Here are the opening paragraphs of my (paywalled) op-ed in today’s Wall Street Journal.
For nearly four years, I’ve looked forward to voting against Donald Trump. But Joe Biden keeps testing my resolve.
It isn’t only that I think Mr. Biden is frequently wrong. It’s that he tends to be wrong in ways that suggest he never cared about being right. He makes no attempt to defend many of his policies with logic or evidence, and he deals with objections by ignoring or misrepresenting them. You can say the same about President Trump, but I’d hoped for better.
I think the key choice in 2020 is not remotely about policy;
the central issue is that Trump is turning the US into a banana republic, and Republicans are perfectly willing to go along.
Policies can be reversed, or altered; once the US republic has been degraded, it’s not clear that there will be a way back to a first-world government structure in our lifetime.
I can’t read this fully because I cancelled the Wall Street Journal after they endorsed Brazil’s current President.
But on the minimum wage, I have generally agreed with you that the earned income credit makes more sense than minimum wages, given that you want to directly help poor workers with cash. And national minimum wages in a country as large and drivers as ours make even less sense than state or local ones. But on a deeply practical level, even if I disagree in theory, I just don’t see how this issue outweighs more years of Trump. At a $20 minimum, no way. $15, the risk is less clear, but it’s there. Maybe Joe will compromise to $12 or $13? Not every policy proposal is something a politician will pursue, especially if enough push back occurs. Right now the minimum wage is so low it’s not likely affecting much in this modern economy.
I think this Alan Krueger (RIP) piece is how I as a layman sort of think about this from a practical perspective, for better or worse.
https://www.google.com/amp/s/www.nytimes.com/2015/10/11/opinion/sunday/the-minimum-wage-how-much-is-too-much.amp.html%3f0p19G=0232
You are taking Biden’s policy positions way too seriously. He signed on to them in order to get endorsements from Bernie Sanders and others. Many contradict his Senate voting record. No one seems to care, because no one thinks he will be making any policy anyway. He is just a puppet. Even among those who endorse him, the most common arguments are that he is not Trump, and that he will listen to experts.
In the debate, Biden said: “The Green New Deal will pay for itself”. If he can say that, then he could say that a higher minimum wage or any other policy will pay for itself. He is just appeasing the coalition that settled on him.
Advo, your comment echoes mine from yesterday.
>>> Advo, your comment echoes mine from yesterday.
Except that you do not appear to see that the Republicans as a whole are part of the problem; they went along with Trump every step of the way. Either with considerable or with some silent grumbling, but every time it counted, they covered for him.
A particularly egregious example is their shameless vote against taking testimony or looking at evidence during the impeachment trial.
If the GOP retains the Senate, they will conclude that their behavior over the last 4 years was the right thing to do, and they will continue to act like that in the future.
“shameless vote against taking testimony”
Of all the things to complain about, this is sure a silly one. The Democrats called about 20 witnesses who testified on TV. There was also secret testimony. It was not necessary to repeat any of it in the Senate, because it did not have a bearing on anyone’s vote. That is how trials work.
There was certainly testimony that hadn’t been heard before, notably Bolton’s.
While it may be true that the decision of Republican senators to acquit would not have been shaken by even the most damning evidence, that itself is an indictment of the GOP.
In addition, the public airing of the president’s misdeeds would have served to inform the public and, perhaps, served to disincentivize Trump from escalating his criminal behavior, although the latter was probably too much to hope for under any circumstances.
At minimum, the Senate should have a PROPER impeachment trial, with some important witnesses heard. The immediate acquittal was a naked exercise of power to prevent even the most minimal standard of accountability to be applied to the most corrupt president of the last 100+ years.
Ukraine was quid-pro-quo corruption under even the narrow standard of the Supreme Court, for example because Trump offered financial help in return for demanding “a public statement” from the Ukrainian president on a supposed investigation into Hunter Biden.
Advo. “Except that you do not appear to see that the Republicans as a whole are part of the problem; they went along with Trump every step of the way.”
They did indeed. I do feel that if Trump is not re-elected we will have removed the biggest threat. That leaves a lesser threat from the Republicans. The rule of law has a much better chance of surviving without Trump. He has turned the Republicans into a cult of personality. His comment about shooting someone on 5th Avenue was seen as hyperbole at the time, but there is a good chance that DOJ simply would not prosecute. Someone argued here that as that is within their legal powers to decide it would be upholding the rule of law. I think we can see that it clearly is not, but it indicates how far the shift has already gone.
