A Flea in the Fur of the Beast

“Death, fire, and burglary make all men equals.” —Dickens

THIS JUST IN: The Last Decade Sucked For the Middle Class

by pdxblake

A report came out, which Jared Bernstein summarized called the “Lost Decade of the Middle Class”.  There are many methodological assumptions about how to decide what is middle class, but I like a chart he posted last fall (which was coincidentally titled the same as the new report) that shows real median income of working-age households.

Source: Jared Bernstein’s blog

The reason I like this method is because it is not likely to be pulled upwards (by rising inequality) and will show the income of the ‘middle’ household who is between the lowest 50% and highest 50% of households, which sounds like a pretty representative measure of ‘middle class’ income.

As Bernstein notes, it is pretty surprising to see an entire decade where median income declined and there is perhaps a caveat that it was a decade with 2 recessions and a decade that started at the end of a good run for the middle class (which is why so many people want to return to the Clinton era).

The chart above shows the year-on-year growth in productivity (Real GDP divided by total hours worked, to give an estimate of the value of ‘stuff’ that is made on average for each hour of labor input).  This should be correlated with the household incomes of the ‘middle class’.  During the 1990s productivity grew at an increasing rate, which was continued through to around 2006 when it slowed (but kept growing).

However, the benefits from the productivity growth in the early 2000s (importantly during the non-shaded bits when the economy was growing) is not reflected in rising middle class incomes, demonstrating that a return to the Bush years (by electing Mitt Romney) are probably not the best way to benefit the ‘middle class’.

Republicans, the Gold Standard, and Milton “the Red” Friedman

by pdxblake

The Republican Party is apparently adding a plank (a rotten one at that) to their platform that would set up a Gold Commission to consider returning the country to the Gold Standard, which the US and the rest of the world left in 1971.  This is a bad idea, and it was a bad enough idea that the last Gold Commission established in 1982 under Ronald Reagan determined (pdf) that the status quo was better than a return to the Gold Standard.

Paul Krugman highlights the easy response to the idea of a gold standard by pointing out that: ” incessant warnings of runaway inflation from the expansion of the Fed’s balance sheet have been wrong, wrong, wrong; and that exchange rate flexibility has been crucial to most of the success stories of this crisis, from Poland to Sweden to Iceland.”

This is the important point for why the Gold Standard would be a bad idea, and it is even acknowledged in the Gold Commission report in 1982 when they wrote: “Another attribute claimed for gold standards is that at the rate of increase of increase in the gold money supply would vary arithmatically with the profitability of producing gold, and hence assure a stable money supply and stable prices at least in the long run“.

As Krugman pointed out the reason why a gold standard is always touted is that it prevents the central bank from “printing money” and creating “runaway inflation”, and the link between the two, which is always help up, actually doesn’t always exist.  For example, consider the graph below of M1 (the money supply) and the inflation rate since 2001.

If “printing money” were the cause of inflation, then the inflation rate would be continuing to increase to the right of the grey strip (which denotes a recession).  That it doesn’t should by now have disproven the idea that the Fed’s actions are inflationary and if the entire reason to propose returning to the Gold Standard is to ensure stable prices, then you have to find another reason because the growth in the money supply (the red line) has not led to runaway inflation (the blue line, which is headed more towards deflation than inflation.

Where the Gold Commission report statement is clear is that a gold standard can only ensure stable prices “in the long run” is a very important point which is easy to overlook.  For example, what might have happened if the Fed had not added all that money to the economy during the recession?  Well, there’s a very good history of a time when the gold standard was the rule and central bankers promoting “hard money” were in charge.

The blue line is the money supply, the green line is the inflation rate and the red line is unemployment.  After the financial market crash (and a crash in the price of land in some of the more speculative markets like Florida) hit, the Fed, instead of expanding the money supply like today’s Fed did, stayed on the path of the Gold Standard and pushed the country further and further into Depression (a good description from Barry Eichengreen is available here (pdf), a more readable version is a book by Liaquat Ahamed, Lords of Finance: The Bankers Who Broker the World).

