Is Robert "No Relation to Paul" Samuelson the reason we can't have any serious discussion of the functioning of government?

Would it help if "No Relation" occasionally read a book by someone peddling something other than the mindless platitudes of conventional economic wisdom? You know, I really don't think so.

by Ken

Okay, I've overdramatized. No, of course, Robert "No Relation to Paul" Samuelson isn't the reason we can't have any serious discussion of the functioning of government. He's much more a symptom than a cause of the problem(s). But if you don't think the problem is made worse by having a venue as august as the Washington Post offering license to pontificate on finance and economics to someone who knows, well, perhaps less about these subjects than anyone on the planet, then we disagree.

(It's true that the Post maintains a whole roster of people as inexpert on the subjects they're engaged to analyze. This is what I mean by "No Relation" being more a symptom than a cause of the problem. They've got a whole lot of symptons there.)

In my Wednesday post, "Step right up and vote for that 'transparent faker' Willard Inc. and the unknowable contents of his campaign Mystery Box," writing about the 13-installment symposium on the election published in the current (November 8) issue of the New York Review of Books (in that post I also included a laboriously assembled linked list of the 13 individual pieces), I ventured that "Jeffrey Sachs's piece may be the most important" of the 13 and formally reserved the right to return to it. Tonight we're returning back to it.

I characterized the subject tackled by Sachs, who's director of the Earth Institute at Columbia University (and author most recently of The Price of Civilization: Reawakening American Virtue and Prosperity), as --

the insanity, built into our political system, of operating the U.S. government, "the world’s largest enterprise, with $3.7 trillion in outlays, $2.5 trillion in revenues, and 2.1 million civilian workers," and "also the most complex, operating in every sector of the world’s largest economy, in every country of the world, and in every possible setting: markets, technology development, social programs, basic science, and much, much more" without any kind of planning beyond our day-to-day seat-of-the-pants partisan brinksmanship.

Sachs naturally explains his case way better than I can:

The US federal government is the world's largest enterprise, with $3.7 trillion in outlays, $2.5 trillion in revenues, and 2.1 million civilian workers. It is also the most complex, operating in every sector of the world's largest economy, in every country of the world, and in every possible setting: markets, technology development, social programs, basic science, and much, much more.

A behemoth of this size requires goals, plans, strategies, and budgets that look forward for years, even decades. This is especially true in our era, when unprecedented shifts in technology, demography, the world economy, and the physical environment require deep structural changes in our economic and social life. Old skills and sectors are obsolete. The energy, health, and education systems require large-scale overhauls. And yet we operate almost blindly, month by month, fiscal cliff by fiscal cliff, without any clear pathway ahead.

Imagine running the largest global Fortune 500 company, Royal Dutch Shell (at around one fifth the federal government revenues), without plans, strategies, and budgets. Some companies may try it but they don't last long. The federal government has the advantage of the Federal Reserve's printing press (which has been covering much of the deficit as the Federal Reserve buys up Treasury bills and bonds) as well as a constitutional monopoly on power. Still, these should be no excuse for running the government like a bumper-car derby, pushed and pulled by the random collisions of competing interests and factions.

To put it mildly, our system isn't set up terribly well to accomplish much of this sort of planning.

The game of politics has almost completely overshadowed the hard work of governing. Most of the time of President Obama and his congressional counterparts is taken up by campaigning and fund-raising, posturing and messaging, negotiating and horse-trading on short-term transactions, and occasionally debating real issues of importance, such as government's responsibility for supporting the poor and elderly. Yet none of this political activity substitutes for public management, which means the arduous task of defining goals, and then planning, strategizing, and budgeting toward them.

We've gotten so used to the breakdown of actual governing that the public is not aware of what's gone. The prevailing interpretation is that our government is broken because of political gridlock. There is some truth to that, of course. Yet one of the main reasons that it's gridlocked is that running the government is now viewed as nothing more than an extension of electoral politics, which in turn amounts to little more than a clash of competing interest groups that finance the politicians and try to keep their teams in power. If the government were approached differently, as a complex venture requiring serious planning, budgeting, and strategy, the process itself of governing would actually rescue the government from the current political trap that keeps it so dysfunctional.

