An Economics Lesson for the New Republican Majority

November 20th, 2014

With the Republicans about to be fully in control of Congress as a result of the party’s massive victory earlier this month, we can expect a plethora of reheated prescriptions to be trotted out in the form of budget proposals and tax initiatives.  And since the current version of the GOP hates any government spending almost as much as it hates taxes (especially the progressive kind represented in the federal income tax tables), we can expect a series of showdowns with President Obama over spending and taxes that might even lead us to the brink of another government shutdown or default on the national debt.

Mitch McConnell is on record as saying that those two things will not happen, and while that is reassuring rhetoric, it remains to be seen whether he can control his caucus.  If he is as unsuccessful as John Boehner has been over in the House, he may end up backtracking on that pledge early on in his tenure as Senate Majority Leader.

But while there’s still time, before the Senate leadership switches hands, I want to offer the Republicans, especially those of the tea party wing, a few simple lessons about basic economics.  And to do so, I’ll draw on two current examples that, taken together, may give pause to any politician, from the left or the right, who claims to have all the answers when it comes to economic prosperity.

First let’s consider Kansas, where its Republican governor, Sam Brownback, pushed through a massive tax cut in 2012.  Brownback was seeking to put into effect the “supply side” theory that was first espoused during the Reagan administration by economist Arthur Laffer.  (Laffer is said to have first described it in 1974 to a couple of young Republican staffers named Donald Rumsfeld and Dick Cheney, when both were working in the new administration of Gerald Ford.  The story is that he wrote out the graph that illustrates the theory on a cocktail napkin.)

The idea behind the Laffer curve is that you can actually raise tax revenues by reducing tax rates to a certain level because the reduced rates will provide an incentive for increased productivity.  Thus the claim is that you can get more net tax revenue from lower rates because everyone will be making more.  Yes, I know it sounds too good to be true, and, in fact, it has never been verified or even supported by any experiment at the federal or state level.  Reagan, with David Stockman, his young director of the Office of Management and Budget in charge, gave it a serious effort when he took office in 1981.  Federal income tax rates were cut significantly in two bills in the first two years of Reagan’s presidency.  By 1985, the federal deficit had ballooned to over a trillion dollars for the first time in the country’s history, Stockman was gone, and Reagan was quietly supporting a succession of tax increases that put the death knell to the Laffer-curve hype.

But apparently Governor Brownback didn’t think the Reagan experience with Laffer’s curve was an adequate test.  In fact, he was (and purportedly still is) an advocate of it.  The result, two years after he pushed massive tax cuts through in his state, is that Kansas is facing a major debt crisis, with some even suggesting bankruptcy might be the only option unless major spending cuts are made.  (Brownback was re-elected handily earlier this month, suggesting that Kansans aren’t all that much smarter than he is.)

So, okay, that’s one lesson the new Republican majority in Congress might want to remember as they take control of the institution.   Massive tax cuts aren’t a cure-all.  But neither are massive tax increases, at least of a certain type, which is what the current Japan experience teaches.  There, a major increase in sales taxes has pushed Japan back into a recession as consumer purchasing has slowed precipitously.  And, as any non-Laffer economist will tell you, consumer demand is a job creator.  Japan’s Prime Minister is now scrambling to avert an economic meltdown in his country.  To do so, he will probably need to reverse the sales tax increases he pushed through only two years ago.

These two very real examples of the perils of using tax policy to create a robust economy are clear evidence of what should be obvious:  No single factor can control the path of a society’s economy.  That fact has been true for as long as humans have studied the matter.  All the basic rules only work in a vacuum.  Take supply and demand as an example.  That rule is supposed to be an indicator of what price can be charged for a particular item.  If supply is high and demand low, the theory goes, prices should decline.  And to a point they will.  But the supply-demand rule can be tempered by the elasticity of a particular product.  So, if a product is inelastic (meaning the demand for it is constant), it will be less influenced by excess or diminished supply.

