August 1st, 2005


Some People Don't Understand Economics

Here's an example.

There appears no understanding of incentives and growth anywhere in the essay. You'd think that the basic insight of microeconomics "People respond to incentives" would have made a dent after all these years: but not here. Result? Lost in a sea of macroeconomic numbers, without a reference point in behavior or the results of policies, silly things get said.

To the extent the Laffer curve is a one-variable explation of the health of an economy, it has flaws. To the extent that taxes are not recognized as a drag on growth, someone has failed to do basic econ.

Which is worse?

Oddly enough, she'd have some of her basic questions answered if she would read "The Seven Fat Years" and figure out what the Laffer curve was, how it fits into economic understanding, and what its limits and strengths are. Of course, this is the same person who can't seem to notice the increase in tax revenues from a cut in capital gains taxes under Clinton. Indeed, I seem to miss most of the discussion from her on what the relationship is between tax revenues and tax rates -- you'd think it was important a discussion of Laffer.

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    annoyed annoyed

Weakness in the Labor Market

Not really, gents.

But that depends on doing the numbers, and paying attention to how you compare them. Sample?

average real weekly earnings from pre-recession high
prior: -1.9%
this: +0.25%

In fact, during the prior recovery real average weekly wages would stay below their 1990 pre-recession high for seven years, until well into Clinton's second term.

So a small gain today is decried as weakness -- while a real decline that lasted more than seven years was the happy course to the "miracle economy".

Now maybe we get an idea about why the bad news bears always present their numbers without any context, without the perspective of any comparison to the prior business cycle. In making such a comparison using DeLong's five indicators the current recovery is up 3 to 0 right now -- already we have a winner!

As a brief aside I'll mention here a cherry-picking tactic near always used by the class warriors to make it seem that workers are being paid less, and gaining less, than they really are.

This is the constant quoting of "earnings" or "wage" numbers in newspaper stories, op-eds and the like, when the average reader doesn't realize that these are only subsets of the amounts earned by workers, excluding among other things the benefits that comprise an ever growing part of compensation. They thus systematically understate both the amount and rate of growth of employee compensation.
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The silly season strikes again.

This time, Brad deLong has the microphone:

I have an announcement to everyone who claimed back in 2000 that the Republican Leadership was committed to free trade. I will accept your apologies now.

You know, I DO support free trade. I've been appalled at the deviations from that stance that Bush has taken. But he's taken them to the sound of wild cheers from the Democratic party.

An apology?

You'll get it when a majority of Democrats in Congress support free trade. Face it, Brad, while the Republicans aren't perfect, they're a heck of a lot more "free trade" than your side of the house. If it's an important issue to you, you don't vote for Democrats. When you criticize Pelosi on the subject, write letters, and set up a campaign to educate her on free trade and why she should be pushing her members to support it instead of punishing those who do, I'll be really contrite, I promise.
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    amused amused