Not calling witnesses for the impeachment was shameless. The Republicans have no shame. We only need to listen to Lindsay Graham’s “use my words against me” reversal on appointing a Justice close to the election. That is shameless.
It may be that I have mis-diagnosed, and Trump is merely a symptom rather than a cause. I, along with many have been swept up in the personality cult. I hope that is not the whole case, but it does deserve careful consideration.
>> It may be that I have mis-diagnosed, and Trump is merely a symptom rather than a cause.
In so far as the development of the Republican party is concerned, Trump’s a symptom, a consequence, and an accelerant.
For example, the mainstream GOP has been actively promoting or tacitly tolerating crazy conspiracy theories for a long time.
“Climate change is a hoax by global elites to bring down the US” would fall into the first category; birtherism into the second.
Advo: Yes, the mainstream GOP has been actively promoting or tacitly tolerating crazy conspiracy theories for a long time too.
“Arguments against taxing capital income are contrived to protect billionaires”
or
“Arguments against the minimum wage are contrived to keep wages down”.
These are exactly as crazy and conspiratorial as anything I see on the right.
“acquittal was a naked exercise of power” — No, it was a judgment that Trump was not even accused of anything that anyone had previously considered a crime. All trials are supposed to acquit without additional witnesses in such a case. You say additional testimony might have “served to inform the public”, but that just acknowledges that the whole thing was a partisan political publicity stunt. If the public wants Bolton’s opinion, they can buy his book.
“tacitly tolerating crazy conspiracy theories” — The biggest political conspiracy theory of the last decade was that the Russians somehow controlled Trump and manipulated the election. To promote this, the Democrats corrupted the DoJ.
“Republicans into a cult of personality” — On the contrary, there is a very large number of Republicans who say that they don’t like his personality, but they will vote for him anyway because his policies are vastly superior. Support for Barack Obama was much more of a cult of personality.
“listen to Lindsay Graham’s ‘use my words against me'” — There are also lots of Democrat senators getting their 2016 words used against them. It is clear that both parties would have tried to fill the vacancy, if they had the votes.
>> “Arguments against taxing capital income are contrived to protect billionaires”
Well, they are certainly put forward by think tanks which are financed by billionaires.
I remember the debate about the 2017 tax reform; I recall that among the not-think-tank-associated economists, few thought that the tax cuts would do all that much to boost business investments.
And apparently they didn’t.
Empirically, the arguments for the corporate tax cuts does look a bit contrived in retrospect.
>>> “Arguments against the minimum wage are contrived to keep wages down”.
Some of them certainly are.
But neither of those two examples is a conspiracy theory. They merely allege that certain policy arguments are the result of motivated thinking. Not exactly a shocking allegation.
On the other hand, the idea that climate change is a “hoax” alleges a massive, organized fraud perpetrated by essentially an entire scientific field and 99.5% of the scientists working therein, also encompassing foreign allied governments.
A comparable left-wing conspiracy theory would be, for example, the allegation that economic science and substantially all economists were malevolently working towards dreaming up rationales for enriching billionaires at the cost of an ever-more impoverished middle and working class.
There are certainly SOME people on the left who hold that view (I haven’t actually met any, not even on the internet, but I’m sure there are some) – but this is very much a minority view, and not something even Bernie Sanders would endorse.
“It is clear that both parties would have tried to fill the vacancy, if they had the votes.”
No democrat has said anything so hypocritical. Only one party has refused to fill a vacancy in the final year of a term and made explicit promises not to do so themselves. Graham made it a point of principle that they denied Garland. I wonder if at the time he believed what he was saying? McConnell clearly did not. They were establishing a new principle that would be advantageous to them at that time and they thought it was unlikely to come back to bite them. When it did they abandoned the principle without a pause.
If Democrats would try to fill the vacancy in the same situation it would be sticking to the same principles they adhered to in 2016. It is also far from clear if it would have been filled this close to the election. Garland was way back in early February. The Democrat initial principle was that it is OK to fill a vacancy in the final year way before the election. The second principle is that the same rules should apply to both parties. It is not unprincipled now to say that the vacancy should not be filled because a precedent has been set and the election is actually underway.
