Sent

I found a site called USAFACTS. Lots of data & graphs. They say they are nonpartisan, and to me this looks pretty close to the truth. They say USAFACTS was founded by Steve Ballmer, former CEO of Microsoft.

They say "We exclusively use publicly available government data" and they mention their trust in that data. This is somewhat unusual by today's standards but I see it as a plus.

They say "We don’t make judgments or prescribe policies." This leaves me a little uneasy, because some combinations of the facts are more meaningful than others, and some combinations of the facts only convey false impressions. But what can you do?

They say: "Whether government money is spent wisely or not, whether the quality of life is improving or getting worse — that’s for you to decide." That leaves me nervous, given the way things are going.

They say: "Americans deserve unbiased facts straight from the government to have serious, reasoned, and informed debate." But of course they don't say it is almost impossible to make a dent in the massive machinery of that "informed debate" by adding even one more piece of information to it.

I sent em an email anyway.

Dear Mr. Speaker:

Graph #1: US Federal Budget, 1901-1935

Economists say monetary and fiscal policy sometimes cooperate, and sometimes work against each other.

Milton Friedman said bad monetary policy caused the Great Depression.

But as the graph shows, fiscal policy cooperated, magnifying the effects of Federal Reserve policy.

Congress wants to cut spending, but they need to be careful. The fundamentals are not sound.

So the House has a new speaker...

In a speech given more than three years before the Great Depression, Keynes said:

As things are now, we have nothing to look forward to except a continuance of Conservative Governments, not merely until they have made mistakes in the tolerable degree which would have caused a swing of the pendulum in former days, but until their mistakes have mounted up to the height of a disaster.

Three years before the Great Depression, he knew. 

Nothing could be finer than to be in your economic equilibrium

At JSTOR ...

From a review of Milton Friedman's "A Program for Monetary Stability" by Lawrence Ritter, from 1960:

Friedman argues that the economy has been and is now inherently stable, and that it would automatically tend to maintain high employment with a stable price level if only it were not being almost continuously thrown off the track by erratic and unwise monetary policies.

If economic equilibrium is as ridiculous as it seems to me, and if Lawrence Ritter's summary is correct, then Milton Friedman's argument is embarrassingly stupid.

I have never seen an argument depend so completely on the fantasy called equilibrium.

Wrong-headed thinking

 

Wrong-headed thinking arises as the economy decays, as things more and more turn out worse than expected. The bad economy changes our approach to problem-solving. We come to position ourselves for the greatest advantage out of economic necessity, even if other people are hurt by it. More and more we think micro ("what's best for me") instead of macro ("what's best for us"). It puts neighbors at odds. And it is a source of polarization.

From mine of 7 Feb 2022 (revised)

Please note that by a "bad economy" I don't mean just a recession. Recessions only last a year or so. That isn't long enough to change our personalities and remodel our brains. However, when I google long-term economic decline, most of the results focus on recession, and only a few on depression. Finally, after three sittings, I found one search result that actually considers the long-term decline of growth.

That one hit is "Recessions are difficult, but stagnant growth could prove more challenging, Stanford economist warns", by Melissa De Witte in the Stanford News, dated 7 December 2022. The article is an interview with John Cochrane. You may know Cochrane from The Grumpy Economist blog.

From De Witte's article:

While recessions are difficult, they are temporary, says Stanford economist John Cochrane. What is more painful is long-term economic slowdown and stagnation.

My respect for Cochrane grew three sizes that day. I went back and read "Just how bad is the economy?", an old blog post of his from 2012. Cochrane says "long-run growth matters more than anything else." But, based on estimates of Potential GDP, he added: "All we can hope for is a modest recovery, and then anemic, sclerotic growth forever after that... We seem stuck at 2.4% growth forever."

Cochrane has a solution in mind. He does some simple growth accounting:

GDP = Productivity x workers

And he says "Rising productivity is the core of a 'growth' agenda as economists understand the word."

Concluding the post, Cochrane writes:

What to do? If only it were so simple as to have the Fed print up another two trillion dollars, or have the Treasury borrow another $5 trillion and blow it on stimulus boondoggles. We're stuck in sclerotic growth, and to everyone but a few die-hard extremists, that means growth-oriented policies are the only way out.

