March 21, 2011
Dispatches (X): The Economic Impact of Governor Walker's Plans
And Walker (Still) Plans No-Bid Sales of Power Plants, the $7.5 million worth of damages to the Capitol building becomes $347,000 (maybe), and the expanding politicization of the civil service.
From Wisconsin State Journal:
Gov. Scott Walker's plans to balance the state budget by cutting spending and public workers' take-home pay will slow the state's economic recovery, according to projections by a UW-Madison economist.
An estimated 21,843 jobs will be lost over the next year or two as public agencies and workers are able to spend less in their communities, said Steven Deller, a professor of applied economics who studied the ripple effects of Walker's budget-repair bill and two-year budget proposal.
"That's not just a bump in the road," Deller said. "That's a speed bump."
Deller's analysis didn't calculate whether job losses would result if the $3.6 billion budget shortfall were fixed with tax increases or a combination of spending cuts and tax increases. Deller said he's had many requests to analyze the job-loss effect of tax increases but has declined since there is no concrete proposal on the table.
His projections are based on the budget repair law, which requires the compensation cuts, and Walker's proposed two-year budget, which cuts spending in areas such as medical care for the poor and elderly, local governments, schools and prisons. The budget repair bill was adopted but is on hold pending a court challenge.
In response to Deller's job loss projections, Werwie said, "We are going to continue to pursue policies that will ensure our state has the business environment that allows the private sector to create 250,000 new jobs over the next four years." [emphasis added -- mdc]
I have elsewhere observed that the plan's emphasis on providing tax cuts and then using spending cuts to balance the budget (including offsetting the deficit-increasing tax cuts) is a maximally contractionary approach to macroeconomic policy, viewed from a Keynesian perspective. Cutting spending on poor and elderly (while giving tax cuts to corporations and on average higher income individuals)  is going to reduce spending by those with the highest marginal propensity to consume, and increase spending by households by those with smaller marginal propensities to consume. To the extent that elements of the Governor's plans involve reductions in transfers from the Federal government , well, the math is obvious (to those who can do math correctly ).
On the other hand, if capital is sufficiently mobile, and/or the sensitivity of investment to the user cost of capital is sufficiently high (or real wages/compensation can be driven downward sufficiently), it is conceivable that demand side contractionary effects can be offset by expansionary supply side effects. For more on this, see .
No-bid Contracts and Transparency
From Wisconsin State Journal:
Though it was removed from the budget repair bill, Gov. Scott Walker's plan to privatize Wisconsin's state-owned power plants remains alive.
"We're still looking at a range of options regarding the power plants moving forward," said Cullen Werwie, Walker's press secretary.
It is a mystery to me why there is such an insistence on no-bid contracts. It's almost like a point of principle.
State Rep. Brett Hulsey, D-Madison, said he hopes Walker decides to introduce the power plant proposal as legislation so that it can be discussed in committees. Democrats in the Assembly tried to remove the proposal from the budget repair bill and also proposed several amendments, including restoring the bid process, but all those efforts were voted down by Republicans.
Estimates of Damage to the Capitol building
Remember those alarming reports of damage caused by protesters to the Wisconsin Capitol building, on the order of millions of dollars? Rush Limbaugh weighed in, as did The American Spectator. Not much is heard about that multi-million figure anymore. From The Isthmus:
On March 3, the agency's top lawyer claimed that protesters caused $7.5 million in damage to the Capitol, mostly to marble from the tape holding on signs and banners. Hastings notes that this claim was "flashed across the country" before being revised downward the next day to as little as $347,000.
On Monday, March 7, after the signs were all removed, DOA spokeswoman Carla Vigue said the agency was bringing in an "outside expert [to] determine the amount and nature of the work that will be needed to be done to bring the marble to its prior condition." On March 9, she said "it may be several days" before this information is in hand.
Now, well more than several days later, no further information has been provided. "Still working on it," said Vigue on Tuesday.
Jacob Arndt has a pretty good idea how much damage to the marble was actually caused: None at all.
Arndt owns Northwestern Masonry and Stone, a Lake Mills-based company that he says "does consultation work and has contracts with the state of Wisconsin." He toured the Capitol early this month with a DOA staffer, inspecting the various types of stone: Kasota-Mankato, Wausau red granite, Dakota red granite, verde jade.
