The fiscally conservative case to borrow and spend -- and feel good about it
What if borrowing money made you so much richer over the long-term that it paid for itself? It's not crazy. Millions of families make such a decision every year when they take on debt to pay for school. Indeed, investing in yourself is a bet that often pays off. But can the same be true for an entire country?
Brad DeLong and Larry Summers say yes. In a provocative new paper, they argue that when the economy is depressed like today, government spending can be a free lunch. It can pay for itself.
It's a fairly simple story. With interest rates at zero, the normal rules do not apply. Government spending can put people back to work and prevent the long-term unemployed from becoming unemployable. This last point is critical. If people are out of work for too long, they lose skills, which makes employers less likely to hire them, which makes them lose even more skills, and so on, and so on. Even when the economy fully recovers, these workers will stay on the sidelines. It's not just these workers who suffer from being out of work. We all do. High unemployment is a symptom of a collapse in investment. If we don't make needed investments now, that will put a brake on growth down the line. Together, economists call these twin menaces hysteresis. And if it sets in, it reduces how much we can do and make in the future. Assuming that spending now can forestall hysteresis, then this spending might be self-financing. In other words, spending now might "cost" us less than not acting.
This doesn't mean that government spending is magic. Often, it's anything but. But this is a special case. DeLong and Summers identify three factors that determine whether fiscal stimulus will pay for itself: 1) how much hysteresis hurts future output, 2) the inflation-adjusted interest rate, and 3) the size of the fiscal multiplier. Let's consider these in turn.
THE MONSTER OF HYSTERESIS
Economists know a lot about a lot of things. Hysteresis is not one of them.
Indeed, it's not clear whether long-term unemployment and investment shortfalls really do damage potential growth over the really long-term. Maybe hysteresis "only" wounds us for the next 20 years, but not the next 40 years. Unfortunately, there's reason to fear that this is optimistic. A recent paper by Stephen Davis and Till von Wachter finds that workers who are laid off during recessions -- who presumably take longer to find a new job -- take worse hits to their lifetime earnings than do workers who are laid off during good times. Lasting unemployment has lasting consequences. That should terrify our policymakers.
The below chart from DeLong and Summers shows the unemployment rate versus the percentage of working-age people who are actually working. Any divergence between the two shows us how many people have given up on trying to find a job after being out of work for too long. The recent numbers paint a frightening picture.
While quantifying just how much this will hurt our long-term productive capacity is a matter of guesswork, DeLong and Summers show that it doesn't have to be much to justify doing something now -- provided that rock bottom interest rates super-charge fiscal stimulus.
DeLong and Summers argue that real rates -- that is, adjusted for inflation -- don't have to be that low to make more spending a good deal. They calculate that real rates of anywhere between three and seven percent make fiscal stimulus worthwhile. Inflation-adjusted rates are negative now. But low rates don't only make borrowing cheaper. They might also make government spending more effective.
STIMULUS THAT WORKS: A BLACK SWAN, NOT A UNICORN
Government spending usually doesn't increase growth. Or, as economists put it, "the fiscal multiplier is usually close to zero." The multiplier just refers to how much total spending a dollar of government spending generates. For instance, if the government spends $1 billion and GDP goes up by $1.5 billion, then the multiplier would be 1.5. In normal times, the multiplier is zero, because the Federal Reserve offsets any additional spending. The Fed has its inflation target, and if more government spending pushes up inflation, then the Fed neutralizes it by raising interest rates. But with short-term rates hugging zero and inflation falling below target, this calculus might change. The Fed might allow the multiplier to be greater than one. And that would certainly make more spending a very good deal.
There are two broad objections to the notion that the fiscal multiplier might be quite high right now. First, just because short-term interest rates are at zero doesn't mean the Fed is out of ammunition. The Fed can still buy long-term bonds -- aka quantitative easing -- or tell markets that it will keep short-term rates low for an extended period. These things matter. If fiscal stimulus precludes the Fed from doing more monetary stimulus, then the apparent multiplier will be misleading. Second, it's hard to find many historical examples of a high fiscal multiplier. Critics like to point out that even during World War II -- when interest rates were also negligible -- that the multiplier was no better than during normal times. So, after all of this, does this mean that government spending isn't worth it?
Not so fast. Just because the Fed can use unconventional policy doesn't mean that fiscal stimulus is a waste. Much of the Fed's current strategy involves making (quasi) promises to keep rates low for a long time -- till late 2014, to be exact. It's a very watered down version of what Paul Krugman called "credibly promising to be irresponsible". The problem, though, is credibility. Markets might not believe the Fed. Actually, they don't. And that means that spending wouldn't be canceled out nearly as much right now. As for past instances of a high multiplier, World War II actually does offer solid evidence. You just need to know when to look. While we were actively fighting in the war, the government imposed private sector rationing. So it's hardly surprising that government spending didn't spur on private spending when the private sector was forbidden from spending. But here's an oft-forgotten fact: we started spending on the war long before we entered the war -- to help arm Great Britain. Those were our "arsenal of democracy" days. More importantly, there was no rationing from 1939-41. Over this period Robert Gordon and Robert Krenn found that the multiplier was as high as 1.8. That's really, really good.
