Friday, July 13, 2012

Friday Morning Links

Assorted content to end your week.

- Eric Liu and Nick Hanauer theorize that we should discuss the economy as a garden rather than a machine:
A well-designed tax system — in which everyone contributes and benefits — ensures that nutrients are circulated widely to fertilize and foster growth. Reducing taxes on the very wealthiest on the idea that they are “job creators” is folly. Jobs are the consequence of an organic feedback loop between consumers and businesses, and it’s the demand from a thriving middle class that truly creates jobs. The problem with today’s severe concentration of wealth, then, isn’t that it’s unfair, though it might be; it’s that it kills middle-class demand. Lasting growth doesn’t trickle down; it emerges from the middle out.

Lastly, consider spending. The word spending means literally “to use up or extinguish value,” and most Americans believe that’s exactly what government does with their tax dollars. But government spending is not a single-step transaction that burns money as an engine burns fuel; it’s part of a continuous feedback loop that circulates money. Government no more spends our money than a garden spends water or a body spends blood. To spend tax dollars on education and health is to circulate nutrients through the garden.
- Meanwhile, Jim Stanford thoroughly debunks the austerian claim that we can't afford to invest in needed public programs:
(D)ebt service has continued to decline despite the (modest) rebound in debt resulting from the recession.  Debt service costs for all levels of government fell below 4% of GDP since the recession.  How could debt service costs decline, even while the debt burden (modestly) grew?  Because average interest costs have declined.  Like home-owners, governments have been able to refinance their debt to take advantage of today’s ultra-low rates.  (Remember, even fiscally pressed provinces like Ontario can still borrow money today for 10 years at real interest rates not much above zero.)  As older bonds come due and are refinanced, governments reduce their interest costs dramatically.  Those savings have more than offset the incremental debt service costs associated wtih additional debt.  So the claim that rising debt service costs are squeezing out more useful forms of public expenditure (not that conservatives support those programs, either) is empirically false.

Running up public debt for the sake of running up debt makes no sense.   There are costs associated with debt, and limits to how much debt can rise.  But there are benefits associated with debt-financed spending, too.  That includes the productivity of long-lived public capital assets that can be financed with debt (just like companies or households prudently finance long-lived assets, from factory equipment to homes, with debt).  In a demand-constrained macroeconomic context, another benefit of debt-financed spending is the positive spillover effect on overall employment and income that results from that spending (even when it’s on current services rather than public capital).  Based on the preceding graphs, Canadian governments are far from any meaningful constraint on their ability to borrow.  Hence, we should make a rational decision as a country regarding how much new debt is optimal, rather than being dominated by an initial quasi-religious assumption that “all debt is bad.”
- I'll agree with Dan Gardner that at least a few of the recent criticisms of Stephen Harper - such as that based on his Calgary boosterism - take several steps across the line between reasonable concern and excessive contrarianism. And it's a shame that's the type of story receiving attention, since there are still plenty of entirely valid reasons to be genuinely outraged at Harper that remain to be fleshed out.

- Finally, for those with a bit more time on their hands, Steven Shrybman's legal opinion on the effects of CETA (PDF) makes for a rather worrisome read.

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