dagblog - Comments for "Developing Nations"

Can you point me to some

Michael Wolraich — Sat, 05 May 2012 13:25:02 +0000

Can you point me to some references about the nature of Japanese debt? My understanding is that Japan's debt exploded in the 1990s as a result of construction bonds to finance infrastructure projects , which would seem to be precisely the kind of public investment that you're advocating.

Japan doesn't spend that

Dan Kervick — Sat, 05 May 2012 05:56:39 +0000

In reply to I didn't mention the Soviets

Japan doesn't spend that much. Government spending as a share of GDP in Japan is about 37%, which puts it down at about #65 on the list of world nations. Japan also has a fairly low tax burden, and the two facts are connected. A lot of Japanese transfer programs are classified as borrowing and debt service.

Suppose Country A has borrows only $50 billion a year, but has social insurance programs that pay $500 billion a year, funded through a special tax. The recipients are classified as the receivers of transfer payments, not the recipients of debt payments. Official government debt and debt service are very small.

Now suppose in Country B they also pay out $500 billion per year, but each of the people who receives one of those payments holds "bonds" that they purchased throughout their work life, so when they receive the payment it is officially classified as debt service. And suppose the payments are financed not by a special tax, but by current purchases of more of these bonds. Then official government debt and debt service are very high.

But these are really just two different administrative versions of the same system - two different ways in which the income of younger people is transferred to older people. In the second system, the government holds its own feet to the fire a bit more, which probably means its people have more security. But an artifact of the system is higher official indebtedness. In many countries, social insurance programs, while honored as an unofficial obligation, are not officially classified as debt.

Japan has also failed to do enough public investment for two decades under conservative neoliberal rule, and has a relatively stagnant economy as a result. A lot of the spending is just transfer.

I didn't mention the Soviets

Michael Wolraich — Sat, 05 May 2012 04:55:19 +0000

In reply to Well I don't know what you

I didn't mention the Soviets as a scare tactic, and I even used the early Soviet experience as a positive example of government driving development (if you overlook all the slaughter and starvation and repression). But it's a useful example because at some point it stopped working. Why? Because there was no democracy? But there was no democracy all along. What was it about the way the Politburo spent money that worked for a time and then stopped working?

But really there are so many differences between the US and USSR that it's a difficult example to work from, which is why I mentioned Japan. Japan has been spending like crazy since the early 90s. According to MMT, it's economy should be growing faster than more parsimonious spenders like the US and Europe. But it's not. Why not?

Well I don't know what you

Dan Kervick — Sat, 05 May 2012 04:02:27 +0000

In reply to That's an evasion. I haven't

Well I don't know what you mean by "considering". We can't invest in our future the way we did in the 40's and the 60's because we might turn into the Soviet Union if we do? The Soviet Union attempted to plan the entire economy from the top of the government and eliminated the private sector entirely. Anything like that in what I have proposed? I'm not going to get dragged into legitimizing and responding to every Glenn Beck nightmare fear.

The MMT approach calls for running monetized deficits to drive the public investment. But if you prefer to go with the approach of taxing he pants off of rich people, that's fine too. They are just too different ways of mobilizing the nation's resources and putting them to work for public purpose. But we manifestly need to invest. Europe is facing a catastrophe. In the US we still have inflation over 8.% and a collapsing labor force participation rate. Growth is anemic and confined to the upper stratum of the economy. Our current generation of leaders are delivering to us a decade of stagnation. It is utterly insane for societies that are struggling to cope economically, and are faced with a mountain of challenges and abundant unutilized resources, and are losing capacity by the day, to leave large portions of their populations unemployed and just float along doing nothing .

Investment doesn't mean everything has to get bigger. If you're driving a car that gets 30 mph from a given fuel input and we develop one that that is leaner and gets 90 from the same fuel input then we all just got richer. We can drive back and forth to work for a third of the cost it takes us now.

We just had another lousy job report and more meager growth reports, and things are much worse in Europe. I mean what does it take to convince people that we should stop strangling ourselves economically?

There is nothing radical about what I am proposing. Governments have carried out massive public investment programs throughout history. They carry one out every time they fight a war. I'm just calling for them to do the same thing in peacetime. We need a Global War on Stagnation.

Look, eventually one of the two national parties is going to choose optimism, activism and dynamism, because periods on national penitence, self-flagellation, austerity and pessimism are mentally exhausting. They never last long. Will it be the Democrats or the Republicans that lead the optimistic breakout? The tide is already shifting. Sarkozy is on the way out in France. As crazy as they are at the moment, Europe isn't going to flush 2500 years of advanced civilization down the toilet. They will get their asses in gear, and we should too.

____________________

If this capsule history of our progress teaches us anything, it is that man, in his quest for knowledge and progress, is determined and cannot be deterred. The exploration of space will go ahead, whether we join in it or not, and it is one of the great adventures of all time, and no nation which expects to be the leader of other nations can expect to stay behind in this race for space.

Those who came before us made certain that this country rode the first waves of the industrial revolution, the first waves of modern invention, and the first wave of nuclear power, and this generation does not intend to founder in the backwash of the coming age of space. We mean to be a part of it--we mean to lead it. For the eyes of the world now look into space, to the moon and to the planets beyond, and we have vowed that we shall not see it governed by a hostile flag of conquest, but by a banner of freedom and peace. We have vowed that we shall not see space filled with weapons of mass destruction, but with instruments of knowledge and understanding.

