful too that all relate to. Operation Eternity has a nice ring to it, but no lets just get old and shit our pants when we are now entering an era with the tools to avoid that. Old habits die hard.
http://www.hps.cam.ac.uk/whipple/explore/acoustics/lissajoustuningforks/
This link works better for me.
For instance, all those Wal-Mart stores being closed will not result in the sudden revival of the small businesses driven out of existence by their Wal-Mart’s arrival.
Wal Mart has been driving small business out of existence for two decades at least. Those manufacturers that didn’t follow Wal Mart’s directive to move production to China disappeared.
The retail space vacated by Wal Mart will be occupied by someone else fairly quickly. Wal Mart was still making a profit at those locations. The problem was the profit wasn’t enough to satisfy Wal Mart management.
I’m curious what evidence you base your assertion on that the empty retail space left behind when WalMart closes (in certain locations) will be occupied “fairly quickly.”
I’m not seeing that where I live. Currently, Macys and Kohls (yes, different emporiums, for sure, but still) are closing a number of their stores across the country.
It may be true (but I’m not sure) that the WalMarts being closed are still profitable, but it’s unclear to me who could occupy such big box spaces and make a profit. WalMart is in a good position for obtaining super low cost goods due to economies of scale, for one thing. Who else can do as well or better than WalMart in a big box location?
I’m curious. Any ideas?
Some of the stories the mass media told and the Wal Mart locations shown were in remote areas, and the physical size of the building was not that big. Unless Wal Mart owned the land and building, the speed of leaving implies they were tenants, the landlord has an incentive to rent that space. It doesn’t have to be a direct replacement, but the space can be broken up and a few small merchants have some territory without Goliath next door.
Prices will probably be a bit higher and selection not quite as good, which is the tradeoff to driving 40 miles round trip to go shopping, and it gives a local producer a chance at selling supplies and merchandise through those new outlets, whereas with Wal Mart there is no chance.
The CEO of Wal Mart’s rationalization for closing those remote stores was to redeploy capital to more profitable expansion elsewhere.
Um, you need to get out and see the state of retail. There are entire malls that have been abandoned. And even small WalMarts are pretty large. Who can possibly use that much space, particularly in a remote area?
McAllen in Texas (Dallas suburb) is hardly remote, yet its WalMart was abandoned. It did eventually get repurposed:
http://firsttoknow.com/abandoned-walmart-turned-into-library/
That’s what’s happening in the Sacramento area. There’s large malls that are about to go under, and there’s retail spaces – not in any way as large as even a small WalMart – that have sat idle for at least 10 years.
While one partially built mall to the south of Elk Grove CA (an outlying city/suburb of Sacramento) is under consideration for possible re-purposing as an Indian casino (and possibly some retail), that partially built mall has sat there idle since 2008.
Yes, WalMart wanted to put a smaller store right smack in the middle of midtown Sacramento, but the residents pushed back. For now, it’s not going to happen.
But my limited knowledge of the WalMarts that are closing is that they’re in the more remote/rural areas or in far outlying suburbs, where other retail space has been in decline and/or lying idle for quite some time.
I’m sure, over time, some of these WalMarts will either be repurposed and/or possibly partially rented out to other retail. But I sure as heck don’t seem them being “quickly” replaced by other profitable retail stores. Ain’t gonna happen.
And those are jobs – not that a WalMart job is great – that are also being lost, and quite likely not replaced for a long time, if ever.
McAllen is down at the southern tip of Texas, in the environs of Harlingen and other garden spots.
You probably mean Allen, Texas near north Dallas.
. . .Who can possibly use that much space. . .?
It can be used for fun activity like for example an indoor duck hunting experience where you can shoot drones camouflaged as ducks. What’s the point of having all these little flying machines if you couldn’t shoot them down for fun. Or you could have competitions between shotgun wielders and drone flyers, to see if the drone can duck and weave it’s way through a blast zone.
One never knows when inspiration and perspiration becomes one.
How about bulldozer driving school franchises? These unwanted malls can serve as training grounds for future mall leveling?
My favorite use is this.
Pirate Equity is always looking for new ideas to sell to Muppets.
