Government borrowing doesn't always crowd out private borrowing
Four years after the end of the presidency that must not be named, Republicans are no closer to figuring out what went wrong or what comes next.
Sure, the GOP has decided Bush spent too much, but there's been little other reckoning (outside of wonks like David Frum, Reihan Salam, and Ross Douthat). After all, it's hard to see what fiscal profligacy had to do with stagnant median incomes, rising healthcare and college costs, and a fragile financial system -- and harder still to see what remedies the Republicans have to offer. When it comes to policy, the GOP is stuck in 1980: lower taxes, less regulation, and more drilling for oil are always and everywhere the answer, no matter the question. (No, really).
Even Obama's reelection hasn't been enough to wake the Republicans from their Reagan von Winkle slumber. The GOP has chosen re-branding over rethinking. In other words, they think they have a messenger, not a message, problem -- and that's where Marco Rubio comes in. As Jonathan Chait of New York explains, Rubio offers the party an appealing, young salesman for its same, old policies, immigration aside. It was no accident his response to the State of the Union was so devoid of anything resembling new thinking. It was the point. Indeed, Rubio just rounded up the usual talking points, saying, among other things, that the government was a major cause of the housing bubble (it wasn't), and that Washington needs a balanced budget amendment (it very much does not). These are certainly cringe-worthy mistakes, but Rubio's biggest one is even more fundamental. He doesn't think the government can create jobs, except when it does.
Every dollar our government borrows is money that isn't being invested to create jobs. And the uncertainty created by the debt is one reason why many businesses aren't hiring.
Rubio has fallen victim to one of the classic economic blunders. It's called Say's Law, and it's not, in fact, a law. It's more like a guideline. The idea is that supply creates its own demand, which is true enough during booms, but not so during busts. The underlying logic here -- producing goods gives you the income to buy other goods -- makes sense, but only as long as you don't include money. Then everything falls apart. We'll return to why money is the root of all depressions in a second, but first, let's think about what it would mean if Say's Law were true. It would mean a world where demand can never lag supply; where unemployment is either voluntary or transient (when people switch jobs); and where government spending can never help the economy. After all, public borrowing has to come from somewhere, and a dollar the government borrows is a dollar the private sector doesn't. In other words, government borrowing "crowds out" private borrowing, pushing up interest rates as it competes for funds.
But this is terribly wrong. In the real world, people are out of work because they can't find work, not because they don't want it; the Great Recession has not been a Great Vacation. Supply doesn't always create its own demand, because demand for money might increase. In other words, people might hoard money. Now, "hoard" probably brings to mind people frantically stuffing money into mattresses, but it's a bit different than that today. It means households don't want to spend, and businesses don't want to invest, and banks don't want to lend. There's an excess of desired savings over desired investment -- or, as it's more commonly called, a recession. The Fed can make hoarding less appealing by cutting interest rates to inject money into the economy, but it can't do so now, at least not easily. Interest rates are already at zero, and unconventional money-printing hasn't been quite as effective. In short, the Fed hasn't been able to get us to stop hoarding right now.
That leaves two options: depression or deficits. In other words, either nobody borrows the unborrowed money, or the government does. If nobody does, the economy will contract by as much as isn't borrowed; if the government does, the economy will (at least) stabilize. As Matthew Yglesias of Slate points out, it's easy enough to tell the government is borrowing money that otherwise wouldn't be today, since interest rates have fallen despite big deficits. There has been no crowding out.
But it turns out we are actually all Keynesians now, even Marco Rubio. At least when it comes to military spending. (Though he's hardly alone with this cognitive dissonance). Here's what he told HispanicBusiness.com last September about the upcoming sequester cuts set to hit the Pentagon:
Thousands of jobs in defense-related enterprises have been lost already, with many more projected to go if the sequester crisis is not averted. These defense cuts hurt innovation, medical research and thousands of small businesses who subcontract for defense-related work.
Rubio is actually a pretty ambitious Keynesian! Not only does he think the government can create jobs, but he also thinks those jobs create other jobs -- that is, there's a multiplier on government spending.
For some, abandoning expensive urban centers would be a huge financial relief.
Neal Gabler has been a formative writer for me: His Winchell: Gossip, Power, and the Culture of Celebrity was one of the books that led me to think about leaving scholarship behind and write nonfiction instead, and Walt Disney: The Triumph of the American Imagination was the first book I reviewed as a freelance writer. To me, he exemplifies the best mix of intensive archival research and narrative kick.
So reading his recent essay, "The Secret Shame of Middle-Class Americans," was a gut punch: First, I learned about a role model of mine whose talent, in my opinion, should preclude him from financial woes. And, then, I was socked by narcissistic outrage: I, too, struggle with money! I, too, am a failing middle-class American! I, too, am a writer of nonfiction who should be better compensated!
The newly discovered worlds are now the most promising targets in the search for life among the stars—and the race to take a closer look at them has begun.
The robot telescope settles on its target, a star that sits closer than all but a tiny fraction of the tens of billions of stellar systems that make up the Milky Way. Its mirror grabs light for 55 seconds, again and again. The robot telescope—called TRAPPIST—will observe the star for 245 hours across sixty-two nights, making 12,295 measurements. Eleven times, it will see the star dim, ever so slightly. This dip in luminosity, called a transit, has a straightforward astronomical explanation: It’s a planet passing in front of the star, blocking just a bit of its light. In this case, the transits tell us that 3 planets orbit the star.
“So what?” you might think.
