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He misses a few things here:

Here’s the theory. As the dollar falls relative to foreign currencies, everything we export becomes less expensive to foreign consumers. So they buy more of our stuff, creating more jobs in the U.S. At the same time, everything they make costs us more. So we buy less from them and more from each other. Again, more jobs here at home.

Washington is actively pursuing a weak dollar as a jobs policy. (The dollar just plunged to a six-month low against the euro.)

How? The Fed is keeping long-term interest rates so low global investors are heading elsewhere for high returns, which bids the dollar down. Every time another Fed official hints the Fed will start printing even more money (“quantitative easing” in Fed speak) the dollar takes another dive.

Meanwhile, Congress is ginning up legislation to allow the President to slap tariffs on Chinese imports because China is “artificially” keeping its currency low relative to the dollar…

…But using a weak dollar to create American jobs is foolish, for two reasons.

First, no other country wants to lose jobs because its currency becomes too high relative to the dollar. So a weak dollar policy invites currency wars. Everyone loses.

At least a half dozen other countries are now actively pushing down the value of their currencies. Japan recently sold some $20 billion of yen in order to keep the yen down, the biggest ever sell-off in single day.

Last week, Brazil’s Finance Minister lashed out at the US, Japan and other rich nations for letting their currencies weaken to spur jobs. Brazil’s high interest rates are attracting global investors and pushing up the value of Brazil’s currency. This is crippling Brazil’s exports and fueling unemployment.

I think most economists agree China does manipulate it’s currency. They have their rate pegged to the dollar, it doesn’t float, the central bank controls the exchange rate. They also tightly control external foreign investment, which effectively shuts the door to capital in flows that would tend to equalize imbalances.

The reason other countries are actively weakening their currencies is in response to Chinese manipulations that effectively export their jobs. Either we move with or ahead of the pack or we see more jobs move to China. I’m not sure what his concern with Brazil is about. We need to worry more about US job and less about Brazilian jobs.

Here’s the other problem. Even if we succeed, a weak dollar makes us poorer. Imports are around 18 percent of the US economy, so a dropping dollar is exactly like an extra tax on 18 percent of what we buy.

It’s no big accomplishment to create jobs by getting poorer. You want to know how to cut unemployment by half tomorrow? Get rid of the minimum wage and unemployment insurance, and make everyone who needs a job work for a dollar a day.

Here he ignores substiuttion effects, where US firm step in and create job making domestic replacements for imports and rounds it out with  a hearty straw man attack. It’s not an equivalent drop where it’s exactly an 18% loss, it would be equal to whatever percent tariff is imposed.

Say a law is passed with a 10% tariff, that would be equal to 1.8% percent, using his figures. Also he doesn’t say if Chinese imports represent all of the 18% percent. That appears to not be the case.  We import $2.5 trillion total, out of total consumption of $14.8 trillion (PPP GDP) which comes to about 12%. There’s no indication of where he gets his numbers, but setting that aside, there’s no way that all of his 18% is Chinese imports. So, at most, in my example it would be 1.8%, but as I said this ignore the effects of US companies hiring to fill additional demand for domestic goods. I’d also ask what’s more important, 24 packs of tube socks at Walmart for $3 or domestic jobs? His analysis is sloppy and I really think Reich should know better.

The short story is that any kind of extension will be expensive and lead to lower growth in the future. Alternatives for stimulating demand in order of bang for the buck are:

1. Temporary increase in aid to the unemployed
2. Temporary reduction in payroll taxes paid by employers
3. Temporary expensing of business investments
4. Providing aid to states
5. Infrastructure investment
6. Temporary across-the-board income tax cuts

Note this was a limited set of policy options and not representative of all possibilities. The options presented were what was requested by the Chairman of the Senate Budget Committee.

Permanent income tax cuts are seen as having a short term positive impact, but causing long term reduction in growth by 1.4% to 0.6% of GDP in 2020. In the CBO Director’s testimony here the slide for “Labor Force Participation and Unemployment Rates” shows a close correlation with an increase in unemployment at just about the same time as the tax cuts took effect in 2001 and 2003.  It didn’t work the first time through, so why do the same damned fool thing again?

There is no empirical evidence to support the notion that tax cut heavily weighted to the wealthy stimulates long term growth. In fact it’s the opposite, but will anybody listen? The GOP is economically illiterate and the Democrats are gutless. There’s never a constituency for tough choices in Washington, although this isn’t really tough if you look at the data. But it is a hard sell when the opposition is simply willing to ignore facts and lie to get their way. The public doesn’t like the sound of tax increases, even if it mostly impacts a small percentage of people at the high end of the distribution.