Temporary jobs making one credit worthy sounds like a disaster waiting to happen. So the jobs are temporary but the debt, uh excuse me the debtworthiness, uh excuse me the creditworthiness remains. I don’t think this has anything to do with Sander’s plans, but it’s odd that anyone would even advocate this, as this is the water we are already drowning in: debt noone can pay out of future earnings.
Funny I caught that too. It’s like calling someone fresh out of the ICU ‘bulletworthy’. It’s only name-calling, but sheesh.
Five years (the length of Sanders’ infrastructure plan) working on the railroad or wherever making $50,000 or whatever a year will do wonders for one’s spirits, bank account, creditworthiness and employability. You’re not understanding Galbraith’s point, or Sanders’ plan.
Good point. The specifics (especially the length of a “temporary” job as part of a certain program) make a major difference when evaluating their longer-term effects.
Can I take it as a reflection of economic “science” that hysteresis comes as news? I mean, can it really be that until recently economists haven’t known that the past echoes into the present, shapes it for a long, long time?
Thank you, Mr. Galbraith.
There is a rundown on the site where (I believe) Friedman’s original analysis was posted.
One opinion/rant/question: when the hell did “Left Economist” go from Marxist to Neoliberal?
dollarsandsense.org/blog/2016/02/links-on-the-kerfuffle-about-friedmans-sanders-analysis.html
In the 1970s when the old left panicked about affirmative action (I read a while back) and it started a new left in both more conservative policies and economix. The purported reason this freak-out happened was because east coast intellectuals were afraid they would not get into the good schools. Sorry, can’t cite source.
Crikey.
Where is the original summary by Galbraith or is this a paraphrase of points made by Galbriath?
Was this an original summary by Galbraith sent to Naked Capitalism?
I don’t know the answers to your questions, but Galbraith’s explication of most or all of these points was published here two days ago.
Point 5 (a possible “math error” by Friedman) may be new with respect to that post.
I think this is Yves Smith summing up points made by Galbraith, which is fine, but I want to be clear.
I do appreciate this post in any event.
There is a by-line. This is by JG, not YS.
There is no such post in the files of James Galbraith, nor on the Internet other than the post linked to Naked Capitalism. I believe this post is a summary by Yves Smith and only want to be sure.
Yves Smith is a stickler for such accuracy.
Tag says “Guest Post”
This is a Galbraith post that is original to NC. If it was a cross post I would have said so.
It’s pretty cheeky of you to call the integrity of his post into question.
Do forgive me my foolishness. I am so sorry.
C’mon, lighten up, ltr said mostly nice things and he wasn’t challenging your integrity. I was not sure what it was myself, although it didn’t matter in my mind. It wasn’t totally clear.
Whenever we have a post where a guest writer is listed and there is not “cross posted from” or “originally published at” after the name, it’s original to NC. That’s a long-established practice here. Ltr saying that he thought I was summarizing Galbraith when the post clearly stated it way by Galbraith was charging me with outright fabrication, as in writing something myself and passing it off as by someone else. I have every reason to take offense.
a good analogy re point 6 is putting a little bit of kindling on a fire to get it going. Once the kindling is burnt does it go back to its original state I ask retorically? No, it can be the catalyst for an inferno.
Or, pruning a plant will encourage it to sprout new growth. Pruning an animal rarely has that effect.
3) The Romers believe that the economy would recover along a baseline track, irrespective of whether there was stimulus or not.
4) Jerry Friedman probably does not believe this, but is working in the Keynes tradition of underemployment equilibrium, according to which one-time changes in the scale of public activity generate permanently higher levels of output and employment. This is consistent with the view that the New Deal and WWII ended the Depression, which did not return after the war ended.
9) Returning to point (1): these matters have no bearing on the desirability of Sanders’ program.
===========================================
In the long run we’re all dead. If you keep doing what you’ve always done, you’ll always get what you’ve always got…
Our “equilibrium,” right now, SUCKS!
For the economy to grow on its own we need the equivalent of the 1950s Automobile Industry without the pollution. Who cares what stimulus gets it going? Nobody. To have an environmental revolution that was somehow self-perpetuating would be nice. At least Bernie has no plans to promote toxic growth. Bernie’s plans are pretty tame compared to the mess neoliberalism served up – they didn’t care what they were subsidizing as long as it produced profits. So Bernie’s plans are far more sane and balanced already because he is producing a better society which actually could self-perpetuate. And in better directions.