"I looked at each of these types of stones," says Arndt. His conclusion: The painter's tape used to affix signs left "little or no residue" anywhere. The worst problem he saw was some residue where media had taped cords to the floor, but even this was easily removed with simple cleaning agents.
"There's no damage to the stone," says Arndt, who has been back in the building several times since, verifying this finding. He says the DOA official who showed him around agrees even the lower cost estimate is "completely ridiculous and politically inspired."
Other Aspects of the "Budget Repair Bill"
From the Wisconsin State Journal:
Gov. Scott Walker will be able to name political appointees to fill three dozen civil-service jobs that handle open records requests from the public under the budget-repair law he signed last week.
The changes affecting 15 state agencies and offices are among the provisions of the law that drew less attention over the past month because of the epic fight over its provisions stripping public employee unions of most of their bargaining power.
Walker's separate 2011-'13 budget proposal would also make a political appointment out of another key civil service job - the top lawyer spot at the agency overseeing state labor law.
Jay Heck, executive director of the Wisconsin affiliate of the liberal group Common Cause, said the change to political appointments didn't save the state any money and shouldn't have been included in the budget-repair bill. The measure continued a process - begun under previous Republican and Democratic governors - to exert political influence over more public jobs, said Heck, whose group advocates for taxpayer funding of political campaigns and openness in government.
By the way, the "budget repair bill", sans several tax items, has not yet been printed up (a requirement for the provisions to go into effect) due to a temporary restraining order, due the procedural issues (i.e., violation of the state's open meetings laws). [Wisconsin State Journal]. Note that Judge Sumi, who issued the temporary restraining order, was appointed by then Republican governor Tommy Thompson. 
Posted by Menzie Chinn at March 21, 2011 04:10 PMdigg this | reddit
The $7.5 million was an union repair bid and the latter a non-union one....
Posted by: Hans at March 21, 2011 05:55 PM
Another point on the false budget projections is that there is no adjustment in revenues for the lower amounts of take-home spending that hundreds of thousands of Wisconsin workers would have a result of Walker's budget. Obviously lower take-home pay will equal lower consumption and lower sales tax revenues, but that's stated nowhere in the Governor's budget.
And that's not even taking into account the reductions in consumption and investment that'll result from private-sector businesses that also will feel serious losses in revenues from people with high MPCs, and the higher property tax rates that'll be required to take care of falling home values in a lot of these towns that rely on teachers and state employees for their stable home ownership. It's a disgusting cynical and false document, even by supply-siders already-low standards.
And actually Hans, the $7.5 million came from the Koch Industries no-bid estimate submitted to the Wisconsin DOA. $0 is the price from the painters' union who offered to clean the Capitol for free. But like most people who don't live here, you weren't told that part of the story, were ya?
Posted by: Jake at March 21, 2011 07:24 PM
Minzie, get over this silly personal liberal obsession with Walker, it degrades your blog and makes it difficult to take you seriously.
Start blogging about real economics.
Posted by: Lars at March 21, 2011 07:37 PM
Lars aka James (please settle on a nom de plume for future reference): Thank you for your kind advice. Yours, Menzie Chinn
Posted by: Menzie Chinn at March 21, 2011 08:22 PM
I'm with lars, reading about the details of your distaste for Walker isn't fun for us readers, well at least me.
Posted by: beau at March 22, 2011 01:23 AM
You do realize that Keynesian Macroeconomic theory has been solidly debunked for 40 years now? I'm new to your blog but to reference an economist who has been roundly discredited seems like a poor choice of perspectives.
Even if you look at that crackpots math, you have to try and explain where all that money goes if not to the union. If it goes to all these rich people, what do you think they will do with it? Perhaps they will spend it too. Perhaps even in Zenda Wisconsin they will choose to buy a boat or a new car at a local car dealer or even a house remodeling. All of these actions put money into the economy just as much as if some union worker spent the money.
Your notion of keeping the money on the lower income brackets has a nice effect that you disregard. They will shop at WalMart. WalMart money leaves the state and the country. Did you figure the math on that one too?
Posted by: tom at March 22, 2011 03:00 AM
Take a look at this Forbes article written by my friend Nathan Lewis. Below is an excerpt but the entire article is worth the read.
