Austerity is not the Answer

It is difficult to say in my own words why I believe cutting deficits is not the solution to our economic problems. I read a lot from the blogosphere to see what the "expert" economists (libertarians, progressives, moderates, Keynesians, Austrians, monetarists, etc.) are saying and have concluded that cutting deficits would not be good for the economy.

First, it is important to distinguish long-term fiscal sustainability from short term sustainability. Many economists have noted that projected Medicare costs are unsustainable. Yet, many also say that addressing that issue by cutting deficits now would only make things worse. I have come to believe that we need deficits now, and reduce them later. This can come through tax cuts, spending increases, or both. I’m more in favor of tax cuts with a more progressive allocation of government spending. It has been noted that our tax system is more progressive than European nations, but that our transfers and distributions are less progressive.

Other economists are in favor of more monetary stimulus, something that is vehemently opposed by staunch libertarians who want to oust the Fed. But the Fed is necessary to stabilize prices, the gold standard, or any other standard won’t work. This is accepted by an overwhelming majority of economists. Those in favor or more monetary stimulus think that inflation should be pushed higher to make up for the disinflation we’ve experienced that past few years and that the Fed should explicitly target nominal GDP growth of 5%. Quantitative easing is sort of attempting this kind of monetary policy, but these economists point out that more can be done.

Cutting deficits now will only worsen unemployment, investment, and expectations which are important for planned investment and loaning purposes among other things. Part of the reason deficits are as high as they are is because of the large drop in tax revenue caused by falling overall wages and profits. The stimulus isn’t the major reason for the deficits; in fact, it only merely offset the falling state and local government expenditures. Cutting back that spending now, will only further reduce revenues and overall spending in the economy, making deficit and debt projections worse. The cure is growth and revenue, not cutting back on government.

Government, in my view, should be allocated more efficiently and progressively. It should be made to meet societal goals and not so much economic goals. There are many ways to increase government spending in efficient ways beneficial to the whole society and more importantly to those who need it the most. One of those is an employer of last resort program that employs the unemployed for a modest wage to do something beneficial for the community rather than simply receive an unemployment welfare check. Another would be to invest in high-speed rail or fiber optic cables to improve the country’s overall infrastructure. Everyone who drives a lot knows the need for better roads and bridges. These projects keep people working and infrastructure from falling apart.

Another idea that I think is good is allocating funds to states and local governments to prevent cuts in education and police forces. This is a more efficient way of spending government money than through federal bureaucratic systems, it helps maintain safety and security in trying times for many, and prevents that fallout in education that only sets the poor back at a further disadvantage and even affects the well-off. Education is very important to the long term health of the economy and the society as a whole.

Cutting back on welfare programs are not a good way of meeting the societal goal of taking care of the poor. There are problems with welfare programs, but these people cannot be forgotten or simply cast out as being lazy or unwilling to work or as evildoers. Some fell on hard times not of their own doing and some made bad decisions and need support to get back on their feet. Welfare alone does not accomplish this, but it can enable the personal charity and support that our poor really need.

I think monetary policy is our best bet yet. We need to increase inflation and nominal GDP growth to “grease the wheel” so to speak. Deficits through either tax cuts or better spending through the ideas I outlined above would also be good ways to boost our economy, but taking the route of austerity now that so many others have taken before in the midst of high unemployment and low growth will simply pull us back down. I don’t believe the “inflation hawks” or the “bond vigilantes” have made good arguments about runaway inflation or the possibility of extremely high interest rates on government debt. I believe those outcomes are possible at a future date if long term deficit issues aren’t addressed; but those issues are only made worse by doing what seems to be the obvious cure: cutting back now.

The real sacrifice passed on to our children and future economy is the price of not producing our capabilities now in addition to the hits in education that they will bear. Debts are not the threat, unemployment and lack of production is what should worry us.

Amidst all this, I want to emphasize that our real goals should be ordered toward the spiritual and material welfare of persons throughout the world. Policies that emphasize material growth only or domestic growth only I think are misguided in their goals. Economic health should be one of our goals, but only as a means to the end of spiritual health or our ultimate goal of heaven. Economics is not outside the bounds of morality, and because it is a social science it is far from the predictable “laws” of physics or chemistry. Humans are often irrational and unpredictable. Capitalism hasn’t been around that long and as I’ve said before, there is no reason to expect it to stick around forever either.