The US is moving to a position where SC vacancies cannot be filled unless one party has the Senate and the Presidency at the same time. I do not think that is a good way to go.
I think what you are saying is that it is OK for parties to act in ways counter to national interests if it helps them. If a party has the power to prevent an appointment for purely partisan reasons, then hats off to them. As long as it is the party you support. Back in 2016 there was a pretense that this was not the case. It was a principle that would work in both directions. The recent events make it clear that it was not a principle, but was only about political advantage.
The appropriate consequence would be electoral cost. Politicians lying so blatantly used to suffer consequences at the ballot. They could get away with unprincipled actions as long as there was at least a reasonable pretense. They would have to stick to their words, even if everyone suspected it was a sham. Somehow it has become so normalized that this consequence no longer follows. People like yourself are happy to abandon principle as long as your guy gets in. It is absolutely fine to lie.
“No, it was a judgment that Trump was not even accused of anything that anyone had previously considered a crime.”
A president has the legal power to pardon anyone. That is not and cannot be a crime because it is one of the powers laid down in the constitution. Abusing that power for personal gain is absolutely and clearly what was intended at the time of the constitution to be “high crime and misdemeanor.” The remedy for abuse of that power everyone believed was possible until recently was impeachment. You are taking that off the table because the President would not be committing a crime. The only remedy then is waiting for the election and voting him out, by which time he could do an awful lot of damage.
Bennett Haselton:
Yes, Trump is a perpetual embarrassment. But so is Biden. Viz:
There are literally hundreds of equally egregious examples on his website, all of them aimed, it seems to me, at exactly the same sorts of “useful idiots” to whom Trump appeals.
Steven and fellow commentators: isn’t the only principled choice this year to abstain from voting at all given how terrible our choice is this time around?
“The Democrat initial principle was that it is OK to fill a vacancy in the final year way before the election. The second principle is that the same rules should apply to both parties.”
I am not sure any Republicans disagree with those principles. They would have been happy to fill the vacancy in 2016, if Obama had appointed someone like Scalia, who had just died.
“OK for parties to act in ways counter to national interests if it helps them”
No. Replacing a constitutional textualist with a left-wing ideologue to create a 5-vote leftist faction was not in the national interest.
Did Trump pardon anyone for political gain? Did he get some gain from pardoning Milken, Arpaio, or Libby? Roger Stone wasn’t really pardoned, and he caused Trump a lot of grief, so I don’t see how that could have been for personal gain.
Your gripes are Trump are rather petty. The argument for Trump is that he has brought us peace and prosperity, and he is making America great again. I really don’t care whom he has pardoned.
F.E. Guerra-Pujol: It seems to me that Trump has a fair chance of being a slightly-better-than-average president and a fair chance of being a world-class disaster, whereas Biden has a near-certainty of being very bad but not disastrous.
Conceivably, with a bit of reflection, it might be possible to decide which of those two gambles one finds preferable.
>>> Strong unions built the great American middle class. Everything that defines what it means to live a good life … is because of workers who organized unions
That’s an exaggeration, but it’s certainly at least somewhat true. Without labor unions, unorganized labor often faced monopsonistic/oligopsonistic employers who used a range of measures to suppress free competition in the labor market, such as payment in company script, mandatory living in company housing, company stores with inflated prices, blacklisting, breach of contract and violence (up to and including murder) against anyone who complained about that. Without pressure from labor unions, it was also general practice for employers to forego even the most basic and cost-efficient safety measures.
If you want an example of modern-day oligopsonistic abuse, see Apple+Google:
https://www.theregister.com/2015/09/03/apple_wagefixing_closed/
I can see a world where without the unions of the 19th and early 20th century, where in large parts (or even most) of the country and the economy, oligopsonistic employers would be able to keep down wages through various practices, while using their political influence to weaken employee bargaining and contract enforcement power and to prevent things like unemployment insurance and social security, which were critical in enabling the development of the middle class.
> employers steal about $15 billion a year from working people just by paying workers less than the minimum wage.
Why is that wrong? Wage theft is a big problem.
> Every worker has the right to return home from work safely.
Difficult to say anything about that, because it’s not clear what it’s supposed to mean.
> As President, Biden will require corporations … to finally pay their fair share.
I take that as meaning that corporations – in particular large corporations – should pay more taxes.
