Thursday, January 29, 2009

On Macroeconomic Disagreements

Why do economists differ so greatly as to solutions to the current economic crisis?  Why haven't they explored situations like these and arrived at a consensus?  There are several possibilities.  

Ignorance.  They do not know what they do not know, and they do not want to know it.  

Arrogance.  They already presume to know so no investigation or proof is necessary.  They have accepted their position as an article of faith, therefore nothing can contradict it.  Anything that does is in error.  Ideology is more important than reality.  

Antipathy.  The result may be contrary to their personal consideration and it is better to deny than admit it.  They seek power rather than truth.  

More deeply, I think the situation that would call for fiscal stimulus has been consciously avoided because the implications and solutions are highly unpleasant to economists. Instead the belief that monetary policy would always be sufficient and superior held sway. Economists want to believe markets are always and everywhere superior to government, that they are always more efficient, that their distribution is optimal, and that the worst market failures are less than the least government imperfection. There have been circumstances where they have had to confront externalities and failures, but have done so only at the greatest reluctance. Something as deeply problematic as catastrophic economic failure is confronted with shock, denial, and all of grief.

At least that is the charitable view. Others see in this the denial and propaganda of the true believer or the greedy self-interest of the powerful to preserve and protect their ideology or interests at the expense of the others and the public. I do not doubt many know what they are paid to offer and that they were selected for that. They know what their customers want to hear and they want to give it them. It is far from uncommon to seek narrow short-term advantage at the expense of broad long-term gain.  That is, after all, what got us to where we are now, but that is not a comfortable place.  Deluded or deluding?  Obsequious or opportunistic?

Sunday, January 18, 2009

The Disconnect of Economic Measures

So often, economists focus on the wrong measures and end up with the wrong arguments and then wonder why people are unconvinced and feel differently.  Economists focus on measures like gdp, employment, and inflation, when what is important to people is gdp per capita, employment over workforce growth, and real wages.  Their economic measures are important and have their place for a country, but are not nearly as important as these more relevant measures to people.  A country may grow even while life becomes increasingly tough for people.  Economists too often feign cluelessness about this, and consider it whining.  They are just using the wrong measures and should know better.  

Often these errors, innocent or not, are made promoting an agenda or view favorable to theirs.  Economics suffers from political bias more than most fields because arguments can be put together so easily that appear meaningful while ignoring more relevant conflicting information, stretching facts to fit desired conclusions.  It takes advantage of the fact that most people seek to confirm their biases rather than analyze arguments.  

Tuesday, January 13, 2009

Inflation and Living Standards

Inflation is difficult to measure and living standards difficult to compare over long periods of time. Most of what we spend money on does not change that much. The basics are quite basic and the areas that change the most are often those that not much is spent on in the first place. Cell phones and the internet are great advances and allow us to do things we never could before, but they are not that expensive.

Over long periods, I like to look at real gdp per capita and consider the period to double the standard of living. Over the last 30 to 50 years it doubled in around 36 years. If you believe inflation has been overstated by 1% though, it doubled in around 24 years. The latter seems preposterous to me. I hardly even notice the difference other than on inconsequentials. Even 36 years seems short. How much has life really changed over that period? Records have gone and computers and ipods are here but day to day living has only moderately changed. A doubling should be noticeable. I am more willing to believe it has doubled in 50 years or so, but this is probably more due to less personal experience to compare with over that time.  Then again, it may be because my spending has been relatively constant over much of that time.  

Thursday, January 8, 2009

Is income taxation progressive?

Superficially it is.  Those with higher incomes pay at higher marginal rates.  How could it not be?  The fallacy here is in accepting how is income defined.  

One cannot define income without accounting for the expenses of generating that income and offsetting these against it.  To do otherwise is to measure revenue or sales, not income.  If those at the bottom truly identified all those costs and could deduct them, if they did not have to pay more for less, if they had healthcare and pensions, they would have no true income and would not be paying any tax. The rich get very nervous at the thought of this, that a large number of people that pay no taxes would have no objection to raising them. To circumvent this, they tax them on income they don't actually have, only to subsidize them and complain about having to do it, to persuade them to oppose taxes on themselves while telling them they are on their side and support them through those subsidies. This is called having everyone pay their fair share, or pay something.  It is all a shell game played through the tax code and other spending.  

Now if everyone could deduct anything soon no one would have any income.  The main difference is the rich have more power to accommodate the law and accommodate to the law.