I want for everyone to have the ability to work, receive an education, provide for one’s own needs and the needs of one’s family, be taken care of in times of great need, but more importantly to recognize that there are more important things than riches and stuff. I want people to refuse the temptation to own more than they need in favor of supporting those who have less than they need. I want people to work for the prosperity of everyone and not simply for better pay for oneself. I want people to stop attacking each other and each other’s beliefs and instead engage in friendly, respectful debates that are based more on facts and less on lobbyist-swayed political ideologies.

I believe these goals line up with the goals set forth by the Church are what is truly best for society, but that they can’t be achieved simply by better government policies. It takes the effort of every individual to commit oneself to these goals and sometimes in the face of policies or popular sentiment and belief.


Here are some links to the things I have been reading that led me to my conclusions. A lot of it may be difficult to understand for those who aren’t economic-jargon proficient and the list is far from comprehensive, but I hope it may answer some questions you may have and help you understand where I am coming from. To be clear, I don’t agree with all that is said in these links, but I believe these links provide valuable arguments.

Deficit Spending -- Kelton
Why I didn’t sign the deficit letter -- Joseph Stiglitz
Progressive Wishful thinking – Sumner
FAQs -- Sumner
Romer-Klein interview post
Austerity Delusion -- Krugman
Austerity Games -- Krugman
Contraction is Contractionary -- Krugman
Letter of Unsustainable deficits
Progressive taxation data
Principles and Guidelines for Deficit Reduction -- Stiglitz
Two years too late – Sumner
Modern Money Theory and Krugman's Objections -- Tchernova

Charity Highlight: Catholic Relief Services

Catholic Relief Services is the official overseas relief and development agency of the U.S. Conference of Catholic Bishops.

CRS was founded in 1943 by the Catholic Bishops of the United States to serve World War II survivors in Europe. Since then, it has have expanded to reach more than 100 million people in more than 100 countries on five continents.

Mission:
To assist impoverished and disadvantaged people overseas, working in the spirit of Catholic Social Teaching to promote the sacredness of human life and the dignity of the human person. Operations serve people based solely on need, regardless of their race, religion or ethnicity.

How they serve:
CRS is about more than helping people survive for the day. CRS approaches emergency relief and long-term development holistically, ensuring that all people, especially the poorest and most vulnerable, are able to participate in the very fullness of life — to have access to basic necessities, health care and education — all within peaceful, just communities.

CRS focuses on emergencies such as natural disasters, hunger, education, health, peace, and encouragement to get involved here at home. Included in these is advocacy for public policies that address root causes of poverty, microfinance programs, and agricultural programs.

Donate or get involved now!

Deficits

Disclaimer: I certainly do not know everything there is to know about economics, or government policies, wouldn't pretend to, and hope that I don't ever come across that way to you.

Having said that, my official opinion, as a learning economist, is that austerity (no deficits) now is not the way to go. There are many reasons why I believe this and it is difficult to even summarize without giving long discourses of background information.

There seems to be a war going on within the economics profession, but the battle is being played out on different battlefields. Some want to battle over policies, others theory, others methodology; and many of these overlap and build off each other.

I think that any economist who claims to know for certain what is going on, probably doesn't. Economics is a social science (not a physical science as some want it to be) which means it studies people and people's behavior, making it extremely difficult to understand. Humans often do not act rationally or in consistent patterns. Capitalism hasn't been around that long and there is no reason to think that it is here to stay or that it is some mystically perfect or even superior socioeconomic system.

Economists with conservative ideologies are screaming for austerity and economists with liberal tendencies are screaming for more spending (or less taxes). The general public doesn't want higher taxes or spending cuts in programs where they receive assistance. Yet, there is tremendous political pressure to cut deficits. Why? Well there are economic theories out there that claim deficits will cause interest rates and inflation to skyrocket uncontrollably and will make our situation worse. They generally contend that leaving the economy alone is the best option, it will work itself out.