"Some government agencies still work brilliantly," Sachs says, citing NASA and the National Institutes of Health (NIH). But they're "not the norm," he says.

The government is mostly led by appointees or elected officials with little technical knowledge, less management experience, and an expected job duration of a few years at most, often culminating in a lobbying position on K Street after leaving government. The alternation of power between the two political parties does almost nothing to compel better managerial performance.

As our problems have gotten more complex in a more global, technological, and environmentally unstable era, the two parties have adopted increasingly naive ideological positions to justify their chronic managerial failures.

"The Republicans' answer, of course, is that no management is needed: the market will do it."

Their increasingly absurd elixir of tax cuts and deregulation is supposed to solve any problem: poverty, pollution, unemployment, health care, climate change, and even national security. Fortunately, it looks like the public is not buying this nonsense.

And the Democrats?

Sadly, President Obama and the congressional Democrats have had their own mythology that the economic problems will generally sort themselves out without long-term plans and with short-term patches such as a bit more demand stimulus. Democrats rightly believe in government, but they give little evidence that they believe in public management. The stimulus legislation in 2009 was a $900 billion hodgepodge thrown together in a few weeks, on the mistaken and panicked grounds that even a few months of delay for planning would have meant a great depression. And even if fear itself could justify the rushed first stimulus package, little can justify the continuing resort to short-run measures—temporary tax cuts, temporary spending programs, repeated quantitative easing—that have done almost nothing to restructure the economy. Keynesian stimulus policies have become the substitute for strategy, planning, and implementation.

Sachs declares himself "an Obama supporter," but worries about the prospect of "four more years of improvisation." There would be, he suggests, "a narrow window in which Obama can lay out real and long-term options for the country, before those options are overwhelmed by the deepening economic, social, and environmental crises wracking the US and the world." And he asks us to "consider three pivotal issues that will likely determine our country's well-being for decades to come: energy, health care, and skills."

I'm sorry to skip over Sachs's investigation of the situation in each of these sectors. It's the heart of the matter, and you really owe it to yourself to read it for yourself. But we really can't get into that here. He proceeds to register horror at the expectations aroused by Willard Inc.'s mangling of these issues, to the extent that he even touched on them, in his campaign and in the first debate (you know, the one he "won"). But he's not all that confident that President Obama ("a very smart, honest, and ambitious leader") can be counted on to take charge in a productive way.

[S]uccess will require a very different second term. America's deepest problems are structural, not cyclical. We need to reinvigorate government for the twenty-first century, and to put away childish things, just as Obama once promised to do. Obama has faced childish opposition, it is true, but grown-up leadership that eschews gimmicks could recapture the support he needs to begin leading the nation away from its current morass.

WHAT HAPPENS WHEN A DOPE LIKE "NO RELATION"
BLUNDERS HIS WAY INTO REAL-WORLD ISSUES?

What "No Relation" has done, besides parlaying the accident of his last name (as I've written before, I believe he'd have no career if he were forced to announce himself as Robert "No Relation to Paul" Samuelson, since I'm quite persuaded that lots of people believe, to the contrary, that he's a "chip off the old block," the legendary economist) and a bunch of mindless "conventional wisdom" economic platitudes that he hasn't either the inclination or the tools to evaluate. Like, for example, the familiar right-wing shibboleth that "government can't create jobs." In "No Relation"'s cosmos, only rich white moguls who suck the life out of the economy can create jobs.

Economist Dean Baker, co-founder (with Mark Weisbrot) of the economics think tank Center for Economic and Policy Research, took him on the other day on the CEPR website.

Robert Samuelson Takes on NYT Editorial Board: Government Does Not Create Jobs!

Thursday, 25 October 2012 15:53

Robert Samuelson was sufficiently outraged by a NYT editorial claiming that the government creates jobs that for the first time in his 35 years as a columnist he felt the need to attack a newspaper editorial. Samuelson called the NYT view "the flat earth theory of job creation" in his column's headline. Since on its face it might be a bit hard to understand -- there are lots of people who do work for the government and get paychecks -- let's look more closely at what Samuelson has to say on the topic.

