Economy

Want Less Inequality? Tax It

Revive the big idea of British economist Arthur C. Pigou! And apply it to America's most outrageous problem.

Courtesy of the Ramsey and Muspratt Collection

For the last two decades of his life, Arthur Cecil Pigou didn’t get much respect. Once considered Britain’s leading economist, he had come under caustic attack from a colleague at Cambridge—his friend and famous protégé John Maynard Keynes—for insisting that the Great Depression would correct itself without strong government intervention. By the mid-1940s, before Keynes died, Pigou had capitulated. But the dispute between the two, and Pigou’s eventual acknowledgment that Keynes might have a point, seemed to consign his own work to the dustbin. His student Harry Johnson remembers him as “a tall, straight figure, eccentrically garbed, glimpsed occasionally walking about the countryside.” In the hall where Pigou lectured on economic principles, one unknown undergraduate had carved into a desk “Pigou mumbles.”

Greece's Very Real Fiscal Cliff

The tired country's parliament continues to enact austerity measures to ensure Eurozone financial help keeps flowing, to the anger of many affected parties.

(AP Photo/Thanassis Stavrakis)

Last Wednesday night, I sat in the press stalls inside the main hall of Greece’s parliament watching a critical bill being debated. While Americans were still distracted by the results of their own election, Greece’s ruling coalition, made up of three parties that straddle the center, was struggling to pass new cuts and reforms necessary for continued financial help for the debt-ridden country. As the measure was attacked by deputies from SYRIZA, the hard-left official opposition, and the populist-right Independent Greeks, I heard yelling and commotion from inside the parliament building. My first thought was that the tens of thousands of protesters who had gathered outside in the pouring rain had broken through the lines of police and made it into the building.

Note to Obama: Shoot First, Compromise Later

(AP Photo/Jae C. Hong, File)

I hope the president starts negotiations over a “grand bargain” for deficit reduction by aiming high. After all, he won the election. If the past four years have proved anything, it’s that the White House should not begin with a compromise.

Assuming the goal is $4 trillion of deficit reduction over the next decade—that’s the consensus of the Simpson-Bowles Commission, the Congressional Budget Office, and most independent analysts—here’s what the president should propose:

Romney and the 0 Percent

AP Photo

My favorite exit-poll factoid this year comes near the end of the quadrennial Edison-Mitofsky questionnaire, as reported on the NBC News web site. The pollsters asked people leaving their voting places whether Barack Obama’s policies, and Mitt Romney’s policies, “generally favor[ed]” the rich, the middle class, or the poor—and respondents could give more than one answer. Among Obama supporters, 86 percent said that Obama’s policies favored the middle class, with another 25 percent saying that they favored the poor. Only 12 percent of Romney’s supporters, by contrast, believed that Obama’s policies favored the middle class while a whopping 74 percent said that they favored the poor—not a good thing in Romneyworld.  

Oil: The Bad News in the Good News

(Flickr/Mayhem Chaos)

On Monday, the International Energy Agency (IEA) came out with a stunner of a projection. The United States will replace Saudi Arabia as the world’s largest producer of oil by 2020, thanks to the unlocking of massive shale oil reserves. The U.S., with hydro-fracking technology, is riding a boom in natural gas as well.

Oil production will increase from its current level of about 6 million barrels a day per year to 11 million barrels by 2020. Within a few years, the U.S. will be a net exporter.

Pardon me if I don’t rejoice.

Nixon Can't Always Go to China

New America Foundation/Flickr

By this point, it’s clear that former Clinton administration official—and twice failed North Carolina senate candidate—Erksine Bowles is on the short list to replace Tim Geithner as Treasury Secretary. For reasons outlined by Paul Krugman, and our own Bob Kuttner, Bowles would be a terrible choice for Treasury: He’s a deficit scold more concerned with lowering taxes than reducing unemployment and providing a strong base for economic growth.

University of Hard Knocks

Contrary to the prevailing view, recent college grads will have the hardest time bouncing back from the recession.