I would argue that mega corporations on average don’t pay their “fair share” compared with other, smaller businesses, which don’t have the possibility to establish an Irish subsidiary and which don’t have the clout to lobby for special loop holes.
#16 Roger. “Did Trump pardon anyone for political gain?”
Yes, but that was not my point. The pardon power is unlimited, but clearly can be abused in a manner which personally benefits the President. If we are defining “wrong action” solely as that which breaks laws, then there can be no wrong pardons. The president swore to “faithfully execute the office” and pardons for personal gain is breaking that oath. It cannot depend on a crime.
Some believe that Stones commutation was unconstitutional because it relates to “cases of impeachment”. With DOJ and the SC on his side that is unlikely to be tested. Arpaio was the first time a pardon had been given in such a manner except as a final act. It was the first signal that pardons would be given for purely political purposes. Trump got benefit from Libby because he sent a signal it is OK to lie to the FBI if it is for Trump’s benefit. Stone lied and benefited from that understanding with his commutation. Criminals now know that they can avoid consequences of their actions if it benefits Trump.
Removing and appointing DOJ staff and directing DOJ from the White House is another example. Until recently the DOJ was expected to be independent. It was considered one of the pillars of justice. The president did not direct action, but had the power to appoint people and could remove them only for reasonable grounds. Although the DOJ is part of the executive, the President did not get to decide who to prosecute. That has been substantially eroded, and Trump supporters are happily going along with it.
The constitution gives legislative checks over executive by requiring confirmation of some appointments. Trump uses acting heads to get around this, further shifting balance of power to the executive. He now has removed many of the Inspectors General who may not agree with him, again removing checks on his actions.
Trump has nominated by far the highest number of Judges that have been deemed “unqualified” by the ABA. This is an indication that he is appointing for more political reasons than prior Presidents. Again shifting power to the executive away from the Judicial.
Your preference is to substantially move the balance of power to the executive, to remove the checks and balances that have worked reasonable well until now. This has already progressed quite a long way in Trumps first term. He was finding his feet at first, determining how far he could go. A second full term with this solid basis with the DOJ and the courts and an emboldened Trump really is quite frightening.
I don’t think Steve gets it. Trump does have a fair chance of being a world class disaster, but that would be disaster. Biden is not very likely to be very bad, but will probably be sort of average. I don’t know what Steve means by “very bad.” I presume he is looking only at economic policies and considers a lower growth in GDP to be very bad. Perhaps I am being unfair, but it would help if Steve could indicate what very bad consequences he thinks are near certain to follow from a Biden presidency. A comparison with Obama would be useful here. What will Biden do that is so much worse than Obama? Or was Obama very bad? If so, then the choice is obvious.
Another way to put it is to give a scale. Say good president +5, Average President 0. Very bad president -5. Disaster -100. Don’t vote for a fair chance of disaster.
“Every worker has the right to return home from work safely.”, Steve says is an egregious example of embarrassing Biden statement. I really do not see disaster following from this.
“if Obama had appointed someone like Scalia, who had just died.” Now you are being ridiculous. It is up to the President to nominate, not the Senate. You are saying that the Senate leaders believed Garland would probably get through the hearings, so the only way to stop it was to not hold hearings. Had Obama asked Republicans to nominate the candidate, they would have been happy to have the hearings. You are making your position even worse that it was.
#14 I have just noticed that the Bennett Haselton comment to which Steve is responding is on the previous post.
“Trump is SO BAD that most people today don’t even know that this happened, because it was eclipsed by everything else.”
Given this context, I really don’t see how any reasonable person can find Biden’s comments on his website as anywhere near in the same league as Trump’s comments. Saying workers have a right to get home safely and we should do something about the climate is surely different from endorsing racism? Why is this not obvious?
#11,
“ “Republicans into a cult of personality” — On the contrary, there is a very large number of Republicans who say that they don’t like his personality, but they will vote for him anyway because his policies are vastly superior. Support for Barack Obama was much more of a cult of personality.”
It’s funny. I understand this is anecdotal, but I happen to be surrounded by Trump supporters in my personal life. And they sometimes will say things like “I wouldn’t want the guy for my neighbor” or “sure he has a bad personality, but…”
So you might get the sense from this that they don’t like him personally but shrug and say well at least we get lower taxes and anti-abortion, anti-regulation judges!