Samuelson tells readers:

"It's true that, legally, government does expand employment. But economically, it doesn't — and that's what people usually mean when they say 'government doesn't create jobs.'

What the Times omits is the money to support all these government jobs. It must come from somewhere — generally, taxes or loans (bonds, bills). But if the people whose money is taken via taxation or borrowing had kept the money, they would have spent most or all of it on something — and that spending would have boosted employment."

Okay, so we can at least agree that all of those people working as teachers, firefighters, forest rangers etc. do legally have jobs. That seems like progress. But let's look at the second part of the story:

"the money to support all these government jobs. It must come from somewhere."

Yes, that part is true also. But the last time I looked, the money to pay workers at Apple, General Electric, and Goldman Sachs also came from somewhere. Where's the difference?

Samuelson tells us that if the government didn't tax or borrow or the money to pay its workers (he makes a recession exception later in the piece) people "would have spent most or all of it on something -- and that spending would have boosted employment."

Again, this is true, but how does it differ from the private sector? If the new iPhone wasn't released last month people would have spent most or all of that money on something -- and that spending would have boosted employment. Does this mean that workers at Apple don't have real jobs either?

The confusion gets even greater when we start to consider the range of services that can be provided by either the public or private sector. In Robert Samuelson's world we know that public school teachers don't have real jobs, but what about teachers at private schools? Presumably the jobs held by professors at major public universities, like Berkeley or the University of Michigan are not real, but the jobs held at for-profit universities, like Phoenix or the Washington Post's own Kaplan Inc., are real.

How about health care? Currently the vast majority of workers in the health care industry are employed by the private sector. Presumably these are real jobs according to Samuelson. Suppose that we replace our private health care system with a national health care service like the one they have in the U.K. Would the jobs in the health care no longer be real?

If our new system was as efficient as the one in the U.K. we would not even need any additional tax revenue to pay for it. According to the OECD, the whole expense of the U.K., system, $3,433 per person in 2010, is less than the $3,967 per person (in 2010) that the government already pays for health care. So by replacing a less efficient private system with a more efficient public system will the government have eliminated all the real jobs in the health care sector?

It keeps getting harder and harder to figure out what is supposed to be a real job in Robert Samuelson's world. If the government requires drivers to buy auto insurance, do the people at the auto insurance companies have real jobs? Suppose the insurance companies were run by the government? Suppose that they were private but drivers paid for most of their insurance via a tax on gasoline? (You can have differential rates so that dangerous drivers pay an additional premium.)

How about when the government finances an industry by granting it a state sanctioned monopoly as when it grants patent monopolies on prescription drugs. Do the researchers at Pfizer have real jobs even though their income is dependent on a government granted monopoly? Would they have real jobs if the government instead paid for research out of tax revenue and let drugs be sold in a free market, saving consumers $250 billion a year?

Robert Samuelson obviously thinks there is something very important about the difference between working for the government and working in the private sector. Unfortunately his column does not do a very good job of explaining why. It would probably be best if he waited another 35 years before again attacking a newspaper editorial.

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Why should WaPo dolt Robert Samuelson "get" the Irish mess better than anything else, or better than any other infotainment noozers?

An abandoned new house on the Dublin–Sligo road,
County Leitrim, Ireland, April 2010

by Ken

I've been meaning to write something about the economic catastrophe in Ireland since I read Granta editor "Ireland: The Rise & the Crash," Ian Jack's discussion of the subject in the form of a review of Fintan O'Toole's book Ship of Fools: How Stupidity and Corruption Sank the Irish Tiger in the Nov. 11 New York Review of Books. Obviously I have no expertise in the subject, but Ian Jack's NYRB piece sure rings true, and leaves me feeling I have a surer grasp of the situation than, say, Washington Post and Newsweek financial columnist Robert J. Samuelson, whose recent column on the subject, "In Ireland's debt crisis, an ominous reckoning for Europe," I admit made me pretty crazy.