(Flickr/Ali Reza Zamli)

With two positive jobs reports in a row, it seems clear that the economy is slowly and steadily recovering, which should come as welcome news to students shielded from the effects of the recession behind university walls. But for those who had the misfortune to graduate and enter the workforce at the height of the downturn, the effects of the Great Recession will likely stay with them for the rest of their working lives.

At first glance, it seems clear that those with a college degree have a leg up in a recession. Young people with only a high-school diploma have an unemployment rate of 22 percent, compared with 9 percent with a college degree. But the average college graduate will have the most permanent impact on their earnings, because they’ll have missed the first steps in building their career.

How the Fiscal Cliff Has Helped Clear the Air

(contemplicity/Flickr)

Now that elections season is over, Washington has returned to obsessing over the “fiscal cliff,” a collection of tax increases and spending cuts that—if triggered—would gradually remove hundreds of billions of dollars from the economy and put the United States on the path to another recession.

Get Out the Union Vote

(Flickr/Wisconsin AFL-CIO/Justin Geiger)

Despite setbacks in several states, the American labor movement came out a clear winner in Tuesday’s elections. Most important, they played a key role in ensuring the re-election of President Obama, and contributed significantly to Democratic Senate victories in hotly contested races in Massachusetts, Ohio, Wisconsin, and Virginia.

Why Obama Needs to Restart the Conversation on the Economy Now

When the applause among Democrats and recriminations among Republicans begin to quiet down—probably within the next few days—the President will have to make some big decisions. The biggest is on the economy.

His victory and the pending “fiscal cliff” give him an opportunity to recast the economic debate. Our central challenge, he should say, is not to reduce the budget deficit. It’s to create more good jobs, grow the economy, and widen the circle of prosperity.

The deficit is a problem only in proportion to the overall size of the economy. If the economy grows faster than its current 2 percent annualized rate, the deficit shrinks in proportion. Tax receipts grow, and the deficit becomes more manageable.

The Dangers of Our Budget-Deficit Minuet

(Flickr/Austen Hufford)

 

The day after Barack Obama was re-elected, the Dow Jones lost 312.96 points. It wasn’t just that investors were hoping for the lower taxes and further deregulation that would have come with a Romney win. The news from Europe was bad, and pundits were obsessively focused on the “fiscal cliff” of mandatory budget cuts that will drive the economy into a new recession unless Congress jumps off its own budgetary cliff first.

For once, the markets are right. But the news from Europe entirely contradicts conventional assumptions about the fiscal cliff.

The Economy Is Set for Big Growth Next Year

(401K/Flickr)

Bloomberg finds that—regardless of who wins the election tomorrow—the economy is set for stronger growth in 2013 and beyond:

Consumers are spending more and saving less after reducing household debt to the lowest since 2003. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009.

Unemployment Ticks Up—And That's a Good Thing

The economy gained 171,000 jobs in October, according to the Bureau of Labor Statistics. The previous two months’ job gains were also revised upward, with the BLS now estimating that an additional 50,000 jobs were created in August and 34,000 in September. With the revisions, we finally have more jobs than in early 2009, when the economy was in full collapse and President Obama took office.

Job growth is important, but what might be even more exciting news is that the unemployment rate went from 7.8 percent to 7.9 percent. Wait—isn’t unemployment the number we want to go down immediately?

I Can Haz Recovery?

Jamelle Bouie

For this month’s jobs report, don’t pay attention to the top-line number. Yes, unemployment increased to 7.9 percent, but that’s because the economy is creating more jobs, and more people are looking for work. Not only did the economy create 171,000 new jobs—beating expectations by a significant amount—but labor-force participation is up, and the Bureau of Labor Statistics added 50,000 more jobs to the total for August (bringing it up to 192,000) and 34,000 to the total for September (bringing it up to 148,000).

Michael Barone's Tenditious History

Electoral historian and Fox News commentator Michael Barone, having long since made the trek from mainstream liberal to standard-issue conservative, is now endeavoring to pull the whole of American history along with him. In today’s Financial Times, he argues that Franklin Roosevelt never really won majority support for his key New Deal programs. Those programs now stand on the chopping block should Mitt Romney be elected president next Tuesday, Barone writes, and they lack popular support even if Barack Obama should prevail.

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