The effect on an economy of income tax rates is similarly variable.  At certain levels of income, the rate of taxation can be a disincentive, but there is an element of inelasticity there, too.  Everyone has to eat, so even if low income earners are heavily taxed, they will still seek to earn as much income as they can.  And those at the upper ends of the earning scale are similarly unimpressed with higher tax rates, since they have so many ways to shield their income (legally) and so much more income than they actually need (or can spend) that they don’t really even think about the matter (except, perhaps, in political dialogues).

In the 2008 campaign, Obama was hit hard for having said that a redistribution of wealth was the result of progressive income tax rates.  But political attacks aside, any tax policy redistributes individual finances to the public as a whole.  It’s how the society chooses to spend those revenues that more directly impacts the economy.

So much of a society’s economy is uncontrollable and unpredictable.  Economics itself is the most inexact of sciences, the study of it fitting much more comfortably in the humanities, alongside psychology and philosophy.  In truth, most economic theory is far more likely to be based on political ideology than it is on scientific study.  Karl Marx wasn’t an economist; he was a philosopher who decried the injustices he perceived in a wholly capitalistic society.  Adam Smith, too, was first and foremost a philosopher.  He came to capitalism only through his view of how a society could be most efficient in serving its citizens.

Similarly, most neo-cons are far less schooled in the science (such as it is) of economics than they are in the ideological appeal of free markets.  Freedom, not science, was the Reagan catchword.  And it’s the same word that conservative economists of the Milton Friedman school have relied on as the linchpin for their supply-side theories.  But theories only go so far in directing the course of a nation’s economic vitality.  After all is said and done, the cycles will still dominate.  Recessions occur for a multitude of reasons and the end for just as many reasons.  Rates and forms of taxation, along with government spending, can affect both results but will ultimately dictate neither.

In the end, the Republicans will have to govern.  Sam Brownback is learning what that means.  His compatriots in DC will, too.

 

E. Haig’s Review of Two Current Films

November 19th, 2014

Two films in current release caught our attention recently.  One is a traditional attempt to mix a murder mystery with family dramatics; the other is anything but traditional in every respect.  And while both merit attention and each has its share of flaws, the non-traditional one stands out as the far superior effort.

“The Judge” joins two great actors, Robert Duvall and Robert Downey, Jr., as the father and son who haven’t spoken for years when the wife/mother dies, causing them to be together for her funeral.  Even there, and in the days that follow, they hardly speak.  The son despises the father who is a hard-nosed, no-nonsense judge who has for years run their hometown through his courtroom edicts and sentences.  The father disrespects the son, who is an ethics-challenged highly successful criminal defense attorney who has grown rich in the big city by representing shady characters who could afford his hefty fees.

The son also has two brothers (one afflicted with autism, the other a budding baseball star whose career was curtailed by an injury suffered in a car accident in which Downey’s character was the driver).  Both idolize their father, even as they love their brother, who also has a precocious young daughter from a failed marriage.  Thus is the stage set, or so it would seem, for a family drama, perhaps not unlike Tracy Letts’ “August: Osage County”; but that isn’t the path this one takes.  Instead, it turns into a quasi-murder mystery, as the Duvall character is suddenly charged with murder in the death of a man he had previously sentenced to prison.  And, of course, the Downey character rises to the occasion to defend the old man, with a fairly predictable result, at least as to their relationship.

“The Judge” isn’t so much a bad film as it is an overdone one.  Overdone as in excessively schmaltzy in the worst traditions of Hollywood, wherein every scene must be milked for every conceivable emotion and every plot device contrived to the most attention-grabbing result.  And those flaws are amplified when the film doesn’t know when to end, with a few entirely unnecessary scenes added just to leave every character with a “moment.”

“The Judge” could have been a good film.  In portraying an old-fashioned jurist in the form of the town’s conscience, the juxtaposition with a modern-day me-first super-achiever could have made for an intriguing drama, maybe even a morality play.  And a few scenes do capture that potential.  But they quickly give way to the excesses previously noted, before a kind of deus ex machina brings the proceedings to a close.  In terms of contrivances, let’s just say this one isn’t subtle.

