Tag Archives: economy

10 Years After: The Post-Recovery Economy

The recovery from the Great Recession didn’t bring back some previous state of prosperity and resume growth from there. It created a new economy that, in some ways, may never again be what it was.


In addition to 9-11, which was a Tuesday this year, this week included one other important anniversary: Saturday marked ten years since the collapse of the Lehman Brothers investment bank, the spark that ignited the financial crisis that started the Great Recession.

Like most major world events, the Great Recession didn’t begin in an instant and didn’t have a single cause. Just as Europe had started sliding towards World War I long before Archduke Ferdinand’s assassination, the world financial system had been showing signs of strain long before Lehman declared bankruptcy. But Lehman had been one of the biggest players in the international financial markets, so its insolvency was a huge shock: If their debts weren’t good, whose were? Who knew what other financial institutions were insolvent, now that Lehman wouldn’t be repaying its loans? Suddenly, banks were afraid to loan money even to other banks, and the dominoes began to fall.

The worst financial panics are marked by cascading waves of bankruptcies. Alice can’t pay Bob, and Bob had been counting on Alice’s money to pay Charlie and Darlene, who now won’t be able to meet their payrolls. Charlie and Darlene’s employees, in turn, won’t be able to pay their rent, and so their landlords won’t be able to make their mortgage payments to the bank, which may also become insolvent. Where does it stop?

Wikipedia sums up the effects:

While the recession technically lasted from December 2007-June 2009 (the nominal GDP trough), many important economic variables did not regain pre-recession (November or Q4 2007) levels until 2011-2016. For example, real GDP fell $650 billion (4.3%) and did not recover its $15 trillion pre-recession level until Q3 2011. Household net worth, which reflects the value of both stock markets and housing prices, fell $11.5 trillion (17.3%) and did not regain its pre-recession level of $66.4 trillion until Q3 2012. The number of persons with jobs (total non-farm payrolls) fell 8.6 million (6.2%) and did not regain the pre-recession level of 138.3 million until May 2014. The unemployment rate peaked at 10.0% in October 2009 and did not return to its pre-recession level of 4.7% until May 2016.

This week, the New York Times ran a series of articles pointing out all the ways in which the economy has still not recovered. Or, putting it another way, how the economy has changed. We haven’t simply returned to some previous state of prosperity and continued growing from there. We have entered a new economy, parts of which may never return to previous levels of prosperity.

The most significant change is an increase in inequality. The lower your pre-Lehman income and net worth, the longer it has taken the recovery to reach you. People at the top of the economy are far better off than they have ever been. But people at the bottom are still waiting to get back to where they were, and some never will. In fact, if you take the top 10% of earners out of your statistics, the 90% who are left are only just now getting back to their 2006 incomes, and that’s only because of tax cuts and government programs like unemployment insurance, Food Stamps, and ObamaCare. If you just look at pre-tax income, it’s still underwater.

Wikipedia noted that household net worth was back to its pre-Lehman levels by 2012. But that number has been pulled up by the huge gains of the richest households. Median household net worth, the net worth of the households in the middle of the economy, has still not recovered. In fact, it is still below its level at the beginning of the previous recession, the one that started when the dot-com bubble burst in 2000 and 2001.

GDP recovered by 2011, but Wednesday the Census Bureau announced that median household income had only just recovered by 2017.

[T]he details of the report raised questions about whether middle-class households — which have experienced an economic “lost decade” — are now likely to see actual income gains or if they will simply tread water. One reason for concern is that income growth slowed in 2017, to 1.8 percent. Median income had grown more rapidly in previous years, by 5.2 percent in 2015 and 3.2 percent in 2016.

Another NYT article (by Nelson Schwartz) digs a little deeper:

Data from the Federal Reserve show that over the last decade and a half, the proportion of family income from wages has dropped from nearly 70 percent to just under 61 percent. It’s an extraordinary shift, driven largely by the investment profits of the very wealthy. In short, the people who possess tradable assets, especially stocks, have enjoyed a recovery that Americans dependent on savings or income from their weekly paycheck have yet to see. Ten years after the financial crisis, getting ahead by going to work every day seems quaint, akin to using the phone book to find a number or renting a video at Blockbuster.

Basically, there are two dividing lines: About a fifth the households in America either own nothing to speak of, or have debts that are greater than their assets. They live paycheck-to-paycheck, and miss out entirely on that 39% of national household income that now comes from something other than wages.

A large chunk of households in the middle of the economy have a positive net worth, but that wealth is almost entirely in the form of home equity. (Their IRAs or 401(k)s may own a few shares of stock, but those shares are not a significant percentage of their assets.) After paying the mortgage, they also live paycheck-to-paycheck. In most of the country, house prices collapsed in the Great Recession, and (except in a few hot markets) they haven’t grown much (if at all) in the last ten years, so these families’ net worth has remained relatively stagnant.

But at the top of the economy, people own stocks. They get dividends and capital gains that are taxed at a lower rate. And the government’s economic-recovery policies worked much better for them than for homeowners.

Like the bankers, shareholders and investors were also bailed out. By cutting interest rates to near zero and pumping trillions — yes, you read that right — into the economy, the Federal Reserve essentially put a trampoline under the stock market. The subsequent bounce produced a windfall, but only for a limited group of beneficiaries. Only about half of American households have any exposure to the stock market, including 401(k)’s and retirement plans, and ownership of the shares of individual companies is clustered among upper-income families.

For homeowners, there wasn’t much of a rescue package from Washington, and eight million succumbed to foreclosure. Sometimes, eviction came in the form of marshals with court orders; in other cases, families quietly handed over the keys to the bank and just walked away. Although home prices in hot markets have fully recovered, many homeowners are still underwater in the worst-hit states like Florida, Arizona and Nevada. Meanwhile, more Americans are renting and have little prospect of ever owning a home.

The housing crash hit middle-class black and Hispanic families harder than middle-class white families, worsening the racial wealth gap.

[F]amilies in the latter two groups were more dependent on housing as their principal form of investment. Not only were both minority groups harder hit by foreclosures, but Hispanics were also twice as likely as other Americans to be living in Sun Belt states where the housing crash was most severe.

In 2016, net worth among white middle-income families was 19 percent below 2007 levels, adjusted for inflation. But among blacks, it was down 40 percent, and Hispanics saw a drop of 46 percent.

Young people have also been set back. With their parents’ home equity all but gone, they face a choice between entering the economy without marketable skills and borrowing heavily to go to college or get other training. Student debt, says the NYT, “is now the second-largest category of consumer debt outstanding, after mortgages.”

A personal view comes from NYT editor M. H. Miller, who tells of his parents attending his 2009 graduation while facing foreclosure. At an age when previous generations of Americans were taking on mortgages and building for the future, Miller still owes $100K of student debt. “The financial crisis remains the defining trauma of my generation,” he says.

Finally, we come to what has happened at the bottom levels of the job market, covered by Matthew Desmond. He follows Vanessa Solivan, a home health aide raising three children in Trenton, New Jersey.

In May, Vanessa finally secured a spot in public housing. But for almost three years, she had belonged to the “working homeless,” a now-necessary phrase in today’s low-wage/high-rent society. … After juggling the kids and managing her diabetes, Vanessa is able to work 20 to 30 hours a week, which earns her around $1,200 a month. And that’s when things go well.

These days, we’re told that the American economy is strong. Unemployment is down, the Dow Jones industrial average is north of 25,000 and millions of jobs are going unfilled. But for people like Vanessa, the question is not, Can I land a job? (The answer is almost certainly, Yes, you can.) Instead the question is, What kinds of jobs are available to people without much education? By and large, the answer is: jobs that do not pay enough to live on.

It’s not that safety-net programs don’t help; on the contrary, they lift millions of families above the poverty line each year. But one of the most effective antipoverty solutions is a decent-paying job, and those have become scarce for people like Vanessa. Today, 41.7 million laborers — nearly a third of the American work force — earn less than $12 an hour, and almost none of their employers offer health insurance.

Desmond did well to focus on Vanessa. I suspect that the majority of NYT readers (whom I picture as better off than most Americans) have little contact with low-wage workers. Janitors, dishwashers, and busboys are almost invisible. Farm workers are out there in the country somewhere doing God-knows-what. You can imagine that waitresses make a lot in tips, and a few of them actually do. When your personal experiences don’t connect you to people, it’s easy to accept stereotyped accounts of their lives and problems: It’s their own fault. They just need to work harder and stay off drugs. If they learned to practice middle-class virtues, they’d be middle class themselves soon enough.

But lots and lots of professional-class folks have had needed home health aides at one time or another, either while recovering from something themselves or when they were trying to keep aging parents out of a nursing home. I dealt with several in my parents’ final years, and I know the agency didn’t charge us enough to pay them very well. The aides are not nurses, but they do hard, necessary work. The ones I met did it cheerfully, without complaining. None of the negative stereotypes of low-wage workers — that they’re lazy, stupid, resentful, unreliable, irresponsible, and have to be watched every minute — applied to the aides who took care of Mom and Dad.

In short, when I picture a home health aide, I picture someone who deserves to have a decent life. (Whether anyone deserves not to have a decent life is another question. But surely home health aides shouldn’t fall into that abyss.) The thought of Vanessa doing all the work she can get and still living in her car — that’s jarring to me in a way that stories of other low-wage workers might not be. I can’t easily make up some excuse to explain it, or make it seem just. I suspect that a lot of NYT readers had a similar reaction.

Similarly, many professional-class people recall the low-paying jobs they held as teen-agers, or during the summers of their college years, and may regard the experience as a harmless hazing that welcomes young people into the workforce. But Vanessa is 33, and is not on the road to some future prosperity. This is her life, and it’s the life of a lot of adult Americans.

The Bureau of Labor Statistics defines a “working poor” person as someone below the poverty line who spent at least half the year either working or looking for employment. In 2016, there were roughly 7.6 million Americans who fell into this category. Most working poor people are over 35, while fewer than five in 100 are between the ages of 16 and 19. In other words, the working poor are not primarily teenagers bagging groceries or scooping ice cream in paper hats. They are adults — and often parents — wiping down hotel showers and toilets, taking food orders and bussing tables, eviscerating chickens at meat-processing plants, minding children at 24-hour day care centers, picking berries, emptying trash cans, stacking grocery shelves at midnight, driving taxis and Ubers, answering customer-service hotlines, smoothing hot asphalt on freeways, teaching community-college students as adjunct professors and, yes, bagging groceries and scooping ice cream in paper hats.