The Sanders argument is about cost structure, efficiency and equity. When you include private healthcare spending, the total US tax burden is approx. 50% of GDP. Yet, we have essentially no safety net in the U.S.
OECD countries provide universal healthcare for nearly 10% of GDP vs. 18% in the US. So the US pays and 80% premium for less than universal care. The savings from an efficient and equitable system would dwarf $1 trillion per year.
Sanders also makes the argument that the US under invests in its people and capital–both contributors to long term GDP growth. This lack of investment has reduced people’s standard of living and income.
Sanders also argues for competitive markets. He is trying to find a harmonious mean between strong safety nets and competitive markets that are both fair and efficient.
Striking to me is that Sanders is the best candidate for most businesses that fall outside of the multinational corporations. He would lower healthcare costs, level the playing field on regulation and protect domestic industries. In fact, Sanders is probably more genuinely conservative than anyone in the Republican or Democratic field. He would preserve the good parts of capitalism while mitigating the effects of regulatory capture’s risk shifting and oligopolies.
Sanders could almost run on an old conservative protectionist platform. Would be funny to hear him point that out.
Yes exactly . It’s purely political or in nutshell Goldmann Sachs versus the Rest. Could Sanders, could anybody do it ? Only with a collective mind re-set . If you believe what we have now is immutable , as though given by nature then the answer is ‘ no ‘ . If on the other hand, you believe fundamental change is necessary and now is the moment then the answer is ‘ yes ‘ .
“2) The original mudslinging by four past Chairs of the Council of Economic Advisers was based on nothing, except that Friedman’s growth numbers looked high. No analysis preceded that claim.”
That’s the big one for me. And it was sad to see the likes of Krugman and DeLong join the chorus.
I’d looked to those two as people who were doing economics as science, not using it as an arcane language in which to couch your advocacy.
On #5, public investment in infrastructure leaves behind the improved infrastructure, which has a positive effect on the level of GDP a few years later.
And if that infrastructure investment were, say, college education that improves the human capital of entire generations, that positive effect on the level of GDP will be felt well more than “a few years later”.
Why should more college education improve GDP? (A priori the opposite seems like a safer assumption — more young people staying out of the workforce longer.)
And what’s the analogy with infrastructure?
A college education is great for those that want one, and especially if it doesn’t lead to lifelong crushing debt, but I’m really stumped about how it’s supposed to be a net productivity-booster, and deeply uncomfortable about the growing assumption that sixteen+ years of schooling is what everybody wants or needs.
It also plays into the regressive “structural unemployment” meme.
Well said. At the margins, college is beneficial mostly to the employees of the school, and secondarily to the students. There are rather minimal tertiary benefits for society at large of having yet more time spent in formal education.
“The employees of the school” — well, one class of employees. :-) With increased enrollment I’m not sure how much benefit accrues to the wage workers or to the teaching staff, all of whose jobs become more difficult with a larger student body. But the administrators certainly benefit!
Post-secondary teachers, as a group, at our nation’s colleges, universities, and professional schools make a lot more money than they would in most (not all, of course) private sector positions – or most other non highly paid public positions, for that matter.
I do very much agree that the distribution is skewed rather unequally. And of course I agree there are too many administrators and they are overpaid, as well. But it’s not like tenured econ professors or law professors or medical professors work for $12 an hour with crappy benefits and working conditions.
Oh, absolutely. In my last comment I was referring to (and sloppily eliding) a few very different topics and trends like:
* The wage workers with crappy benefits and working conditions staffing a schools’ security, cafeterias, cleaning and custodial duties, etc., who are unlikely to see many benefits as enrollment grows. My understanding is that these positions have increasingly become outsourced to private providers with far less job security, lower wages, more difficult and unpredictable shift schedules, etc. Somehow I doubt those will flip to living-wage union jobs with pensions thanks to the windfall of cash that would come in from government-backed expansion of college enrollment.
* Universities’ increasing use of non-tenured and non-tenure-track teaching positions.
* Adoption of for-profit e-learning products, and the movement toward MOOCs and in-house online courses, both as a response to increasingly large class sizes, and as a cost-saving measure.
* The growth of executive, administrative and bureaucratic layers at schools.