The pointless pain that the policy inflicted did nothing to stabilize the financial system, one of its stated goals, and even made things worse.  It wasn’t until FDR replaced Hoover that the policy changed after a banking holiday, which led to a recovery from the self-inflicted pain that Hoover imposed through his Liquidiationist policies, which bear striking similarity to the Ryan budget.

There’s a lot more that can and has been written on the flaws of the gold standard, particularly in the context of the Great Depression, but one of the reasons why pushing a gold standard indicates an extremist takeover of the Republican Party is that it ignores much of the work of conservative economist Milton Friedman, whose seminal work with the economist Anna Schwarz, A Monetary History of the United States, 1867-1960 presents a convincing case for why the “hard money” Fed policies pursued under Hoover not only failed in their goal, but pushed the US further into the Great Depression.

If the Republican Party is abandoning Friedman as “Milton the Red” (to use a tongue-in-cheek reference coined by Brad DeLong), than they have abandoned any sensible economic policy in favor of the conspiracy minded ramblings of Ron Paul, and should be reason enough to keep the party out of power until it abandons these types of fringe beliefs.

Kris Kobach’s ICE Lawsuit Shows The Right Is Going All In For Questioning Obama’s Legitimacy As President

by evanmcmurry

ICE agents sue their own agency over Obama’s policies! Law enforcement agents claim they’re being ordered to break the law! This must be that popular uprising that judge in Texas warned us about!

Until you get, oh, EIGHT paragraphs into the article and read this:

The suit is funded by NumbersUSA, a group that proposes lower levels of legal and illegal immigration, and the attorney is Kris Kobach, the secretary of State of Kansas who has helped Arizona and Alabama craft strict anti-illegal-immigration laws. His work on this lawsuit is not part of his official state duties.

It sure isn’t. Kobach, you’ll recall, was a Romney advisor who designed the charming “self-deportation” immigration policy that Romney used to get himself through the Republican primary, until he suddenly needed to court Latino voters and dropped Kobach like Massachusetts health reform. Adam Serwer points out that Kobach is getting his revenge right now. The GOP platform is closer to Kobach’s extremism than Romney’s vague, half-hearted attempt at centrism. This is the problem when you don’t propose specific policy, as Romney has steadfastly refused to do on the subject of immigration: nature abhors a vacuum, and someone with more detailed ideas than you will happily fill the void you’ve left.

Anyway, new rule: any story that’s the direct result of machinations from a PAC (PACinations!) needs to say so in the first paragraph. There’s absolutely nothing organic about this lawsuit, though that’s how it’s presented; an anti-immigration advocate merely found some ICE agents who don’t like taking orders from the Sultan of Otherstan. No plausible law-and-order objection is possible here: Obama has vastly increased the number of deportations from the Bush administration, and strengthened border security. As of right now, immigrants who are arrested enter a bureaucratic purgatory for months before they are deported, so I don’t see how Obama’s policies are putting ICE agents in “a horrible position,” as the lawsuit claims, by streamlining the process of deportation for violent criminals while letting others go. Meanwhile, law enforcement agencies in southwestern states routinely object to legislation like Kobach’s, which overburden them by putting local officials in charge of federal law at the expense of fighting crime and building trust with Latino communities. None of this is consonant with suing Janet Napolitano over Obama’s policies.

But when combined with the PAC that’s running ads whining that Obama didn’t kill bin Laden, this lawsuit begins to form a pattern of concerted efforts by conservative groups to present military and law enforcement officials as questioning the legitimacy of Obama’s authority as president. The shorthand for this is swift-boating, but it has more in common with the soldier from a couple of years ago who refused to report for duty because of his suspicions over Obama’s citizenship. This is birtherism, dressed in a uniform and given a badge and a rank. It’s gross.

UPDATE (10:45): Given Romney’s birther joke today, I’d say everyone’s in on the effort.