Dear Citizens, Elected Officials and Economists:
I read Paul Krugman’s column in the New York Times this morning, a day late, and found it to be very interesting for a number of reasons. Here at: www.nytimes.com/...
First, his apology in jumping to the conclusion, an emotional one right after the election, that the stock market would punish the election of a bad man. He says he never should, we never should, analyze the economy with our emotions. Fair enough, and good advice, but one has to set aside the deeper levels of human beings, that there might be a connection between emotions and deep values, ethics perhaps even, the connections often hidden even from our own rational “self-understandings.”
Krugman goes on to worry, like many others, but not economist Dean Baker, that the market “run” is too good to be true, that it can’t keep up this performance. I’ve written about this in an earlier posting here at the Daily Kos:
Recently I had an online disagreement about the current economic dynamics with well-known economist Dean Baker at the blog site for the world’s second largest organization of professional economists (The World Economics Association) where I am graciously allowed to participate, although I am not a professional economist, and not regretting that at all. I conceded the two official “bragging” numbers, but also disclosed what they hide, and that I don’t see an era of good economic feelings yet in my day-to-day life: https://rwer.wordpress.com/2017/11/30/janet-yellen-and-barack-obamas-economy-is-looking-good/
I should add that in the touting of low unemployment and inflation (as opposed to the labor participation rate, which is getting better but still lagging), no one mentions the Social Security stall-out, where deductibles for Medicare keep increasing, what recipients must pay out-of- pocket first, but Social Security payments don’t rise, a significant factor suppressing overall demand in rural Red State America, where there are many beneficiaries, the young having fled for the hoped for coastal abundances, where most of the jobs have been generated. (See Harold Meyerson’s fine article about Democratic Party neglect of rural America, part of the American Prospect’s excellent series on the white working class: http://prospect.org/article/place-matters
Krugman then adds another worry: that we will likely have to face the inevitable economic crisis with a major tool tied behind our backs, the continued low interest rate policy from the Federal Reserve, which wants to raise them up out of the zero-bound territory, so there would be room to cut them when the economic situation demands it in a crisis. But the Fed is very cautious about the raises, going this year in the smallest of increments, .25% nibbles, for fear that the recovery is so fragile that it will not be able to withstand higher rates delivered at a faster pace.
I have to ask, why would that be so if the economic recovery is as strong as Dean Baker suggests? Perhaps it’s because there are segments of the economy — gas and oil frackers perhaps, struggling old retail at all the suburban malls — which are carrying heavy debt loads and who would “crack” under higher rates…and who knows what else lurks in the as yet to be fully mapped “shadow banking system.”
Yet there is something else that Krugman did not bring up which bears upon his column, the continued stock market rise under the faux economic populist Trump, who is delivering the old Republican-Libertarian Right’s elixir of tax breaks for corporations and others who do not need it, even now as the inequalities have piled up as high as the Alps since Reagan: what would the markets’ reaction have been if Bernie Sanders had been elected? After all, it’s been axiomatic that under Neoliberalism in Western Europe, not just the United States, attempts at more social democratic policies - higher minimum wages, job guarantees, public work projects for the Southern Periphery of Spain, Portugal, Italy and Greece (you can throw France into this picture if you like, my apologies to President Macron) — would trigger the punishments of markets if such proposals could some how clear the legal and technocratic obstacles that the core institutions of the Euro zone have throne up, inspired by the mind of German banking: French, Swedish and British attempts at such policies over the past 25 years or so having evoked the market’s wrath when Neoliberal commandments are violated.
So that led me to post the following comment at the Times this morning:
Well Paul, I've been covering much of the ground you did here, since August, asking myself how long the stock market can continue to climb, looking for potential bubbles, deciding that none of the nominees look large enough to have the impact of mortgage derivatives in 2007-2008, not the retail troubles, auto loans, real estate...Deutsche Bank. But I did notice Robert Shiller's September 21, 2017 post at Project Syndicate, entitled "The Coming Bear Market?" One of two Shiller indexes (developed with a colleague, John Campbell) the CAPE one (Cyclically Adjusted Price-to-Earnings Ratio - for stocks, that is) was registering at 30, when the average in his remarkable data base from 1881 to 2017 was just 16.8. This index has only twice exceeded 30: and the years were 1929 and 1997-2002.
That should get people's attention.
But I have another measuring rod for you: what does it say about markets and their "ethics," or lack of them, when they can celebrate the policies from such a scoundrel as Trump, and party like there is no tomorrow?
To me it means "the markets" protest social democratic policies, except perhaps the mildest ones, as under Obama, but would be quite comfortable with the country going in a more authoritarian direction as long as the top 20% were well cared for.
Reminds me of all those calling attention to the divergence between capitalism and democracy under Neoliberalism.
David Ruccio, a professor of Economics at Notre Dame, whose columns I read as often as Krugman’s, published this explanation this morning: rwer.wordpress.com/… he says it’s the corporate profits, and that...
Clearly, the United States has had a profit-led recovery since the crash of 2007-08, which is both a cause and consequence of the stock-market bubble.
However, that recovery has left most other Americans behind. First, corporate profits have increased in large part because workers’ wages have largely stagnated. Second, most American workers don’t own any stocks, either directly or indirectly. Stock ownership itself is highly concentrated, as the top 10 percent of households own well over 80 percent of the U.S. stock market.
And looking forward? I don’t make predictions but it’s obvious that the Republican administration is determined to do all it can to keep corporate profits growing and to make sure wealthy individuals keep a larger share of the surplus they receive. As long as that happens, we’ll continue to see the kind of lopsided recovery—including banner gains in the stock market—that has characterized the U.S. economy for the better part of the past decade.
Notice that he calls the stock market performance a “bubble,” which brings us back to Robert Shiller’s warning about how high the CAPE index is at 30, and the historical context for its other comparable “highs.”
So Paul Krugman, I have two types of troubles with what I see: ethical worries about business willingness to condone anyone in the high office who will deliver their “goods,” and this other nagging feeling I had in the early winter of 2007 about the “Ingredients for an Economic Katrina,” a little essay I wrote after researching the wonderful new world of “derivatives” and waiting to get hired by the new Martin O’Malley administration in Maryland, after serving on his transition team for planning and “smart growth,” and writing about 1/3 of the report. It never happened, that hiring, and that was probably a good thing. — for both of us.
Good luck to all of us in the New Year…
billofrights
Frostburg, MD