But I don’t buy it. I think they actually like him. You know why? They have (and wear) the hats. They still have the bumper stickers on the car. And sometimes they even slip up and say things that show they actually like *him.* so I think what they’re really saying is they can see how someone may not like him, but my point is I think most Trump supporters who say they don’t like him actually aren’t telling the truth. I could be dead wrong. And I admit it’s based on a gut feeling based on my anecdotal experience and also from what I see based on my unique media consumption. But I still believe it.
“DOJ was expected to be independent.” — I could believe this if the DoJ had a mixture of Republicans and Democrats similar to the population at large. It does not. The DoJ is overwhelmingly Democrats.
“different from endorsing racism?” — Biden does endorse racism on his web site.
https://joebiden.com/blackamerica/
https://joebiden.com/fact-sheet-joe-and-kamala-will-empower-black-men/
@F.E. Guerra Pujol, #15:
I’m with you. I don’t vote in general, but these poor choices is certainly not challenging my resolve this time.
About the rule of law issue, I can’t help noticing that when we have a Republican president, the Democrats are staunch supporters of the rule of law, and strongly condemn the sitting president for all transgressions against it. Likewise, when we have a Democrat president, the Republicans are staunch supporters of the rule of law, and condemn the sitting president for all transgressions against it. What I surmise from this is that party hacks aren’t genuinely concerned for the rule of law, and all presidents subvert it to some extent.
I do agree that all parties do this. But there is a vast difference in the degree that the current administration is doing it. Just as one example, no previous president has involved himself in DOJ decisions anywhere near as much as the current incumbemt.
It is always a problem, but it now a much bigger problem.
Sure, you took some paperclips home, but that does mot mean you should turn a blind eye to the FD embezzling millions.
Roger. I realise you are a lost cause, but it is unfortunate that you are unable to recognise racism. Calling for data based on race is not necessarily racist. I would suggest you actually read up on the subject but I know it would be pointless.
Have you tried to go on sites that disagree with your point of view and discuss the issues? I assure you it is a good way to challenge your preconceptions.
Andrew Sullivan makes the case:
“[A landslide defeat of Trump] would turn the Trump era of nihilism, tribalism and cruelty into a cautionary tale of extremism, illiberalism and, above all, failure. It would suggest, especially if older whites come round some more, that the future need not be one of spiraling racial polarization, but of multiracial support for liberal democracy, its norms, and practices. What you learn from studying the decline and collapse of republics is that illiberal precedents become the new baseline if they are not instantly repudiated and punished. A landslide loss for Trump would mitigate, if not remove, the deep damage he has done.”
https://andrewsullivan.substack.com/p/dreaming-of-a-landslide?token=eyJ1c2VyX2lkIjoxMTM1MDIsInBvc3RfaWQiOjc3OTUwNTIsIl8iOiJYWFp1KyIsImlhdCI6MTYwMjI2Mjk0MywiZXhwIjoxNjAyMjY2NTQzLCJpc3MiOiJwdWItNjEzNzEiLCJzdWIiOiJwb3N0LXJlYWN0aW9uIn0.PEsCUeTnJG6nqWqbp_l7miwuJWR4b8ZYkG4SiRUAzJA
Let me emphasize that last bit.
“What you learn from studying the decline and collapse of republics is that illiberal precedents become the new baseline if they are not instantly repudiated and punished.”
Every voter has to ask himself if he wants to turn the US republic into a Trumpian banana republic PERMANENTLY.
Sullivan’s attacks on Trump are almost entirely mindless name-calling. By contrast, he had scathing attacks on Hillary Clinton in 2016 that specifically cited her past bad decisions and policies.
Phrases like “Trumpian banana republic” just convince me that you have no substantive argument.
At the end of your WSJ piece you suggest the possibility of imposing a graduated consumption tax. What is the mechanism whereby that could be implemented?
Andrew Weintraub: The simplest way is via an annual tax form where you report your income, report your saving, and pay a graduated tax on the difference.
“The deadliest enemies of nations are not their foreign foes; they always dwell within their borders. And from these internal enemies civilization is always in need of being saved. The nation blest above all nations is she in whom the civic genius of the people does the saving day by day, by acts without external picturesqueness; by speaking, writing, voting reasonably; by smiting corruption swiftly; by good temper between parties; by the people knowing true men when they see them, and preferring them as leaders to rabid partisans or empty quacks.
* * *
Democracy is still upon its trial. The civic genius of our people is its only bulwark….