I am more of the camp that believes that market economies don't work the way that we would like them to, there is high probability of prolonged recessions, and that something can and should be done about it. I have good reasons for believing this and would love to discuss them with you sometime. It is easier to answer specific questions than go on a long diatribe about all my reasons, so if you have them ask away!

Unfortunately, deficits are a very contentious issue and are dividing the country and even families and friends. I am annoyed with politics and wish that economists would ditch bad theory and stop deceiving people purposefully at the behest of big banks and businesses (certainly not all do this, but there are some who do).

It is also not helpful that much of the public is following their politicians or favorite news outlets on this issue who may not know that much about economics. I've met many people who are very good at spitting out what they hear on the TV, but don't really understand what they are arguing. Politicians generally are not very good economists, lots of economists aren't very good economists or don't really know what they are talking about despite their "certainty."

So, I challenge you to discover for yourselves the arguments for and against deficits and austerity and not just go with the crowds or media outlets who claim to know. The truth is, in my opinion, we don't really know. It's difficult to know for sure and to claim to know is arrogant.


Part of the reason I am against austerity is that it is not working in Europe. Krugman, a very liberal economist who is often very sarcastic and full of himself, writes an article in the NY Times about it. If you can, look past his comments, and look at the data of what is going on in Europe. I like to read his blog and column because of the data he presents, and not so much for his sarcasm or arrogance.

Again, if you have questions please ask!

Unemployment problems

There are many many problems that result from unemployment, including non economic problems. The greatest is probably the inability of the unemployed to provide for himself and his family (herself and her family) as well as the inability to fulfill one's vocation through work. The problem is exacerbated when employers have greater discretion on who to hire because of the huge availability of job-seekers. Two things I have read recently highlight this problem.

One is from a Reader's Digest article where Cynthia Shapiro, a former HR executive and author of Corporate Confidential: 50 Secrets Your Company Doesn’t Want You to Know quoted “Once you’re unemployed more than six months, you’re considered pretty much unemployable. We assume that other people have already passed you over, so we don’t want anything to do with you.”

The other is from this Yahoo news article that reports that numerous employers won't even consider you for employment if you've been convicted of a crime, including minor misdemeanors, which happens to include 65 million Americans.

I'm not arguing that employers should not hire the best candidates in favor of a felon or someone without experience or necessary skills, but it is a serious problem when employers won't even consider convicted criminals and those who've been unemployed for over 6 months.

There is only one direction for these people in our society to go. Recessions aren't felt evenly, the poor/unemployed suffer a much greater share of the burden than those who are better off. It is our responsibility to help these people. Not to just give them handouts, but to enable them to find jobs, provide them with stability, and in the case of criminals, help them turn their lives around. We should share our wealth in the good times and our burdens in the bad times.

Is War in Libya Just?

Are the recent military events in Libya just? Is going to war with Libya just? It is rarely easy to make that decision, and the Vatican has not indicated its support/opposition to military involvement in Libya.

Here are the criteria for a just war:

"Jus ad Bellum": Criteria that must be met in order for a war to be considered just.

• Just Cause: War is permissible only to confront “a real and certain danger,” i.e. to protect innocent life, to preserve conditions necessary for decent human life existence, and to basic human rights.
• Competent Authority: The right to use force must be joined with the common good; war must be declared by those with responsibility for public order, not by private groups or individuals.
• Comparative Justice: No state should act on the basis that it has “absolute justice” on its side. Every party to a conflict must acknowledge the limits of its “just cause” and the consequent requirement to use only limited means in pursuit of its objectives.
• Right Intention: War can be legitimately intended for only the reasons set forth as a just cause.
• Last Resort: For war to be justified, all peaceful alternatives must have been exhausted.
• Probability of Success: This is a difficult criterion to apply, but its purpose is to prevent irrational resort to force or hopeless resistance when the outcome of either will clearly be disproportionate or futile
• Proportionality: The destruction to be inflicted and the costs incurred by war must be proportionate to the good expected by taking up arms. Destruction applies in both the temporal and spiritual sense.

"Jus in Bello": Criteria that must be met in order for actions within war to be considered just.

• Discrimination: This criterion requires that actions within a war must never be “total war”, nuclear war, and must never target civilian populations or non-military targets.
• Proportionality: Destruction caused by actions in war must be proportionate to the good expected by the actions. Destruction applies in both the temporal and spiritual sense.