Basically there seem to be converging movements to privatize and hollow out our whole educational system — obviously also applying to the K-12 system, in a more advanced & aggressive & pernicious form. Talk of overpaid teachers and phrases like “bending the cost curve” tend to accompany those movements — and also tend to accompany the somewhat confused “progressive” advocacy for college education being universally attainable // free // necessary // valuable — so I always get worried when I hear them. I’d much rather overpay the teachers than lay them off!
(Except maybe the economists and the law professors…)
“…the Romers’ main complaint is a point of theory…”
In the battle against the anti-evolutionary religious right, the point is often made that the term ‘theory’ does not mean speculation. “Article of faith” would be a better characterization. It is not so much “a point of theory” as it is “a point of dogma”.
In science, a theory is a comprehensive explanatory model elaborated from initial hypotheses (modest explanatory models) that are repeatedly and robustly supported by empirical observations made on matters predicted by those models. That is, initial hypotheses are developed to account for preliminary observations of some real-world phenomena; predictions derived from initial hypotheses are evaluated by further empirical investigation; empirically well-supported hypotheses might eventually grow into theories.
Much economic theorizing indeed seems largely divorced from this practice of empirical evaluation; indeed, one could easily get the impression that important features of what we might call the real world are effectively ignored, in good measure. Without honest reference to the world that they presume to describe and explain, such intellectual structures are to an embarrassing degree, vacuous exercises. To paraphrase a comment made some decades ago about an area of population genetics, such theories resemble a “huge edifice of impeccable mathematical logic resting firmly on its apex.” To take them seriously requires arduous special training. Or persuasive factors outside the area under study …
I’m intrigued by #6.
What level of wages exactly would be proposed such that a temporary job would allow sufficient savings to prevent economic hardship after the end of the job? I generally like Galbraith, but he is being ridiculously naive to think that a “temporary employment history and income stream” means anything material for the future. The bill for housing or medical care or whatever is causing the financial problem for the household doesn’t disappear because you made $15 an hour for six months.
If what is really being argued here is some kind of money multiplier, then it’s rather intellectually dishonest to claim that jobs are a necessary middleman. Just give money directly to people in need, no work requirement attached.
Re #5 and #6, what about investment in green energy infrastructure- wouldn’t it kick start a green energy market? Here you would have private companies emerge out of of public investment, and be able to employ people once public jobs end.
I support green investment, but not because it creates jobs. Because it is a good investment, generating energy with less environmental impact.
Why would jobs be the expected outcome? You are transferring employment from fossil fuels (especially coal, oil, and cars) to cleaner energy (especially wind, solar, and trains). Our energy system (both transport and electricity) is already comprised of private sector companies. The problem is not a lack of aggregate employment. Rather, the problem is that we direct labor toward car-dependent sprawl and fossil fuel usage rather than walkable communities, passenger rail, and wind and solar electricity generation.
Yes, I understand about the transfer of jobs. My comment is just musing on #5/#6 and the effects of an infrastructure program in new energy. If we intend to invest heavily in the development of new infrastructure- which will naturally knit in newer technologies, some even developing in tandem- I’d like to think that a series of projects of this size could generate more jobs than just old energy replacements. And jobs of a wider variety. Operating/maintaining/reinvesting by private sector after the completion of a project would hopefully continue to offer more jobs than just replacement of old energy. But anyway all conjecture.
That’s exactly what interests me. The MMT notion that it takes more jobs than we currently have to do things like upgrade our power and transportation systems is conjecture, yet it is often presented as some kind of irrefutable fact not open to question or alternative perspectives.
The environmental benefit of switching some of our aggregate transport from cars and airplanes to feet and bicycles and trains is that less activity (i.e., employment) is needed.
Re power, it really depends on what kind of power system you are referring. While it might take more people to construct solar panel or wind turbine networks than it does to maintain them, it’s an entirely different algorithm for waste to energy technology. But even for solar/wind, part of what keeps the private sector out of these markets is cost, which will fall by virtue/effect of the infrastructure developed in the public sector. So I don’t really see any reason to think there will be just as many jobs in new energy as old energy, and I definitely don’t see why we would be sure there won’t be as many. I think there is more reason to believe jobs will grow with new energy (and historically we see with newer technologies jobs do grow).