(In case you too were wondering, let me assure you that the dolt Robert Samuelson is no relation to the great Nobel-winning economist Paul Samuelson, author of the economics textbook that dominated the teaching of introductory economics in this country in the second half of the 20th century.)

Interestingly, it's not, as one might first assume, that the dolt Robert Samuelson is totally ignorant of the facts of the Irish crisis. This much of what he wrote is, it seems, actually true, as far as it goes:

That Ireland, after Greece, has come to grief is ironic. Until recently, it was admiringly dubbed the Celtic Tiger for emulating Asian countries in attracting foreign investment - Intel and others - and achieving rapid export-led growth. From 1987 to 2000, annual economic growth averaged 6.8 percent; unemployment fell from 16.9 percent to 4.3 percent. But then solid growth gave way to a housing boom and bubble whose collapse left Irish banks awash in bad loans.

Unfortunately, "ironic" doesn't begin to cover what happened in Ireland, which might more properly be described as naked colllusion between a network of flagrantly fraud-perpetrating Irish banksters and a criminally complaisant government.

"O'Toole," Jack writes, "divides Ireland's recent economic history into two periods: a period of controlled (some might say rational) growth between 1988 and 1997 and then the madcap Celtic Tiger years that ended in collapse." Even the dolt Robert Samuelson is sort of aware of this. He just chooses to draw a discreet curtain over his awareness regarding what happened in these two periods, and what it says about the experience of the Celtic Tiger.

The tremendous economic turnaround of that first period was real. Of course it's worlds removed from the miraculous Celtic Tiger image evangelized by dimwits and ideological hooligans whose number included American presidential candidate Young Johnny McCranky. Of the 1988-97 period of growth that would almost certainly have been sustainable, Jack writes:

Until the 1980s, Ireland had a miserable record of economic underperformance, unparalleled by any other country in Europe, which made it the despair of its people; no other European country, wrote the Irish historian John Joseph Lee, recorded so slow a rate of growth of national income in the twentieth century. It was the more prosperous parts of Europe, however, that provided Ireland's first way forward. The European Union classified the entire country as a disadvantaged area and poured in money from its regional and structural funds -- nearly €11 billion between 1987 and 1998 -- which O'Toole describes, rightly, as the kind of "classic big government interventionism" that the Celtic Tiger era affected to despise.

The Irish, meanwhile, were intervening themselves. Their government brokered a social partnership between bosses and trade unions and invested heavily in higher education, so that today more than 40 percent of the population aged twenty-five to thirty-four has completed "third-level" (university or equivalent) education, the second-highest rate in the EU. At a time of a prolonged global growth and American investment overseas, Ireland found itself lucky in other ways. Decades of emigration had left it with a preponderance of young people. It had no inheritance of heavy industry -- no steel works or mines to close or subsidize. Feminism arrived, with effects on both the birth rate and the workplace.

The peace process was meanwhile gathering strength in Northern Ireland -- the Provisional IRA declared its cease-fire in 1994 -- and the Catholic Church was losing its grip on morals and behavior. Society grew more secular, open, and tolerant. Gradually, Ireland appeared to the outside investor as a small, hospitable Anglophone country with an educated workforce and relatively low wages. Gross domestic product per capita, which had been two thirds of the EU average in 1986, achieved parity with the rest of Europe in 1997 and rose above Britain's in 1999. By the end of the century, every Viagra tablet made by Pfizer came out of County Cork and Ireland exported more computer software than any other country. O'Toole looks back fondly on this time: "The pall of failure that had hung over the Irish state for most of its independent existence seemed to have been blown away for ever."

But, Jack writes, O'Toole also sees the 1988-97 economic awakening as "a lost opportunity."

When [new Prime Minister Brian] Ahern's Fianna Fáil government came to power in 1997 [Ahern is seen at right resigning in not nearly enough disgrace in April 2008], Ireland had an "optimistic, confident" population facing "incredibly favorable global conditions."

