Life's little ironies

Yglesias at VOX: The economy really is broken — but we know how to fix it

No, we don't know how to fix it. And thinking that we do is part of the problem.

Yglesias:

Census data released last week revealed that 2016 was a second straight strong year for median household income growth. Consequently, inflation-adjusted median household income is now at an all-time high, finally surpassing the previous record set in 1999...

Anyone who predicted in 1999 that median income would be lower in 2015 would have been regarded as ridiculously pessimistic, and nobody would have thought that quibbling over exactly how we calculate the inflation rate was the difference maker.

Something really is badly wrong.

The good news in the census report is that what’s wrong is fairly straightforward, easy to understand, and conceptually simple to fix. It requires a sense of political urgency that’s been lacking.

No. Ever since Martin L. Gross's 1993 book A Call for Revolution I hear that what's missing is the political urgency. Wrong. It's flat out wrong.

The argument is: We know how to fix the problem, but we lack the political will to do it. Bullshit. If they knew how to fix the problem, they'd fix the problem. Do you really think the Dems wanted to lose control to the Republicans? I don't think so. I think that if the Democrats knew how to fix the problem they'd have fixed it. That way they'd have been king of the hill for decades, like what happened after FDR.

Do you really think the Republicans wanted to lose control to Trump? I don't think so. If the Republicans knew how to fix the problem they'd have fixed it, instead of having to redistrict and restrict voter rights to gain king-of-the-hill status.

And if voters thought either of the parties knew how to fix the problem, they wouldn't have elected Trump. So no, it is not true that we know how to fix the problem and only lack the political will to do it. It's not true. And the evidence is: We elected Trump.

Yglesias:

In short, the country has gotten a lot richer on average, and yet the typical household hasn’t gotten richer at all...

What we need to do is tax the rich, spend the money on the poor, and prioritize fighting recessions as a core economic policy mission that’s more important than low inflation or high bank profits.

But what's "more important" depends on one's point of view, doesn't it. Meanwhile, the economy has degenerated into an "us versus them" struggle because we've failed to fix the problem. The wrong answer makes the problem worse as economic decline puts employer and employee at odds, making it seem that the solution must be to pick a side in the battle, and fight harder.

It won't work. The economy is not "us versus them". We're all in it together.

Yglesias:

Median household income has been essentially flat since 1999...

Reflecting this reality, the poverty rate is higher today than it was in 1999.

The solution to both facets of this problem is simple: taxes. Higher taxes on very high wages and higher taxes on investment income.

This is an "us" solution. "Them" won't go for it. And "them" have the money and power and influence.

I'm not saying Yglesias is wrong about raising taxes. But he is not presenting a fix for the economy. He is presenting a fix for one side only. He builds his argument on us-versus-them:

The rich, as it turns out, have a very different set of concerns than does the rest of the population. In particular, they don’t necessarily suffer during times of high unemployment...

Lucky them. But the rest of the country needs a government that’s fanatically committed to fighting recessions.

Fanatically committed?

You know about the Fed, right? The dual mandate? "The monetary policy goals of the Federal Reserve are to foster economic conditions that achieve both stable prices and maximum sustainable employment."

"Maximum sustainable employment" doesn't sound fanatical. But it does sound reasonable -- at least until you look at economic conditions, I know. I know. But I would argue that the reasonableness of the dual mandate is not the problem. I would say we don't know how to fix the economic problem. And thinking that we do, well, that's part of the problem.

One of life's little ironies: The Fed's "dual mandate" instructs the Fed to do the two things that are part of the trade-off known as the Phillips curve. Whichever one the Fed chooses to do will undermine the other.

These days, economists say "the Phillips curve is broken." You know why it's "broken"? The dual mandate.


This part is good. Yglesias says:

One problem is that the top 5 percent includes all the members of Congress and all of the donors and lobbyists and business leaders whom members of Congress speak to. It also includes all the Federal Reserve governors and regional bank presidents and all the business leaders whom they speak to. It includes the top editors of all the major media outlets and most of the star talent. For that matter, it also includes most of the leading economic experts at top universities.

All else being equal, of course, political elites prefer lower unemployment to higher. But it simply isn’t instinctively urgent in elite circles the way a financial market panic is.

We still do have the right to vote, but it doesn't seem to help. I think there's a reason for that.

The reason is that we don't know how to fix the economic problem. I think that if we fixed the economic problem most of the other problems would go away, and the rest would be easier to fix.

Since we don't know the right fix for the problem, we can't agree with each other on a solution. But the issues are immensely important, so we become "partisan". And it only gets worse from there.

Since all the people who disagree with each other think they know how to fix the problem, they can only conclude that the other guys are wrong.

Yglesias thinks Yellen is wrong:

Janet Yellen’s Federal Reserve is raising interest rates to slow job creation in order to head off the possibility of future inflation even though actual inflation remains below target.

Yglesias himself takes the other position:

For the economy to work for normal people, the federal government needs to be obsessed with avoiding recessions and making them as short as possible. If that means short bursts of inflation during supply-side shocks, or reduced bank profits due to restrictions on lending, or high deficits to stimulate the economy, we need to be willing to make those trade-offs.

I'm not saying Yglesias is wrong. For the economy to work for "normal people" we need work for normal people. But Yellen has work to do, too, and it's a job that has to be done. Don't make it us-and-them. Think of it more as a dual mandate for the nation. Not just for the Fed, but for the nation.

It is funny, though, when the guy arguing for more inflation takes the view that inflation will only come in "short bursts". That's not the kind of inflation that bothers the other side. But Yglesias isn't writing for those guys.


Just to tie up a loose end, recall Matt Yglesias saying

... the top 5 percent includes ... the top editors of all the major media outlets and most of the star talent.

I asked google is matt yglesias in the top 5% of income earners? and this turned up: Matt Yglesias' $1.2 Million House Stokes Class Envy in Conservatives.

Yglesias isn't writing for the top five percent. But he's part of it.