It is difficult to say whether recent actions by the U.S. and other nations are just or not. It is unclear what the objective is, as France and the U.S. don't seem to be unified on that issue. A just cause could be to protect citizens of Libya, but is that the reason for the military actions? Have we exhausted all peaceful alternatives? Is the destruction proportionate?

I am inclined to say that military action in this case is not just, despite the slaying of civilians in Libya by Gaddafi. Many of the "civilians" are rebels who are wielding weapons themselves. Gaddafi doesn't appear to be a just ruler pursuing the common good, but how do we know the rebels are? It is also difficult to compare this rebellion to the protests in Egypt and other Arab states. I'd rather our involvement be non-militaristic, though I do have sympathy for the people of Libya and the Middle East who do not have the freedoms and democracy that we enjoy in the United States. A unified effort for the common good is needed everywhere, perhaps especially in the Middle East and Africa, but I'm not sure military involvement is the answer.

For more analysis go here:Libya and Just War

Charity Highlight: Habitat for Humanity

I am attempting to start a weekly series on various charities to highlight the work they are doing to directly or indirectly promote Catholic Social Teaching and to hopefully inspire you to get involved! There are many to choose from, but I elected to start with Habitat for Humanity because I have volunteered to help build homes several times and so have some knowledge of the work they are doing.


Habitat for Humanity

Habitat for Humanity International is a nonprofit, nondenominational Christian housing ministry.

Mission:

Habitat welcomes all people—regardless of race, religion, ethnicity or any other difference—to build and repair simple, decent, affordable houses with and for those who lack adequate shelter.

Why it's Needed:

The world is experiencing a global housing crisis. About 1.6 billion people live in substandard housing and 100 million are homeless, according to the United Nations. These people are increasingly urban residents, and every week more than a million people are born in, or move to, cities in the developing world. Today, a billion people―32 percent of the global urban population―live in urban slums. If no serious action is taken, the United Nations reports that the number of slum dwellers worldwide will increase over the next 30 years to nearly 2 billion.

In the United States alone, 95 million people have housing problems. That’s one third of the nation. These problems include payments too large a percentage of their income, overcrowding, poor quality shelter and homelessness. Throughout the world, people live in inadequate housing, and Habitat for Humanity is dedicated to providing decent, affordable homes for those in need.

Bad housing has its greatest impact on children. As Lisa Harker, a British housing expert, explains, “Childhood is a precious time when our experiences shape the adults we become―but children who grow up in bad housing are robbed of their future chances….” Those chances are stolen by the detrimental impact poverty housing has on everyday life.

Housing is a great means of wealth creation. For families, especially those with a lower income, who are able to own a home, ownership is an important means of wealth accumulation in the form of equity and forced savings resulting from mortgage repayment. In low-income countries, housing construction creates job opportunities for migrants to cities and stimulates the creation of small business. The process of securing land tenure for informal settlements helps to increase access to credit.

Good housing in communities attracts economic investment and development. Good housing also contributes to thriving school systems and community organizations. It is a catalyst for civic activism and a stimulus for community-based organizations. Safe homes and neighborhoods, in which residents are satisfied with housing conditions and public services, help to build social stability and security.

How it Works:

Local affiliates work in communities around the world to select and support homeowners, organize volunteers and coordinate house building and repair.

Homeowners are selected based on their need for housing, their ability to repay a mortgage and their willingness to work in partnership with Habitat.

Houses are sold through a no-profit mortgage, homeowners and volunteers build or repair under trained supervision, and financial support is provided by many different corporations, individuals, and faith communities.

Other Facts:

Founded in 1976 by Millard and Linda Fuller
Built or repaired over 400,000 houses
Served 2 million people
Affiliates are located throughout the World, including all 50 states

Something I found neat from talking to one of the project coordinators, is that Habitat requires their future homeowners to work for at least 300 hours on their house with 50 of those hours being education on how to own a home; a great way to encourage the responsibility of the receiver of charity as well as teaching them how to own a home responsibly.


Help out Habitat for Humanity!

