House of Paine

pollin vs roberts

the bout of the decade at counter punch 

two pieces together adding up to a fly fart

got my goat ....

so i e-ed another

dearest alex:




==============================================




so  you let 
 that 13 story ham
  bob pollin attack your 
                   shrewd libertarian alliance
  at its  foulist and weakest link

ie the hodoo past 
of 
oral roberts 
  and his 
cocktail  napkin  macro economics

but then
damned if you don't 
       let ole hoss  craig respond 

as if he's an actual  economist
(btw
who but a self serious quack
could mention his  credits
         so often in one short  piece )

u allowed this in .....why???

as  a  personally kind  sop ????

then god bless you 


but beware the thin edge of the wedge

its thickening here 
as  u permitt this further inraod
                   to   rentier sophistry 
what next a defense of 
     long form creationism ???

 is counter punch
now  on its way
to that mental walmart:

 a neutral space for dialogue 
 
between what and what

now playing at the punch bowl 

earthlings vs  plutonians 

all for the  anti imperial alliance eh??







oral R is a cast off 
             a  block busted cul de sac 

in your quiver he's not a captured flag

unless quarenteen flags count 

my rather finese free pop use to kall such 
         diplomatic      attempts as this one of yours  

' trying to make peace with a wooden indian '

its sure to stick  guyz
                   but ...so fuckin what 

the offending pair of pieces:


pollin first 

 regularly read and appreciate the writings of Paul Craig Roberts on CounterPunch. Indeed, after reading his article "The True State of the Union," which Roberts wrote soon after President Bush's January 31 State of the Union speech, I sent a note out to all faculty and graduate students in my department with a link to the article, suggesting that they give it a serious look. 

After I sent this note out, one of my faculty colleagues wrote me back, asking whether this was the same Paul Craig Roberts who was a leading exponent of Reaganomics and high official in the Reagan Treasury in the 1980s, and if so, my colleague asked, "what happened to this guy? He now sounds like Alex Cockburn." I responded that it was indeed the same person, but, having never had any contact whatsoever with Roberts, I had no idea what, if anything, had happened to him since his days as a team member during the Reagan revolution. But Roberts himself answered my colleague's question only a few days later, with his February 6 CounterPunch article, "Who Will Save America? My 'Epiphany'."

This article includes interesting observations both on splits among the Reaganite versus the neoconservative branches of Republicanism, as well as on Roberts' own political history. But it also gives an unqualified, if brief, endorsement of the achievements of Reaganomics. I am always in favor of "letting a hundred flowers bloom" in political debates. However, I never thought this particular hardy right-wing perennial would emerge in CounterPunch. A response seems in order.

Roberts, to begin with, is apparently convinced that Reaganomics ended the era of high inflation in the U.S., and that this fall in inflation led to rising living standards for U.S. workers. As he wrote, "No doubt, the rich benefited," from the fall in marginal tax rates, but "ordinary people were no longer faced simultaneously with rising inflation and lost jobs. Employment expanded for the remainder of the century without having to pay for it with high and rising rates of inflation."

Other than acknowledging that the rich benefited from the large tax cuts under Reagan, this summary statement of the achievements of Reaganomics is wrong or seriously misleading on several fronts.

At the simplest factual level, it is not accurate that Reagan's tax policies were responsible for bringing inflation down, from an average rate of 8.2 per cent under Nixon, Ford and Carter, to 4.6 per cent under Reagan. The main force here was the stringent monetary policies imposed by then Federal Reserve Chair Paul Volcker. Volcker was appointed not by Reagan but by Jimmy Carter in 1979. Carter appointed Volcker because Wall Street made it clear to Carter that he had no choice. Almost immediately on taking office, Volcker returned the favor to Carter by imposing the most severe global recession since the 1930s, which then doomed Carter's chances for re-election in 1980. 

Volcker did indeed break the back of persistent and rising inflation brought on primarily by the four-fold oil price increases in 1973-4 and again in 1979. But he achieved this at a very high cost, by no means in the costless manner suggested by Roberts. In Latin America, the 1980s were known as the "lost decade," because of the debt crisis that followed from the 1980-82 Volcker-induced recession. As for U.S. workers about whose condition Roberts refers explicitly, real wagesi.e -- . the buying power of your dollars of wages -- peaked in 1973, the period of high inflation. Average real wages fell sharply throughout the Reagan presidency. The average figure for those eight years, at $15.72 per hour (in 2005 dollars), was 7.6 per cent below the average hourly wage under Carter of $16.95, and 9.6 below the Nixon/Ford peak of $17.39.

Along these lines, we should also acknowledge that despite Roberts' claim that stagflation -- the combination of high unemployment and high inflation -- "destroyed Jimmy Carter's presidency," in fact the U.S. economy's performance under Carter, considered by strictly conventional measures other than inflation, was at least as strong if not stronger than the eight years under Reagan. Average GDP growth was nearly identical, averaging 3.3 under Carter and 3.4 under Reagan. But unemployment was substantially higher under Reagan, at 7.5 per cent relative to the Carter average of 6.5 per cent. This is not to suggest that the U.S. economy was robust under Carter, but simply to offer a bit of entirely commonplace evidence regarding types of claims made by Roberts and others. Remember that Carter was supposed to have brought the era of "malaise" while Reaganomics brought a new "morning in America." 