I’m a military vet from the south and one would think I’m predisposed to support Republicans. I think I did vote for Reagan once in 1983 after he gave the military a nice little pay raise, as I was active duty then. Yet I find I have little tolerance for most of what they preach these days. Not that I think Democrats are joy to behold.

I’ve been gravely disappointed by the Obama administration in many ways. I think they’ve been wrong to support Bush era positions on Presidential powers and the state secrets doctrine. I had really hoped better from a former constitutional law professor. He’s consistently gave away too much in pursuit of imaginary bipartisanship, often sacrificing progressive goals and good policy in false hopes of GOP support. Giving the opponent everything you can isn’t a very good opening ploy in negotiations. Health care reform, the stimulus package and financial regulation have all been excessively diluted in the same way.

Yet I find I can’t muster the will to vote Republican. So I ask myself, why is that? I guess at the heart of it this really comes down to my education. I have a B.A. in public policy, which means that I did significant course work in political science, economics, history and philosophy.  I did graduate work in public health with course work in epidemiology and bio-statistics. I find that the work in economics and statistics to be particularly valuable in parsing the arguments I hear made in pursuit of policy goals. I benefited from going to a very good college that actually expected you to read source material and then write intelligent, well argued papers. Actual thinking was valued. I had one teacher who was an adherent of the Socratic method. He asked questions designed to cause you to question your assumptions and occasionally to publicly eviscerate the unprepared.

I value good policy and intelligent arguments. I become annoyed when I see policy sacrificed to political expediency. I become angry when I hear people simply lie about basic facts. To quote Daniel Patrick Moynihan, “Everyone is entitled to his own opinion, but not his own facts.”

This is what annoys me about the modern GOP. They ignore basic economics. They care little about what’s good policy, but care greatly about good politics. They have a visceral dislike intellectual elites and have more or less discarded any real rigorous analysis in favor outright bullshit carefully crafted by a small universe of  “think tanks” populated by former members of the party, right leaning pundits and a few pet economists.

They seems to believe that catering to the basest instincts of the far right fringe is a path to greatness. They embrace religious intolerance, mindless jingoism and sort neurotic nationalism that defies common sense. They ignore outright racism and hate from their own as somehow understandable. They embrace personalities over substance, cleaving to people like Palin, Limbaugh, Beck, Hannity and Levin as if they were policy gurus instead of loutish entertainers. As long as someone cursorily salutes the flag and babbles mindlessly about God and Country all manner of ugliness can be ignored. They brought us Nixon, Bush, Carl Rove, Dick Chenney, the Southern Strategy, an Imperial Presidency and endless war.

Let me say a bit more about the economics, because I feel this is more important than the politics of identity, hypocrisy or personalities. I hear the GOP leadership say things like “we don’t have to offset tax cuts” presumably because they believe that they pay for themselves. Any self respecting economist will tell that is simply wrong in our current situation.  It was created by an supply side economist, Art Laffer (a technical argument about how a reduction of tax rates from extremely high levels can increase tax revenue but, moving from 36-39% won’t have that effect.) and distorted endlessly by Republican leaders.  The math isn’t suspended simply because you believe it to be true.  You can’t fly and there is no magic Pixie dust that will make it so.

Extending the Bush tax cuts at a cost of $3.9 trillion over 10 years is less effective economic stimulus than equivalent direct spending in the same amount. Both will have the same impact on the deficit . The spending might ultimately have greater impact on the deficit reduction by virtue of the effects greater economic stimulation on tax receipts. Why would this be so? Because the Bush tax cut are disproportionally skewed to benefit highest income brackets with the greatest benefit to the top 0.1% of the income distribution. You only need so many mansions, yachts  and sports cars. The wealthy have a much greater propensity to save the additional income than those in lower tax brackets, that’s not very stimulative.  It might be if there were a lack of liquidity in the economy, but that’s not the case. Interest rates are very nearly and effective zero rate. Cash is sloshing around the monetary system, but demand remains depressed. Corporate American is flush with cash reserves. We’re in a classic liquidity trap.

If you were to spend the money improving access to health care, on public works projects, direct benefits to those most impacted by the recession, aid to states or in improving education, that would be money spent quickly that would then create jobs and loosen up demand. If the public works projects are done wisely on needed infrastructure it would have some lasting benefits.