Historically, when governments amass too much debt, they default on it. That's just the way it is.
But there have been two exceptions to this rule: One was the United States after World War II; the other was Britain after the Napoleonic Wars (1797-1815).
...We can begin by listing what Britain's government did not do: It did not indulge in exorbitant government spending to "stimulate the economy." It did not devalue the currency. And it did not raise taxes.
Rather, Britain's approach was right in line with what I call the magic formula: low taxes, stable money.
With the war's end in 1816 Britain eliminated the income tax. Given the enormous debt, this was considered rather daring at the time.
The second thing Britain did was to return to the gold standard. The pound was delinked from gold at the onset of hostilities, and its value floated downward. This naturally led to an increase in interest rates, to the 5% to 6% range from the 3.5% common with a gold standard. The gold standard was reinstated in 1821, and bond yields fell back to the 3.5% range, where they stayed until 1914. This allowed the government to finance its large debt cheaply.
Over time the economic growth allowed by the low-tax environment and stable money increased the size of the economy dramatically. This was the Industrial Revolution, which was led by Britain. Why did it happen in Britain, and not Spain or Italy? The Magic Formula allowed capitalism to flourish.
Posted by: Ricardo at March 22, 2011 06:15 AM
I'm also with Lars, this past month or so has been the equivalent of watching msnbc or fox... where's the real macro analysis?
Posted by: tank at March 22, 2011 06:50 AM
Capital is EXTREMELY mobile and goes where it is treated best. 5 years from now (which is what really matters) your economy will be growing faster than if the budget gap had been closed with tax increases. How many people have to walk out of high tax states like those in the NE and midwest to low tax states like TX, NC etc before the light bulb goes off for you Keynesians?
Posted by: Equityval at March 22, 2011 07:22 AM
Wait, stable money and low-taxes was the direct cause of the industrial revolution? That is a serious leap of of logic...
Honestly the story isn't even coherent. If we are to suggest that the only reason that interest rates were right (nominally) was due to inflation of the British pound, then it leads us to the conclusion that real interest rates remained the same from the 5-6% rate under fiat and 3.5% under the gold standard.While of course (conveniently) we aren't given any measure of inflation to compare against, if one is to suggest inflation was significantly higher during the period of fiat, it could also be posited that real interest rates were considerably lower under fiat currency.
Lets not also forget that during the first industrial revolution much of the wealth accumulated went to capitalists as opposed to workers. While GDP per Capita increased significantly, real wages were stagnant. Also, while the income tax was repealed, the indirect taxation levied on the population was born mostly by the lower-class citizens of England. The income tax was then reinstated in 1842.
It is interesting that you think a tax repeal in 1816 was a major cause of the Britain leading the industrial revolution when many of the dawning inventions which brought about the revolution were invented over 30 years before. The spinning mule was patented in 1769. Steam Power was invented by James Watt in 1775, and the application of coke in iron smelting was patented in the 1770's as well. All of these things were invented in Britain and it was easy for Britain to take advantage of such technology due to its abundance of natural resources and high labor mobility over a very small area. However much of the technological innovation we cite today as the quintessential products of the industrial revolution did not come about until the 1850's and 60's in what is known as the second industrial revolution.
Of course "your friend" calls low taxes and stable money the "magic formula." He works for Steve Forbes, who believes that a drawing on the back of a cocktail napkin passes for solid economics even in the face of contrary empirical evidence of such a spurious and politically motivated idea. Forbes is a bastion of ideas that are good for people who already have money, and terrible for people who don't.
Not to mention, for individuals who claim to be able to envision the future through capitalism, it is odd that they hearken back to the past with the type of romantic swooning only fit for works of fiction. Instead of trying to envision a new economic future, it seems as though they are fighting for the status-quo in a bid to protect their ever growing profits, by squeezing the productivity out of each worker without giving the worker their fair share. It is not a wonder that many of Forbe's friends have gained massive wealth while giving very little back to their workers, resulting in stagnating and even falling real wages to the middle and lower class. You don't see the businessmen on the cover of Forbes clamoring for an end to crony capitalism and don't see them fighting for higher wages for their workers. It's this type of crass talk of ambiguous economic growth which those who have love to lecture those who have-not about. It's easy to talk about the virtues of capitalism and economic growth when your future depends very little on it.