The Cliff Notes version of all of this is that a fiscal multiplier greater than one is not a unicorn. It's more like a black swan. It exists. It's just rare. And this looks like one of those rare times. Taken together with our historically low rates, now seems like a great time to make some investments in ourselves. Putting the long-term unemployed back to work is an investment in their human capital. Refurbishing roads and bridges is an investment in the physical infrastructure we need to keep competing globally. Both make us better off in the long run, and could conceivably pay for themselves. Of course, none of the above means that the Fed can't or shouldn't try to do more. It's more of a practical appraisal about what the Fed will -- and won't -- do.
Usually comparing the government's budget to a family's budget is a bad idea. Governments can borrow for far longer and on far better terms. And, counterfeiters aside, families can't print money. But in this case it's a worthwhile comparison. A family struggling to make ends meet wouldn't be wise to save money by pulling their kids out of college if they can afford tuition. Similarly, governments running massive deficits during a depression wouldn't be wise to embrace austerity if markets will lend to them on favorable terms. In both cases, the long-term damage outweighs any short-term benefit.
Which is to say: When people offer you free money, don't say no.
The comparatively less flashy, less spirited former First Kid managed to show her mom’s softer side at the DNC on Thursday.
Yes, yes, yes. Chelsea Clinton is not the most charismatic orator—as the Twittersphere was happy to point out during her brief address on Thursday night. She is like her mother that way. There’s something not quite natural about her self-presentation. She’s not stilted, exactly. But she can come across as too cautious, too reserved, too conscious of other people’s eyes upon her.
But, let’s face it, as the lead-in to Hillary’s big nominating speech, a little bit of boring was called for. Unlike some of this convention’s high-wattage speakers, there was zero chance Chelsea was going to upstage Hillary with a barnburner or tear-jerker. Chelsea wasn’t there to pump up the crowd. Her role was to comfort, to explain, to cajole, with an eye toward giving Americans a glimpse of her mother’s softer side.
In her acceptance speech, the Democratic nominee took on her Republican rival by throwing Donald Trump’s own words back at him.
The unicorn of American politics, the “real Hillary Clinton”—the Hillary Clinton I’ve known for nearly 30 years—that Hillary Clinton likes to wear low-heeled shoes to a butt-kicking.
“A man you can bait with a tweet is not a man we can trust with nuclear weapons,” she said of her Republican rival, Donald Trump, while accepting the Democratic presidential nomination, the first woman in U.S. history to head a major-party ticket.
It was a sound bite for the ages, searing and on point.
“Do you really think Donald Trump has the temperament to be commander in chief?” she continued. “Donald Trump can’t even handle the rough and tumble of a presidential campaign. He loses his cool at the slightest provocation. Imagine, if you dare, imagine him in the Oval Office facing a crisis.”
The father of a Muslim American who died in Iraq confronts Donald Trump.
Khizr Khan began his speech at the Democratic National Convention on Thursday with words I wish he didn’t have to say: “Tonight we are honored to stand here as parents of Captain Humayun Khan and as patriotic American Muslims—as patriotic American Muslims with undivided loyalty to our country.”
I wish he and his wife didn’t have to stand there as the parents of a 27-year-old Army captain who was killed by suicide bombers while serving in the Iraq War. And I wish Khizr Khan hadn’t felt the need to declare his patriotism and loyalty to the United States of America. Those truths should have been self-evident.
The state of the union is not strong when an American feels compelled to clarify such things. In better times, Khizr Khan, who was born in Pakistan and moved to America from the United Arab Emirates, might have begun his speech with what he said next: “Like many immigrants, we came to this country empty-handed. We believed in American democracy—that with hard work and [the] goodness of this country, we could share in and contribute to its blessings.”
Narcissism, disagreeableness, grandiosity—a psychologist investigates how Trump’s extraordinary personality might shape his possible presidency.
In 2006, Donald Trump made plans to purchase the Menie Estate, near Aberdeen, Scotland, aiming to convert the dunes and grassland into a luxury golf resort. He and the estate’s owner, Tom Griffin, sat down to discuss the transaction at the Cock & Bull restaurant. Griffin recalls that Trump was a hard-nosed negotiator, reluctant to give in on even the tiniest details. But, as Michael D’Antonio writes in his recent biography of Trump, Never Enough, Griffin’s most vivid recollection of the evening pertains to the theatrics. It was as if the golden-haired guest sitting across the table were an actor playing a part on the London stage.
“It was Donald Trump playing Donald Trump,” Griffin observed. There was something unreal about it.
Can Hillary Clinton’s projection of steadiness resonate with an unsettled country?
PHILADELPHIA—It was a hot and stormy week at the Democratic convention, one that began with discord and ended with invocations of togetherness. “People are anxious and looking for reassurance,” Hillary Clinton, the newly anointed Democratic nominee, told a cheering convention crowd—“looking for steady leadership.”
