Herman Cain’s 999 Plan

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Economic Guiding Principles

1. Production drives the economy, not spending.

Assuming “spending” means government spending, he’s got about half a point here. However, production and consumption are two sides of the same transaction. So somebody’s got to be spending at some point. Then again I have a feeling “spending” is only spending, in this context, when it’s the government doing it.

◦ We can not spend our way to prosperity.

Sure we can. Collectively, because there are two sides to every transaction, the more we spend, the more we earn. This is roughly what we’re measuring when we talk about GDP — money changing hands. But again, he’s probably talking about government spending, so yeah. Government spending alone will not make our country prosperous, though it’s tough to argue that it can’t help when the private sector is running well below capacity.

◦ Government spending IS taxation.

This is actually quite clever and essentially true. It’s basically an accounting identity; any spending has to be paid for, and in the long run revenue essentially equals tax receipts.

◦ Government spending is like taking a bucket of water from the deep end of the pool, pouring it in the shallow end. Then they HOPE that the water level will CHANGE.

Now this is the kind of weapons-grade crazy failed metaphor we came here for. Whoever wrote this lost confidence halfway through, and tossed in the “HOPE-CHANGE” stuff as a distraction. Ask yourself, though, what’s the water in this image? What’s the water level a metaphor for?

Economics recognizes a distinction between “stock” and “flow” — between fixed quantities of something, like water in a pool, and quantities moving over time, like water flowing through a hose (or in and out of a bucket a certain number of times per year, if you want to be weirdly bucket-centric about it).

Money supply, very loosely speaking, would be a stock variable — how much money is there in the economy? This seems satisfying on a basic level, but without knowing anything else about an economy, it’s actually not all that informative. If there’s a ton of money sitting around, and it’s not changing hands (sound familiar?), then nobody’s getting richer. That’s why we prefer to measure flows like Gross Domestic Product, which is (even more loosely) basically the sum of everyone’s income over the course of the year. This is the sort of thing that absolutely is increased by moving money around, or, in the swimming pool example, filling and emptying buckets.

So what’s the water in the swimming pool meant to be? Money? No, as we’ll see, Cain is dead set against increasing the amount of money in the economy. Then is it prosperity? Wealth? Freedom?  Who knows? It’s a fatally vague metaphor, but economic science (such as it is) is definitely on the side of the bucket-sloshers on this one.

2. Risk taking drives growth .

◦ Business formation and job creation are dependent on entrepreneurs taking risks.

Maybe, maybe not. There’s apparently some business-school research showing that the most successful entrepreneurs are the ones who are the best at identifying low-risk, high-reward opportunities. Anyway, this is one of those nice little Republican bedtime stories, and who am I to argue with it?

◦ Investors who fund those entrepreneurs likewise take risks.

Sure, they just like to know how big the risks are before they sink their pensions into some junk-grade bullshit. But I fear we’re getting sidetracked. I’m sure we’re about to come to the point.

3. Measurements must be dependable.

Sure! Standardize the meter, synchronize your clocks. What does this have to do with anything?

◦ A dollar must always be a dollar just as an hour is always 60 minutes.

Oh, right. There we go. So, zero inflation then? This is the sort of thing that sounds nice in a manifesto or on a bumper sticker but is not actually nearly as simple as it sounds.

◦ Sound money is crucial for prosperity.

Is it? Or is this just a quasi-religious article of faith on today’s Right? We assume here, again, that by “sound money” he means “zero inflation.” Sure, nobody ever got prosperous by spiraling into hyper-inflation, à la Argentina circa 1989. But we’re pretty fucking far from hyperinflation — in fact we’re pretty far from what would historically have been considered normal inflation. Our trade deficit, by the way, is largely an artifact of an overvalued dollar, and a little inflation goes a long way when it comes to paying off debts. “Sound money” sounds like common sense, but taken to its absolute logical conclusion, it’s actually a pretty extreme idea.

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[insert a bunch of other hand-waving stuff about changing the tax system in ways that are vague when they're reasonable, and insane when they're precise. We'll skip to the second bulleted item from the end, because it's excellent:]

• We all know the Fed has tripled the money supply since 2008.

No. We don’t all know the Fed has tripled the money supply since 2008, because it didn’t, and it’s not logically possible to “know” something that’s untrue.

