Wednesday, November 24, 2010

Economic Balance

The difference between the conservative and the liberal on many economic issues is not one of principle but one of balance.

While there are certainly different economic ideologies at play, the simple, over-arching idea of more or less government is not a principle. If I am for more or less government, the appropriate question is "Compared to what?"

Both the conservative and the liberal see a vital need for private enterprise and for government action. Most conservatives still believe in a public school system. They certainly believe in a public military. They believe in public services like fire fighters and police. They believe in certain government regulation of markets. Liberals believe in rewarding creativity and hard work. They believe in personal freedom. They believe in financial markets.

So there is always a mix of socialized and privatized control of production and distribution in almost anyone's economic ideology.

I don't mean to downplay some very real differences on specific issues, but the dominant theme of more or less government is a question of balance rather than principle. And no two conservatives, and no two liberals, have the exact same position on this question. I think remembering this helps to lessen the illusion of a hard binary relationship between economic liberals and conservatives.


  1. I get what you're saying... "less than what?" is a meaningful question for sure. I think that government's role should be one of securing long-term stability. Public education and military certainly fit into this role... though I think it's reasonable to debate whether it's worthwhile to invest in the former in the half-hearted way we do.

    I think most conservatives would point to things like maintaining infrastructure and upholding law as the government's primary obligation. Most everything else is secondary to those. What we have witnessed as a practical notion is that government doesn't tend to shrink. When government programs are put in place, they just don't go away. When something doesn't work, it may take decades to reset the system. This is the basic idea behind the inefficiency I spoke to before.

    The system depends not on ideas, but on politics and popularity. Our leaders are followers... we may have to go back as far as Lincoln to find the last true American leader. Samuel is right to assert that the people are culpable. Our system revolves around placating the constituency and the constituency is spoiled and complacent...

  2. ...My great fear is that we are continually implementing programs that cater to this complacency... that we believe, for instance, that we are helping the poor or the unemployed through monetary aid without regard to strengthening the spirit. As part of the government's role of long-term stabilization, it is paramount that we not simply infuse the economy. We need to infuse the will of the American people. I think we are in danger of breaking the collective spirit of the underprivileged. The problem is that it takes immensely strong leadership to convince the addict that that what he needs is to strengthen himself from within. It's far easier to gain popular support by feeding the addiction. That, I fear, is what we're doing. If you truly want to infuse the economy, enact programs that infuse the will rather than the pocketbook of the individual.

    Big government... small government... it makes little difference. A government with an eye on the true methodology needed to make the individual strong and ecure should be the goal.

    ....stepping down from soap box...

  3. I agree with what you are saying. It takes personal effort to blow up into macro-economic reality. However, I believe that macro-economic reality can effect personal effort as well. Macro and micro economic responsibility are not mutually exclusive.

    "If you truly want to infuse the economy, enact programs that infuse the will rather than the pocketbook of the individual."

    Once again, I don't think these need be mutually exclusive. A meaningful fiscal stimulus creates opportunity, not guaranteed success.

  4. Steven, do you not think that certain elements of welfare represent more than simply an opportunity? In fact, would it not be fair to say that many programs actually undermine the opportunity for future success by addressing the perceived needs of the poor in the way they do?

    Also, I get that we're drawing a distinction between the macro and the micro. That's why I am keying in on the aid programs. The success of thse programs can be accurately gauged at the level of the individual or small samplings. And there is absolutely nothing gained by implementing these programs in a seemingly inefficient way... unless you want to make the "the world needs janitors too" argument.

  5. Hey Randy,

    I really haven't addressed welfare in any way - we have mentioned unemployment insurance as a way to "float" the labor force in between jobs without sacrificing the total loss in demand and a person's home and food.

    I am more interested in fiscal stimulus to the economy and that has been more the focus of my recent study, rather than welfare.

    Are their public and private welfare systems that enable poverty? Probably so. I am sure that if church soup kitchens closed down, more people would find work, but it may not be worth that moral hazard. Of course the same works for public welfare.

    That said, I tentatively favor a job guarantee program, where any person can work at any time building infrastructure and other public works and investing in our collective future. I would rather see people building bridges than collecting unemployment at home. Of course this is a huge over-simplification, but I think we have much in common - the goal of productivity and prosperity for the individual and for larger society.

  6. I was speaking more to welfare with a lower case "w". I apologize for generating confusion. I would characterize most every social program, including unemployment and social security as government welfare.

    Each of these programs represent a tangible portion of government spending. Each is in dire need of reform and each, if reformed well, would have a tremendous positive impact on the individual and would infuse the economy from the ground up.

    This I think is where we should begin. The macro economy will see the greatest success if the will of the individual is edified.

  7. I guess I am not sure exactly where you are coming from. Are you suggesting cutting social security benefits to the elderly and disabled? This would be an additional drain on demand and therefore on the larger economy, which would cut more jobs.