“Birdman (or the Unexpected Virtue of Ignorance)” is as unconventional as “The Judge” is traditional.  Written and directed by Alejandro Gonzalez Inarritu, it stars Michael Keaton as a has-been actor whose main claim to fame was the series of films he made as the crime-fighting superhero with the film’s title name.  But Keaton’s character turned down the chance to play the character in the third sequel (“Birdman 4”), and his career had been downhill ever since.

Now, with a play in production, one that he has adapted from his favorite author, and is directing and starring in, he is seeking to re-establish his credentials as a star, or to at least reclaim some justification for his life, what with a failed marriage, a precocious daughter with whom he is trying to re-connect (or maybe connect with for the first time), and an angry lover who may or may not be carrying his child as added blots on his unrealized dreams.

If you have seen any of Gonzalez Inarritu’s previous features (“Amores Perros,” “21 Grams,” “Bable,” “Biutiful”), you know that this is a serious film-maker who would never think to make a film for the masses or seek to leave everyone feeling good after they had seen it.  So don’t see “Birdman” if you want purely escapist entertainment.  This film, billed as a dark comedy, will leave you shaken and thinking long after you leave the theater.  And what you might be thinking about is how difficult it is to find a way to matter or to claim some sense of dignity in the struggle to survive.

Yes, it, too, has its flaws, with several scenes excessively drawn (for either comic or dramatic effect), and with a few plot twists that are less believable than they probably should be.  But the film features terrific performances from a stellar cast (in addition to Mr. Keaton, Edward Norton, Naomi Watts, Emma Stone, Amy Ryan, Andrea Riseborough and Zach Galifianakis) and remarkable cinematography of Broadway’s theater district and its inner darkness.

In the end, “Birdman” is unsettling and uncertain.  It may not be a great film, but it’s a film to see nonetheless.

See “The Judge” to feel good.  See “Birdman” to ponder why you don’t.

Dissecting the Election Results

November 13th, 2014

Last week’s election results were even more devastating for the Democrats (and more affirming for the Republicans) than most pundits had predicted.  As final counts were still pending in several races, the GOP was guaranteed a margin in the Senate of at least 52-48, with the strong likelihood it could be as large as 55-45 in the end.  The House was also a lopsided win for Republicans, with a gain of at least 14 seats on top of the 17-vote margin they had before the election.

The easy explanation for the drubbing the Democrats took would be to blame it all on a failing presidency and a bad economy, for such factors often produce bad results for the party holding the keys to 1600 Pennsylvania Avenue.  But those factors don’t provide the answers because, while Barack Obama’s popularity has sunk to Carter-like numbers, his administration has been far from a failure.  And while many Americans still don’t feel like the economy is rolling, in fact, if you just look at the numbers, it’s certainly in far better shape than it was when Mr. Obama took office.

So, how can the results be understood?  Here are a few thoughts that may give comfort to the losers and provide a cautionary note to the victors.

First of all, the Democrat’s base didn’t turn out.  This is not an uncommon phenomenon.  In non-presidential elections, the groups that tend to support the Democrats vote less frequently and in smaller numbers.  We’re talking about the young, the working poor, the unemployed, African-Americans, and generally those who benefit most from domestic policies Democrats tend to support and Republicans tend to oppose.

Why don’t they vote?  In many instances, they don’t think about it.  It’s easy to get up for an election when you have a presidential race.  Most Americans, even high school dropouts, understand that electing the president of the country is a big deal.  And if you’re going to vote for one of the candidates for that office, you might as well vote for the rest of those running from his (and someday soon her) party.  Barack Obama attracted large numbers of those groups in 2008 when he helped many Democrats win election to the Senate.  Many of those Senators were up for re-election this year.  The House results follow the same pattern.  Democrats did well in 2012 when Obama was re-elected.  Most didn’t fare so well when his constituents stayed home in large numbers this year.