This doesn’t fit the Republican talking points and doesn’t benefit their patrons at the top of the income distribution. It’s waived away with election year promises to cut spending and reduce taxes. Cutting spending now would be folly and cause further economic contraction. Top bracket tax cuts were covered above. Does the GOP know any other kind? A targeted tax credit to lower income brackets would be stimulative, as that would be spent immediately rather than squirreled away. The GOP are not fans of that idea, it’s damned as welfare.

Sadly, many “mainstream” Democrats embrace GOP tripe because of the truthiness of the arguments. It’s cumbersome to explain that we’re in a liquidity trap and that the rules that govern household budgets aren’t applicable to the federal government. It’s far easier to say the government should cut spending and taxes in hard times because families have to do the same, but it’s a false equivalency. The federal government can create liquidity to some extent (but it’s not free), households can’t. Economically sound policy would be to run a surplus during good times, to allow the flexibility to respond effectively without creating massive deficits when the inevitable downturn happens. But some fool gave the last surplus away in tax cuts favoring the wealthy years ago, leaving nothing but deficits and wars in his wake.

It’s a very nice review of actual data and econ journals on the effects of tort reform.

To summarize: very, very little. It appears to be a politically motivated red-herring designed to punish a left leaning constituency. Nothing more, nothing less.

Texas makes a lovely example, the net of capping damages at $250,000 was essentially undetectable.

Why does this make me sad? Because it’s hard to see the country prospering when one of its two major political parties is this economically illiterate. McConnell isn’t some backbencher. He’s Senate minority leader. And he thinks there’s “no evidence whatsoever that the Bush tax cuts actually diminished revenue.”

There’s an ontological question here about what, exactly, McConnell considers to be “evidence.” But how about the Congressional Budget Office’s estimations? “The new CBO data show that changes in law enacted since January 2001 increased the deficit by $539 billion in 2005. In the absence of such legislation, the nation would have a surplus this year. Tax cuts account for almost half — 48 percent — of this $539 billion in increased costs.” How about the Committee for a Responsible Federal Budget? Their budget calculator shows that the tax cuts will cost $3.28 trillion between 2011 and 2018. How about George W. Bush’s CEA chair, Greg Mankiw, who used the term “charlatans and cranks” for people who believed that “broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue.” He continued: “I did not find such a claim credible, based on the available evidence. I never have, and I still don’t.”

It’s like arguing with 3 year old, there just isn’t any point Ezra.

The gist here is that actual inflation is very near to slightly below zero. Using inflation fears as a reason to avoid further stimulus is simply unfounded. Deflation is a much more pressing concern.

A more important question is what can they do, given that interest rates are near an effective rate of zero at the Federal Reserve? Business are unwilling to spend more on hiring or make capital investment because of weak demand and existing inventories that are moving slowly. It was a very bad time for the Senate to take a summer break without extending unemployment benefits.

The underlying assumption seems to be that the long term unemployed would get a real job if we just stopped benefits. That’s despite the fact that there are still 5 people looking for work for every job opening. Furthermore, unemployment benefits and food stamps that put money right into the pockets of those most in need and are the most effective means of stimulating the economy. Those dollars get spent right away, with little delay and lower administrative costs than alternatives like tax cuts or infrastructure projects.

Just goes to show, once again, what’s political palatable is often economically stoopid.

This is an important discussion that, at it’s heart, is about “who killed the American dream”? He points to a long piece from Andy Grove (former CEO of Intel) summarized thusly:

The piece is long, detailed and worth reading in full, but the central point is this: an economy that innovates prolifically but consistently exports its jobs to lower cost overseas locations will eventually lose not only its capacity for mass production, but eventually also its capacity for innovation…

He goes on to detail long term trends in American manufacturing, trade imbalances, income inequality and employment. It comes down to one fairly simple question: Is free trade always a good thing?

The underlying assumptions is that it always produces net gains, despite the fact that some will lose income and wealth because of it. At some point we need to re-evaluate the notion that free trade is always beneficial, particularly when the benefits are concentrated among the few while many more lose good jobs permanently.

The statement in the quote is profoundly important to our future as a world power. Without an broad economic base I don’t think we can remain the superpower we believe ourselves to be. You can only export job for so long before you become incapable of understanding what it is that you need to improve. Without innovation we are doomed to stagnation.

Op-Ed Columnist – Myths of Austerity – NYTimes.com.

Which brings me to the subject of today’s column. For the last few months, I and others have watched, with amazement and horror, the emergence of a consensus in policy circles in favor of immediate fiscal austerity. That is, somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.