    If unemployment is cut, then what happens to collapsing demand in a downturn? What happens to more foreclosures? More dropping demand?

    In the name of edifying the individual, you might perpetuate a downward spiral in our economic fortunes, creating more obstacles to individual success. As much as I believe in personal responsibility, individuals do not exist in a vacuum. We are extremely interdependent.

    I am just not sure how it works mathematically to tackle a collapse in demand, and the corresponding losses in jobs, with austerity. Economic growth is facilitated through deficit spending by a government or through credit extended by banks. If we cut the former, and the latter is not working, then how does this solve anything? It sounds like a recipe for long-term sluggish growth.

    No matter how determined an individual, one can't get blood from a stone.

    I need to write a little something on the "paradox of thrift". It really gets to the problem with our concept of what is responsible on a micro level not matching up with what works on a macro level.

  8. Steven,

    I haven't abandoned my thoughts from the last post... I said reformed, not done away with. Want to lower unemployment? Empower the spirit of the worker. Want to stimulate private business? Incent companies who merit incentive. Want to transform an economy? Transform the individual.

    You spoke before about liquidity... banks could grow their liquidity and therefore expand in numerous ventures if the Federal Reserve was not so trigger happy. Recent changes designed to protect the consumer have done almost nothing to that end. Banks spent billions and the end result was a need to pass that along to the very people who were supposed to be protected. It changed nothing... except that those billions were charged to the people who could least afford to pay it. Every move like this serves to create a bill for the American people. It's time to slow down on monkeying with the economy and to begin moving resources to where they can actually do good.

    Every program, every economic reform is costly. And it's the people who pay.

    The economy is not some impossible-to-comprehend entity that has no relation to the individual. The government was once a facilitator... now it WILL hurt to transform the role of government in the economy. There is no doubt about that. That doesn't mean, though, that it is not the right course of action.

  9. "... banks could grow their liquidity and therefore expand in numerous ventures if the Federal Reserve was not so trigger happy."

    Banks have tons of liquidity right now, don't they? I am not sure what you mean. They are suffering from a perception of a lack of credit-worthy applicants for loans. And once again, when demand isn't there, it's tough to start a business, so are people looking for loans to start businesses?

    How is the Fed trigger-happy? I am not sure what you are referencing.

    "Want to lower unemployment? Empower the spirit of the worker."

    Can you explain? I am not sure what you mean. Does this mean get the employee to work harder? That increases productivity, which drives employment down further without new demand, since fewer workers are required to facilitate the economy at its current lackluster level.

    "The economy is not some impossible-to-comprehend entity that has no relation to the individual."

    Of course not. But deficits are good right now. Credit is good. Loans are good. Too much savings and de-leveraging all at once are dangerous. If we save too much, then we lose our jobs, because we have sacrificed the consumption that created those jobs. These ways of thinking seem backwards to us, but it doesn't mean they aren't correct right now.

    How do you want the government transformed in its role in the economy?

    I guess to me your comments sound like abstractions that are disconnected from the facts on the ground. I am not saying you don't have good points on a micro level, but once again, you seem to advocate drawing blood from stones.

    Maybe at some point we can dig in on some more specific issues to clarify our differences.

  10. Perhaps it was a tad disjointed. I was trying to address too much with a short post.

    Let's ask the question, "what got us to this point?" I think we can say for certain that the average American consumer has consumed more than he should. Our nation's overall net worth has not diminished in any tangible sense; rather, the divide between the rich and the poor has been amplified in our credit-based economy. We countenance lending practices which serve functionally as a tax on the poor. Now, Americans are faltering... not because there are no jobs to be had, but because they can't afford to take opportunities given their indebtedness. Additionally, charitable giving must diminish when your house and car payments are 70% of your net income. The individual is so indebted that he can't lend aid... but our solution, it seems, is to disallow the ramifications of these practices. Now, should our goal be to temporarily stifle unemployment and poverty by lowering credit risk as compared to the risks associated with saving?

    I would argue instead that we should allow the painful ramifications of these practices so as to deter them in the future while investing in real, productive (lower case w) welfare reform, thereby creating a generation of workers who have a true comprehension of work ethic and personal financial obligations.

  11. I'll give you an example of a recent economic mandate that accomplished nothing aside from unwarranted expense:

    In 2010, the Fed enacted changes to Regulation E, mandating at consumers can no longer be automatically opted in to "overdraft protection" programs. These programs typically pay overdrawn items but charge the consumers around $30 each time they overdraw their accounts. The change mandated that consumers must agree to opt in to such programs. Only consumer checking accounts were impacted.

    The result was that banks spent billions in marketing this tool as a protection against bounced checks or as a way to ensure that consumers are not declined at the point of sale (oh how embarrassing!). They spent billions more on compliance reviews. The vast majority of regular offenders opted right back in to the program. So, what is the net result? Banks are not inclined to eat losses on this scale. The big bad banks are bigger and badder, looking for (and finding) fees to charge the consumer in order to recoup these losses. The governmet in effect, has passed along billions of dollars in bank costs to the very consumers they were supposedly protecting.