But adding to the low turnout for the Democrats was a decided lack of passion for the candidates and their messages.  This factor was influenced heavily by a loss of faith in Mr. Obama himself, as many on the left have felt ignored, if not betrayed, by his administration’s policies and priorities.  The specifics of this brief certainly include the president’s military excursions (half-hearted though his opponents on the right claim them to be).  Many on the left (originally Obama’s strongest supporters because of his opposition to the Bush invasion of Iraq) are dumbfounded by the incessant drone attacks and the re-introduction of troops (in whatever capacity) in Iraq (where the president has, without Congressional authorization, effectively declared a new war in place of the one he just concluded).

But Mr. Obama has lost his base’s passion for a more fundamental reason, and that reason is at the heart of the low turnout by Democratic voters last week.  Simply stated, Obama has failed to take charge of the national debate on the ideological differences between Republicans and Democrats.  He has, in essence, re-assumed the persona who shocked his campaign staff in the first presidential debate in 2012.  You’ll remember that one as the high point of the Romney campaign, as Obama’s seemingly insurmountable lead in the polls suddenly shrunk after his lackluster debate performance.

Obama has been a lackluster president.  That fact, more than any other, explains the disenchantment with him within his party and the loss of confidence in him by those in the middle, those who look for a true leader, irrespective of his ideological identity.  Obama has defaulted on the bully pulpit part of his job.  He just hasn’t seemed to care about it, for whatever reasons.

Historians in looking back may plumb the Obama personality and find reasons for his lack of engagement with the American people.  Perhaps they will discover a man who really yearned to be a law school professor, or a community organizer, or a policy wonk, or perhaps they will find a man who was always too conflicted by the opposing perspectives he was so good at seeing.  Whatever they will find, it won’t change the fact that after six years in office, Obama still hasn’t grasped the real power of the presidency.

He said in the days following his party’s massive defeat last week that he took full responsibility for the losses, citing Harry Truman’s famous line, “the buck stops here.”  It’s a pat phrase, one appropriate for the occasion, but as I listened to him mouthing it, I saw a lack of understanding of what the failure of responsibility really was.  I think the man really thinks he is misunderstood or that he is unfairly maligned by Fox News.  Both of those facts are true, but a strong president, one who saw the power at his disposal to educate the populace, to debunk his critics, to rally the troops, would never have let them get the upper hand.

So, yes, the election results can be attributed to Obama’s failed leadership.  But what about the Republicans?  Are they really now the majority party in the hearts of the American people?

I doubt it.  They have large majorities in Congress and in state legislatures, but their policies aren’t in synch with most Americans, and once the country is faced with a clear choice on direction (in 2016 to be precise), the status quo ante will again prevail.  And if the Republican presidential candidate then is a Koch-brothers anointee, Hillary Rodham Clinton, or whomever the Democrats choose to mouth their left-of-center prescriptions for the country, will prevail again, with relative ease.

 

An Open Letter to Dodgers Fans

November 5th, 2014

Dear Fellow Dodgers Fans:

With the victory of our hated rivals in yet another World Series, it’s time for us to admit that they are just better than us.

Yes, I know that we won 94 games in the regular season to their 88 and that we beat them in September to win another division crown.  But the Giants put it all together again in October while we fizzled for the second straight year against an eminently beatable team (one that the Giants then dispatched with relative ease).  Sure, on paper we looked like the better team.  I mean Kershaw and Greinke, Kemp and Puig, Gonzales and Ramirez, not to mention super saver Kenley Jansen to close out games.  How could that team not look great against just about any team it faced?

But we didn’t.  And when all is said and done, the Giants, despite having fewer superstars and less glitz and pizzazz, won it all yet again.

And now we’re the team that hasn’t won a World Series, or even a pennant, in over a quarter of a century.  That span qualifies all of us for a title we used to throw at the San Francisco crowd: long-suffering fans.  And that sad record (now 26 years and counting) continues to grow despite the change in ownership three years ago that brought an influx of dollars that were lavishly doled out to a bunch of our current stars.