The new government, however, believed it had discovered a quicker-acting formula for wealth creation: tax cuts to stimulate consumption, property to replace manufacturing as the source of wealth, Dublin to become a tax haven for businesses seeking to avoid the more rigorous regimes of London and New York. Ireland turned away from making and exporting goods as the source of its new well-being toward the evanescent world of money and debt. On the one hand, Dublin became the single largest location outside the US for the declared pre-tax profits of American firms. On the other, Ireland's balance of payment figures slid into the red. "Being prosperous would be replaced by feeling rich" is how O'Toole memorably captures the hidden agenda -- hidden, perhaps, even from its initiators. Ireland was far from the only country to embrace it, but by O'Toole's argument the other countries that did (including the UK) had longer and more robust traditions of relatively clean governance and civic behavior.

Thus the ground was laid for what O'Toole calls "a lethal cocktail of global ideology and Irish habits" --

habits or attitudes, that is, born during the unhappiest years of Irish history. These "nineteenth-century revenants" included a primitive land hunger, a political system inspired by the Irish-Americans of Tammany Hall, subversive attitudes to authority born under British rule, and heroic powers of denial ("the unknown knowns"). Revelations of cruelty and hypocrisy had ended the authority of the Catholic Church, but no civic morality had been put in its place and memories of its old instructions, or lack of them, remained. As O'Toole puts it, "Masturbation was a much more serious sin than tax evasion."

Naturally the assumption by people like the dolt Robert Samuelson is that Ireland's economic collapse was caused by the inevitable collapse from a shockingly irresponsible orgy of borrowing. And so, I guess, it was, but not in the way that the usual right-wing apostles of fiscal "austerity" would have us believe. It was, in fact, an out-and-out collusion between a crooked government and crooked banksters, with crooked developers and builders doing the dirty work for them.

But before we come back to how this colossal ripoff was managed, it's important to remember that many of those people who now preach fiscal "austerity" were once the most fervid evangelists of Celtic Tigerism. Ian Jack recalls:

Until the crash, Ireland was an economy to be admired rather than examined, to be emulated rather than avoided. It took a long time for the truth to come out. In February 2008 -- shortly before Scotland's own banks went belly up -- the leader of the Scottish National Party, Alex Salmond, was promising that an independent Scotland would create "a Celtic Lion economy to rival the Celtic Tiger across the Irish Sea." Later in the same year Phil Gramm, economics adviser to presidential candidate John McCain, described Ireland as the "perfect example" of a country that had prospered through tax rates that were among the lowest in the world: "Senator McCain's people immigrated from Ireland along with millions of others because they were hungry. Today…they [the Irish] have overtaken Americans in per capita income."

McCain himself returned to the example in his televised debates with Obama, comparing American and Irish business taxes to show why America needed to cut them. "One of history's weirdest reversals," writes O'Toole: for centuries the Irish had dreamed of becoming Americans, and now some Americans wanted to be more like the Irish -- not the charming, peasant Irish of John Ford's The Quiet Man but the new Irish, with a Mercedes in the carport, a vacation home in Marbella, and corporation tax set at 12.5 percent. Ireland, though it belonged to the European Union and had earlier benefited from EU largesse, began to see itself as an outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm.

Did you get that? "An outpost of American (or Anglo-American) free-market values on the far edge of a continent where various brands of social democracy were still the political norm."

Low taxes, as suggested here, were a crucial part of the that second, phony-baloney period of Irish economic "growth." In reality, there wasn't any "growth." It was all a charade, in which government policies not only allowed but encouraged the banksters to pump up the economy with staggering quantities of loans for the building of buildings all over the country that never had any possibility of realizing any economic return. In the sense that there were actual buildings built, I suppose you could say that the Irish housing bubble was more "real" than the final fatal acceleration of ours, which was built on the spectacular creation of new "value" in the form of mortgages that had scarcely any value relative to the prices for which they were bought and sold in the form of bundled securities.