This decline in real wages, beginning in the late 1970s and accelerating sharply in the 1980s under Reagan, is also a crucial link in understanding why inflation did not rise up as unemployment fell in the 1990s, contrary to expectations of virtually every single economics textbook. The standard theory held that when unemployment gets too low, workers gain in bargaining strength. They then push up wages, and businesses pass along these additional costs in the prices they charge consumers. This means rising inflation. But beginning in the 1990s under Clinton, unemployment fell, to as low as 4.0 per cent in 2000, but inflation stayed low. What happened?

Former Federal Reserve Chair Alan Greenspan's own answer to this question (as reported by Bob Woodward in Maestro, his book-length hagiography of Greenspan) was that U.S. workers had become increasingly "traumatized" in the 1990s, and as such did not feel sufficiently secure to attempt to bargain up wages even at low unemployment. Greenspan openly acknowledged this "traumatized worker" explanation for the dampening of inflationary pressures in his regular semi-annual testimony to Congress in July 1997. Saluting the economy's performance that year as "extraordinary'" and "exceptional," he remarked that a major factor contributing to its outstanding achievement was "a heightened sense of job insecurity and, as a consequence, subdued wages." 

Now Greenspan never went further publicly than simply to celebrate this "heightened sense of job insecurity" among U.S. workers, to provide an analysis as to why this might have happened. But the answer is not too difficult to discern. Mr. Roberts himself has offered important observations on this matter, in his frequent discussions in CounterPunch on the outsourcing of U.S. jobs. However, such attacks on the employment security of U.S. workers hardly begins with the neoconservatives under Bush. Indeed, if one would have to pick the single most important turning point over the past 30 years in the treatment of U.S. workers, I would choose Ronald Reagan's decision to summarily fire more than 11,000 air traffic controllers who, as members of PATCO, the air traffic controllers' union, went on strike eight months into Reagan's presidency, in August 1982. This early attack by Reagan was followed by eight years of relentless hostility to the organized working class. 

But Reagan did not attack the organized working class only. More broadly, Reaganomics entailed a dramatic new framework for fiscal policy, the area in which Mr. Roberts was likely to have primarily involved as a Treasury official. Reagan's fiscal program was fundamentally about tax cuts for the rich, a massive expansion in military spending, sharp reductions in social expenditures, and an acceptance-or better still, an embrace-of large-scale federal government fiscal deficits on these terms. All of this should have a familiar ring to those who have followed the course of economic policy under George W. Bush.

No doubt Mr. Roberts recalls President Reagan's frequently recounted stories about "welfare queens" driving to pick up government checks in their Cadillacs. It was through repeating stories like this that Reagan was able to build support for an assault on even the minimal welfare state programs that had been operating prior to his taking office. It is no surprise that the individual poverty rate rose from 11.9 per cent under Carter to 14.1 per cent under Reagan. 

But there was an even more fundamental lesson from the Reagan fiscal policy that was learned well by the George W. Bush team. It is that large-scale fiscal deficits create persistent pressure for a permanent contraction in social spending by the federal government. The Nobel Laureate in Economics and right-wing economics guru Milton Friedman could not have been more blunt on this point, explaining in a 2003 Wall Street Journal article that deficits serve as "an effective ­ I would go so far as to say the only effective ­ restraint on the government propensities of the executive branch and the legislature." Remember the Reaganites, as with the Bush group, apparently experienced few qualms about throwing more money to the military while cutting taxes for the already overprivileged.

The Reagan economic program, in short, was the first major step in constructing the U.S. economy that Mr. Roberts now properly and persuasively denounces on CounterPunch: an economy in which conditions for the average working person have fallen sharply over a generation while the rich feast ever more bounteously on the spoils of political victory that began decisively with Reagan. 

Robert Pollin 

Supply-Side economics was dubbed "Reaganomics" by the media. If you were for Reagan, that meant you were for it. If you were against Reagan, you were against it. That's as far as public understanding ever went.

Even today three decades later few people beyond economists familiar with macro-economic theory know what it is. Liberals think it means tax cuts for the rich and call it "trickle-down economics." 

Libertarians believe it is a variant of Keynesian economics that fuels consumer spending with federal budget deficits. Conservatives believe it means leaving more money in the pockets of those who earn it. Other people think it means that tax cuts pay for themselves. President Reagan's vice president, George H.W. Bush, said it is "voodoo economics."

Supply-side economics is none of these things. It is a theoretical innovation in macro-economics.

The two professional economists who had the first insights into supply-side economics were the University of Chicago trained economist, Norman Ture, and the Canadian economist, Robert Mundell, a Nobel prize-winner in economics.

I knew both. When I was a professor of economics, I reviewed for Mundell scholarly contributions for publication in the prestigious Journal of Political Economy of which he was editor. I served in the US Treasury with Ture.