This was the theme of speaker after speaker at the Democratic convention: steadiness, calm, shelter from the storm. The party’s stars took the stage one by one, railing against divisiveness and doomsaying and fear. They painted a picture of a new American normal: optimistic, stable, square, patriotic. A silent majority of tolerant, diverse, cosmopolitan people, hopeful and unthreatened by suspicion or difference. A transgender woman, an illegal immigrant, a Muslim veteran’s father: This, the convention asserted, is the face of a country that has been through the discombobulating wringer of social and demographic change, and come out the other side smiling and holding hands.
A church facing setbacks elsewhere finds an unlikely foothold.
At the end of 2013, in the low-slung, industrial Taiwanese city of Kaohsiung, a bevy of officials came to attend the ribbon cutting of a huge former hotel that had undergone a top-to-bottom, multimillion-dollar renovation. Speaking before the throngs of celebrants who blocked the flow of traffic, Taiwan’s deputy director of the Ministry of the Interior praised the group that funded the renovation and presented them, for the 10th year straight, with the national “Excellent Religious Group” award.
“For years you have dedicated your time and lives to anti-drug work and human- rights dissemination,” said the director, echoing praise offered by the mayor’s office and the president’s national-policy adviser.
The Fox host’s insistence that black laborers building the White House were “well-fed and had decent lodgings” fits in a long history of insisting the “peculiar institution” wasn’t so bad.
In her widely lauded speech at the Democratic National Convention on Monday, Michelle Obama reflected on the remarkable fact of her African American family living in the executive mansion. “I wake up every morning in a house that was built by slaves. And I watch my daughters, two beautiful, intelligent, black young women, playing with their dogs on the White House lawn,” she said.
On Tuesday, Fox News host Bill O’Reilly discussed the moment in his Tip of the Day. In a moment first noticed by the liberal press-tracking group Media Matters, O’Reilly said this:
As we mentioned, Talking Points Memo, Michelle Obama referenced slaves building the White House in referring to the evolution of America in a positive way. It was a positive comment. The history behind her remark is fascinating. George Washington selected the site in 1791, and as president laid the cornerstone in 1792. Washington was then running the country out of Philadelphia.
Slaves did participate in the construction of the White House. Records show about 400 payments made to slave masters between 1795 and 1801. In addition, free blacks, whites, and immigrants also worked on the massive building. There were no illegal immigrants at that time. If you could make it here, you could stay here.
In 1800, President John Adams took up residence in what was then called the Executive Mansion. It was only later on they named it the White House. But Adams was in there with Abigail, and they were still hammering nails, the construction was still going on.
Slaves that worked there were well-fed and had decent lodgings provided by the government, which stopped hiring slave labor in 1802. However, the feds did not forbid subcontractors from using slave labor. So, Michelle Obama is essentially correct in citing slaves as builders of the White House, but there were others working as well. Got it all? There will be a quiz.
Hillary Clinton accepted the Democratic nomination in Philadelphia, ratifying a promise made there 240 years before—that all are created equal.
PHILADELPHIA—“Daddy,” my daughter recently asked me, “Why are there no girl presidents? Is it because boys are stronger than girls? Because they’re smarter?”
It left me speechless.
On Thursday night, in the city where the Founders declared all men created equal, I found my answer. It’s because no major party has ever tried nominating one before.
“Tonight, we’ve reached a milestone in our nation’s march toward a more perfect union: the first time that a major party has nominated a woman for president,” Clinton said as she accepted the nomination. “Standing here as my mother’s daughter, and my daughter’s mother, I’m so happy this day has come.”
It wasn’t the theme of her speech. But it was the unspoken subtext that ran through it. And Clinton took pains to frame the achievement not as the triumph of some subset of Americans, but as a victory for all Americans. She proclaimed herself both “happy for grandmothers and little girls,” but also “happy for boys and men—because when any barrier falls in America, it clears the way for everyone.”
The Democrat promised voters she’d do her job intelligently and doggedly—and help them be the heroes of their own lives.
The Democratic convention, which culminated on Thursday night with Hillary Clinton, was inverted. Usually, supporting actors cover policy specifics and flay the opposing candidate. The nominee comes on at the end and offers a vision.
Hillary Clinton doesn’t do vision well. So, wisely, her campaign turned the paradigm on its head. The emotion, the vision, the rhetorical power came from others: from Barack Obama and Joe Biden and ordinary people like disability rights activist Anastasia Somoza; Khizr Kahn, whose son died in Afghanistan; and the families of slain police officers and victims of police violence. Clinton did what she’s good at: She talked about public policy and she proved that she’s not at all intimidated by Donald Trump.
Psychologists have long debated how flexible someone’s “true” self is.
Almost everyone has something they want to change about their personality. In 2014, a study that traced people’s goals for personality change found that the vast majority of its subjects wanted to be more extraverted, agreeable, emotionally stable, and open to new experiences. A whopping 97 percent said they wished they were more conscientious.
These desires appeared to be rooted in dissatisfaction. People wanted to become more extraverted if they weren’t happy with their sex lives, hobbies, or friendships. They wanted to become more conscientious if they were displeased with their finances or schoolwork. The findings reflect the social psychologist Roy Baumeister’s notion of “crystallization of discontent”: Once people begin to recognize larger patterns of shortcomings in their lives, he contends, they may reshuffle their core values and priorities to justify improving things.