Posted by: Frank at March 22, 2011 08:34 AM
This subject was previously brought (Econbrowser The Correlation between Money Base Growth and Inflation,Exchange Rates: Two Stylized Facts and Yet Another (Consequent) Puzzle)among many others
U.K. inflation accelerated more than economists forecast in February to the fastest pace in more than two years, adding pressure on the Bank of England to increase its benchmark interest rate.
Consumer prices rose 4.4 percent from a year earlier after a 4 percent increase in January, the Office for National Statistics said today in London
Posted by: ppcm at March 22, 2011 09:11 AM
Shorter Lar/James and beau: "Don't talk about things that don't fit well with my view of the world."
If Walker's approach were not being tried elsewhere, then we'd have reason to pay attention to it up to a point - and we'd disagree about that point. Since Walker's approach is being tried elsewhere, it's failures are well worth noting. And since Walker's arugments for his policies are generally economic in nature, pointing out that he is wrong about economics is a reasonable thing to do on an economics blog.
What is unreasonable is to expect that Menzie ignore a policy scrap that has implications for several states, and is being fought from one side largely by making untrue economic claims, just because it doesn't suit a couple of guys who, what?, think what Walker is doing is OK?
Posted by: kharris at March 22, 2011 09:13 AM
This is another bogus, onesided report, disguised as an academic endeavor. Let's look at the real situation. The Public Unions in Wisconsin are paid directly from the WI State Treasury, approximately, $175,000,000 on an annnual basis. That money goes out of State for the most part. Instead under the new law, the Public Worker can now work for the State without having to be in the Union or forced to pay dues. In similar situations, more then, 1/2 of all workers leave the Union or stop paying dues in the first year. Within two years, the Unions will for the most part be decertified, the $175,000,000 per year in dues will now be spent in WI instead of IL. Which BTW was the destination of the 14 coward senators who ran.
Second of all, the budget will be balanced, which means no more borrowing or robbing transportation funds, as the former two Governors, McCallum and Doyle did. McCallum sold off the tobacco anuity and Doyle put IOU's in the Transportation fund, sold our bargaining rights with the Natives and spent 2 billion dollars of shovel ready funds from the Fed to feed the teachers union instead of fixing the roads and infrastructure.
The balanced budget and the new, business friendly environment will produce jobs, which will enhance taxes and private sector spending by workers.
Last of all, the property taxes which are extremely high, will be reduced once a surplus is attained. This is accomplished by the local budgets being reduced once the towns are no longer held hostage by Unions.
Yes, Public Sector spending is about to decline, but as in all previous times, when you allow the citizens to retain more of their money, the true economy, not the bogus one we have seen in WI for the last 12 years, will emerge.
Posted by: steve at March 22, 2011 09:21 AM
"An estimated 21,843 jobs will be lost over the next year or two as public agencies and workers are able to spend less in their communities, said Steven Deller, a professor of applied economics who studied the ripple effects of Walker's budget-repair bill and two-year budget proposal.
"That's not just a bump in the road," Deller said. "That's a speed bump."
Deller's analysis didn't calculate whether job losses would result if the $3.6 billion budget shortfall were fixed with tax increases or a combination of spending cuts and tax increases. Deller said he's had many requests to analyze the job-loss effect of tax increases but has declined since there is no concrete proposal on the table."
Menzie, this is laughable. I can't believe that you based your argument on this nonsense. No concrete proposal on the table? Why not estimate the tax increase based on the money that the public employees are supposedly losing? Where do you think the money was coming from - Obama? If as is likely, by increasing taxes, then how about the money that the taxpayers don't have to spend? I guess we ought to increase the pay of public employees since that creates more jobs.
Finally, they should have gotten an estimate from the guy who said there is hardly any damage. Obviously he would have given a very low estimate.
Posted by: Rich Berger at March 22, 2011 09:25 AM
Ricardo. What's our current borrowing rate? Also, what was the tax structure after WWII? And what percentage of GDP did we spend on WWII?
You're funny Ricardo. Ricardian equivalence? Voodoo economics lives on.