There was never a golden age when the American Dream (whatever it may have been in that era) was available to all on equal terms. Inequality has always been with us, and has been increasing since the late 1970s. It is not some new development of the last ten years, but class lines have increasingly hardened since the Great Recession.

If you are a child of wealth, your path to success is comparatively smooth: As a child, you will get whatever help you need to maximize your talents and your attractiveness to elite colleges. With appropriate effort on your part, you will graduate not just with a punched ticket to the professional class, but without debt. If at some point your further development requires either more training or the capital to start a business, that won’t be a problem. Quite likely, you will reach 40 in good shape, ready to give your own children similar advantages, but with no awareness of ever having taken a “handout”. You got the grades, you did the work, you started the business — by what right can these socialists tax “your” money away and spend it on the people who lost the games you won?

But if your parents are not rich, you face difficult hurdles and choices. Depending on where you live, public schools may or may not give you the grounding you need to move on and get an advanced education. If that path is available to you, will it be worth all the money you will have to borrow? Or should you take your chances in the unskilled workforce, knowing that jobs and wages can evaporate in an instant, and that the best you can hope for is to scrape by from one week to the next?

That is our “recovered” economy. It’s “booming”, we are told. And for many people, it is. But not for everybody.

Elizabeth Warren stakes out her message

Two of Warren’s recent proposals could shift the public debate in a positive direction — but only if she’s willing to push them with a presidential campaign.


I have been one of the people predicting that Elizabeth Warren wouldn’t run for president in 2020, or ever. It seemed to me that the door was wide open for her to challenge Hillary from the left in 2016, and that Bernie Sanders only entered the race after realizing that she wouldn’t. Since then, I have believed her claims that she’s happy being a senator and isn’t interested in seeking a promotion.

I’m going to stop doing that.

In the last two weeks she has put forward two major pieces of legislation that won’t go anywhere in Mitch McConnell’s Senate, but which lay out clear themes for a national run. You don’t have to be a presidential candidate to take a big-picture view and lay out your best visions for the country, and actually I wish more senators would. But these two proposals really look to me like a foundation on which to build a presidential platform, so I’m going to stop denying that Warren is interested in the White House.

The proposals are the Accountable Capitalism Act and the Anti-Corruption and Public Integrity Act. Together, they point to a different strategy for reaching those voters who feel that economic growth has passed them by.

The Great Divergence. The reasons Americans might feel discouraged about economic growth are well known, and I’ve covered them in this blog many times. Between the end of World War II and the mid-1970s, wages and productivity increased together; as technology and capital formation led to more efficient ways of producing goods and services, the workers who produced those goods and services benefited. “A rising tide lifts all boats,” the adage went.

But since then, wages and productivity have diverged. Productivity kept increasing while wages stayed flat. The economy kept growing, but the people who made stuff didn’t wind up with more. Instead, just about all the new wealth accumulated at the very top. It went to the people who own companies rather than the people who work at them.

The difference that trend makes from one year to the next doesn’t amount to much compared to the fluctuations of the business cycle; whether or not you can find a job counts for much more than whether or not wages in general are increasing. But over the course of a generation it makes a huge difference. My parents’ generation (born in the 1920s) lived like kings compared to their parents. What had been luxuries when they were young — cars, houses with more rooms than people, meals at restaurants — became commonplace in middle age.

For my generation (born in the 1950s) it’s been more hit-and-miss. If you moved up the educational ladder and got into a more lucrative profession than your parents, you did better than they had. But if you stayed on the same level — say if you tried to follow your Dad into the factories or mines — you did much worse.

The generation born in the 1990s may eventually come out well, but right now things look hard: Unless they were born into at least the upper middle class, a college degree leaves them deep in debt, while not getting a degree leaves them with many fewer options than I would have had. Either way, they enter adulthood with more headaches than my generation had.

Political responses. The Republican message ignores the Great Divergence, and claims that more GDP growth will solve everybody’s problems, as if the rising tide still lifted all boats. But it doesn’t any more. More economic growth might just mean that Jeff Bezos is worth $200 billion instead of $100 billion. In the expanding part of the business cycle (like now) ordinary people may find it easier to get jobs. But they still may not find it easier to get jobs that pay more than their parents made at the same age. A full generation’s worth of growth in the national economy may not have touched them at all.

The Democratic message has mostly been that people need help from government. Depending on where you are on the economic scale, you may need help paying for food and housing, or for health care, or for education. And so there are proposals like Medicare for All, free college, or even a basic income.

But redistributive proposals — taxing the rich and spending the money on everybody else — just mitigate the effects of stagnant wages. They make it easier to live in an economy that channels all of its productivity increases to the rich, but they don’t fundamentally change that economy.

Redistribution of power. Something the Trump campaign understood and took advantage of in 2016 was that Americans are frustrated by something deeper than just the fact that they aren’t winning the game financially. They’re angry about playing a game that they feel is rigged against them. “Make America Great Again” did have all sorts of racist, sexist, homophobic, and xenophobic (in a single word, deplorable) implications, but it also evoked a well-deserved nostalgia for that pre-Divergence world, when the game felt winnable (at least for straight white men).

Just redistributing money doesn’t fix that. If you run a race with weights around your ankles, and somebody who doesn’t carry those weights gets a big head start, giving everybody a participation trophy at the end won’t make you feel much better about losing. No, to really fix the problem we need to redistribute power.

Promoting unions would help some, for reasons Trae Crowder explains in this video.

In this country, you’re not paid for the skills you have. If that were true the Kardashians wouldn’t have a fleet of Maseratis. No, in America you’re paid based on what you can bargain for.

Those factory-and-mining jobs that Trump keeps claiming (mostly falsely) that he’s bringing back — it’s not that they’re inherently good jobs. (In the 19th century they were terrible jobs. They paid starvation wages and you stood a good chance of getting killed.) It’s that unionized miners and factory workers had the power to force the owners to give them a fair share of the industry’s profits.

Warren’s insight is that we don’t just need to give workers better tools to channel power. We also need to weaken the corporations and wealthy individuals that they bargain against.

The corporate/government power loop. In this era of corporate personhood, we take for granted that corporations are immortal sociopaths. As I noted in 2010:

Diagnostic criteria for sociopathy include symptoms like: persistent lying or stealing, apparent lack of remorse or empathy, cruelty to animals, recurring difficulties with the law, disregard for right and wrong, tendency to violate the boundaries and rights of others, irresponsible work behavior, and disregard for safety. [1]

Any of that sound familiar?

We take for granted that (within the law and occasionally outside of it) corporations will do whatever they can to increase their profits. We fault a poor person for taking advantage of a loophole in the Food Stamp program, and Trump rails against desperate immigrants who take advantage of our asylum laws. But if a corporation takes a subsidy or tax cut that was supposed to encourage it to create jobs, and then it destroys jobs instead … well, that’s just how they are; it was our own fault for not negotiating a tighter agreement. If a corporation moves its headquarters to the Cayman Islands to escape taxes, what did you expect? Corporations aren’t patriotic. If a health insurance company finds a loophole that lets it kick sick people to the curb, it’s just doing a good job for its stockholders.

We forget that corporations were not always this way. In the era of the Founders, corporations were rare and were chartered for specific purposes like building a canal or running a college. The Founders themselves recalled the British East India Company as a bad example they didn’t want to recreate.

Corporations are not a natural species that we have discovered and integrated into our society. They are created by law, and they should be what we need them to be. Maybe it doesn’t serve our purposes to give enormous economic and political power to immortal sociopaths. [2]

The obvious answer is to regulate them tightly. President Grover Cleveland — how often does his name come up? — said in his 1888 State of the Union that corporations “should be the carefully restrained creatures of the law and the servants of the people” but that they “are fast becoming the people’s masters.”

Already in Cleveland’s day, the problem was that corporations corrupt the regulating process. Not only do they have the time and money to find the weak points in whatever system we construct, but they also influence how those systems are set up in the first place. Often the laws regulating corporations are written by corporate lobbyists, and then applied by bureaucrats who hope to make a lot of money as corporate lobbyists in the future. And now that the Supreme Court has given the go-ahead to unlimited corporate political spending, a lot of politicians are either afraid to oppose them or unable to beat them.

So there’s a power loop: corporations control the government that is supposed to protect us from corporations. It’s no wonder ordinary people can’t win.

Vox looks back at the seminal Milton Friedman article “The Social Responsibility of Business is to Increase Its Profits” from 1970.

Friedman allows that executives are obligated to follow the law — an important caveat — establishing a conceptual framework in which policy goals should be pursued by the government, while businesses pursue the prime business directive of profitability.

One important real-world complication that Friedman’s article largely neglects is that business lobbying does a great deal to determine what the laws are. It’s all well and good, in other words, to say that businesses should follow the rules and leave worrying about environmental externalities up to the regulators. But in reality, polluting companies invest heavily in making sure that regulators underregulate — and it seems to follow from the doctrine of shareholder supremacy that if lobbying to create bad laws is profitable for shareholders, corporate executives are required to do it.

Warren’s proposals. Taken together, Warren’s two proposals are aimed at attacking that corporate/government power loop from both sides. The Accountable Capitalism Act focuses on the corporate side. Vox explains:

Warren wants to create an Office of United States Corporations inside the Department of Commerce and require any corporation with revenue over $1 billion — only a few thousand companies, but a large share of overall employment and economic activity — to obtain a federal charter of corporate citizenship.

The charter tells company directors to consider the interests of all relevant stakeholders — shareholders, but also customers, employees, and the communities in which the company operates — when making decisions. That could concretely shift the outcome of some shareholder lawsuits but is aimed more broadly at shifting American business culture out of its current shareholders-first framework and back toward something more like the broad ethic of social responsibility that took hold during WWII and continued for several decades.

That sounds kind of idealistic, but there are some very practical enforcement mechanisms: Workers would elect 40% of the corporate board of directors: not enough to give the workers control, but more than enough to settle any internal disputes among the stockholders. And then, the bill would “require corporate political activity to be authorized specifically by both 75 percent of shareholders and 75 percent of board members”.

Think about what that means: The board members elected by the workers could veto any corporate political contributions or lobbying efforts. So if corporate management wants something out of the government that benefits the whole company, it could still fund that. But if it wants government help breaking its union or killing government healthcare programs or generally tilting the economy in a pro-business direction, that’s probably not going to go through.

This is a way to limit corporate political spending that gets around John Roberts’ corporations-have-free-speech notions. They still have free speech, but the process by which they decide what to say has been fuzzed up a little.