This conventional wisdom isn’t based on either evidence or careful analysis. Instead, it rests on what we might charitably call sheer speculation, and less charitably call figments of the policy elite’s imagination — specifically, on belief in what I’ve come to think of as the invisible bond vigilante and the confidence fairy.

I’m no New York Times columnist with a PhD in economics and a recent Nobel Prize, but I did do a significant amount of undergrad course work in economics. I think I understand most of the basics in macroeconomics. If you reduce federal spending in the midst of severe downturn, you make it worse.

It really is pretty simple. There are no private sector dollars out there waiting to replace those federal dollars and consumers are not optimistically spending what they have either. This leads me to believe that policy makers have some other agenda. If it’s not restoring healthy economic growth and full employment, then who are they carrying water for?

Fivethirtyeight.com posts a reply to Jonah Goldberg’s latest attempt to establish false equivalence between taxes and slavery from the op-ed pages of USA Today. Goldberg wants to tell us we’re slaves to teh gubbermint until “Tax Freedom Day”, which is sometime this week. Overblown rhetoric aside, the real question is: Are we really overtaxed? Not so much. Only 4 other industrialized democracies have a lower total tax burden. We come in with a total tax burden of 28% of GDP. The OECD* average is 35.9% with a range of 20.6% (Mexico) to 49.1% (Denmark and Sweden). Sadly you can’t fight truthiness with facts. People like Goldberg just know in their gut that we’re overtaxed. Any proof to the contrary must be nothing more than librul sophistry designed to enslave us in a socialist-islamofacsist-totalitarian-Marxist dystopian hell.

Could we do something better with our tax policy in the US? Absolutely. We could reverse the trend to regressive taxes as instituted in the Bush Era tax cuts. We have not and most likely will not. We lack the political will to restore fiscal sanity to the federal government. There ain’t no constituency for tough choices in America.

*For the non-policy wonks out there, OECD is the Organisation for Economic Co-operation and Development.  It’s an organization of 30 industrial democracies that collects and distributes a large amount of cross-national econometric and demographic data. It’s a treasure trove of data and very useful in comparing things like effective tax rates among many other things.

Krugman suggests that some protectionism against the Chinese may be a good thing:

Recently Wen Jiabao, the prime minister, dismissed foreign complaints: “On one hand, you are asking for the yuan to appreciate, and on the other hand, you are taking all kinds of protectionist measures.” Indeed: other countries are taking (modest) protectionist measures precisely because China refuses to let its currency rise. And more such measures are entirely appropriate.

Or are they? I usually hear two reasons for not confronting China over its policies. Neither holds water.

First, there’s the claim that we can’t confront the Chinese because they would wreak havoc with the U.S. economy by dumping their hoard of dollars. This is all wrong, and not just because in so doing the Chinese would inflict large losses on themselves. The larger point is that the same forces that make Chinese mercantilism so damaging right now also mean that China has little or no financial leverage.

Again, right now the world is awash in cheap money. So if China were to start selling dollars, there’s no reason to think it would significantly raise U.S. interest rates. It would probably weaken the dollar against other currencies — but that would be good, not bad, for U.S. competitiveness and employment. So if the Chinese do dump dollars, we should send them a thank-you note.

Second, there’s the claim that protectionism is always a bad thing, in any circumstances. If that’s what you believe, however, you learned Econ 101 from the wrong people — because when unemployment is high and the government can’t restore full employment, the usual rules don’t apply.

Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: “With employment less than full … all the debunked mercantilistic arguments” — that is, claims that nations who subsidize their exports effectively steal jobs from other countries — “turn out to be valid.” He then went on to argue that persistently misaligned exchange rates create “genuine problems for free-trade apologetics.” The best answer to these problems is getting exchange rates back to where they ought to be. But that’s exactly what China is refusing to let happen.

It sure feels like someone has been “steal(ing) jobs” from the US recently. While the lack of domestic financial oversight certainly had an impact on our economic meltdown, there was also an impact from cheap money, which was a result of Chinese mercantilism. The fix is to slowly turn the screws on protectionist policies to encourage a re-thinking of fixed dollar-yuan exchange rate. The Chinese can dump dollars in response, but that will cause them massive loses  and drive down the dollar against other currencies, making US exports more competitive.

It seems to me to be a btter way ay looking at how all the moving pieces work together. Improving health in turn spurs economic growth, it really seems intuitive once you say it out loud.

…Washington is mired in a warped political debate. Congressional Republicans say continued economic weakness is proof that February’s stimulus package failed. Lawmakers in both parties fret that large budget deficits preclude more stimulus, lest the burden of debt outweigh the benefit of deficit spending.