Posted by: beezer at March 22, 2011 09:26 AM
I have, I believe offered you B4, but once again, if you would like to come north, you are welcome to take a break from the make believe land of Madison and come visit. It's about a 5 hour drive to reality. No really, you're welcome, I love intelligent discussion without the need for charts. Thesis, anti-thesis, synthesis. After all, I'm still your poster child, I believe! Let me know, the guest room is open.
Posted by: Steve at March 22, 2011 09:44 AM
Menzie, you have been silent on the recent CBO report that calls BS on Obama's budget forecasts. The CBO even took some shots at the Obamacare "cost savings".
Posted by: T-Dub at March 22, 2011 09:49 AM
In Michigan, the governor is raising taxes on the poor and elderly to cut them for companies. The Detroit Free Press gave an example of the Red Robin burger chain's Michigan franchisee paying more in MI than in Ohio and how he'd benefit from a new, simple tax code. Problem is MI ranks 17th in state competitiveness now, higher than Ohio or Illinois, and many MI companies pay less than in Ohio because the code is structured to favor certain kinds of companies in each state. Ohio favors distribution companies with real estate breaks and MI gives different credits that relate to employment. It looks to me like Red Robin franchisees can look forward to having more money after tax, but I don't see how that is a direct incentive for them to do more in Michigan as opposed to wherever they can get the best deals for their outlets.
The Free Press today noted the cuts are a form of "faith-based economics" in which the only measure of competitiveness is lowering business taxes - something they note doesn't make sense if you look across the nation. Is cutting school money helping or hurting competitiveness because employers say they need educated employees? Is cutting credits for historic rehab and various urban renewal good or does it reduce the attractiveness of MI to any company that uses humans as workers?
BTW, I love the irrationality of some of your commenters. I had no idea Keynes was so discredited. I thank tom - forever in my mind "tom the moron" - for letting me know.
Posted by: jonathan at March 22, 2011 10:52 AM
I appreciate the Wisconsin posts. It refreshing to see economics leave the world of theory and hit reality smack in the face. Economics at its root is a social science. What better use for economics than guidance on public policy? Wisconsin is a great test case.
Posted by: Joseph at March 22, 2011 10:55 AM
I have to admit to having serious reservations about a society in which one segment works at market wages, and another politically-influential segment works at above-market wages (and sometimes, pathetically, at below market wages).
Here are some interesting numbers without relevance in the greater scheme of things:
- a journeyman union carpenter in NY City receives $85 / hour total compensation, equalling $150k per year, before overtime.
- a freshly minted geology masters graduate working for a large oil company in Houston will make $115,000 right out of school. You can rent a nice one-bedroom apartment in Houston for $700 / month.
Posted by: Steven Kopits at March 22, 2011 12:54 PM
Keep up the work of reporting what is going on in your state.
Ignore these trolls that do not know enough to get out of a wet paper bag.
Posted by: spencer at March 22, 2011 01:56 PM
When private sector unions bargain with corporations, they are bargaining for a larger piece of the corporate revenue pie. The specific piece of the pie that they want a larger share of is the profit piece.
When public employee unions bargain with government, they are bargaining over a larger piece of the tax revenue pie. Which piece of the tax revenue pie do they want a larger share of?
Posted by: tj at March 22, 2011 02:02 PM
You raise an interesting question. What exactly do unions bargain for? The presumption is that they bargain over profits.
Let's say that's true. If unions succeed in raising wages, profits must fall (assuming a competitive marketplace). If profits fall, then share prices fall (at a constant P/E ratio), and the share owners will be expropriated the discounted value of incremental union obligations. So we have a simple wealth transfer.
But, the cost of capital also increases to the firm, because a given flow of revenues or capital will now produce a lower net return. Therefore, higher union wages will reduce capex into the firm, implying slower product development and lagging product offerings over time. Sound like the US auto industry?
But it's worse than this, because unions can threaten to shut down a plant, or de-rail a politician's career. How does a manager or politican handle such a threat? A plant manager can't sign a union agreement which sends the company into immediate and permanent losses. He'd be fired, so that establishes a limit for immediate cash outlays which can be given to the union.