Astronomers have been spotting planets around distant stars for years now, using the transit method, among others. Not a month goes by without a headline, touting the discovery of new “exoplanets.” But these planets are different, and not only because they’re near. Like the Earth these planets could potentially permit liquid water to persist on their surfaces—which is thought to be a key pre-condition for the emergence of life. Today, when their discovery is published in Nature, they will instantly become the most promising planets yet found in the search for life among the stars.
Three Atlantic staffers discuss “Home,” the second episode of the sixth season.
Every week for the sixth season of Game of Thrones, Christopher Orr, Spencer Kornhaber, and Lenika Cruz will be discussing new episodes of the HBO drama. Because no screeners are being made available to critics in advance this year, we'll be posting our thoughts in installments.
Don’t expect Hillary Clinton to stay above the fray in the general election—her campaign plans “sustained and brutal attacks” on Donald Trump.
As they look ahead to the general election, some commentators envision a campaign in which Donald Trump attacks viciously and Hillary Clinton makes a virtue of her refusal to stoop to his level. “I think Trump’s method will be to turn on the insult comedy against Hillary Clinton,” declared GOP consultant Mike Murphy earlier this week. “Her big judo move is playing the victim.” Vox’s Ezra Klein speculated earlier this year that “Trump sets up Clinton for a much softer and unifying message than she’d be able to get away with against a candidate like [Marco] Rubio.”
I doubt it will play out that way. Rope-a-dope isn’t Clinton’s style. When facing political threats, her pattern has been to strike first—and with great force.
Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them.
Since 2013,the Federal Reserve Board has conducted a survey to “monitor the financial and economic status of American consumers.” Most of the data in the latest survey, frankly, are less than earth-shattering: 49 percent of part-time workers would prefer to work more hours at their current wage; 29 percent of Americans expect to earn a higher income in the coming year; 43 percent of homeowners who have owned their home for at least a year believe its value has increased. But the answer to one question was astonishing. The Fed asked respondents how they would pay for a $400 emergency. The answer: 47 percent of respondents said that either they would cover the expense by borrowing or selling something, or they would not be able to come up with the $400 at all. Four hundred dollars! Who knew?
It’s a paradox: Shouldn’t the most accomplished be well equipped to make choices that maximize life satisfaction?
There are three things, once one’s basic needs are satisfied, that academic literature points to as the ingredients for happiness: having meaningful social relationships, being good at whatever it is one spends one’s days doing, and having the freedom to make life decisions independently.
But research into happiness has also yielded something a little less obvious: Being better educated, richer, or more accomplished doesn’t do much to predict whether someone will be happy. In fact, it might mean someone is less likely to be satisfied with life.
That second finding is the puzzle that Raj Raghunathan, a professor of marketing at The University of Texas at Austin’s McCombs School of Business, tries to make sense of in his recent book, If You’re So Smart, Why Aren’t You Happy?Raghunathan’s writing does fall under the category of self-help (with all of the pep talks and progress worksheets that that entails), but his commitment to scientific research serves as ballast for the genre’s more glib tendencies.
A professor of cognitive science argues that the world is nothing like the one we experience through our senses.
As we go about our daily lives, we tend to assume that our perceptions—sights, sounds, textures, tastes—are an accurate portrayal of the real world. Sure, when we stop and think about it—or when we find ourselves fooled by a perceptual illusion—we realize with a jolt that what we perceive is never the world directly, but rather our brain’s best guess at what that world is like, a kind of internal simulation of an external reality. Still, we bank on the fact that our simulation is a reasonably decent one. If it wasn’t, wouldn’t evolution have weeded us out by now? The true reality might be forever beyond our reach, but surely our senses give us at least an inkling of what it’s really like.
Is it a coup or isn’t it? Brazilian President Dilma Rousseff claims the impeachment proceedings against her, which have now progressed from the lower house of Congress to the upper house, have “no legal foundation” and “all the features of a coup.” Vice President Michel Temer, who would succeed Rousseff if the Senate votes to remove her from office, says the process is constitutional and not a coup at all.
“I’m very worried about the president’s intention to say that Brazil is some minor republic where coups are carried out,” Temer recently toldThe New York Times. Crying coup has consequences when you’re leading one of the largest economies and democracies in the world.
But these days, straight-up coups are rarely carried out in any republic, minor or major. According to data gathered from 1950 through 2015 by the political scientists Jonathan Powell and Clayton Thyne, there have been no more than three successful coups per year in the 21st century. In the 1960s, that number got as high as 12.
Even as the militant group loses ground in Iraq, many Sunnis say they have no hope for peace. One family’s story shows why.
Falah Sabar heard a knock at the door. It was just before midnight in western Baghdad last April and Falah was already in bed, so he sent his son Wissam to answer. Standing in the doorway was a tall young man in jeans who neither shook Wissam’s hand nor offered a greeting. “We don’t want you here,” he said. “Your family should be gone by noon tomorrow.” For weeks, Wissam, who was 23, had been expecting something like this, as he’d noticed a dark mood taking hold of the neighborhood. He went to get his father, but when they returned, the stranger was gone.
Falah is tall and broad-shouldered, with salt-and-pepper hair. At 48, he was the patriarch of a brood of sons, daughters-in-law, and grandchildren. He sat down with Wissam to talk things through. They had been in Baghdad for just three months, but that was long enough for the abiding principle of refugee life to imprint itself on Falah’s psyche: Avoid trouble. When Wissam had managed to find a job at a construction firm, Falah had told him to be courteous, not to mix with strangers, and not to ask too many questions. If providence had granted them a new life in this unfamiliar city, it could snatch that life away just as easily.