Big Thoughts on jobless recoveries and all that.
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That is actually rather optimistic, and I actually think Posner is one of our top “economists”… Especially if you deficit hawks(non-owls, i.e. Obama+Boehner) keep pushing for ballanced budgets.
As soon as the budget deficit drops bellow the trade deficit, consumer savings goes negative and the consumer has to work to stimulate the economy by using credit cards. These of course carry high interest rates, because the credit card companies know that as an aggregate the expansion of the money supply via lending must be paid back at a high rate of interest. That is very quickly we will get into a situation where consumer spending is unsustainable, and we are looking at another “recession”, or basically an alloted time period when bankrupcies, reposessions, high unemployment and divorces all spike and all manner of contracts and relationships breakdown.
The washington deficit hawks are unequivocally some of the dumbest(or most duplicitous, depending on which you think is most charitable) people. So predicatable…
For what it is worth I don’t think Law and Economics is very good Constitutional Law…but it is THE Constitutional Law of Property…or at least a very good way of thinking about micro-economics/property. There is no disputing a lot of that…albeit in the way you summarize it there is. The manufacturing jobs are not all “high tech”…I am pretty sure you can do most of them with a high school degree:)
We are living in a time of plenty, and that is why Posner is “too pessimistic”…but in essence that plenty is comming from giving foreigners dollars and getting a big surplus of goods. In one sense complaining about the deficit and the trade deficit is silly because in truth this is what the french wanted to be able to do to Germany: it is REALLY the only way to collect TRIBUTE. But as Marx remarked on his criticism of the policies of the brittish vis a vis the East India Company (in partial response to which Austraian economics was formed argueing that gov. policy/empire is not “Free Trade”, I digress) if you flod a market with cheap goods you discourage local industry.
We are discourageing american industry and have been ever since we ceased being an exporter. The consumer is “better off” if you look at him as someone who is (alienable or bifurcateable from) his capacity as a producer. But this alienation from producer status is and always must be “dependent”.
While thousands of factors go into why folks may want to hold US dollars, and presumably these folks do so freely, because we have sane folks like Posner who uphold the rule of law and ensure the safety of property… I tend to think that our Trade Deficit is the immoral component. It literally is key stroke money that bounces the world electronically in packets of data in exchange for tangible goods. Literally if Keynes had tried to devise a method whereby a victor nation of a Great War received reperations he could not have done a better job than the current World Monetary system…(note to French Intellectuals…this is how it is done) which raises the question…did Keynes and the americans plan this? No you have to cut off the chain of causation…(albeit Keynes did warn that Bretton Woods would be unsustainable)..
Just to joke a bit… could the French have guessed that the Germans would have been happy being the technological slave nation (in exchange for escaping the systemic vices of the master nation, i.e. the US?)
Carl Scott wants to talk about FDR…but the real living constiutionalism occured in the architecture(constitution) of the global economy. (I only read Sunstein because I think he is a good micro-economist(economics has to maintain a connection to actual property law).
If you ask me FDR is just giving a speech on American Exceptionalism, setting forward the grounds upon which Liberal Democracy is founded, and reminding the american people, circa “As men do not live on bread alone,they do not fight by armaments alone ” of its ideals. (i don’t see the confusion in FDR’s rhetoric with the DI, but with the Bible actually, and in an arguable way with “arms” in the Machiavellian sense.).
In any case as a deficit owl I certainly do not repudiate Cass Sunstein…he isn’t the one spouting economic nonsense. In fact you would be better off reading Cass Sunstein than most books on microeconomics. As for its place in constitutional law?? that depends on which market you are talking about and to stay consistent you might have to Bork Bork…
Of course when Carl Scott turned to music he arguably repudiated Bork. Technically that seems the best way to do it… Listen to some Beatles and you can almost picture his (Bork’s) face melting like the Joker(60′s hippie music…NOOOO!). Of course Bork is far more “insane” and really opportunistic in his deployment of Article I section 8, clause 8 copyright… It is all Gommorah! Far more concerned about the lasting impact of Bork than some con law prof(I forget his name) who makes a decent if quasi-borkian sensationalized point in the NYT. Federal Judges just matter more than Prof’s…sorry:(
Bah, lets see how it pans out… but for now Law and Economics is the best Constitutionalism(architecture) of the Economy.
But this is all a digression of course, the bottom line is that the deficit hawks are all profoundly Evil and duplicitous, even if they do so because they idealize the “slave” virtue of the Germans, and dislike the “Master” excess of the Americans.
If that is the case they should cap and trade imports…but in the short run they should really look to support labor against the non-hicks neutral technological change (which is still good)…I am serious about a tax credit for labor combined with a much higher min. wage. (while hesistant, because some sort of Malthusian check, or worry about actual scarcity must be present) I am also serious about a 250k refundable tax credit per live birth.