The Anti-Corruption and Public Integrity Act hits the government side of the power loop. A different Vox article:

The bill would institute a lifetime ban on the president, vice president, Cabinet members, and congressional lawmakers becoming lobbyists after they leave office. It would give other federal workers restrictions — albeit less severe — on entering lobbying firms. The act would also bar federal judges from owning individual stocks or accepting gifts or payments that could potentially influence the outcome of their rulings.

Warren’s bill would also mandate presidential and vice presidential candidates to, by law, disclose eight years’ worth of tax returns and place any assets that could present a conflict of interest into a blind trust to be sold off (neither of which President Donald Trump has done). Members of Congress would have to do the same with two years of tax returns.

Critics say this law would make it hard to recruit people into government jobs, but it looks to me like it would just weed out people who want government jobs for the wrong reasons. If you want to work for the FDA because you care about public health, you’ll still want to work for the FDA. But if you want to work for the FDA because you hope for a big payday from the drug industry after you leave government, you won’t.

Where this goes. Immediately, it goes nowhere. Mitch McConnell controls what bills come up for a vote, and the GOP has the votes to kill anything its corporate masters don’t like. I don’t even know how many Democratic senators would line up behind this.

What Warren has done, though, is drive a stake into the ground, and say “We need to build something here.” I haven’t read either bill in its entirety, and I suspect there will be considerable room for debate about the details. She may not have them right.

But she has the big picture right. We do need to regulate corporate activity more tightly, especially in the ways that it incestuously influences its own regulation. We need to restrain the power of corporate money in our elections. We need to make it less tempting for politicians and bureaucrats to sell out the public interest.

In the near term, the significance of these proposals is that they can shift a stagnant public debate. The right forum for that debate to get started, though, is the 2020 presidential campaign. Unless some major presidential candidate picks these ideas up and carries them into the televised debates, they’ll fade into the background.

So what do you think, Senator Warren? Will some major candidate pick these ideas up?


[1] Several of those links had rotted in the last 8 years, so I updated them.

[2] I often wonder if all the vampires who show up in our novels, TV shows, and movies are some kind of collective unconscious response to the immortal sociopaths we have to deal with every day. Don’t you ever feel like your cable or credit-card company would like to suck your blood?

“America First!” means China wins

China either is already the world’s largest economy or soon will be. In order to compete for world leadership in the coming decades, the US will need to represent a community of like-minded nations, not go it alone.


America First. The foreign policy Donald Trump ran on came down to two words: “America First!”

He never spelled out exactly what policy agenda that slogan entailed — Trump 2016 was never the kind of campaign that constructed 12-point plans or posted white papers on its web site — but the attitude it expressed was clear: Both economically and militarily, the United States is the world’s 800-pound gorilla, and we need to start acting like it.

According to Trump’s populist critique, past administrations of both parties worried too much about principles like free trade and human rights, and invested too much of their hopes in multinational organizations like the UN, the WTO, and NATO. The Bushes and Clintons and Obama — and basically every president since Truman — tried to create a world of rules and mutual commitments, and failed to recognize something Trump finds obvious: Rules protect the weak. A world without rules is governed by the Law of the Jungle, and under that law the 800-pound gorilla always wins. That’s why he felt confident promising us “so much winning“.

To Trump and his followers, it makes no sense that the US has been trying to lead the world by setting a good example, rather than dominate it by telling other countries how things are going to work. It’s been crazy to keep our markets open when other countries close theirs, respect their intellectual property when they don’t respect ours, or extend our military shield over allies who don’t invest in their own armed forces the way we do. Our strength ought to get us a better deal, but it doesn’t because we keep volunteering to take a worse one.

So if it meant anything, “America First!” meant that it was high time we stopped volunteering to take the short end of the stick. Stop trying to create a world of rules that apply equally to everyone and stop averting our eyes when other countries cut corners. Instead, deal with every country one-on-one, a situation where our superior power will let us tell them what’s what. And what we will tell them is: “You need us more than we need you. So we win, you lose.”

During the campaign, examples of how Trump pictured this working would occasionally pop out: If we were going to liberate the Iraqi people from Saddam Hussein’s tyranny, we should have taken their oil to make it worth our while. If our military is going to keep defending Europe, they should pay us. Shortly after taking office he told the CIA the principle we ought to live by: “To the victor belong the spoils.

Short-term and long-term. A year and a half into the Trump administration, we’re still waiting for those white papers and 12-point plans. (An anonymous staffer recently summed up the Trump Doctrine by expanding “America First!” from a two-word to a three-word slogan: “We’re America, bitch!“) But the outlines of a Trump foreign policy are starting to become clear: no TPP; no Paris Climate Accord; no Iran denuclearization deal; no UN Human Rights Council. We move our embassy to Jerusalem because we’ve taken Israel’s side, and aren’t trying to broker peace any more. We don’t accept other countries’ refugees. We insult our allies and leave them in the dark about our intentions. We can act like that because we’re America, bitch.

Once the Trump administration gets outside the restrictions of multinational agreements and into bilateral negotiations, it makes big demands and waits for other nations to back down, threatening terrible consequences if they don’t. Strangely, these tactics have yet to work anywhere. Mexico still isn’t paying for the wall and just elected a government more resistant to American pressure than ever. No one — not China, not Canada, not the EU — is knuckling under to our trade demands. North Korea gave us some pretty words, but doesn’t seem inclined to abandon its nukes.

Those problems, the administration assures us, are just short-term. As soon as other countries understand that we’re serious, they’ll realize who has the upper hand. Thursday night, Trump told a rally in Montana: “We’re going to win [the trade war with China] because we have all the cards.”

So far, that hasn’t been true: We hit them, they hit back — as if we were equals or something. But who knows? Maybe in the medium term Trump’s strategy works out. Maybe over the next year or so Canada and Mexico will decide that they do need to renegotiate NAFTA so that it tilts more in our favor. Maybe China and the EU will drop their reprisal tariffs and be content to let us buy less from them. Maybe we’ll get a new Iran deal that restricts their nuclear program for longer than Obama’s deal did, or adds provisions about ballistic missiles or exporting terrorism. Maybe the North Korea denuclearization agreement will turn into more than a handshake and a photo op.

I’d be surprised, but what do I know? Stranger things have happened.

But now let’s expand our time horizon and recognize one obvious fact: In the long run, it’s China who will be the world’s 800-pound gorilla. If the world is running according to the Law of the Jungle in 2030 or 2050, they win, not us.

How the US and China stack up. At the moment, China has around 1.4 billion people, about 1/6th of the world’s population and four times America’s. Per capita, it’s still a much poorer country than we are, but the national totals are starting to even out.

Depending on how you measure, China either has already overtaken us as the world’s largest economy or soon will. [1] It’s more-or-less inevitable: As Japan and South Korea and Singapore have shown, it’s much easier to bring your people up to a standard that some other nation has already achieved than to create an entirely new standard of wealth. So China’s GDP grows over 6% in a bad year, while ours grows 3% in a good year. [2]Over time that adds up. If China ever manages to achieve a per capita income that is just half of ours, its total economy will be twice as large. That will give it a leading role on the world stage.

Already China is flexing its muscles in terms of soft power. Its Belt and Road Initiative is a multi-trillion-dollar plan to rebuild Eurasia’s infrastructure around China-centered trade routes and financial institutions.

Think about what this means diplomatically. China can approach Pakistan with its plan for a Pakistan-China Economic Corridor. What’s our vision for Pakistan? China foresees a high-speed-rail network that connects Shanghai to Singapore and Bangkok. What do we foresee?

It may not happen right away, but over time you have to expect China to exert the kind of world influence that comes with being the world’s largest economy. They will have the tax base to outstrip us in military spending eventually, if they choose to. Someday Shanghai or Hong Kong might replace New York as the world financial capital. Already, China can challenge us as a regional military power in Asia. Eventually it will have the resources, if it wants, to challenge us around world — at least if we are foolish enough to take them on by ourselves.

We need allies. We need institutions. In short, this is a uniquely bad time for the US to set up the world to be dominated by an 800-pound gorilla. Because before much longer, that gorilla won’t be us.

For the United States to continue to be the world’s most influential nation, we’re going to have to rely on two factors that Trump wants to turn his back on.

  • We represent values that the world admires, not just our own money and power.
  • We lead a community of nations who share those values.

If those two things are true, then America is the leading member of a coalition China won’t be able to bully for a very long time, or maybe ever: ourselves, the EU, Japan, the English-speaking parts of the British Commonwealth, South Korea, Taiwan, and maybe a few other countries. As India, Brazil, and other nations achieve relative economic equality with the countries in that coalition, there’s reason to hope that they will find it a club worth joining.

Whatever you may think of how the Trans-Pacific Partnership turned out in its final form, this was the geo-political vision that got it started: We would not negotiate trade with China by ourselves, but would get together with a large number of like-minded nations to write rules of the road. Long-term, we hoped that China might someday accept our rules in order to get the benefits of belonging to our club. There are many reasonable arguments against the TPP as it eventually was negotiated, but to scrap it and replace it with nothing will eventually prove to be a huge missed opportunity. (Pulling out of the WTO, which Trump is reported to be considering, would be even worse.)

Going forward, we want to live in a world of multinational institutions, because in a world of bilateral agreements, more and more it will be China who tells other nations how things are going to be.

The benefits of being a benign superpower. Since the end of World War II, the United States has been the chief promoter and protector of the international financial system. Trump and his followers see only the costs of this role and ignore all the ways that it has enhanced American power.

In the world today, the dollar is the international currency. National banks of almost all countries hold large reserves of dollars, and international trade is denominated in dollars. Just about any international transfer of money at some point passes through the US banking system.

What this means is that the market for dollars goes well beyond the needs of the US economy. The Federal Reserve creates dollars at zero cost, by entering numbers into its database. Many of those dollars go overseas eventually, and we get real goods in return: cars, iPhones, oil, steel, and Ivanka Trump’s fashion line. This is the seldom-discussed flip side of our trade deficit: We get away with running that deficit — consuming more than we produce — because the international economy needs a currency, and the dollar plays that role. The dollar is our chief export.

Similarly, US Treasury bills are the world’s default investment. This has allowed us to finance our budget deficit year after year, without suffering any of the ill effects that budget hawks are constantly predicting: Our national debt hasn’t caused inflation. The dollar’s value hasn’t collapsed. We don’t have to offer higher and higher interest rates to get investors to loan us money.