Now look, I didn’t just fall off the turnip truck here. I’m sure there’s some extremely tendentious definition of “money supply” out there under which this is arguably technically true, which has technically increased by a factor of 3 since 2008, but it’d have to be something ridiculous, like “M999: total notes and coins in circulation and in bank vaults, plus Federal Reserve bank credit, plus the number of people who have ever heard of Lady Gaga, squared.”

Seriously, by the Fed’s own preferred measure (M2), the money supply didn’t come anywhere close to tripling. It’s still on the ~6% trend line it’s been on since the 1990s.

They have been printing money out of thin air to finance the Obama spending machine.

Look, all money is printed out of thin air since we went off the gold standard. You’re welcome to go cry to Ron Paul about it, but don’t act like it’s some new-fangled Obama-era thing. And there’s a convenient shorthand phrase a lot of us like to use, by the way, which is shorter than “the Obama spending machine”: we call it “the government,” it’s governed by two parties, and it pays for an awful lot of things nobody, including you, is willing to cut. Back in my day we had a thing called “civil society,” and the government was this institution we all got together and formed, whereby we would pool some of our money and labor and use it to look after everyone’s needs. Check it out sometime, it’s a pretty cool idea.

While true Fed reform that restores sound money may have to wait for my election, the best thing we can do now is to pursue policies that increase the DEMAND for dollars to help mitigate the risks associated with the increase in the supply.

It’s now, approximately 98% of the way through this manifesto (the rest of it is basically Herman Cain’s resumé), that the word “demand” is uttered for the first (and only) time. But why is demand for dollars the issue? People here, in China, wherever, are demanding the shit out of some dollars right now. Does the phrase “global reserve currency” mean anything anymore? Nobody can get enough of the things. The problem is that nobody with any dollars is demanding any goods or services to exchange them for. And nobody overseas is demanding any American goods at all, partly because our maniacal insistence on “sound money” means our exports are too expensive.

Anyway, the point is not that Herman Cain is uniquely bad, or that his economic plan is uniquely half-baked. It’s that a lot of the economic truisms the Republicans chant to one another lie somewhere on the spectrum between “highly debatable” and “absolute bollocks.” Soon Cain will sail off into the night, but whoever replaces him is not likely to be much better. Even Romney will have to pretend to believe in some of this voodoo if he wants the nomination.

The existence of the rule of law and secure property rights is, where it exists, a triumph of public integrity against the assumption of cynicism.

Beyond the flip dismissal of public choice economics, there’s a point here that I’ve been thinking for a long time about how to make effectively: our government is organized so that its functioning doesn’t depend directly on the personal character of our government officials, and that’s a good thing. But it’s a mistake to extend this by analogy to society as a whole. A state can function with the minimum input from its citizens (pay taxes, obey laws, not much else) but a healthy society cannot — there’s a moral and ethical dimension to citizenship that’s totally left out of economics’ cynical picture of human motivation.

Anyway, there’s your unargued assertion for the day. Maybe I’ll leave it as a loose end so that I’m tempted to come back and tie it up later.

This is as good a piece on the Ayn Rand cult as I’ve ever seen. I’ll own up to having been a great fan of The Fountainhead when I was about 20, but I sobered up somewhere about halfway through Atlas Shrugged. At the time I was double-majoring in economics and creative writing — there are some obvious conclusions (or cheap jokes) that probably follow from that particular conjunction of facts.

I think it’s a symptom of the crazy times we live in that David Brooks has been occasionally making sense. This week’s column is a bad example though. What the world needs a lot less of is cheap moralizing about Kanye West, of all people. But what’s interesting (if ultimately pointless in a nagging-dad way) about it is the sort of fuzzy, aesthetic conservatism, the sappy nostalgia for a time when people knew how to behave themselves and everything was just better in some hard-to-define way. I catch myself thinking this way sometimes, and I feel occasional pangs of sympathy for conservatives on that basis. I’m talking Evelyn Waugh conservatives here, not Strom Thurmond ones, if you’re wondering.

Sometimes I think that if you could feel nostalgia for the present, you’d have things pretty much figured out. Just putting that out there as a possible meaning of life.

Other times I think you could stay busy blog-stalking David Brooks in an Aaronovitch Watch kind of way. And at still other, distinct times, I think you could lick your finger, hold it up to the wind, see which side gets cold first, and twitter about that.