But that cost isn’t simply set by a functioning market. It is influenced by public policy which both subsidizes fossil fuel usage and externalizes costs of fossil fuel usage onto larger society.
Three things the Romers said look wrong:
(1) the idea that a short stimulus results in going back to zero plus the pre-existing growth rate — as if it never existed. When in our history (as suggested in the post) has not a stimulus of any size not raised the baseline, such that the absolute drop is less because the economy was changed in some ways for the good by the stimulus — like formerly “unemployable” unemployed becoming employable, and various activities having been initiated as a result of multiplier effects? Whether in the 30s, 40s, 60s or 80s, economic policies functioning as stimulus were followed by an increase in the baseline, i.e., a level it would not have reached under the pre-existing growth rate.
(2) Anyway, Sanders’ proposals are not short-term stimulus. The huge infrastructure program — which clearly would change the economy and the country — is for five years, and even larger stimulus-like policies (putting more money in the hands of those with the highest marginal propensity to spend) last for another five years; there is no sudden drop-off of stimulus to zero at the five year mark.
(3) the Romers seem to think the employment rate is not far from its potential maximum. That ignores the fact that the drop in the 2007-10 period was unprecedented in post-war history, and had virtually nothing to do with increased baby boom retirements (at least those of a truly voluntary nature). Economists have no more expertise in the cultural assessments that determine how many people will take a job when they can find one than anyone else. Historians are better equipped to make that determination than economists. For a number of reasons that the Romers apparently have not examined, even with baby boom retirements (of a voluntary nature), there is no reason to believe that the 64.7% employment rate max we reached in 2000 was a ceiling we shall never see again. The feminism force putting women into the work force may have been closer to its potential high as of 2000, but it clearly was not over, while a younger and better-educated cohort replacing a largely unemployable older cohort of poorly educated and culturally conservative people (“no woman of mine”), especially in Southern states with the lowest employment rates, is possibly stronger than ever. We have seen states with low poverty and high educational attainment go higher than 70% — and, of course, so have other Western countries that not long ago had lower employment rates than the U.S. Other states with much lower rates should be moving in that direction, bringing the whole-country rate up with them. It is highly questionable, in other words, that labor force size potential will in the foreseeable future act as a constraint on growth.
The more I think about it and the irrelevance of some of the commentary and answers the Gang of Five (including PK) have offered, and looking at the assumptions Friedman makes and explains in detail, the more I think Friedman was closer to the mark than the Gang would have us believe.
A simple and obvious example: The WPA built Lawrence Stadium (now Lawrence-Dumont stadium) in Wichita, Ks in 1934. More than 8 decades later, it remains the home venue for a AA club (appropriately named the Wingnuts), the annual National Baseball Congress semipro tournament, and a number of other events. Its existence continues to generate travel, concession and other jobs, and considerable commercial activity all these years after the “one time” stimulus came to a halt.
Such examples could be multiplied ad infinitum.
Particularly in the case of infrastructure, capitalists have had a huge interest in promoting state development of infrastructure from the canals to the railroad landgrants to the highway fund. Because time is money, and what speeds motion speeds turnover of capital.
Perhaps the lesson of the last few decades is that the nature of capital accumulation has changed, such that the dominant factions of capital no longer require such infrastructural investments.
After all, does it matter if a bridge collapses when your cellphone can automagically provide you an alternative route?
the dominant factions of capitalist accumulation in the United States don’t care about profit to enterprise. When your business model is “fuck you pay me” and you have the federal government as enforcers ability to pay becomes much less relevant.
Well, finance capital doesn’t think it needs any. Until the goose dies and there are no more golden eggs.
Industries with goods to transport definitely care, but push forms of state funding in which their share of the cost is minimized to the extent possible.
But the main point was that in the material world, sane investment in infrastructure creates both employment and expectations of profit long beyond the initial investment. Contra R&R or R&B.
In all fairness, a part of Bernie’s economic “plan” is the F35 fighter, which he voted for with enthusiasm to help Vermont’s economy. Therefore if he becomes the POTUS, he will inherit a trillion dollar drag on the economy that he helped create. The 700 billion dollar bill he gifted to Lockheed could have paid for ten years of free college.
A quote from Bernie:
.
Such hypocrisy .. and from one of our better Senators!