Invisible People

This story highlights well the great need within our country and outside our country for solidarity. The greatest social problem we face today, in my opinion, is the great violence against the dignity of human persons worldwide that manifests itself in numerous horrifying ways: abortion, genocide, child pornography, and even simply ignoring the existence of or looking down upon people in our own community.

No amount of sin or bad circumstances take away the dignity of the human person. It is not easy to bring love to those far away, but it isn't difficult to reach out to those in our own community. We can start in our own families.

Capitalistic Idolatry

I highly recommend this post from the "Vox Nova" blog. You can find the entire post here.

Here are a few highlights:

In capitalistic societies, wealth is deemed as the ultimate good which we should seek to possess. Wealth clearly has been made into an idol, and people are willing to sacrifice many things to attain it (including the livelihood of other people).

Riches bring all kinds of trials and temptations to them, making it difficult for those who have them to find salvation.

The Church does not condemn wealth, but its abuse, either in its idolization, or with those who support its unjust distribution, an injustice which ruins the lives of the weak and the poor, causing them to needlessly suffer.

If we have been given wealth, we have been given it to be its steward, to help in the distribution of wealth so that all get what is needed. We convert our wealth by using it for the common good. We must remember, whatever wealth we have been given is not really ours, but God’s. To try to take it and assume absolute authority over it is to claim to be like God. As Christians, let us make sure we are not be seduced by that tree, by that fruit, ever again.

More on Unions

It seems my last post was a popular one, so here are more comments on unions. I call your attention especially to the last quote in this post from Caritas in Veritate, the most recent encyclical from Pope Benedict XVI:

With respect to the founding of these societies, the Encyclical On the Condition of Workers most fittingly declared that "workers' associations ought to be so constituted and so governed as to furnish the most suitable and most convenient means to attain the object proposed, which consists in this, that the individual members of the association secure, so far as is possible, an increase in the goods of body, of soul, and of property," yet it is clear that "moral and religious perfection ought to be regarded as their principal goal, and that their social organization as such ought above all to be directed completely by this goal."[22] For "when the regulations of associations are founded upon religion, the way is easy toward establishing the mutual relations of the members, so that peaceful living together and prosperity will result. -- QA 32

Men are by nature social, and consequently they have the right to meet together and to form associations with their fellows. They have the right to confer on such associations the type of organization which they consider best calculated to achieve their objectives. They have also the right to exercise their own initiative and act on their own responsibility within these associations for the attainment of the desired results.

As We insisted in Our encyclical Mater et Magistra, the founding of a great many such intermediate groups or societies for the pursuit of aims which it is not within the competence of the individual to achieve efficiently, is a matter of great urgency. Such groups and societies must be considered absolutely essential for the safeguarding of man's personal freedom and dignity, while leaving intact a sense of responsibility. -- PT 23-24

We should add here that in today's world there are many other forms of poverty. For are there not certain privations or deprivations which deserve this name? The denial or the limitation of human rights - as for example the right to religious freedom, the right to share in the building of society, the freedom to organize and to form unions, or to take initiatives in economic matters - do these not impoverish the human person as much as, if not more than, the deprivation of material goods? And is development which does not take into account the full affirmation of these rights really development on the human level? -- SRS 15

Furthermore, society and the State must ensure wage levels adequate for the maintenance of the worker and his family, including a certain amount for savings. This requires a continuous effort to improve workers' training and capability so that their work will be more skilled and productive, as well as careful controls and adequate legislative measures to block shameful forms of exploitation, especially to the disadvantage of the most vulnerable workers, of immigrants and of those on the margins of society. The role of trade unions in negotiating minimum salaries and working conditions is decisive in this area. -- CA 15

Systems of social security can lose the capacity to carry out their task, both in emerging countries and in those that were among the earliest to develop, as well as in poor countries. Here budgetary policies, with cuts in social spending often made under pressure from international financial institutions, can leave citizens powerless in the face of old and new risks; such powerlessness is increased by the lack of effective protection on the part of workers' associations. Through the combination of social and economic change, trade union organizations experience greater difficulty in carrying out their task of representing the interests of workers, partly because Governments, for reasons of economic utility, often limit the freedom or the negotiating capacity of labour unions. Hence traditional networks of solidarity have more and more obstacles to overcome. The repeated calls issued within the Church's social doctrine, beginning with Rerum Novarum[60], for the promotion of workers' associations that can defend their rights must therefore be honoured today even more than in the past, as a prompt and far-sighted response to the urgent need for new forms of cooperation at the international level, as well as the local level. -- CV 25

Pope John Paul II on Unions

This is way late as a response to the events in Wisconsin, but CST is clear on the purpose and usefulness of labor unions. I chose Pope John Paul II's defense of them from Laborem Exercens, but you can find comments on labor unions in many of the encyclicals.