Short of military attack, the most potent weapon we can aim at an adversary is to cut them off from the US banking system. When fully enforced, that sanction can reduce another nation’s international trade to barter, and induce it to invent elaborate and expensive money-laundering schemes. The sanction that hurts Putin’s oligarchs most is the Magnitsky Act, which prevents sanctioned individuals from using the US banking system. The Atlantic explains:

What made Russian officialdom so mad about the Magnitsky Act is that it was the first time that there was some kind of roadblock to getting stolen money to safety. In Russia, after all, officers and bureaucrats could steal it again, the same way they had stolen it in the first place: a raid, an extortion racket, a crooked court case with forged documents—the possibilities are endless. Protecting the money meant getting it out of Russia. But what happens if you get it out of Russia and it’s frozen by Western authorities? What’s the point of stealing all that money if you can’t enjoy the Miami condo it bought you? What’s the point if you can’t use it to travel to the Côte d’Azur in luxury?

Once your wealth is expressed in dollars and recognized by the US banking system, you can take it anywhere and do anything you want with it. But otherwise, it’s barely money at all.

In a lot of ways, our banking power is better than military power. Unlike tanks or even nuclear missiles, our enemies have no answer for it. What are they going to threaten in return — to cut us off from the Russian or North Korean or Iranian banking system? Why would we care?

You might ask: How did we get power like this? Why do other nations let us keep it?

And the answer is that we have been entrusted with this kind of power because (for the most part) we have used it benignly. In theory, the other nations of the world could cut us out of the picture by deciding to use the yen or the Euro instead, or by getting together and creating a truly international currency and a truly international banking system to go with it. But the new currency would be like the Euro on a larger scale: negotiating and managing that new monetary system would be a huge headache, and who knows what holes and glitches it might develop? It’s just much more convenient for everybody to stick with the dollar and the US banking system, because our occasional abuses of that power have stayed within reasonable bounds.

In short, we have been fairly faithful stewards of other nations’ trust.

Or, translating the same idea into Trump-speak: We’ve been suckers. We haven’t put America first. We haven’t used every tool at our disposal to drive other nations to the wall and make them do what we want.

But that’s why other nations trusted us in the first place. And over time, we have benefited a great deal from that trust.

Bad timing. During this era, when we can see China gaining on us in the race for power (and in some areas already beginning to pass us), it’s tempting to try to squeeze all the juice we can out of our superpower status before we lose it. It’s also the worst strategic decision we could possibly make. At best, such a policy might produce a brief flare of American brilliance before our power winks out completely.

Now more than ever, the United States needs an international system based on principles and enforced by international institutions supported by multilateral agreements that all parties can live with and see benefit from. We need a system that isolates rogue nations and draws them into the rules-based community. We need to stand for universally attractive ideals like democracy, human rights, and opportunity for all. If China wants to compete with us for leadership, let it compete to lead the ideals-based coalition we have assembled. Let it compete to be a more admirable nation or a better steward of the world’s trust.

On the other hand, over the next five or ten years there might be some gains to cash in by becoming a rogue nation ourselves, flouting the principles we previously tried to establish, undercutting international cooperation on issues like global warming, and imposing win/lose agreements on weaker countries. The international institutions we helped design would likely wither, and to the extent they survived they would become alliances against our abuses of power. As we turned inward, other nations would as well, and the world as a whole would become a less prosperous place.

None of this would thwart China’s rise. And as the American Era ended, our legacy would not be an international system of mutually beneficial principles, rules, and institutions, but a Law-of-the-Jungle world, where the 800-pound gorilla always wins.

Unfortunately, that 800-pound gorilla would be China. China would owe us a great debt of gratitude for establishing a world system that allowed it to throw its weight around, dominating smaller nations (including us). However, I suspect China would never feel obligated to offer us anything to settle that debt. After all, gratitude is for suckers.


[1] If you google “countries ranked by GDP“, you’ll see lists from various international organizations that make it look like we still have a wide lead. For example: $19.4 trillion to $12.2 trillion in the World Bank list for 2017.

However lists like that are suspect for the following reason: They usually start by estimating a country’s annual GDP in the local currency, and then convert that estimate to dollars using the current exchange rates. But it’s widely suspected that China’s currency is undervalued; that’s what gives it such a big advantage in trade. Once you adjust for that undervaluation, you get very different numbers.

Economists argue about how to make that adjustment. One complex tool called “purchasing power index” says that the Chinese GDP really represents $21.4 trillion of purchasing power.

That’s calculation is hard for a non-economist to follow, but one quick-and-dirty (not to mention amusing) method for comparing the value of products across currencies is to use the Big Mac Index: Express all prices in units of locally produced Big Macs, which are assumed to be more-or-less identical around the world. (Example: If an iPhone 8 costs about $700 and a Big Mac sells for $3.50, an iPhone 8 costs 200 Big Macs.) At current exchange rates, you can buy 1.8 Chinese Big Macs for the price of 1 US Big Mac. So (adjusting everything by a factor of 1.8) annual Chinese GDP represents a number of Big Macs that would sell for around $22 trillion in the United States.

[2] In his 2012 campaign, Mitt Romney made the wildly optimistic prediction that his economic policies would lead to 4% growth. If Chinese growth got down to 4%, it would be a national emergency.

The Brazen Cynicism of the Tax-Reform Vote


Without even the appearance of doing something good for the country, the Senate plunged ahead.


I admit it: Senate Republicans surprised me this week.

I know, it shouldn’t be shocking that Republicans would give a big windfall to corporations and the very rich. It’s what they do. Just last summer, they came within one vote of taking healthcare away from 20-some million Americans so that the wealthy could pay less tax.

Usually, though, they do a better job of giving themselves cover. The fringe of the party includes people like Susan Collins and John McCain, who try to retain at least the appearance of a conscience. It also includes clever apologists, whose arguments often obscure what’s really going on and make it possible to claim some noble purpose.

But by early Saturday morning, when the Senate passed its tax reform proposal on a nearly party-line vote, those justifications were all gone. This bill was about paying off the big donors and enriching the Trump family, and everybody knew it. Some senators continued mouthing words like growth and middle-class families, but they weren’t arguing any more, they were just lying. They weren’t fooling anybody, and they didn’t seem to care.

In the end, 51 Republicans voted for the bill, with only Bob Corker opposed. All 48 Democrats voted against it. (Remember that, the next time someone claims there’s no difference between the parties.) One by one, the last holdouts had tossed away their fig leaves and jumped into the mire.

  • John McCain, who gave such a moving speech about returning to regular order before he cast the deciding vote against ObamaCare repeal in July, was unperturbed by a very similar process this time, in which the 479-page bill was not available for inspection until a few hours before the vote.
  • Susan Collins, who in the summer seemed to worry deeply about people losing their health insurance, stopped worrying and accepted the Senate leadership’s promises about future legislation that I will be very surprised to see pass the House (unless it’s paired with a whole bunch of really bad things).
  • Jeff Flake, who (like just about all Republicans) seemed to believe during the Obama years that the deficit was a looming catastrophe, and who supposedly had achieved his independence by choosing not to run for re-election, decided that an extra trillion or two of debt really wasn’t worth getting excited about.

So this is where we are: A similar-but-not-identical bill passed the House in mid-November, so a conference committee will have to work out a compromise bill that both houses can pass. In other words, there is still room for something to go wrong, but some bill of this form is increasingly likely to become law by the end of the year.

The numbers. All along, independent analyses from the Tax Policy Center, the Penn-Wharton Budget Model, and even Congress’ own CBO had been telling a very consistent story: The bill would lead to major increases in the deficit with little-to-no long-term benefits for anybody but the wealthy.

This conclusion was supported by anecdotal evidence. The centerpiece of the bill — lowering the corporate tax rate from 35% to 20% — was supposed to generate massive new investments in production, creating so many jobs that workers would have bargaining power again, raising wages for everybody. But whenever actual corporate CEOs were consulted, they said they would pass the money on to shareholders through dividends or stock buy-backs rather than build new factories or pay workers more. Bloomberg reported:

That money is also unlikely to spur hiring because companies are already well-capitalized and can bring on as many employees as they need, said John Shin, a foreign-exchange strategist at Bank of America Merrill Lynch.

“Companies are sitting on large amounts of cash. They’re not really financially constrained,” Shin, who conducted a survey of more than 300 companies asking their plans for a tax overhaul, said in an interview. “They’re still working for their shareholders, primarily.”

Right up until Thursday, though, Republicans were hoping more favorable numbers would appear. Congress’ Joint Committee on Taxation hadn’t weighed in yet, and they were known to use the dynamic-scoring model conservatives favor, the one that figures in the effects of tax-cut-induced growth. The Treasury Department supposedly had over 100 people churning out analyses; presumably Secretary Mnuchin had seen their preliminary results when he claimed that the proposal wouldn’t just be deficit neutral, it would “pay down debt” by generating more new revenue than the tax cuts gave up.

The JCT analysis came out Thursday, just hours before the Senate was scheduled to vote. Its most favorable dynamic scoring said that increased economic growth would restore about 1/3 of the revenue lost, so that the deficit would only increase by $1 trillion rather than the nominal $1.5 trillion. A third is better than nothing, but even if you allowed for growth, the deficit was going up.

Would this guy lie to you?

But what about Mnuchin and the Treasury? It turned out that they had no analysis, or at least none they were willing to make public.

Those inside Treasury’s Office of Tax Policy, which Mr. Mnuchin has credited with running the models, say they have been largely shut out of the process and are not working on the type of detailed analysis that he has mentioned. An economist at the Office of Tax Analysis, who spoke on the condition of anonymity so as not to jeopardize his job, said Treasury had not released a “dynamic” analysis showing that the tax plan would be paid for with economic growth because one did not exist.

So Mnuchin’s many public statements about tax reform had been airy nonsense, grounded in nothing. Meanwhile, here’s what the JCT projected for American families:

(Here’s the same information as a series of charts.) In other words: More than 1/3 of U.S. households will never get anything out of this bill, not even in the first few years. That situation gets progressively worse until nearly all the individual cuts expire in 2027, at which point about 1 in 4 are paying higher taxes, while only 16% still see a tax cut of more than $100.

Senate Republican Whip John Cornyn dealt with this convergence of expert analysis by saying, “I think it’s pretty clear they’re wrong.” Just because.

Full speed ahead. The original plan had been for the Senate to vote on Thursday. But the surprising (to some) revelation that the JCT analysis agreed in principle with all the other analyses, that nothing to the contrary would being coming out of the Treasury, and so the claims they were making had literally no basis — it threw a wrench into the process.

Many options were possible at that point. The bill could have gone back to committee to be scaled down into a defensible form. Maybe 20% was a bridge too far, and corporations would have to be satisfied with a 25% tax rate. That would create some room to fulfill the original stated purpose of the bill: cutting middle-class taxes for real this time.