    This is the type of willy nilly government program that serves only to damage the economy and to further the divide between rich and poor.

  12. The average American consumer has consumed more than he should. Yes, I agree. While credit is one of the main ways to build the economy, obviously things were out of balance. We are in a stage of de-leveraging right now. And that is necessary, except we need the federal government to deficit spend in the meantime until things get more balanced, else the economy will have trouble recovering for a much longer period. If it does not, where will the recovery come from?

    "Now, Americans are faltering... not because there are no jobs to be had, but because they can't afford to take opportunities given their indebtedness."

    Where are the jobs? Which opportunities? Are you saying that people are not pursuing jobs because they are in debt? How do you mean?

    The unemployed are a sign of an economy that is not firing on all cylinders. While I am sure some people are lazy, we know that full employment has been a reality many times in recent years. Most people don't tend to sit at home and go broke (and they will still go broke on unemployment).

    The idea that we should crave a Great Depression to teach us a lesson is ill-advised. 10 percent unemployment and the American dream on hold for millions is enough.

    There is moral hazard in bailing out the financial industry. And they have been bailed out many, many, many times over what consumers have been bailed out. It's a moral hazard, and I wish we could break up and rebuild most of the financial industry. But I still wouldn't wish collapse on our economy.

    Comment two:

    Are you saying that you would prefer banks to put customers into the overdraft system without asking them first? That is a shady business practice. Do you disagree?

    If it is shady, then it should not be done. And the fact that banks are now spending money marketing the service and complying with the regulation - how is that a criticism of the regulation?

    I understand that you are thinking macro about this issue, but to me it says that banking fees should be regulated more, not less. If they can game the system and sneak in more fees, that is a call for more regulation, not less. Right?

  13. 1.

    I don't want you to think I'm advocating a return to the Great Depression... that's precisely what I hope to avoid. Step 1 would be to allow failure. Step 2 (maybe better stated as Step 1a) would be to implement social reform in a manner that actually edifies the individual. The current unemployment system is broken and the resources have not been employed to fix it.

    Judging by your comment, it seems that you attribute this the-unemployed-are-just-lazy idea to me. I don't view unemployment as a laziness problem. There is a subset of 2 to 3 perent who will cling to laziness regardless, but most, I agree, will opt for work.

    This country has always been one of opportunity. People can succeed, but many haven't the tools. About 20% of folks I know outside of my actual place of business are in business for themselves and most find that there is no shortage of clientelle. You can't convince me that:
    A. Equipping the unemployed with tools for self succes is not possible.
    B. Infusing the economy with self-starters would not positively impact the macro economy.

    There is an alternative that would both encourage the worker and stimulate the economy. The trickle-down effect would be that these self-starters would force competition, removing the engorged liquidity you spoke to and each success story would represent job opportunities for the rest.

  14. As to shady practices, this is precisely how it was presented by the Fed. There was nothing shady about it, though. If you were to open an account in Jan 2010, you would have been presented with numerous materials outlining this product; else, your bank would already have been in violation of federal law.

    As I stated before, the change in no way outlawed the practice of charging the fees. It simply forced a massive cost with little net change in the number of overdraft fees. The cost, however, has been passed to the consumer.

    The fee practice itself is certainly no more evil than the idea behind the credit card... if you spend money you don't have, it turns out that you're not doing it for free.

  15. Once again, in abstraction, there is little you say that I disagree with. Of course we should empower individuals and equip them for self-success.

    1. How does stopping unemployment benefits now help increase demand and help the economy? Unemployment benefits create jobs. Stopping them now will cut jobs.

    2. I think maybe I am starting to get what your suggestion is. It must be more job training and more access to credit for potential entrepreneurs? I am all for that. But that involves fiscal stimulus - either by the government, or by the private sector investing in their businesses or extending credit.

    Is this what you are suggesting? I am all for it.

    I don't think the bank overdraft fee is analogous to credit card spending. The former penalizes people for accounting errors, giving them the illusion of not having committed an error. It is extending credit through accident rather than intention. However, I am open to the idea that perhaps enough information was already available to the public regarding the matter. But I think most people operate an account with the assumption that when they run out of money, they actually run out of money. Or that this is how it should be. Surely the default setting should not be the the fee-based service provided through ignorance?

  16. One quick wrap-up comment: I've re-read my above comments and I'm not certain how you came to the idea that I advocated we should discontinue unemployment. I believe we should reform, not do away with, unemployment.

  17. Fair enough - I guess I am just assuming things, because I am not really sure what you mean concretely by things like "reform unemployment" or "empower individuals."

    We should get together and discuss sometime soon!