Both arguments are wrong. If anything, ongoing economic problems are a sign that stimulus needs to be bolstered. Deficits are a serious issue, but the immediate need for stimulus trumps the longer-term need for deficit reduction. A self-reinforcing stretch of economic weakness would be far costlier than additional stimulus.

via Editorial – The Case for More Stimulus – NYTimes.com.

The part-time business gets to one of the many failings with the unemployment rate: It only counts a particular type of frustrated worker, those who are unemployed and looking for a new position. But what about the “marginally attached”? Workers who are unemployed and want work, but haven’t actively searched in the past four weeks, possibly because they can’t find any work and there are no new jobs in their area. They’re not counted. Nor are the frustrated part-timers. The Cleveland Federal Reserve published a chart measuring unemployment, and then showing what happens when you add these two groups: Unemployment jumps from a shade beneath 10 percent to a bit beneath 18 percent, or almost a fifth of the population.

via Ezra Klein – Recession Graphs.

Paul says while it might be a “recovery” in terms of conventional definition, but job creation still lags. The question seems to be why isn’t job creation part of the definition of recovery.

Good round-up by Mark Thoma. It does not appear that prosperity is just around the corner, but things are looking less bad. It still looks like it may be Q1 or Q2 of 2010 before we stop shedding jobs and start seeing positive employment numbers.

Rebalancing the economy | Free exchange | Economist.com.

Economic Scene – Support for Health Reform Requires Facing Facts on Costs – NYTimes.com.

So what’s in health reform for the majority of voters who already have health insurance? David Leonhardt makes a try to answer: $6500 per year per household. That’s what we spend over and above the average of other industrialized countries for care that doesn’t make us any healthier. You don’t see the employer contribution to health insurance premiums on your pay stub each week.

We actually lag other countries that spend far less per person in most objective measures of health. Wages have been stagnant over the last 20 years at least in part because health insurance premiums have consistently outpaced inflation and take up a larger, albeit hidden, share of your wages.   It clearly doesn’t have to be that way. Productivity has grown, and in turn been eaten by health costs. You could have had that money in your pocket instead, if our political leadership had the willingness to take on entrenched interests that benefit from the boondoggle that is American health care.

h/t Ezra Klein Washington Post

CBO Chief Says Democrats’ Proposals Lack Necessary Controls on Spending

via Budget Analyst Assails Cost of Congress’s Health-Care Proposals – washingtonpost.com.

Look, the current situation in US health care simply isn’t sustainable. Obama campaigned against repealing the exemption on employer health benefits. It’s a huge subsidy to the fraying patchwork of employer based health insurance. He’s the quandry:

1. We can’t control the rate of increase in health expenditures.
2. The money required to do real reform required to control costs and cover all Americans is tied up in a tax subsidy for employer based coverage.
3. Congress doesn’t want to find new revenue sources.
4. The health insurance tax subsidy is beginning to look like another sacred cow.
5. Entrenched interests aren’t interested in really controlling costs. One man’s wasteful health spending is another man’s bread and butter.

It begins to look like the chances for any real reform are fading in Congress. If Obama pivots on the employer health insurance subsidy, the attack ads write themselves and will target any Congress-critters who show support. Maybe he’ll get some kind of expansion of coverage without effective cost controls, which really will be the worst of both worlds in that they will be expensive and do nothing to reign in the rate of increase in Medicare and Medicaid spending. Without systemic change that can move the cost curve it will be budget buster.

At the end of the day I think Obama is too cautious to really throw his weight behind reform. If he’s not going to lead it will fail. Maybe will get some marginal changes that improve coverage, but cost control will lag creating a huge problem in a few budget cycles. Much of the complaining from the right about deficits is so very, very disingenuous. They created structural deficits to give tax breaks to the wealthy and to pay for ill-considered foreign wars at the same time. That point should be driven home and wrapped around them like a hair shirt whenever they complain about deficits.

Legislators from both parties support legislation that would allow the state to accept IOU’s issued by the state because of the ongoing fiscal crisis in California as legal tender for the payment of taxes and state fees. This would effectively establish a new state controlled currency. If it passes, I think it would just a few minutes to get challenged in court.

Mark Thoma remains neutral about it all and doesn’t see this as too much of problem, but I think the courts and the financial institutions that seem to own the Federal Reserve and the Treasury Dept., won’t be quite as sanguine about it all. It does really put a cramp in national fiscal policy. Some would argue that may not be a bad thing, but there’s just no way entrenched interests will let this be.