I’m more and more convinced that the only thing that keeps Trump above 30% in polls is this false notion that he was/is competent at economic policy. Dems need to push back harder against this falsehood. He has managed his own inherited wealth terribly and his suggested policies will be pure poison to the US economy.
Are there any good examples of countries taking Keynesian economics seriously in a consistent way? Every country I can think of is either a permanent deficit hawk (Germany) or endlessly stimulating the economy (basically everyone else).
I wish voters cared as much about how we tax as how we spend. There is some debate on other threads about estate & capital gains taxes. It it is important to compare those options to the other ways the government could raise or save money to see that substantial increases are needed, not just think of them in isolation.
The Bolhuis et al paper is absurd. They do a bunch of statistical gymnastics to prove why consumer sentiment currently is as bad as it was not only during the Great Recession but also during the worst of the late Carter/early Reagan years by using new measures incorporating interest rates. Yet certainly in the latter, not only was the misery index (inflation and unemployment rate) much worse than recently, but so were interest rates, which were close to three times higher than now. Even by their own logic, consumer sentiment should be far, far better now than in, say, 1980, rather than basically the same. And having lived then and been on the job market, I can confirm that 1979-1982 was a far worse time than 2021-2023.
Plus, there is a huge divergence between people currently saying their own situation is good but that of the nation's economy is bad. I imagine that wasn't the case in 1979-1982.
Call it a vibecession, media bias toward negativity, the Republican partisan effect or whatever, but people are not responding to these surveys rationally.
There are two, distinct questions about austerity:
1) Is ideally structured austerity desirable; and
2) Is an austeirity bill that could actually pass Congress desirable.
The answer to (1) is clearly yes. There are plemty of fat oxen to gore. Bring back Eisenhower (or Nixon) era tax rates on the upper brackets and you pacify the left, please deficit hawks, lower inflation and improve fiscal capacity all at once. The only contentious question would be how far down the income ladder austerity should extend, and there would be a simple tradeoff between broadening the pro-austerity coalition and actually reducing aggregate demand.
This does NOT imply that real world austerity would be desirable. I would rather rather tolerate modestly higher inflation than across the board cuts to Medicaid or Social Security. This implies that looking for Harberger triangles (waste) is politically convenient even if it is macroeconomically impotent. Channeling political energy towards identifying waste could shield useful programs from across the board cuts and sanitize the idea of government spending.
This is tangential to the main point of the post, but something I've wondered is whether there have been any studies yet to determine whether the increasing number of states and municipalities that have built automatic inflation adjustments into their minimum wages are making it harder to tamp down inflation by putting continuous upward pressure on wages.
I just looked up who Arnold Harberger is, and today I learn that he's still alive, and will turn 100 in July. A lot of economists know how to live long. We'll have to send him off with a ▶ symbol to honor his work on the subject when he finally dies.
EDIT: not thrilled that Substack is automatically translating what was just supposed to be a solid black triangle into an emoji, that's dulling the reference I'm trying to make there.
I wonder if a 0.5% tax increase on every household making more than say 80,000 that is specifically for deficit reduction only would have popular support.
This is a useful data set in terms of housing affordability, which gets to the point of why views on the economy are more pessimistic than the macro stats like GDP and unemployment.
As usual, this is a great post and I agree with all of it. And as a longtime MattY fan and reader, I remember you writing about this in 2011 (and 2013 etc etc) and thinking “well the Democrats are the party of Reason and Science, surely they’ll do the right thing when the time comes”.
Well I’m no longer a naive college kid who thinks the Democrats are “the party of Reason and Science”. But it has to be said that we’re accumulating a long list of instances where Democrats are simply refusing to do the right thing on the merits, according to the arguments they themselves made. Moreover they’re doing this in a way that harms them electorally against Donald Trump who is a threat to them, their agenda, democracy, humanity, rule of law, etc etc in basically every way.
How do you make sense of this complacency? Especially on the part of administration leaders who are supposed to be mature adults who know better (as opposed to Sunrise activists)?