Basically I think even the CBO (which Krugman+Delong) cited to to argue the deficit was already sustainable…. I think they are too deficit-hawkish. That is I think a sustainable deficit must result in consumer saving, which means it must be bigger than our trade deficit.
I think if you are really pro-free trade, and even I am more pro-free trade than the usual manufacturing labor rhetoric…then you make the deficit even bigger and don’t worry about caping and trading exports. On the theory and fact that one dimmensionally considering (the collective agregate: American Consumer) The consumer bennefits from essentially collecting real goods (that are consumeable in final form) for what is essentially electronic/key stroke money. The bigger the Tribute the better off we are…and yet from the collective agregate: (American Producer) this is not the case.
Our current legal/policy situation is without a doubt causing dependency. It seems really craven to ignore it all to make some stupid point about the “Servicemark” of some non-federal judge(Sunstein) especially when an ability to think “constiutionally” about economics is precisely what is needed.
Posner’s article is of a genre that has been quite popular in times of extended recession. During the late 70′s and early 80′s similar editorials were making the rounds about new normals and diminishing expectations. Posner’s article is wrong in the same sense that those articles were wrong. He assumes the present circumstances are somehow incorrigible and that our own cultural/political choices have had minimal influence on these circumstances, and thus our ability to change our future prospects is negligible.
As a person who has made his career in hi-tech manufacturing, and so has some experience in the business of “knowledge work” as well as working with operators on the floor I can tell you where I think Posner’s take is mistaken:
1. Easy Outsourcing and Trade – Most of this is self inflicted. As domestic operations have to bear the increased regulatory burden of financial and environmental requirements the ability to run a manufacturing operation state-side becomes unecessarily less competitive. Additonally, while a lot is made of cheap labor from Asia, most people don’t appreciate that having operations on the other side of the Pacific places huge burdens in cost and logistics having to do with a supply chain that literally runs clear across the globe.
Also, as countries like China and India have continued to benefit from these cheap labor advantages, wages in these countries have become increasingly less competitive with state side alternatives.
The ability to mitigate the self-inflicted damage of regulation is entirely within our power but would require that our leaders actually have a clue about the unintended consequences of their otherwise well intended policies.
2. Mental Labor – Mr. Posner’s understanding of the role of knowledge in industry suffers from a condition that afflicts most members of the intellectual class. He views intelligence in the most narrow and abstract sense, when in fact you’ll find that success in industry requires a lot of different kinds of intelligence, not just the bookish theoretical sort.
As an example, much is made in industry of what is reffered to as concurrent engineering where products are developed with the full collaboration of members not just from the R&D team, but from manufacturing and the manufacturing floor. This is the sort of approach that Japan universalized and leverages the talents and resourcefulness of those on the operations floor who, though they may lack theoretical knowledge, actually have a superior practical understanding of the manufacturing process and how suggested changes could have subtle and complicated unintended consequences.
Also, while I realize MOOC’s is a four letter word here on Pomocon, I do think the ability to bring technical theoretical educational curriculuum into the industrial setting offers opportunities to people on the manufacturing floor to increase their theoretical quotient so-to-speak which, when combined with their superior practical understanding of processes can make them terrific assets to industry and highly employable.
Again, the present situation, where non-college degree holding employees are locked out of upward mobility is self-inflicted, this time by a corporate and educational culture stuck in the 1900′s that insists on compensating only a certain kind of abstract knowledge, independent of the value that an employee could bring to the design level who has superior practical understanding of the process.
Ultimately Posner and those who have created the present unnecessary situation reflect a kind of destructive parochial view of our society that would divide us between the dependent and the independent, conveniently delineated by IQ. This unfortunately has only made the situation worse as those who want to help the “dependents” start to look at the size of the pie and try to figure out how to more equitably divide the pieces to ensure the dependants have their fair portion. In so doing, they only ensure the pie gets smaller, and the scarcity worse.
The alternative is to examine why the size of the pie has stagnated and the answer is because in the effort to redistribute the pieces better, we have diminished the conditions that have made prosperity possible. A case in point is the Obamacare Medical Devices Excise Tax which will impose a 2.3% tax on medical device companies. The typical R&D costs of a medical device company is 3-5%. So in trying to fund increased access to healthcare we are in effect defunding those operations that will most likely provide the next set of innovations that would make healthcare better and more affordable.
Not only is Mr. Posner wrong, but the nature of his error is precisely reflective of the mindset that is causing our present, uncessary predicament.
First I disagree that bigger government is unaffordable as long as GDP keeps growing. I agree with conservatives/libertarians that there’s only so much of GDP that a government can take in as revenue, but you can increase the revenue by increasing the GDP.
Increasing productivity through technology, is how you increase the GDP. The question to be asked though, is how much is technological innovation focused on increasing necessary material production, and how much is it focused on providing entertainment or making marginal improvements in convenience?
When you see rising energy, housing and food prices, in an age of Youtube, Google and GPS, I think the focus of technological innovation explains the problems that you mention.
Well, some great comments. I wish I had to think each of them through.
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