However, the union can exploit a principal-agent problem here. The manager can't promise current benefits, but he can promise future benefits. Why? Because he knows he won't be around. It will all play out on someone else's watch. Thus, the manager acts as a principal (preserving his own current job) at the cost of abandoning his obligation to serve the long-term interest of the company (that is, acting as an agent). It's a kind of corruption.
Thus, union power will have a tendency to generate deferred demands which are inconsistent with long-term fiscal responsibility by exploiting the individual career needs of managers or politicians, as the case may be. Such behavior is consistent with the huge benefits state employees (as a share of respective tax revenues) are seeing over time, and with the sort of out-sized benefits which ultimately sank GE and Chyrsler.
So, the impact of unions will be primarily on capital expenditures and long-term fiscal sustainability of organizations.
Scott Walker may not have articulated such ideas formally, but I would imagine he can feel them in his bones.
Posted by: Steven Kopits at March 22, 2011 06:58 PM
T-Dub: I'll get to that as soon as I can. But a quick glance at the Elmendorf/CBO blog, and EK, indicates that a substantial chunk of the $2.3 trillion over ten year horizon is attributable to differences in the projected growth rate; CBO itself says $1.3 trillion is due to differences in projection of revenues/outlays under current law. In addition, I'll note that the way CBO conducts its projections, defense spending is at current, CPI-adjusted levels, despite Administration plans to decrease spending in Iraq and Afghanistan, for instance.
Posted by: Menzie Chinn at March 22, 2011 07:44 PM
Nate doesn't work for Forbes. He has his own business. He only writes articles for Forbes.
A simple question. Nate points out two periods when his "magic formula" worked as advertised. Can you give a similar history when the current policies of loose monetary policy and high taxes worked as advertised?
If you read the article you will read about the conditions in the US after WWII.
Posted by: Ricardo at March 23, 2011 06:19 AM
Menzie: You might realize by now that more than one person at an institution might comment on your blog. Just because two people commenting might share the same IP address (same computer network) doesn't mean that they have an identity crisis.
BTW, thanks for the links to the other blogs.
Posted by: T-Dub at March 23, 2011 09:56 AM
I am not T-Dub.
But it's really creepy that you are tracking commenters' IP addresses.
Are you compiling some kind of Nixonian enemies list?
Posted by: W.C. Varones at March 23, 2011 09:58 AM
W.C. Varones: Apologies; I will strike.
No list. I just want people to be transparent -- as opposed to coming in under various different names in an effort to make it appear there is more voices pushing a given stance than in actuality.
Posted by: Menzie Chinn at March 23, 2011 10:41 AM
Ricardo If that Forbes article is what passes for economic analysis among your friends, then all I can do is feel sorry for you. Did it ever occur to your friend Nathan Lewis that one reason Britain was able to lower tax rates after the Napoleonic Wars is because Britain financed the war costs the old fashioned way...viz., they exacted tribute from the French. Britain demanded extremely harsh financial reparations from France. After Napoleon's initial surrender the Allies offered generous terms to the French in order to support the Bourbon restoration; but after the Hundred Days and Waterloo the British were not inclined to be so generous again...especially since Louis XVIII had been safely restored as a constitutional monarch. If you're interested in actual economic history of the post-Napoleonic War period, you might want to give this one a try:
Posted by: 2slugbaits at March 23, 2011 03:35 PM
I love this blog. As a UW econ alumnus I remember one lesson that was continuosly drilled into my head. Economic factors are dynamic. Do not obsess on particular points without a multiple regression analysis. You seem to focus on short term reduction in consumption spending. Your governor (and some others) obsess over tax cuts. I would like to know whether anyone has performed a statistical analysis regarding these kind of programs. I know that Tennessee took dozens of businesses and thousands of jobs from California (my state) when it adopted lower tax/user friendly regulators. I do not know whether that helped Tennesee in the aggragate. To me that is the real issue.
Posted by: John at March 23, 2011 04:29 PM
John Economic factors are dynamic. Do not obsess on particular points without a multiple regression analysis.
I think it's precisely because economic factors are dynamic that you wouldn't want to use a static multiple regression analysis. Better off using some flavor of a VAR type of analysis...oh wait, Menzie's done that and the usual suspects think it's just hocus pocus.