He doesn't believe printing money will do the trick. He wants more pro-growth policy.

Funny thing, though. The same sort of slowdown happened in the 1970s: a slowdown of growth along with a decline in productivity. The economist Scott Sumner wrote about it. Sumner said:

The neoliberal revolution occurred precisely because growth was slowing almost everywhere in the 1970s and 1980s, and after 1980 growth slowed the most in those countries that reformed the least.

To boost economic growth, John Cochrane wants another neoliberal revolution. I have a problem with Cochrane's solution: It didn't work the last time we tried it. Scott Sumner explains:

I am not denying that growth in US living standards slowed after 1973, rather I am arguing that it would have slowed more had we not reformed our economy.

Sumner is saying that economic growth remained slow despite the neoliberal reforms. They only helped a little, he says. I would say it this way: Those reforms did not solve the problem. But Cochrane, who says long-run growth matters more than anything else, only wants more neoliberal reform. Cochrane wants pro-growth policy from the start. He doesn't want to think any more about it.

The problem I have with Cochrane is that his thinking is exactly the opposite of the thinking that is needed.  

Cochrane's plan is based on pre-existing knowledge. How did he put it? "Rising productivity is the core of a 'growth' agenda as economists understand the word." But that plan didn't work back in the 1980s, so we should not expect it to work now. What we must do is re-think the problem: Why is growth slow? If we don't ask the question and come up with a better answer, then we are only fighting the last war -- and we didn't win that time, either: "I am not denying that growth in US living standards slowed after 1973".

And so I say again:

There is a lot of that these days, a lot of evaluating the expected result and basing one's view on the expected outcome. This is exactly the opposite of the thinking we need. We need first to understand problems in terms of their causes, not in terms of the imagined result of some potential solution. The time for thinking about solutions is only after we grasp the causes.

Loria

Sidney Ball, reviewing Franklin Giddings's 1896 book The Principles of Sociology, offers some entertaining criticism:

The book is simply strewn with generalizations,  many of which are more than doubtful, or, if true, carry us a wonderfully little way.

Ball makes his praise for the book as empty as the book itself: "On the other hand ... the author's references to theoretic economics are generally happy and pertinent."

Even more striking, Ball uses the review as an opportunity to praise a different writer's work:

But it is surprising that an author who seems so thoroughly conversant with the literature of the subject should not have recognized -- even to the extent of discussing its "errors" in a footnote -- what we may call the school of Economic Sociology, of which Professor Achille Loria is the most distinguished representative. Some account should be taken, at least, of the view that all social causation is ultimately economic, and that all social institutions -- moral, legal, and political -- have their origin in the economic relations of the different social classes. This view may be a great abstraction, but it is at any rate a more positive working conception than any we can find in the kind of vague and abstract sociology of which Professor Giddings is a representative.

This was my introduction to Achille Loria, for whom all social causation is ultimately economic.

All social causation is ultimately economic. That's how I see things too, you know. So I sort of dropped everything and went looking for Achille Loria.

Wikipedia says Loria (1857 – 1943) was an Italian political economist who

developed an original deterministic theory of economic development. It is based on the premise that the relative scarcity of land leads to the subjugation of some members of society by others, a mechanism that works differently in different stages of development.

The scarcity of land leads to subjugation? That escapes me. But change "the relative scarcity of land" to "the relative scarcity of wealth" and I see it clearly. Loria's theory

• describes "a mechanism that works differently in different stages of development." I see that. Arnold Toynbee identifies the stages of civilization as genesis, growth, breakdown, disintegration, and the universal state. Carroll Quigley identifies them as mixture, gestation, expansion, conflict, the universal empire, decay, and invasion. Werner Sombart and Ernest Mandel studied the stages of capitalism; Sombart's study goes back to the proto-capitalism of the Early Middle Ages -- the Dark Age, where civilization begins. And Keynes himself identified the high point of civilization (and capitalism), writing of "a period of almost one hundred and fifty years" which he described as "the greatest age of the inducement to investment", a time when employment was "reasonably satisfactory" and  "not intolerably low".
  
  
• The theory ties the various stages together by identifying a mechanism that drives the process of change. For Loria, that mechanism is the scarcity of land. (For me, the mechanism is the concentration of wealth.)
  