What's been a little surprising to watch is how the Jones Act, long a niche issue that a handful of nerds who read Cato white papers complain about, is getting more attention in the news as a hurdle for offshore wind energy-a big goal of the progressive left-and there's been no actual policy change at all to address the hurdle. I would have expected at least some Democrats to decide that fast deployment of offshore wind is better than protectionism, but the party has been amazingly unified in refusing to see a problem. And IRL I've been surprised that Green groups don't even seem to care about this.
In general, agree with the thrust of this post. We can debate the details for sure as to what should be cut or what taxes should be made, but it really does seem like this is the actual right time for deficit reduction.
However, I need to address something you wrote "If you look at contemporary polling, it’s still the case that voters want reassurance that Democrats care about the national debt...". Yeah going to stop you right there. Unless your "voters" are policy wonks at AEI or Brookings or economists at banks or colleges, there is no way this is actually a true statement. Vast majority of voters do not actually care about the national debt. In fact, vast majority of voters I doubt could tell you the mechanics of why bad debt is a problem in the public policy realm beyond associating with their own personal finances; which as you know is actually a terrible way of assessing national debt.
It's weird that this lesson was apparently only heeded by Bill Clinton who famously got a question at a debate in 1992 about the deficit and then pivoted because he (or someone on his team) understood that when voters worry about the deficit or debt, it's really general (to use the famous phrase from November, 2016) "economic anxiety".
Looking at pure politics, the reason to decrease deficits is that it should put downward pressure on interest rates which voters should notice in lower borrowing costs which should lead to less worries about the economy generally. But worry about the deficit and debt is just pure "serious people" stuff and saying the public wants debt reduction is just categorically incorrect.
What's weird is I'm pretty sure Matt is one of the people who taught me to not look at issue polling at face value but ask yourself what is the real thing public is worried about so odd to me he would sort of throw that line in.
I’m more and more convinced that the only thing that keeps Trump above 30% in polls is this false notion that he was/is competent at economic policy. Dems need to push back harder against this falsehood. He has managed his own inherited wealth terribly and his suggested policies will be pure poison to the US economy.
Are there any good examples of countries taking Keynesian economics seriously in a consistent way? Every country I can think of is either a permanent deficit hawk (Germany) or endlessly stimulating the economy (basically everyone else).
"Every middle manager working on an ineffective program is someone who could be managing a Target or a Chipotle."
Which I'm guessing would be a nightmare for middle managers out there. (And, yes, it's fine to inflict that nightmare.)
Taxes?
Taxes!
The upshot of this is that Joe Manchin and Kyrsten Sinema saved America.
This policy was basically the centerpiece of the Clinton administration and it worked great.
Treasury says tax expenditures cost it $1.6t last year, or ~95% of the deficit...good place to start
https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures
I wish voters cared as much about how we tax as how we spend. There is some debate on other threads about estate & capital gains taxes. It it is important to compare those options to the other ways the government could raise or save money to see that substantial increases are needed, not just think of them in isolation.
The Bolhuis et al paper is absurd. They do a bunch of statistical gymnastics to prove why consumer sentiment currently is as bad as it was not only during the Great Recession but also during the worst of the late Carter/early Reagan years by using new measures incorporating interest rates. Yet certainly in the latter, not only was the misery index (inflation and unemployment rate) much worse than recently, but so were interest rates, which were close to three times higher than now. Even by their own logic, consumer sentiment should be far, far better now than in, say, 1980, rather than basically the same. And having lived then and been on the job market, I can confirm that 1979-1982 was a far worse time than 2021-2023.
Plus, there is a huge divergence between people currently saying their own situation is good but that of the nation's economy is bad. I imagine that wasn't the case in 1979-1982.
Call it a vibecession, media bias toward negativity, the Republican partisan effect or whatever, but people are not responding to these surveys rationally.
There are two, distinct questions about austerity:
1) Is ideally structured austerity desirable; and
2) Is an austeirity bill that could actually pass Congress desirable.
The answer to (1) is clearly yes. There are plemty of fat oxen to gore. Bring back Eisenhower (or Nixon) era tax rates on the upper brackets and you pacify the left, please deficit hawks, lower inflation and improve fiscal capacity all at once. The only contentious question would be how far down the income ladder austerity should extend, and there would be a simple tradeoff between broadening the pro-austerity coalition and actually reducing aggregate demand.