A better way to address the problem is to ask yourself if unemployment is primarily structural or cyclical. Some strategies like lowering tax rates might be welfare enhancing if done well by competent governors and if the underlying economic problem is structural in nature. But for many of the new crop of midwestern GOP governors every problem looks like a structural problem, so they end up recommending irrelevant and oftentimes dangerous snakeoil to gullible voters. Gov Walker is one such huckster. Wisconsin's problem is cyclical, not structural. The cure is to fix aggregate demand. Cutting tax rates when the underlying problem is cyclical simply shifts the costs onto someone else and doesn't really address the basic problem. Walker's proposal is economics for babies. You can't even hope to understand the problem if you don't understand the difference between a supply curve and a demand curve. Oh wait again...in the GOP wonderland of freshwater RBC-style economics there is no demand curve, only a supply curve.
Posted by: 2slugbaits at March 23, 2011 05:53 PM
Thanks for the link. I will read the paper as soon as I get time.
I am pretty familiar with the Rutgers Political Science Department and the late Carey McWilliams. I always heard that the Economics Department was about the only place left in America keeping communism alive, but I do not know Eugene White so I will be fair to him.
Posted by: Ricardo at March 24, 2011 08:22 AM
T-Dub: Apologies to you as well. As indicated above, I've struck the reference.
Posted by: Menzie Chinn at March 24, 2011 10:31 AM
I got time to quickly read the paper you suggested by Eugene White. I am curious, did you read it before you offered it as a rebuttal to Nate's article?
White's article is a very good analysis of the 1815 reparations impact on France but there is very little on Britain.
The most glaring question that Nate presented is:
"This was the Industrial Revolution, which was led by Britain. Why did it happen in Britain, and not Spain or Italy?
On page 5 of White's paper we see the original amounts requested by the victorious nations.
Posted by: Ricardo at March 24, 2011 12:37 PM
Oops! Hit the wrong button. Where I left off.
46% Other continental states - mostly German principalities.
It seems clear that if French reparations were responsible for the industrial revolution the German states should have led the way rather than the British. Taking Austria, Prusia, and the other German states they received 67% of the compensation.
The paper does not at all answer Nate's question.
But thanks for the reference. I will keep it in my papers. It is fantastic research.
Posted by: Ricardo at March 24, 2011 12:45 PM
Ricardo The issue wasn't whether or not the British brought about the Industrial Revolution. Clearly Britain was in the lead...and the big advances happened before the Napoleonic Wars. The issue had to do with how Britain was able to pay down their war costs without having to raise taxes or inflate the debt. One of the reasons was because the British handed the bill for a lot of the war costs to the French, along with seizing French properties.
Posted by: 2slugbaits at March 24, 2011 03:35 PM
Business tax breaks are generally a give-away with little real impact on jobs. Here's a perfect example, Eaton Corp. moving its HQ from their current location in Milwaukee to suburban Wauwatosa:
"..financing also would include a $20 million grant of federal New Markets Tax Credits. The credits would be sold to fund a $4 million low-interest loan.
Those credits are provided for developments in census tracts that have enough low-income residents to qualify as disadvantaged areas. Developers that receive the credits often sell them to investors, who use the credits to reduce their tax payments over a seven-year period."
The problem? The current location actually *IS* a disadvantaged neighborhood and the new location is an affluent suburb. Exactly the opposite of what was intended. No jobs are being created - just shuffled from one zip code to another - and in the wrong direction (as far as the intent of the grant money is concerned)
Posted by: ktonine at March 24, 2011 03:37 PM
All we have to do is follow the money. In 2007
1. The top 1% control 35% net worth and 43% of financial wealth.
2. The top 5% control 60% of net worth and 82% of financial wealth.
It's quite likely that they control a much larger share now given the FED's wealth extraction tool of lending money for nothing and driving up food and fuel costs.
Unions have been on the decline for the last 30 years as has the middle class.
If you take out the effects of the FEDs credit bubble which hid the decline of the middle class and the country we would have taken our medicine a lot sooner.
Walkers's policies further skew the wealth distribution.
Capital gain cuts for the rich
Doing away with earned income credit for lower middle class.
Wage and Benefit cuts for the middle class
Higher fee's for middle class
Higher energy costs, higher tuition costs
How has the destruction of the middle class left the country? stronger or weaker?
Posted by: measton at March 24, 2011 10:56 PM