And now that I’ve hopefully chased everyone off with my impersonation of Steven Wright having a stroke: I wrote this review of Cheap: The High Cost of Discount Culture for The Quotidian. Go over there and leave a comment, if only to balance out the one that basically says “tl;dr“.

It is simply over-reaching to try and use this model to counter the zero-sum argument about trade between countries, and it destroys the profession’s credibility: the student who, having diligently learned the “free trade is good” lesson of the Ricardian model, and who realizes later in life that the individual analogy is a poor one for countries, might be tempted to dismiss all the economics learned at that earlier age.

Take out the word “diligently” (just to be perfectly fair) and you’ve got my critique of my own undergraduate economics education in a nutshell. Is there any other discipline that teaches its undergraduates a toy version of the subject, and saves the real stuff for grad school? Or where students who plan to pursue doctorates are better off studying something else entirely (in this case math) as undergrads?

(via here, from here).

*the model he’s referring to, if you’re following along at home, is the classic two-state two-good Ricardian comparative advantage model. Which I’m lucky even to understand since, like an idiot, I majored in economics.

And Matthew Yglesias shows where to look next, with some pointers towards an analysis of the incentives that led so many economists to go so very wrong. It’s worth clicking through to see the Larry Summers ketchup paper that Yglesias links to.

Expect to see more of this “economics of economics” business in the near future.

Momus sees nothing but cynicism beneath this stance, and on one level it’s hard to argue with him. The SP’s fortunes have apparently improved quite a bit recently, and whether that’s because the Dutch voters are in a particularly socialist mood or just a particularly anti-Muslim one is an open question. All the typically tolerant Northern European countries are experiencing a bit of an anti-immigration backlash, with the green menace on a lot of minds at the moment — so it’s easy to see this as a bit of populist pandering.

I’m not so sure that’s entirely right. For those of us on the leftishly inclined side of the Anglosphere (which here includes both Momus and myself) it’s almost impossible to imagine a coherent anti-immigration stance that’s not on some level racist or xenophobic. But apparently it’s been part of the SP’s plank since the 1980s.

Why? It’s an often overlooked feature (or bug, or whatever) of capitalism that it depends for its efficiency on the free movement not only of capital but of labor as well. The Dutch Socialists quite rightly point out that this is not such a great deal for the workers. Here in the US, you’re more likely to hear the lament of the increasingly redundant American laborer: they’re taking our jobs. What you’re less likely to hear about is the effect on the economic migrants themselves, and on the communities they’re leaving behind when they cross borders in search of higher wages.

Maybe the life of a girl who moves from Krakow to London only to end up cleaning hotel rooms for far below the legal wage is a fulfilling and rewarding one. And certainly the remittances that migrant workers send back to their families are better than nothing. But from Poland’s point of view, sending a generation of young people abroad in search of better economic prospects is not exactly a recipe for local development, much less thriving communities and tight family bonds.

Of course none of this is exactly what the SP is talking about here. They don’t mention decimated Polish communities or fragmented Romanian families. Instead they maintain that freedom of migration is not a right but simply a ploy to supply corporations with cheap labor, and their solution is to “make migration unnecessary” — presumably by working to bring the entire rest of the world up to the Dutch standard of living.

This is where, like Momus, I get skeptical. There are a lot of countries worse off than the Netherlands, and there will be for a very long time, unless, finally, worldwide socialism is just around the corner. It makes some sense to be against economic migration, in the sense where you’re opposed to a global order that forces people to emigrate in order to find good work. But you don’t cure a disease by outlawing the symptoms.

“This is slavery,” Bachmann said after claiming many Americans pay half their income to taxes. “It’s nothing more than slavery.”

She’s right in the sense that it is actually not only not more than slavery, but it is in fact much, much less.

Just to spell it out, that’s when your monthly payments don’t even cover the interest. So instead of your balance going down a little bit every month, it goes up. And I guess it’s a testament to the incredible adaptive power of the human mind that we can now all see how that’s not really a great idea.

(from here)

It reminds me of the United States in 1861 when the southern states argued that sovereignty rested with the states, and that membership in the federal union was an elective matter; that even as members, they were free to pursue their own independent policies. There was a conference held on this at Gettysburg in 1863 that ultimately settled the question.

via

(From here.)