Yet the vows of this Nation can only be fulfilled if we in this Nation are first, and, therefore, we intend to be first. In short, our leadership in science and industry, our hopes for peace and security, our obligations to ourselves as well as others, all require us to make this effort, to solve these mysteries, to solve them for the good of all men, and to become the world's leading space-faring nation.

We set sail on this new sea because there is new knowledge to be gained, and new rights to be won, and they must be won and used for the progress of all people. For space science, like nuclear science and all technology, has no conscience of its own. Whether it will become a force for good or ill depends on man, and only if the United States occupies a position of pre-eminence can we help decide whether this new ocean will be a sea of peace or a new terrifying theater of war. I do not say that we should or will go unprotected against the hostile misuse of space any more than we go unprotected against the hostile use of land or sea, but I do say that space can be explored and mastered without feeding the fires of war, without repeating the mistakes that man has made in extending his writ around this globe of ours.

There is no strife, no prejudice, no national conflict in outer space as yet. Its hazards are hostile to us all. Its conquest deserves the best of all mankind, and its opportunity for peaceful cooperation many never come again. But why, some say, the moon? Why choose this as our goal? And they may well ask why climb the highest mountain? Why, 35 years ago, fly the Atlantic? Why does Rice play Texas?

We choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.

That's an evasion. I haven't

Michael Wolraich — Sat, 05 May 2012 02:57:38 +0000

In reply to As for my point on the

That's an evasion. I haven't asked for a dissertation, just more depth than the broad strokes with which you've painted the our glorious MMT future. Are you really proposing that we embrace a radically different economic policy without even considering cases in which heavy government spending hasn't worked out so well?

PS The old progressives weren't opposed to economic progress of course, but it wasn't really their thing, and they certainly didn't see it as a panacea the way conservatives did. The progressives were more concerned with political and economic inequalities than overall growth.

As for my point on the

Dan Kervick — Sat, 05 May 2012 00:32:51 +0000

In reply to Thanks. This clears it up a

As for my point on the rhetoric, the notion that economic growth will cure America's ills by making everyone rich is a very old conservative idea.

Genghis, I thought the idea that we should strive to make economic progress was an old idea shared by most Americans - including the ones called "progressives". The main differences are over the role of government, as you say, and the value assigned to moving forward together rather than each moving forward as self-seeking individuals. Achieving a higher level of prosperity doesn't cure all ills, but other things being equal, being prosperous is superior to lacking prosperity. Weren't striking miners and dockworkers aiming for a more prosperous future too?

I think maybe we've had a surfeit of nuance in recent years. You can't eliminate the the element of risk and spirit of adventure from public policy. It has scientific elements, but overall it is not a science. More often than not we just don't know how things are going to turn out. There is always going to be plenty of opportunity for debate and reasoned deliberation among alternatives. Maybe we need to let go a little bit?

Avoiding the Soviet trap, it seems to me, means working hard to preserve democratic institutions, and not going in for "vanguards", "dictatorships of the proletariat", unelected committees, technocratic elites or other undemocratic forms of decision-making.

Thanks. This clears it up a

Michael Wolraich — Fri, 04 May 2012 23:05:03 +0000

In reply to Dan, many of the broad

Thanks. This clears it up a bit. As I understand it, your point is not so much that supporting retirees fosters growth but that growth makes it easy to support retirees.

As for my point on the rhetoric, the notion that economic growth will cure America's ills by making everyone rich is a very old conservative idea. The difference is that you're arguing that government must spur the growth, whereas conservatives argue that government interferes with the invisible hand that makes the growth.

The reality is more complicated. There are examples like the New Deal and WWII when government spending stimulated substantial economic growth, but there are plenty of counterexamples. Former communist countries like China and Russia have seen their share of both. I don't say that dismissively. The Soviets single handedly industrialized Russia; it was only later that the economy imploded. Capitalist countries have counterexamples as well. Japan transformed itself from the world's biggest creditor to the world's biggest debtor over the past two decades without much to show for it, and their pension system is now more precarious than our own.

In general, I find your ideas thought-provoking and even inspiring. The notion that we're not chained to a budget or the vagaries of the capitalist economy opens up exciting possibilities, of which full employment is one of the biggest. But the devil is details, and I need a more nuanced explanation of what it is that makes nations "develop" or recede before I sign onto anything.

Yeah, but we all need a ride

Richard Day — Fri, 04 May 2012 23:00:03 +0000

In reply to You've forgotten the fourth

Yeah, but we all need a ride home sometimes. I mean we leave the bar with Juliet and it is 12:30 and we are in terrible trouble as soon as we wake up!

I mean we need a taxi.

Oh....

taxes

never mind!

For an easy start, it is hard

jollyroger — Fri, 04 May 2012 21:33:40 +0000

In reply to Dan, many of the broad

For an easy start, it is hard to understand, at this moment in history, why there remain rooves to be found here and there without photovoltaic/thermal panels...

The tragedy of neoliberalism

Dan Kervick — Fri, 04 May 2012 20:58:11 +0000

In reply to Love this, Dan. I think it

The tragedy of neoliberalism is that it has taught a generation of people that the future isn't something that a society actually has to choose and build. It's something that just happens and fatalistically arrives on our doorstep if we get out of the way of economic forces instead of commanding them. And we're just supposed to take what we get.

So now we have a generation of 20-somethings and 30-somethings and 40-somethings with minds perpetually trapped in a dispirited present, and who thing that dreaming of so much as a new bridge or tunnel across a river is absurdly utopian.