So, what has gone wrong?  Why aren’t we dominating all of baseball with a succession of pennants sprinkled with a few World Championships every few years?  Why aren’t we like the Cardinals?  Or, yes, the Giants?

Well, for one thing, we’ve had lousy management.  I don’t even want to talk about the prior owners, the McCourts, who followed on the Fox News crowd (the gang that bought the team from the O’Malleys back in 1997) by running the franchise into the ground.  I think a good case can be made that the team hasn’t been the same since the trades of Pedro Martinez and Mike Piazzi, two guys who are destined for the Hall of Fame.

And for the last nine years, partly because the McCourts got real tight with spending (even to the point of filing for bankruptcy protection) and largely because of the ineptitude of their hand-picked General Manager, Ned Colletti, the Dodgers have made a succession of poor decisions on player contracts, the latest of which have now produced a badly bloated payroll with an aging roster of nearing-the-end-of-their-prime underachieving players.  Add to that a farm system that used to be the best in the game (five rookies of the year in a row from 1992-1996; none since) and is now still not producing major league talent, and you have a franchise that looks a lot like, well, the current Yankees, to be completely honest about it.

But, hell, even the Yankees have won it all recently (2009).  We’re still playing lap dog to those guys to the north.  So, what do they have that we don’t?

For openers they have great management that has provided them with stability.  Think about it: Since Peter McGowen purchased the team in 1993, the Giants have had three managers: Dusty Baker, Felipe Alou, and Bruce Bochy.  Bochy has been in charge since 2007.  And they’ve had the same General Manager (Brian Sabean) since 1997.  In the same period, we’ve had eight managers and seven general managers (with an eighth about to be appointed, now that Colletti has been canned).  In the twenty preceding years, during which we won five pennants and two World Series, we had one GM and two managers.  Stability used to be our trademark; not anymore.

Our current field boss, Don Mattingly, is a mere trainee compared to Bochy.  Watching Bochy manage a game is like watching a master chess player move pieces on a board.  Bochy also has a great coaching staff, most of whom have been with him for all eight years that he’s run the team.  In fact, Mattingly’s coaching staff has undergone more changes in his three years than Bochy’s has in his eight.

On the field, the Giants got to the end of the season without their starting center fielder and leadoff hitter (Angel Pagan), with their left fielder (Michael Morse) having missed most of the last month with an injury, with their first baseman, Brandon Belt, finally recovered from a serious concussion, and with their highest paid pitcher, Matt Cain, out for the season.  But Bochy used all of his other regulars and reserves to fill the gaps and rode the left arm of pitcher Madison Bumgarner (who succeeded where the Dodgers’ ace, Clayton Kershaw, couldn’t) to guide his team over the Pirates in the wild card play-in game, over the Nationals (owners of the best record in the league) in the division series, and over the Cardinals in the league championship series, before they beat the Royals in a thrilling seventh game of the World Series.

Looking ahead, we Dodger fans are still facing a tough climb to baseball supremacy.  With too many highly paid outfielders, not enough fire balling arms in the bullpen, and a minor league system that has, at most, only one major-league ready player (AAA player of the year Joc Pederson, who is yet another outfielder), the Dodgers have holes to fill and, apparently, less willingness to spend the money it will take to fill them.

What we do have is a new front office guy.  Andrew Friedman, all of 37 years old, is credited with getting the Tampa Bay Rays to the World Series in 2008.  He’s supposed to be smart, which is good, but his first move, announcing he wants to keep Mattingly as our manager, may not prove that fact, especially when the Rays’ manager, Joe Madden (widely recognized as one of the best), quickly became available after Friedman left the team.  (Madden just signed to manage the Cubs.)

Put it all together, and it figures to be a while yet before our Dodgers return to glory.  Meanwhile, the Giants are soaring.  Ugh!  Baseball!

Painfully yours,

Ed