[Nothing] can save us from degeneration if the inner mystery be lost. That mystery … consists in nothing but two common habits, two inveterate habits carried into public life, — habits so homely that they lend themselves to no rhetorical expression … yet habits more precious, perhaps, than any that the human race has gained. They can never be too often pointed out or praised. One of them is the habit of trained and disciplined good temper towards the opposite party when it fairly wins its innings; and the other, that of fierce and merciless resentment towards every man or set of men who overstep the lawful bounds of fairness or break the public peace.”
William James, Oration upon the Unveiling of the Robert Gould Shaw Monument (May 31, 1897)
American Enterprise Institute, “The X Tax: The Progressive Consumption Tax America Needs?” Many tricky questions about how to transition from the current income tax scheme to this regime.
> report your saving, and pay a graduated tax on the difference.
To quote Larry Summers:
“The core of the problem is that there is not enough private investment to absorb, at normal interest rates, all the private saving.”
https://www.washingtonpost.com/opinions/2019/03/07/risk-our-economy-secular-stagnation/?noredirect=on
I don’t think it’s obvious that a tax system that seeks to increase the aggregate savings rate is still appropriate; increasing the aggregate amount of capital available to the economy was certainly critical during the last 200 years, when the economy was always capital-starved due to industrialisation and rapid growth in the labor force, both of which required large amounts of capital.
In the age of stagnating (US) and declining (Japan, Europe) labor forces and the predominance of capital-lite post-industrial service industries, a tax system that rewards saving, especially by those at the top of the income distribution, is quite counterproductive.
What Summers misses is that the distribution of capital within the economy also matters.
The exploitation of economic opportunities is of course still limited by scarcity of capital, even in today’s economy.
But scarcity of capital constrains the economic opportunities of the people who fall into the bottom 75% of the income distribution spectrum, and not the top 0.1%, and yet it is always the latter who are by far the biggest beneficiaries of right-wing tax reform.
Any pro-growth tax strategy would not seek to increase savings in aggregate, but rather to lower savings among the population groups who don’t need additional capital (i.e. the top 1 to 0.1%) and to increase them for the “bottom” 2/3.
Advo, does this tie in with the “why we need billionaires” post? Musk is able to spend millions on flights of fancy because they interest him and they may have pay offs, but if that capital had been used by smaller scale entrepreneurs with realistic goals there would likely be bigger pay-offs overall?
> “Musk is able to spend millions on flights of fancy because they interest him and they may have pay offs, but if that capital had been used by smaller scale entrepreneurs with realistic goals there would likely be bigger pay-offs overall?”
Yes. At the lower end, it’s really about much simpler things; it’s about things like fixing your car so you can drive to work, being able to move to a different part of the country where job opportunities are better, having the starting capital for becoming a freelancer, getting an education or vocational training.
Lack of capital translates into lack of flexibility and lack of opportunity.
My position is, of course, not that “the fact that there are billionaires is a failure of tax policy”.
But I think that it’s obvious that the 2017 tax cuts – which disproportionately benefited the billionaire class – failed completely in so far as their stated objective is concerned, namely to raise business investment.
Mainstream economists mostly expected this. Unfortunately, I don’t expect this failure to have any impact on future GOP policy (the failure of Brownback’s and Walker’s tax cuts sure didn’t).
#30 “by the people knowing true men when they see them,”
I suspect he was not taking about lizard people here, unlike some today.
Dunno. William James was pretty insightful.
@nobody.really, #30:
That makes me feel better. I was concerned we are going to the dogs, but by observing James’ second habit is alive and well, I learn we are 50% covered. That is much better than I thought.
On the investment starvation issue, that does not seem right. The transportation sector is going through a transformation that will require massive amounts of investment (at least if we move towards something like self-driving electrical cars). Moving away from fossil fuels will require massive amounts of investment. As digital technologies become more sophisticated, inventing and building them will become more and more expensive. Developing new drugs will become more and more expensive. I don’t see a shortness of investment opportunities on the horizon.
> “I don’t see a shortness of investment opportunities on the horizon.”
If there’s no shortage of profitable investment opportunities, why do investors buy negative-yielding government debt?
Corporate debt with negative real yields?
I couldn’t read the Summers piece for the paywall, but I understood his point to mean the lack of private investments is a new thing. Investors have been buying assets with a negative real yield for decades, if not centuries. So the presence of these assets does not tell us if Summers is correct.