But again, that staggering inventory of new buildings, never had any real prospect of being occupied, and for that matter were never intended to be. They were just the way all that created money was pumped into the economy. Of course it was still a form of Ponzi scheme, since as all that money moved from party to party, eventually there had to be a party left holding the bag, in the form of all those empty buildings. O'Toole and Jack offer as an example, the explosion of construction, virtually all of it now unoccupied in the 613-square-mile hard-scrabble county of Leitrim, whose population declined from 155,000 in 1841 ("before the famine and the collapse of its handloom industry") to under 30,000 today, when, Jack writes:

Bright signs stick above the dark hedgerows: "Luxury development of highly distinctive homes" and "€100,000 off original price." Behind each of them lies a cluster of two-story houses with pitched roofs and carports that could just as easily belong in the suburbs of London or New York. Very few are occupied, some are unfinished, dandelions sprout on lawns that have run wild. Who was expected here? They look like houses built for junior executives with two children and two cars, but how many of them could the Leitrim economy possibly have supported even when the boom was at its height? They add another layer of human absence to the fields around them: first, the people who went away; now, the people who never came.

Did anyone really believe there was ever going to be real-world demand for all those houses? Wasn't the ending, as emblemized by the photo at the top of this post, always inevitable? Well, sure, but meanwhile a lot of people pocketed a lot of euros from that pumped-up economy. And as noted, a lot of right-wing economic preachers held it up as an example to be emulated. Eventually the finance minister, Brian Lenihan, offered the piquant explanation that Ireland is a small country "with too many incestuous relationships." Oh, do you think?

In 2006, at the height of the boom, construction accounted for almost a quarter of Ireland's GDP and occupied a fifth of the workforce. Thousands of workers came from the poorer regions of Europe to meet the demand; Ireland, one of the great historical sources of emigration, became a net importer of labor. The migrants rented houses built by an earlier wave of migrants, while they built more houses that their employers hoped would be occupied by the next wave. The increase in debt was terrifying, or should have been (the taoiseach or prime minister, Bertie Ahern, cheerfully remarked, "The boom is getting boomier"). Bank lending for construction and real estate rose from €5.5 billion in 1999 to €96.2 billion in 2007 -- an increase of 1,730 percent -- while house prices doubled in the six years to 2006. Estates for commuters now spread a long way out from Dublin. It cost more to service a mortgage on a house in a muddy field two hours' drive from the city's center, remote from shops and schools, than to pay rent for similar accommodation in a desirable part of the city. And on such mortgages the average Dublin couple spent a third of its income.

There had been warnings. As early as August 2000, well before the peak, a report from the IMF concluded that there hadn't been "a single experience of price inflation on the scale of Ireland's which did not end in prices falling." In 2006, Professor Morgan Kelly of University College Dublin said there could be no "soft landing" for property values that had risen so much more steeply than incomes. Nobody wanted to listen. Prime Minister Ahern mocked Kelly as a moaner, and the press tended to take Ahern's side. More remarkable, as O'Toole writes, was how few mainstream economists came to Kelly's defense:

Every historically literate economist knew for sure that the Irish property boom was going to crash…. Yet the overwhelming majority of Irish economists either contented themselves with timid and carefully couched murmurs of unease, or, in the case of most of those who worked for stockbrokers, banks, and building societies and who dominated media discussion of the issue, joined in the reassurances about soft landings.

There were reasons, O'Toole and Jack explain, why so many people with emotional or political stakes in the illusion of the boom were "so stubborn in their refusal to see the blindingly obvious." In the end O'Toole chalks up the phantasmagoric Celtic Tiger "miracle" to the aforementioned "lethal cocktail of global ideology and Irish habits."

The total cost of the bailouts so far authorized or envisaged as "somewhere between €45 and €50 billion," with Ireland's budget deficit rising "from 12 to 32 percent of GDP." According to the now-standard formula, the people who created the problem are to a large extent being paid off -- by Irish taxpayers, of course. And the chorus of Big Money sycophants like the dolt Robert Samuelson tell us that the answer to the Irish blunder is . . . you guessed it, austerity. Every country, it appears, has its Villagers, and they all seem to have learned the same patter, even as the rich get richer and the rest of us get screwed.

And the solution -- we're all told -- is austerity. Check.

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