This does NOT imply that real world austerity would be desirable. I would rather rather tolerate modestly higher inflation than across the board cuts to Medicaid or Social Security. This implies that looking for Harberger triangles (waste) is politically convenient even if it is macroeconomically impotent. Channeling political energy towards identifying waste could shield useful programs from across the board cuts and sanitize the idea of government spending.
This is tangential to the main point of the post, but something I've wondered is whether there have been any studies yet to determine whether the increasing number of states and municipalities that have built automatic inflation adjustments into their minimum wages are making it harder to tamp down inflation by putting continuous upward pressure on wages.
ETA: First!
I just looked up who Arnold Harberger is, and today I learn that he's still alive, and will turn 100 in July. A lot of economists know how to live long. We'll have to send him off with a ▶ symbol to honor his work on the subject when he finally dies.
EDIT: not thrilled that Substack is automatically translating what was just supposed to be a solid black triangle into an emoji, that's dulling the reference I'm trying to make there.
I wonder if a 0.5% tax increase on every household making more than say 80,000 that is specifically for deficit reduction only would have popular support.
This is a useful data set in terms of housing affordability, which gets to the point of why views on the economy are more pessimistic than the macro stats like GDP and unemployment.
https://www.atlantafed.org/center-for-housing-and-policy/data-and-tools/home-ownership-affordability-monitor
As usual, this is a great post and I agree with all of it. And as a longtime MattY fan and reader, I remember you writing about this in 2011 (and 2013 etc etc) and thinking “well the Democrats are the party of Reason and Science, surely they’ll do the right thing when the time comes”.
Well I’m no longer a naive college kid who thinks the Democrats are “the party of Reason and Science”. But it has to be said that we’re accumulating a long list of instances where Democrats are simply refusing to do the right thing on the merits, according to the arguments they themselves made. Moreover they’re doing this in a way that harms them electorally against Donald Trump who is a threat to them, their agenda, democracy, humanity, rule of law, etc etc in basically every way.
How do you make sense of this complacency? Especially on the part of administration leaders who are supposed to be mature adults who know better (as opposed to Sunrise activists)?
What's been a little surprising to watch is how the Jones Act, long a niche issue that a handful of nerds who read Cato white papers complain about, is getting more attention in the news as a hurdle for offshore wind energy-a big goal of the progressive left-and there's been no actual policy change at all to address the hurdle. I would have expected at least some Democrats to decide that fast deployment of offshore wind is better than protectionism, but the party has been amazingly unified in refusing to see a problem. And IRL I've been surprised that Green groups don't even seem to care about this.
In general, agree with the thrust of this post. We can debate the details for sure as to what should be cut or what taxes should be made, but it really does seem like this is the actual right time for deficit reduction.
However, I need to address something you wrote "If you look at contemporary polling, it’s still the case that voters want reassurance that Democrats care about the national debt...". Yeah going to stop you right there. Unless your "voters" are policy wonks at AEI or Brookings or economists at banks or colleges, there is no way this is actually a true statement. Vast majority of voters do not actually care about the national debt. In fact, vast majority of voters I doubt could tell you the mechanics of why bad debt is a problem in the public policy realm beyond associating with their own personal finances; which as you know is actually a terrible way of assessing national debt.
It's weird that this lesson was apparently only heeded by Bill Clinton who famously got a question at a debate in 1992 about the deficit and then pivoted because he (or someone on his team) understood that when voters worry about the deficit or debt, it's really general (to use the famous phrase from November, 2016) "economic anxiety".
Looking at pure politics, the reason to decrease deficits is that it should put downward pressure on interest rates which voters should notice in lower borrowing costs which should lead to less worries about the economy generally. But worry about the deficit and debt is just pure "serious people" stuff and saying the public wants debt reduction is just categorically incorrect.
What's weird is I'm pretty sure Matt is one of the people who taught me to not look at issue polling at face value but ask yourself what is the real thing public is worried about so odd to me he would sort of throw that line in.