Maybe the deficit didn’t have to go up, either. Back in 2012, President Obama had proposed a 28% rate that he claimed would produce more revenue than the 35% rate, without any analytic sleight-of-hand. Both parties have acknowledged for years that our high-rates-with-many-loopholes corporate tax system is inefficient. With a little genuine give-and-take, leaders on both sides might assemble a bipartisan coalition of  60 votes or more, avoiding the reconciliation process entirely.

Or, Mitch McConnell could scrawl a few last-minute changes in the margins to assuage the doubts the last few Republican hold-outs, and the Senate could shamelessly go forward with a bill to borrow an extra trillion dollars or more so that the GOP could give a big Christmas present to the very rich. But if they were going to do it, they’d better do it fast, before the public was able to organize against this already very unpopular bill.

By now, you know which choice they made.

The people they betrayed. One way the Senate got its bill to fit onto the procrustean bed of the $1.5 trillion-over-ten-years price tag authorized by the FY2018 budget resolution was to make of a now-you-see-it, now-you-don’t gimmick Paul Krugman refers to as Schroedinger’s tax hike. The budget numbers work because only the corporate tax cuts are permanent; the individual cuts mostly phase out, resulting in this graph from the JCT.

(These numbers refer to an earlier version of the bill, but I believe a similar graph could be drawn for the current version.)

Republicans are arguing that those tax breaks [for individuals] won’t actually be temporary, that future Congresses will extend them. But they also need to assume that those tax breaks really will expire in order to meet their budget numbers. So the temporary tax breaks need, for political purposes, to be both alive and dead.

So either individual taxes will turn sharply upwards in 2025, or the tax-reform bill costs a whole lot more than $1.5 trillion. It’s one or the other. Ezra Klein points out the “pure fraud” in the deficit arguments Republicans have been making for years.

The GOP spent the Obama years in a frenzy over debt and deficits. Now they are passing a tax bill that will add trillions to the national debt, complete with budget gimmicks that, if they play out the way Republicans are publicly hoping they will play out, will lead to an even higher price tag.

When a Democrat is in the White House, the national debt is an existential crisis that threatens to bring down the Republic. But that threat magically vanishes when a Republican takes office.

So if you believed what Republicans told you about the deficit then, they’ve betrayed you now. But they’ve also betrayed you if you believed the populist side of Trump’s 2016 message. Because here’s where we are, prior to this bill becoming law: The national debt is around $20 trillion, and is already projected to increase to $30 trillion over the next ten years. Rather than do anything about that, Congress is in the act of tossing another trillion or two on top it. (BTW: In the speech where he announced his candidacy, Trump said: “$24 trillion— we’re very close— that’s the point of no return. $24 trillion. We will be there soon. That’s when we become Greece. That’s when we become a country that’s unsalvageable. And we’re gonna be there very soon.”)

So what about that big infrastructure project Trump talked about? (“So we have to rebuild our infrastructure, our bridges, our roadways, our airports. You come into La Guardia Airport, it’s like we’re in a third world country.”) Where’s the money for that going to come from? How’s he going to keep his promise not to cut Medicare, Medicaid, and Social Security, once the trillion-a-year deficits start happening? (“Save Medicare, Medicaid and Social Security without cuts. Have to do it.”)

He won’t keep that promise. He’s already breaking it.

If this passes, there will be no money left for populism, and no money left to save the programs the middle class depends on. They’ll have given it all to the rich.

They’re doing it as you read this, and they’re being totally brazen about it.

The Looming End of Net Neutrality (and why you should care)

Should the economy be organized to benefit producers and consumers, or a few big middlemen? We’ve been answering that question wrong since Ronald Reagan, and we’re about to do it again.


The FCC, with its new Republican majority, is proposing to end the era of net neutrality. If you’re some kind of internet nerd, you probably already know exactly what that means and have had a strong opinion about it for a long time. If not, though, it probably sounds like one of those intense debates nerds often have about mysterious topics like databases or user interfaces: You have no idea what they’re talking about, you don’t bother to find out, and whatever results from the argument, it never seems to bite you.

This one is going to bite you. When the bite comes, it might arrive in a form you won’t easily connect back to this decision. But it is going to bite you. It’s going to bite the whole economy.

To explain how and why, let me detour through a subject you probably do care about: economic inequality. Here’s a graph I keep posting in one form or another, because I think it points to the most significant fact in American politics: Up until around 1980, median income closely tracked productivity. And then something happened to disconnect them. Productivity kept increasing, but median income stagnated.

Unsurprisingly, this has led to a concentration of income at the top: The people who make wages have lost ground, while the people who pay wages have gained.

And the greatest concentration has been at the very tip-top: The share of wealth held by the top tenth of a percent has reached levels not seen since the Great Depression.

So what happened in 1980? The facile answer is that Ronald Reagan was elected president. But that explanation is too simple, because a president doesn’t deal out national wealth like a deck of cards. What did Reagan do, if anything, that touched off this new Gilded Age of concentrated wealth?

Again, there’s a too-simple answer: He cut taxes on the rich, and he broke unions. Those actions certainly did help the wealthy and harm the middle class, but they’re not enough to explain what happened. If that were all he did, subsequent presidents should have been able to undo it.

To really understand the Reagan impact, you need to apply David Graeber’s definition of a successful revolution: Reagan changed the political common sense of his era in a way that has stuck ever since. Since Reagan, one of the basic debates in American politics has been framed as Freedom vs. Regulation, with a corollary debate of Productivity vs. Regulation. In each case, Regulation was framed as the wrong side to be on: It limits our freedom and strangles our productivity.

The result has been a completely reshuffled economy, which I first started discussing in a 2012 post “Monopoly’s Role in Inequality“.

[M]arkets are created by rules, and the rules can be structured to favor either the ends (producers and consumers) or the middle. Producers and consumers benefit from transparent markets, where the rules force middlemen to treat everyone more-or-less the same.

But markets can also be structured to give middlemen as much freedom as possible. The most profitable way to use that freedom is to create choke-points where a toll can be extracted or one producer can be played off against another. In an opaque market, the way to get rich is not to produce things, but to build middleman power that allows you to dictate terms up and down the supply chain.

What we have today, after nearly 40 years of freedom-for-the-middleman de-regulation, is an economy full of choke points. The path to vast wealth is not to make something people want (as Henry Ford made cheap automobiles) or to discover something people need (as J. Paul Getty and H. L. Hunt found oil), but to insinuate yourself between producers and consumers, create a monopolistic choke point, and charge tolls.

WalMart and Amazon, for example, are choke points; if you want to sell a product to the general public, you have to deal with them on their terms. Visa and MasterCard are choke points; retailers need them, and have to pay whatever fees they set. Cable companies are choke points; creators of TV shows can’t reach viewers without them. Google is a choke point; if you’re hoping to get around WalMart and Amazon by selling over the internet, your website needs to show up when people search for your type of product. [1]

The upshot is that post-Reagan America is no longer a place where you can build a better mousetrap and expect the world to beat a path to your door. Instead, you build the mousetrap, and then you pay off the owners of the choke points between yourself and the mousetrap-buying public. Maybe some small profit will be left for you and maybe it won’t, but the choke-point owners will do well. [2]

There are a few things worth noticing about this situation:

  • In the short run, the choke-point owners often look like the good guys. Amazon has low prices; Visa gives you cash back. Middlemen often temporarily align with consumers in order to gain more power over producers. But the pattern of all monopolists remains: Once power is consolidated, it will encroach in both directions.
  • We all need producers. You’re not just a consumer who spends money, you need to make money too. And since ordinary people have no chance of owning their own choke points, most of us have to make money by finding a place on the productive side of the economy, by participating in the delivery of some good or service. Choke points stop middle-class people from moving up by starting their own businesses, and they siphon money away from the kinds of productive businesses that hire people.
  • “Freedom” can be anti-productivity. Given the prevailing post-Reagan political common sense, that sounds like a contradiction, but it really isn’t. If middlemen have freedom to play producers off against each other and keep the lion’s share of profits for themselves, then more of the economy’s investment will be in middlemen, and less in producers. Conversely, regulations that limit the power of middlemen are pro-productivity.

Now let’s get back to net neutrality: The point of net neutrality regulations is to control middlemen who own a major chunk of our economic infrastructure: the internet service providers like Comcast, Verizon, and AT&T. Once they’re freed from regulation, you can expect them to set up choke points and charge tolls. (This is how it works in Portugal.)

If you provide some service over the internet, for example, you will find yourself competing for the favor of ISPs rather than consumers. Maybe Netflix will pay Verizon so that its streaming service comes in faster and with higher quality than Amazon Prime; or maybe Amazon will outbid it. [3] In either case, the new revenue stream for Verizon either means higher prices for consumers or less spent by Amazon or Netflix on new content. It’s basically just a wound through which Verizon can suck blood out of the productive economy.

Wired suggests that we guess how the ISPs will use this power by looking at what they already do in data-limited plans:

When AT&T customers access its DirecTV Now video-streaming service, the data doesn’t count against their plan’s data limits. Verizon, likewise, exempts its Go90 service from its customers’ data plans. T-Mobile allows multiple video and music streaming services to bypass its data limits, essentially allowing it to pick winners and losers in those categories.

Consumers will likely see more arrangements like these, granting or blocking access to specific content … Net neutrality advocates have long worried that these sorts of preferential offerings harm competition, and by extension, consumers, by making it harder for smaller providers to compete. A company like Netflix or Amazon can likely shell out to sponsor data, but smaller companies don’t necessarily have the budget. … the future internet, then, could look a more extreme version of today’s mobile plans, with different pricing tiers for different levels of video quality for different apps. That means more customer choice, but perhaps not in the way anyone actually wants.

In the conservative fantasy world, the toll collectors will use some fraction of their windfall profits to improve their broadband networks (just as corporations in general will generously use their Trump tax cuts to hire more workers and pay them higher wages). In reality, though, it will be one more opportunity for parasites to latch on to the productive economy. The parasites will do well; ordinary people, not so much.


[1] Apple is an interesting hybrid. It makes things people want, like iPhones. But it too sees how the post-Reagan economy works and wants to evolve into a choke-point company. Already, its App Store is a choke point for software builders, iTunes is a choke point for music producers, and it would like ApplePay to become a choke point upstream from Visa and MasterCard.

[2] A choke point I face on this blog is Facebook. Three years ago, Facebook’s algorithms allowed posts on no-name blogs to go viral. (2014’s “Not a Tea Party, a Confederate Party” got more than half a million hits.) Now that’s much harder. (2017’s most popular Sift post has less than 4,000 hits.) Meanwhile, I’m constantly bombarded with suggestions that I should pay Facebook to get more visibility. I suspect Google does something similar to video bloggers on YouTube.