Supply-side economics corrects a fundamental mistake in Keynesian economics. Most everyone has heard of supply and demand, but Keynesian economics, known as demand management, left out supply.

In Keynesian economics demand is the important element. Supply responds to demand. The way Keynesians saw it, demand needed to be high to maintain full employment. The original Keynesian economists were very sensitive to unemployment and the human suffering associated with the Great Depression. They attributed the depression to insufficient aggregate demand to keep everyone employed, and their economic policy was keyed to insuring sufficient demand.

Keynesians believed that private demand would tend toward insufficiency. To guarantee full employment, Keynesians had the federal government overspend its revenues, thus adding to aggregate demand the amount of the budget deficit. There were two ways to overspend revenues: keep federal spending constant and cut tax revenues or keep tax revenues constant and increase federal spending.

Original Keynesians regarded monetary policy as impotent. They relied on fiscal policy. Later Keynesians, under assault by monetarists such as Milton Friedman, corrected this view. By the time I entered the fray, Keynesians used monetary policy to pump up demand to provide full employment, and fiscal policy in the form of high tax rates to control inflation. The Federal Reserve pumped money into the economy to keep demand and employment high, and fiscal policy took money away in taxes so that inflation remained low. Or at least, this is how it was supposed to work. By the mid-1970s it was obvious that it wasn't working.

What supply-side economists pointed out to Keynesians is that high tax rates did not control inflation. Instead, high tax rates contributed to inflation.

Keynesians believed that fiscal policy only affected demand. The government could add to aggregate demand by cutting taxes, for example, and running a budget deficit, thus overspending the revenues that taxation drained from the private sector. Or, to fight inflation, the government could raise taxes to drain demand from the private sector and not spend the revenues. But for Keynesians fiscal policy had no effect on aggregate supply.

Supply-side economists pointed out that fiscal policies, such as changes in the marginal rate of taxation, altered relative prices and shifted the aggregate supply curve, not the demand curve. An increase in marginal tax rates--the rate of tax on additional income--reduces the after-tax rate of return (or earnings) from work and investment and results in a lower level of supply. Lowering marginal tax rates increases the rewards to work and investment and, therefore, increases aggregate supply.

The Keynesian policy caused "stagflation" and worsening "Phillips curve" tradeoffs between employment and inflation, because high marginal tax rates caused a reduction in labor input and a reduction in the rate of saving and investment. What was happening was that people and companies were responding to higher demand by raising their prices instead of their output.

Supply-side economics established that fiscal policy shifted the aggregate supply schedule. In his famous economic textbook Nobel economist Paul Samuelson included me and a diagram showing that supply-side economics was an argument that fiscal policy shifted the aggregate supply curve in contrast with the Keynesian emphasis that it shifted the aggregate demand curve. Samuelson declared that the real argument was over the magnitude of the shift.

In other words, the most famous American economist of the 20th century accepted the supply-side theory and said its importance for economic policy depended on its magnitude. Several economists provided empirical evidence of the magnitude, but the disappearance of worsening trade-offs between employment and inflation settled the issue for most.

I myself debated most of the Keynesian Nobel prize-winners before university audiences or before annual meetings of economic associations. When the argument was presented to them, they understood the point and accepted it. I received a standing ovation when I gave the annual State of the Economy address at MIT. The story of how supply-side economics came to be can be found in my book, The Supply-Side Revolution, published by Harvard University Press in 1984. A concise technical statement of the theory can be found under my entry in The New Palgrave Dictionary of Money and Finance, the leading reference work for economics.

There is nothing fly-by-night about supply-side economics. It corrects a Keynesian oversight and puts aggregate supply back into policy considerations. As a member of the congressional staff during 1975-78 working to bring supply-side economics to the fore, my most important allies were three Republicans, Jack Kemp and Marjorie Holt in the House and Orrin Hatch in the Senate, and three Democratic senators, Russell Long, Lloyd Bentsen and Sam Nunn.

Stagflation and worsening trade-offs between inflation and employment resulted from an incorrect economic policy mix that pumped up demand with easy money while restraining real output with high tax rates. 
Supply-side economics corrected this mistake, and we have not seen the problem since.

Supply-side economics was a major innovation in macroeconomic theory and economic policy. It was a correction of an oversight, not a magical formula. A quarter century ago before the days of the high speed Internet and US offshore outsourcing, supply-side economics revitalized the economy's ability to grow without having to pay the price of rising rates of inflation. This battle was fought and won long ago. Re-fighting it is a waste of time and energy in an era of new serious problems.

The George W. Bush regime was faced with no stagflation and no worsening trade-offs between employment and inflation. The Bush administration did not use changes in the marginal rate of taxation to correct a mistaken policy mix or an oversight in economic policy. 
Income distribution is a legitimate issue. This is especially the case when offshore production and jobs outsourcing are destroying the American middle class.

I am not a partisan of dubya's tax cuts. Just as dubya hides behind "freedom and democracy" to wage wars of naked aggression, he hides behind supply-side economics in order to reward his cronies. There seems to be no American value or legitimate principle that the Bush regime is incapable of despoiling.

Paul Craig Robert