Their task is to defend the existential interests of workers in all sectors in which their rights are concerned. The experience of history teaches that organizations of this type are an indispensable element of social life, especially in modern industrialized societies.

Catholic social teaching does not hold that unions are no more than a reflection of the "class" structure of society and that they are a mouthpiece for a class struggle which inevitably governs social life. They are indeed a mouthpiece for the struggle for social justice, for the just rights of working people in accordance with their individual professions. However, this struggle should be seen as a normal endeavour "for" the just good: in the present case, for the good which corresponds to the needs and merits of working people associated by profession; but it is not a struggle "against" others.

It is characteristic of work that it first and foremost unites people. In this consists its social power: the power to build a community. In the final analysis, both those who work and those who manage the means of production or who own them must in some way be united in this community.

Just efforts to secure the rights of workers who are united by the same profession should always take into account the limitations imposed by the general economic situation of the country. Union demands cannot be turned into a kind of group or class "egoism", although they can and should also aim at correcting-with a view to the common good of the whole of society- everything defective in the system of ownership of the means of production or in the way these are managed.

In this sense, union activity undoubtedly enters the field of politics, understood as prudent concern for the common good. However, the role of unions is not to "play politics" in the sense that the expression is commonly understood today. Unions do not have the character of political parties struggling for power; they should not be subjected to the decision of political parties or have too close links with them. In fact, in such a situation they easily lose contact with their specific role, which is to secure the just rights of workers within the framework of the common good of the whole of society; instead they become an instrument used for other purposes.

It is always to be hoped that, thanks to the work of their unions, workers will not only have more, but above all be more: in other words, that they will realize their humanity more fully in every respect.

Note: These are only highlights from LE and not JPII's complete comments on unions. I encourage you to read more if you are interested in union rights and Catholic Social Teaching. (I added my own emphasis).

In my own opinion, I am disappointed to see union rights go in Wisconsin and other states. Unions must look to the common good when bargaining for wages and conditions and must take into consideration the health of the business and the overall economy. It seems as though many unions are more about group egoism as JPII puts is, but disbanding the rights altogether is not a good thing.

Overall, I think workers still have too little wages and bargaining power while managers and CEOs are raking in record profits.

Teachings from Matthew

This liturgical year is the year of Matthew and after reading several passages from Jesus's sermon on the mount I believe that there is perhaps no better "microcosm" of scripture that is more representative of Catholic Social Teaching than Chapter 6 of the Gospel of Matthew.

I would like to highlight a few passages:

When you give alms, do not blow a trumpet before you, as the hypocrites do in the synagogues and in the streets to win the praise of others. -- Mt 6:2

When you fast, anoint your head and wash your face, so that you may not appear to be fasting, except to your Father who is hidden. -- Mt 6:17

No one can serve two masters, He will either hate one and love the other, or be devoted to one and despise the other. You cannot serve God and mammon. -- Mt 6:24

Therefore I tell you, do not worry about your life, what you will eat or drink, or about your body, what you will wear. Is not life more than food and the body more than clothing?...Your Father knows that you need these things. But seek first the kingdom of God and his righteousness, and all these things will be given you besides. -- Mt 6:25,32-33

and perhaps the best...

Do not store up for yourselves treasures on earth, where moth and decay destroy, and thieves break in and steal. But store up treasures in heaven, where neither moth nor decay destroy, nor thieves break in and steal. For where you treasure is, there also will your heart be. -- Mt 6:19-21


These are great teachings to carry with us this season of Lent.

Under Duress

Sorry for the lack of posts lately, life has hit (especially all the demands of grad school and married life) and so for the next few weeks posts may be sporadic as I adjust and catch up.