The analogy isn’t quite perfect, because I’m not trying to make money off my readers. But Josh Marshall at TPM is trying to make money, in an environment he described recently as a “digital media crash“. The situation was tough to begin with, and then …

Then came the platform monopolies: Google, Facebook and a few others. Over the last five years or so but accelerating rapidly in the last 24 months, they’ve gobbled up almost all of the growth in advertising revenue and begun to engross a substantial amount of the existing advertising revenue as well.

That increased flow of money to the platform monopolies takes it away from the actual journalists who find out things and explain them to you.

[3] One article endorsing the FCC proposal points to the ambiguous role of choke-point giants like Amazon and Google.

Net neutrality’s dubious value is made obvious by the misleading way Democrats and many news outlets reported the decision. “F.C.C. plans net neutrality repeal in a victory for telecoms,” wrote the New York Times. Missing from the headline or lede was that the decision was a loss for Netflix, Amazon, Google, and other corporate giants that provide content.

The logic of this should be obvious: Amazon and Google are on the side of the general public on this issue, but for their own reasons: They don’t want new choke points to be constructed upstream from their choke points.

The Real Reason Republicans Can’t Pass Major Legislation

It’s not Trump. It’s the fantasy-bubble that conservative voters live inside.


The most surprising thing about last summer’s many attempts to repeal ObamaCare wasn’t that they failed. It was the peculiar way that the legislation proceeded in both houses of Congress: without meaningful committee hearings, with minimal debate on the floor of either the House or Senate, sometimes without analysis from the CBO, and often without a even draft of a bill until the last possible moment. Again and again, Republicans were urged to vote Yes, not because the plan in front of them was good for American healthcare, but to “keep the process moving”. If McConnell and Ryan could have passed a healthcare bill in a sealed envelope, not to be opened until the White House signing ceremony, I think they would have.

The secret sauce that would make it all work was always going to be added later, by someone else: Moderates in the House supported the AHCA, believing the Senate would fix the aspects of it that President Trump later called “mean“. Senators offered to vote for the “skinny repeal” only if Paul Ryan could guarantee that the House would change it. Graham-Cassidy passed the buck to the states: Sure, it looked like less money that would give worse coverage to fewer people, but since all the details would be decided at the state level, senators could tell themselves the magic would happen there.

Republican governors, meanwhile, were mostly relieved the bill failed, because they had no magic either.

Gov. Brian Sandoval said Thursday that the flexibility fellow Republican Sen. Dean Heller promised will be good for Nevada in a health-care bill he’s sponsoring is a “false choice” because the legislation will also slash funding.

Because these efforts kept failing, Congress actually ended up spending a great deal of time on ObamaCare-repeal bills. The first one failed in the House in March, and Graham-Cassidy didn’t fail until the end of September. But it was more than half a year of breathless sprints, without any time to tell the public what they were doing.

All in all, it was no wonder the various ObamaCare-repeal bills polled badly. Literally no one was explaining to the people exactly what this particular bill did and why it would be good for them.

Go back, Jack, do it again. Now we’re on to tax reform, and the same strange process seems to be repeating. Republicans are absolutely in agreement that they are for tax reform. It’s going to cut corporate tax rates, but also give major benefits to the middle class. It will be “pro-growth”, and will avoid blowing up the deficit by “closing loopholes”, though no one can seem to agree on any particular loophole. Trump listed the “principles” tax reform will be based on, and then leaders from the House, Senate, and Trump administration agreed on a “framework“. Now the congressional leadership has even set a deadline: Thanksgiving.

But there’s no bill. It’s rumored a bill will appear in the House this week, maybe Wednesday, but no one seems to know what will be in it. They’re still announcing major changes (like property tax deductions), still negotiating on other significant details (401(k) deductions), and losing support over the few decisions they have announced (mortgage interest).

The framework says that individual income taxes will have three tax brackets (or maybe four), and names the rates for those brackets, but not the income levels where those rates kick in. 20% has been floated as a corporate tax rate, and maybe the deficit will be allowed to go up an additional $1.5 trillion over ten years, but that’s not set in stone either. Hardly anything is.

Thanksgiving is just a few weeks away, and the public is in the same situation it was with the various healthcare bills: Republicans can make lofty claims about what the tax-reform bill will ultimately deliver, but any hard analysis that refutes those claims can be hand-waved away, because the details aren’t set yet. [1]

Once again, Republicans are justifying their votes not on the content of what they’re voting for, but to move the process along. John McCain, for example, voted Yes on the Senate version of the budget resolution that sets up tax reform, but said: “At the end of the day, we all know that the Senate budget resolution will not impact final appropriations.” Rep. Steve Womack (R-Ark.) justified his Yes vote like this: “The budget that came back to us is a crap sandwich, but it happens to be the only thing on the menu.”

If the ObamaCare-repeal pattern continues to hold, the bill announced this week will debut to a hail of criticism and will go back into whatever secret negotiations produced it. This will happen as many times as is necessary to set up a last-minute, there’s-no-time-for-a-CBO-analysis vote. Wavering Republicans won’t be persuaded with facts and logic, they’ll be pressured with threats of mid-term disaster if the bill doesn’t pass. Whatever it actually says won’t be the point.

No one will claim this bill, but everyone will insist they have no choice but to pass it. Whether they do or not will come down to one or two votes.

Why does this keep happening? There’s no reason why Republicans couldn’t have introduced a tax-reform bill months ago, scheduled several weeks of hearings in all the appropriate committees, and tried to raise public support for their ideas in the usual way. They could argue that their bill is actually good, rather than claiming that they have no choice. They could have done the same on healthcare, and they could do the same on all the rest of their priorities: immigration, infrastructure, and so forth.

So why don’t they?

The answer is actually quite simple: Republican base voters live in a fantasy world that long predates Donald Trump. It has been carefully constructed over decades by politicians, Fox News, talk radio, and the rest of the conservative media establishment. Here are a few features of that fantasy world:

  • Tax cuts pay for themselves by creating economic growth.
  • Government spending is mostly waste, so it can be slashed without hurting anybody.
  • Climate change isn’t happening, or if it is, burning fossil fuels has nothing to do with it.
  • When the rich make money, everybody makes money.
  • The free market can solve all problems, including providing healthcare to the poor.
  • White Christians are the primary victims of discrimination.
  • The uninsured can get all the medical treatment they need in emergency rooms.
  • Elections at all levels are tainted by massive voter fraud, as millions of illegal immigrants cast ballots.
  • Big business wants what’s best for America, so there’s no need to stop them from polluting our air and water, or from making products that kill their workers or customers.

The fantasies are so extensive, and so divorced from reality, that there is literally no major issue that can be discussed in a rational way inside that bubble.

Any public debate Republican politicians participate in has to happen inside that bubble, because anyone who disputes any of those fantasies will be labeled a RINO and will likely face a primary opponent who sticks to the bubble orthodoxy.

That process worked great as long as they were out of power. The Ryans and McConnells and Cruzs and Gohmerts could have fantasy-world discussions that came to fantasy-world conclusions, and it was all fine, because none of it ever had to confront reality. They never accomplished what their voters wanted — nobody could have, since it’s impossible — but that was OK, because those horrible Democrats were blocking the way. It all would work, if only they were in charge.

So now they’re in power. All Republican public debate still has to happen inside the fantasy bubble, but now at some point the results of that debate have to transit over to the real world. There have to be actual pieces of legislation that do real things that can be analyzed by people who live in reality. And even if Republicans can discredit that analysis somehow, eventually there are still real events to deal with. Eventually, people pay taxes and drive on roads and send their kids to schools. They find (or don’t find) jobs and get (or lose) health insurance. The fantasies and rhetoric don’t help you then.

That’s what they found out in Kansas.

The strange process we keep seeing in Congress is an effort to stay inside the fantasy bubble until the last possible minute, then to sprint across the open ground between fantasy-world debates and real-world decisions as fast as possible.

So for a few more days, tax reform can be great and wonderful. It can give every worker a raise, set off an investment boom, and cut everybody’s taxes without losing revenue. Whatever tax break you’re worried about losing — don’t worry, the details aren’t set yet.

But soon they’ll have to publish a bill that the public can read. Then the sprint will start.


[1] For comparison, the first version of ObamaCare — the America’s Affordable Health Choices Act — was introduced in the House on July 14, 2009. The final version, the ACA, was passed on March 23, 2010, about 8 months later. Various things got changed during that time, but for every day of those 8 months, ObamaCare was a real proposal that could be authoritatively critiqued and analyzed.

Why cutting rich people’s taxes doesn’t create jobs

You’ll never get a job from a rich person with no customers.


Stop me if you’ve heard this before: A Republican president is proposing to massively cut the taxes paid by rich people. But it’s all good, because they’re “job creators”. So the tax cuts will give them money to create good jobs up and down the line, and result in so much economic growth that the government won’t even lose revenue.

One way to argue against this idea is with history: Cutting taxes always cuts revenue and leads to deficits. Both Ronald Reagan’s and George W. Bush’s tax cuts led to what were then record deficit. In between, Clinton’s tax increases created a huge surplus. This may seem too obvious to bear repeating, but apparently it needs to be said: If you cut taxes you collect less tax. If you raise taxes you collect more.

And the job creation thing only works sometimes: Reagan’s job record is pretty good (though not as good as Clinton’s), but George W. Bush’s is terrible: The economy created only 2.1 million jobs during Bush’s eight years (and was shedding jobs at a record pace as he left office). But during the eight tax-increasing Clinton years, 21.5 million jobs — ten times as many — were created.

What’s more, the purpose of cutting taxes on the wealthy is supposed to be so that they’ll have more cash to create jobs with. But if that worked, we’d have been swimming in jobs for years, because the very rich currently have as large a share of the national income and national wealth as they have since just before the Depression. If the job creators were ever going to create good jobs, it seems like they’d be doing it now, and would have been doing it since the turn of the millennium.

In fact, if you look at that graph, there seems to be an inverse relationship at work: The good old days of American jobs — when a man like my father could get a factory job, support an at-home wife, buy a house, and send two kids to college — were the 1950s and 1960s, when the top 1% was receiving a record low percentage of the national income.

But if you’ve been paying attention to American politics, you know that history — especially the kind of history you need to illustrate with graphs — doesn’t convince everybody. So in spite of hard experience, talking heads on TV are still telling us that making the rich richer will make everybody richer, because the rich create jobs for the rest of us.