  
• Loria's theory is "deterministic" one, meaning things could not happen any other way -- but, as I believe, if we know and understand the problem we can change the outcome. We can pause the "mechanism" at an opportune moment, before the fall-of-Rome stage. Maybe we can even turn downtrend into uptrend, which is really what needs to be done. "Challenge and response," Toynbee said: If our response is successful, our civilization survives. If not, then not.
  

And yes, Loria's theory may be "a great abstraction", as Sidney Ball said. But we are certainly capable of ignoring, denying, and not seeing half a century or more of dramatic decline in our own economy. 

Are we not capable of recognizing it when we finally do see it? Are we not capable of turning the trend around? We do not have to go the way of Rome and the other ancient civilizations. But we have to know about the problem, and we have to understand the problem. The difficulty is not in solving the problem. The difficulty is in understanding it. Once the problem is correctly understood, solving it is the easy thing.

Just to be clear on this, neither the Democrats nor the Republicans understand the problem. The hard work is yet to be done.

 

In the October 1950 edition of the journal *Agricultural History*, one finds Lee Benson's article "Achille Loria's Influence on American Economic Thought". JSTOR provides access to the article at no cost. Below is Benson's opening paragraph:

In recent years a mantle of obscurity has fallen over the name and reputation of the Italian economist, Achille Loria. Yet, in the last two decades of the nineteenth century, his system of "economic sociology" was of primary importance, and contemporary observers placed him among the foremost academicians of the time. His contributions to the economic interpretation of history and his theories concerning the role of land in the social process profoundly influenced both European and American thought. Thus there is a warrant for attempting to rescue him from an undeserved obscurity.

That's great, and maybe I can help rescue Loria from that obscurity. But my purpose here is to repeat Sidney Ball's description of Loria's view

that all social causation is ultimately economic, and that all social institutions -- moral, legal, and political -- have their origin in the economic relations of the different social classes.

When you turn the news on and it is all politics, try to remember: the underlying cause of it all is that our economy is in decline. When you turn the news on and it is war over Gaza and war over Crimea -- war over land, Loria would point out -- remember what people say: "War is politics by other means." Politics by worse means. Things get worse. And the root of it all is economic decline.

Long-term economic decline is indistinguishable from the decline of civilization. If it continues, long-term economic decline creates the decline of civilization. If we solve the economic problem, it doesn't.

Parallel argument

When I was little I was talking too much and my mommy said there are only so many words in your voice box and if you use them all up you can't talk any more.

Congress seems to be thinking that there is only so much spending in the economy and if government does it, then business cannot.

"The Economic Roots of the Rise of Trumpism"

"The Economic Roots of the Rise of Trumpism" (23-page PDF) by John Komlos

Here's the Abstract:

Donald Trump won the election in 2016 largely because enough voters in three states, all in the Rustbelt, who had voted for Barack Obama in both 2008 and 2012, switched their vote from Democratic to Republican. Economic dislocations played a crucial role in these swing states or democratic strongholds to persuade many voters to take the dramatic step to vote for an anti-establishment candidate even if that meant a leap of faith into the unknown. The sources of the dislocation were the development of a dual economy characterized at one end by low and stagnating wages, increasing debt, downward social mobility, declining relative incomes, and the hopelessness accompanying them while at the other end of the income distribution the economy was simply booming. This was longer than a three-decade process that started with Reaganomics and its tax cuts that privileged the rich and conferred immense wealth, and its concomitant, political power, on them. Reaganomics also accelerated the decline in the power of unions which had supported the middle class. The process continued under Bill Clinton’s administration and its continuing both financial deregulation and of hyper-globalization. George Bush continued to pamper the superrich with his tax policies. The process culminated with Barack Obama’s bailing out the superrich and his benign neglect of Mainstreet. Five administration’s disinterest in the social group Hillary Clinton referred to flippantly as “the deplorables” culminated in the revolt of the masses in favor of an incompetent strongman by overthrowing the establishment captured by such chants at Trump rallies as “Lock her up!”, “USA!”, “Build the wall”, or “Drain the swamp” (i.e., in Washington D.C.)

CESifo Working Paper No. 6868.