You can rage about that. You can complain about how gullible and stupid the American public is, that they’re still falling for this nonsense. Or you can try to understand why: What is it that makes this particular false theory seem so much like common sense that the clear evidence against it doesn’t even register?

The answer to that is that the job-creator myth is supported by a convincing appeal to personal experience: “Do you have a job? Who pays you? Is he richer than you or not?” As the saying goes: I never got a job from a poor person.

So what’s wrong with that? You get a job because a rich person hires you, so if we want the economy to produce a lot of new jobs, we should make sure there are a lot of rich people with a lot of money to hire everybody else.

Why doesn’t that work? I mean, those of us who believe in history and graphs and stuff know it doesn’t, but why not?

The answer is that it takes three characters to create a job, not just one. For the economy to add a job, you need:

  • a worker to do the job
  • a customer to buy what the worker produces
  • an entrepreneur to bring the other two together.

If any one of the three is missing, there’s no job.

At any given moment, in any particular part of the job market, the logjam might be in any of the three factors. It’s possible that entrepreneurs don’t have enough investable cash, and that a tax cut will fix the problem. But it’s also possible that workers don’t have the right skills, so the government ought to be investing in education and training. Or that customers aren’t buying, so the government either needs to subsidize them or to buy things itself on the public account.

What’s wrong with conservative economics is that it always assumes that the lack is of entrepreneurs: If more people were in a position to start or expand a business, they would.

In fact, they won’t, unless they are confident the other two roles will be easy to fill. Imagine, for example, that you run a restaurant, and that a tax cut suddenly gives you a windfall of money you could use to expand. Will you? Not if you’re having trouble filling the tables you have.

That’s what happened during the Great Recession: Rich individuals and big corporations were sitting on huge piles of cash, but they weren’t using it to hire people. Why would they? Nobody is going to spend money to expand their businesses or start new ones if existing businesses are failing for lack of customers. If you cut rich people’s taxes in that situation, they’ll add their new pile of cash to their old pile until the economic outlook gets better.

What the economy was missing in 2008 was the customer. In an atmosphere of widespread fear, we all wanted to hang onto our cash and until we felt more secure. In such a situation, how much money entrepreneurs have to invest doesn’t matter; they won’t invest it until they see unsatisfied customers looking for a product they can spend their money on.

In general, that’s the problem when the distribution of wealth gets too skewed towards the rich: the economy chronically runs short of customers. No matter how extravagantly the rich live, there are limits to what they can consume and how many people can be employed satisfying them. You can’t base a mass-employment economy on yachts and caviar.

Right now, cutting taxes on the rich is exactly the wrong thing to do until the distribution of wealth and income returns to more normal levels. Instead, the government ought to be creating jobs by creating customers — even being the customer if it has to. It ought to be raising taxes on the rich in order to buy things we all need: roads and bridges, health care, clean air and water, education, and a 21st-century energy system that doesn’t wreck the prospects for future prosperity. In an economy already too dominated by the top tenth of a percent, that’s the way to create jobs.

So sure, I’ve never gotten a job from a poor person. But I’ve also never gotten a job from a rich person with no customers.

Why are middle-aged whites dying?

I’m doing fine, but my cousin is dead.


Look at this graph:

In 1990, the death rate for American whites aged 45-54 (USW) was within the normal range of similarly aged people in comparable countries, and similar to the death rate for middle-aged American Hispanics (USH). In all the other countries, death rates continued their centuries-long trend of dropping, with USH tracking the United Kingdom rate almost perfectly. But starting in 1998, USW turns up.

A good summary of this new study is in The Atlantic. The upshot is that about half a million American whites are dead who would be alive if USW death rates had followed the downward track of other first-world countries. The effect seems concentrated in the less-educated classes, and the cause is a sudden jump in the rate of what are called “poisonings” — mainly deaths related to alcohol and drugs — as well as an increase in suicides and other causes related to not taking care of yourself. Atlantic concludes that middle-aged whites “are dying of despair”.

This feels personal to me. My father was a high-school-educated white who was an adolescent during the Depression. For most of my childhood, he had a good-paying factory job that allowed him to buy a small farm that he worked on the side. Needless to say, he was a hard-working guy. But he also saw himself as extremely successful: He owned a house nicer than the one he grew up in, sent his kids to college, and after he retired had a winter home in Florida. He lived to be 90.

I took advantage of the opportunities my parents gave me and got a PhD. I also feel successful, and am in excellent health at 59. But what if, rather than reaching for a better life than my father’s, I had tried to duplicate his success? It wouldn’t have worked. The good-paying no-college-needed jobs went away during my lifetime. I probably would have bounced from one low-status job to another, always wondering why I couldn’t live at the level I had thought was normal for people like me. Compared to my father, I would be a failure.

That pretty well describes one of my cousins, who had alcohol problems for most of his adult life and died a little younger than I am now.

What we’re seeing here, I believe, is the end result of privileged distress. It’s still not objectively harder to be white in American than non-white, but the traditional privileges of whiteness have shrunk, particularly for the working class, while visions of how life is supposed to be (for white people) are pegged to the achievements of our parents. Consequently, it gets harder and harder for working-class whites to live up to the expectations they were raised to have. By middle age many feel like failures, and live with a corresponding lack of self-regard.

Is it any wonder they look for scapegoats, like the Hispanic immigrants, and are attracted to anger-channeling politicians like Donald Trump? They cheer when Trump says America is going to start winning again, and they love to identify with him when he calls his opponents “losers” — because looking down on somebody else is very satisfying when you feel like a loser yourself.

Damned Lies and Employment Statistics

Yes, some “real” unemployment rate is roughly double the official 5.1%. But there’s nothing sinister about that, and the job market really is gradually improving.


Some 19th-century wit — maybe British Prime Minister Benjamin Disraeli or American humorist Mark Twain or somebody else — once said that there are “lies, damned lies, and statistics“.

This week the Bureau of Labor Statistics issued its monthly jobs report, in which it asserted that the economy added a good-but-unspectacular 173,000 jobs in August, bringing the unemployment rate down to 5.1%, the lowest it’s been since early in the Great Recession of 2007-2009.

As happens every month, a number of pundits and politicians then blew a lot of hot air about how these numbers hide the “real” unemployment rate, which is much higher than 5.1%. Some even made it sound as if an evil government conspiracy is trying to fool the public into thinking things are getting better when they’re actually getting worse. Ben Carson expressed this idea in May:

What you have to know is that you can make the unemployment rate anything you want it to be, based on what numbers you include and what numbers you exclude.

Well, pretty much whatever you want to include or exclude, the BLS tracks that too, and publishes it for everybody to see. The wonks at the BLS refer to the “official” unemployment rate as U-3, but they also keep track of  U-4, U-5, and U-6, each of which defines unemployed more broadly than the previous U. U-4 includes people who would like a job, but are too discouraged to look for one; U-5 adds people who want a job, but haven’t looked recently for some other reason; and U-6 adds people who are working part-time when they would rather work full-time.

U-6 is what people (like the conservative Washington Examiner and liberal Bernie Sanders) are pointing to when they say the “real” unemployment rate is 10.3%. And that’s perfectly reasonable thing to say: 10.3% of potential workers wish they could work full-time, but haven’t found jobs that let them do so.

What isn’t reasonable is the conspiratorial that’s-what-they-want-you-to-think attitude that Carson and others are promoting. For example, The Daily Caller quoted Sanders’ comment accurately, and then inaccurately claimed: “That dose of reality is like a wet blanket on President Obama’s recent claims that the economy is improving.” It was nothing of the sort.

You see, the 10.3% U-6 number wasn’t smuggled out of the BLS by some whistle-blower; it was published in the same report as the 5.1% U-3 number. And while 10.3% unemployment sounds a whole lot worse than 5.1%, in the context of similar measurements taken over time, it tells the same story: The job market has been getting consistently better since very early in President Obama’s administration.*

unemployment2This graph (constructed with tools at Macrotrends), shows U-3, U-5, and U-6 over the last ten years. All three measures of unemployment bottom out in March, 2007; climb sharply to a peak October, 2009 (nine months into the Obama administration), and then decline to a level that is still a bit above the March, 2007 low.**

So U-3 is 5.1%, down from a peak of 10.1% but still not at the 4.4% pre-recession low. And U-6 is 10.3%, down from a peak of 17.4% but still not at its 8.0% pre-recession low. The two stats tell the same story.

But if you really want to make the slow-but-steady economic uptrend sound like smoke and mirrors, you selectively quote another stat openly published by the BLS: the labor participation rate, the percentage of people over 16 who are either working or looking for work.

The LPR has been going down throughout the Obama administration and now stands at 62.6%. So Carson, Paul Ryan, and other Republicans like to point to it as proof that things have actually been getting worse.

The problem with using the LPR as a measure of economic health is that good news can drive it down too, as people who have some economic slack choose not to work: older people retire, younger ones stay in school, couples let one spouse focus on raising the children, and so on.

If you just show a graph of the plunging LPR during the Obama administration, it looks like something must be going horribly wrong. But you see a different pattern if you take a longer view.

This half-century graph makes it apparent that the major trends in LPR don’t have a lot to do with the ups and downs of the business cycle. Otherwise, you’d have to conclude that the 1960s were some economic hellscape, rather than the relative good times they actually were.

What you’re mainly seeing in that big hump-in-the-graph is the life cycle of the Baby Boom generation, added to the effect of middle-class women entering (and staying in) the job market through the 1970s and 1980s. That Boomer-retirement trend is affected on the margins by the economy (as 60-somethings decide whether to retire this year or next year), but barring some catastrophe that keeps 80-year-olds looking for work in large numbers, the LPR should continue its downward trend for years to come, independent of who is president or what policies they implement.

So yes, there are some damned lies going around in the guise of statistics. But the notion that the economy and job market have been slowly getting better for the last six years is not one of them.


* If you really want to get wonky about this, we’re talking about the difference between a quantity that varies with time and its first derivative. Slightly less wonky: the difference between the raw total and the trend.

As far as I’ve noticed, Sanders has been using these numbers responsibly, to claim that the economy still needs a lot of jobs, and so could use the massive infrastructure project he has proposed. I haven’t exhaustively searched his speeches, but I haven’t seen him question the reality of the upward trend in the job market.

** It’s arguable that the 2007 low isn’t a fair comparison, since a lot of those jobs depended on the soon-to-pop real estate bubble.

What to Make of Pope Francis?

Is Pope Francis’ denunciation of “unfettered capitalism” new? or long-standing Catholic doctrine most Americans have ignored and forgotten? Either way, does it matter?


The Catholic Church has always been torn: Is it the church of Jesus, who told a rich man, “Go, sell all that you own and give to the poor”? Or is it the church of the Emperor Constantine, who put the Rome in Roman Catholicism? Is it the church of Saint Francis or of the Borgia popes? Of liberation theology or of Franco’s fascist collaborators?

The church in recent American politics. In recent years the public face of the American church has been turned primarily towards sexual issues: abortion, contraception, and homosexuality. And so the bishops have become allies of the Republican Party; the American politician most publicly identified as Catholic has been Rick Santorum. American cardinals have denied communion to pro-choice Catholic politicians like John Kerry and Kathleen Sebelius, but when a Catholic conservative like Paul Ryan proposes slashing programs that help the poor, a letter of protest is deemed sufficient. (Cardinal Dolan, then president of the U.S. Council of Catholic Bishops, subsequently described Ryan as “a great public servant”.)

On ObamaCare, the American bishops have manufactured great outrage against the fairly minor point* of the contraception mandate, while saying relatively little about Medicaid expansion, which will provide health insurance to millions of the working poor.

Liberal Catholic tradition. Unknown to much of the American public, though, the Catholic Church has a long history of liberal economic positions, going back at least to the 1891 encyclical Rerum Novarum by Pope Leo XIII.

I encountered this tradition myself in 2005 after the death of Pope John Paul II, when I went back and read his 1981 encyclical Laborem Exercens. In that encyclical, the Pope re-examined the relationship between capital and labor, and rejected a point of view he called economism (that workers are just another factor of production, like tools or raw materials, rather than divinely created beings with souls), which he saw underlying both capitalism and communism. He also assigned a secondary and functional role to the institution of private property: If a system of private property leads to a better society, fine, but it’s not an end in itself.

So (unlike Rush Limbaugh) I was not shocked this week when I read headlines like Pope Francis attacks ‘tyranny’ of unfettered capitalism, ‘idolatory of money’. Is this actually something new, I wondered, or does it just look new from within the sex-obsessed bubble constructed by the American bishops and their Republican allies?

Symbols and gestures. Pope Francis made a strong first impression on the world when he rejected many of the regal trappings of the papacy and chose the name Francis, which harkens back to the voluntary poverty and simplicity of Saint Francis of Assisi.

He then made a series of conciliatory statements. About gays:

When I meet a gay person, I have to distinguish between their being gay and being part of a lobby. If they accept the Lord and have goodwill, who am I to judge them? They shouldn’t be marginalized. The tendency [to homosexuality] is not the problem … they’re our brothers.

And atheists:

We must meet one another doing good. ‘But I don’t believe, Father, I am an atheist!’ But do good: we will meet one another there.

Where Pope Benedict had enraged Muslims, Francis reached out them, sending a personal message to a leading imam in Cairo, calling for “understanding among Christians and Muslims in the world, to build peace and justice.”

And running through all of his statements was an awareness of the poor, those who have been cut off from the abundant produce of the planet God created to sustain all people.

So far, so good. But would he actually change anything?

Evangelii Gaudium. A week ago yesterday, the Vatican published an “apostolic exhortation” from Pope Francis. Apostolic exhortations are what the name implies: They’re meant to nudge people into action, not announce new doctrine.

Evangelii Gaudium (“the joy of the gospel”) is no different. Its purpose is to “encourage and guide the whole Church in a new phase of evangelization, one marked by enthusiasm and vitality”. Most of the text has nothing to do with politics or economics; it ranges through subjects as diverse as how the faithful should motivate themselves and advice to priests on preparing good homilies.

[In a couple of subjects — abortion and women priests — he announces that there will be no new doctrine, though he does make this interesting and enigmatic statement:

The reservation of the priesthood to males … is not a question open to discussion, but it can prove especially divisive if sacramental power is too closely identified with power in general.

Time will tell whether that is a fig leaf for continued patriarchy or an indication that women could come to have more power in the Church, even if they aren’t serving mass.]

But a document encouraging Catholics to make their faith felt in the world has to say something about what, specifically, the world should be made to feel. And here he did not focus on sexual issues, but on economic ones.

Each individual Christian and every community is called to be an instrument of God for the liberation and promotion of the poor, and for enabling them to be fully a part of society.

Each individual and every community. Not “the poor — that’s somebody else’s gig — I’m fighting against same-sex marriage”.

Catholic economics. Consistently through the years, Catholic economics has revolved around two ideas:

  • God created the world for everybody. Pope Francis is not staking out any new territory when he writes: “we must never forget that the planet belongs to all mankind and is meant for all mankind; the mere fact that some people are born in places with fewer resources or less development does not justify the fact that they are living with less dignity.”
  • God did not institute any particular economic system. Economic systems are human constructions, so they are not proper objects of veneration. God is not a capitalist, a communist, or anything else. So economic arrangements have to be justified in practical terms, by their results.

So even something as basic as private property or the freedom to buy and sell has only a functional justification. Protecting property or upholding economic freedom has no value in itself. Rather

The private ownership of goods is justified by the need to protect and increase them, so that they can better serve the common good. … Sadly, even human rights can be used as a justification for an inordinate defense of individual rights or the rights of the richer peoples.

This position puts the Church fundamentally at odds with Rand-style (or Ryan-style) libertarianism, in which property rights and economic freedom are moral values, not just useful tricks for increasing production. In Randism, the produce of the world rightfully belongs to the people who own the world; if those who own nothing are to survive, they must appeal to the charity of the owners. The owners are the Makers, the poor are the Takers.

Francis observes this position with horror:

We have created new idols. The worship of the ancient golden calf (cf. Ex 32:1-35) has returned in a new and ruthless guise in the idolatry of money and the dictatorship of an impersonal economy lacking a truly human purpose. The worldwide crisis affecting finance and the economy lays bare their imbalances and, above all, their lack of real concern for human beings; man is reduced to one of his needs alone: consumption.

He calls on Catholics not just to give alms, but

to eliminate the structural causes of poverty and to promote the integral development of the poor … We are not simply talking about ensuring nourishment or a “dignified sustenance” for all people, but also their “general temporal welfare and prosperity”. This means education, access to health care, and above all employment, for it is through free, creative, participatory and mutually supportive labour that human beings express and enhance the dignity of their lives. A just wage enables them to have adequate access to all the other goods which are destined for our common use. [quotes from Pope John XXIII]

This can’t happen without political action that leads to structural change. The market won’t do it.

We can no longer trust in the unseen forces and the invisible hand of the market. Growth in justice requires more than economic growth, while presupposing such growth: it requires decisions, programmes, mechanisms and processes specifically geared to a better distribution of income, the creation of sources of employment and an integral promotion of the poor which goes beyond a simple welfare mentality.

A mind that worships the Market can only see God as dangerous.

[E]thics leads to a God who calls for a committed response which is outside of the categories of the marketplace. When these latter are absolutized, God can only be seen as uncontrollable, unmanageable, even dangerous, since he calls human beings to their full realization and to freedom from all forms of enslavement.

And a society that writes off the poor can never know peace or be safe from revolution.

Peace in society cannot be understood as pacification or the mere absence of violence resulting from the domination of one part of society over others. … When a society – whether local, national or global – is willing to leave a part of itself on the fringes, no political programmes or resources spent on law enforcement or surveillance systems can indefinitely guarantee tranquility. This is not the case simply because inequality provokes a violent reaction from those excluded from the system, but because the socioeconomic system is unjust at its root. Just as goodness tends to spread, the toleration of evil, which is injustice, tends to expand its baneful influence and quietly to undermine any political and social system, no matter how solid it may appear.

Is this new? No, this is Catholic economics as it has stood for more than a century, with roots going back even further. What’s new is a pope who seems willing to make this the center of his papacy. He has not changed any doctrine — at least not yet — but he has announced a new emphasis away from sex and towards economic justice. As he said in an interview shortly after taking office:

We cannot insist only on issues related to abortion, gay marriage and the use of contraceptive methods. This is not possible. I have not spoken much about these things, and I was reprimanded for that. But when we speak about these issues, we have to talk about them in a context. … The dogmatic and moral teachings of the church are not all equivalent. The church’s pastoral ministry cannot be obsessed with the transmission of a disjointed multitude of doctrines to be imposed insistently.

But the Pope’s re-prioritization of doctrine is going to be a problem for a lot of American bishops. As Jesuit Priest Thomas Reese wrote:

the bishops as a conference have been embarrassingly silent on economic justice during the worst economic crisis since the Great Depression. … Many bishops fear that speaking loudly about economic issues would help Democrats and undermine their alliance with the Republican Party on issues like gay marriage, abortion, and religious liberty. Some even think that the conference’s earlier letters, “Economic Justice for All” and “The Challenge of Peace,” were mistakes because they hurt their friends.

Conservative Catholic response. I recommend reading a thoughtful article by the conservative Catholic NYT columnist Ross Douthat. Douthat observes that the shoe is now on the other foot: For years liberal Catholics have had a yes-but relationship with the Vatican, remaining faithful by their own lights while refusing to get in line with official pronouncements on sexual issues. Now it’s conservatives who want to pick and choose which doctrines they support:

for Catholics who pride themselves on fidelity to Rome, the burden is on them — on us — to explain why a worldview that inspires left-leaning papal rhetoric also allows for right-of-center conclusions.

He attempts to do so, resting his case primarily on the practical effects of capitalism’s increased production, but then concludes:

This Catholic case for limited government, however, is not a case for the Ayn Randian temptation inherent to a capitalism-friendly politics. There is no Catholic warrant for valorizing entrepreneurs at the expense of ordinary workers, or for dismissing all regulation as unnecessary and all redistribution as immoral.

Let me state that conclusion more boldly: If capitalism is going to be justified by its practical ability to create prosperity even for the underclass, then that’s how it must be judged. You can’t talk about the wonders of increasing GDP in the abstract and then ignore the suffering of real people, or worse, blame them for their own suffering and label them as “takers” for wanting to share in the productivity of the planet God made for everyone.

Are you listening, Paul Ryan?


* They’ve been so successful at voicing their manufactured outrage that I need to explain this: Catholic institutions are not required to buy contraceptives for their employees or promote their use. The institutions in question are just required to provide health insurance (or pay a fine). Employees can use their health insurance for contraception if they decide to, just as they can use their wages to buy all sorts of things the Catholic Church disapproves of. The moral onus of choosing contraception (or not) falls on the employee, as it should.

As I have said at length elsewhere, construing this situation as some kind of moral issue for the employer is just passive aggression. They are hyper-extending the sensitivity of their consciences in order to control other people.