To answer your question as stated, why do investors buy such assets? I can’t say for sure, though I suspect the Money Illusion is partially to blame. For corporate debt with a negative yield, investors sometimes knowingly buy an asset with a negative yield to protect previous assets from the same company, expecting the total yield across the investments in that company to be positive.
For negative-yielding government debt, it’s a simpler answer. Many Treasury bonds are redeemable at par. This makes them attractive for short term investments, such as a money market fund. Even if inflation is at 2.5%, 2% is still better than 0%. Redeemable Treasury bonds are almost as good as cash, but with a better return.
> I couldn’t read the Summers piece for the paywall,
I pasted the article under comments for “Welcome to Real Life Plutocracy”
> I can’t say for sure, though I suspect the Money Illusion is partially to blame.
I don’t really see why money illusion would prevent investors from taking advantage of all those much better yielding investments that you believe are out there.
> Many Treasury bonds are redeemable at par. This makes them attractive for short term investments,
It’s not only short-term. 10 yr T-bills yield 0.68%, 30 yr yields 1.45%.
The real yield on both is negative. And yields on all investments are way down. Just look at prime real estate cap rates around the world.
Greenspan first noted the “savings glut” in 2005.
The Wikipedia entry has a great variety of links to various aspects and ideas on the topic.
https://en.wikipedia.org/wiki/Global_saving_glut
The saving glut is real. It’s what’s been driving these massive bubbles during the last decades.
Japan was hit first – its working-age population peaked in 1990, and it had both an incredibly high savings rate and tremendous investor home bias, so the money basically had nowhere to go but real estate, the only sector in the economy that is able to easily absorb multiple percent of excess savings per year (now that we’re not building railroads anymore).
Another example for investors not knowing where to invest their money is the fracking industry. US shale oil and gas producers have been cash-flow negative for 10 years.
The industry has made at least 300 billion dollars in cumulative losses during that time. This wouldn’t be happening if investors weren’t desperately hunting for yield.
https://www.washingtonpost.com/business/energy/shales-bust-shows-basis-of-boom-debt-debt-and-debt/2020/07/22/0e6ed98c-cc41-11ea-99b0-8426e26d203b_story.html
Sorry for inserting that video like that. I didn’t know that would happen.
For the sake of argument, let’s embrace the secular stagnation thesis: The rate at which wealth grows has exceeded the rate at which profitable investment opportunities have grown, resulting in ever lower returns on investment. (This is really just diminishing marginal returns as applied to investments.)
What does this say about the benefits of a progressive consumption tax vs. a progressive income tax?
Theoretically, an income tax discourages income generation, while a consumption tax discourages consumption. To some extent, these phenomena overlap: Anything that discourages income likely also discourages consumption. But a consumption tax might result in more people earning AND SAVING/INVESTING their earnings rather than consuming.
Thus, to achieve equivalent government revenues, I’d expect we’d need STEEPER progressivity in the consumption tax than in the income tax.
1. Is that a problem? Would the deadweight social loss that comes from a higher marginal consumption tax exceed the adverse consequences that arise from taxing income in lieu of taxing consumption? In sum, are we better off with a (relatively low) income tax or a (relatively high) consumption tax?
2. Recall Landsburg’s regular post about Scrooge: Scrooge didn’t consume much of his wealth–meaning that he chose to leave it for others to use. Why should anyone regard this behavior as anti-social? And even if we’re in a world that is awash in savings, what alternative would be better? To complain that a consumption tax might encourage needless savings–is that the same as saying that an income tax might encourage needless consumption?
In the long run, SOMEBODY is consuming, right?
> But a consumption tax might result in more people earning AND SAVING/INVESTING their earnings rather than consuming.
Why would we want that?
The situation you get then is that a) you end up blowing serial bubbles, which is bad, and b) the government has to run a large deficit to soak up, and spend the excess savings, because otherwise you won’t get to full employment.
Best example: Japan. Now: Europe.
>>> Scrooge didn’t consume much of his wealth–meaning that he chose to leave it for others to use. Why should anyone regard this behavior as anti-social?
Because in the Western World, no country is getting to full employment anymore unless there’s either a massive bubble going on, the government is running a huge deficit, or the country has a huge current account surplus.
Just look at Germany. Last year, it had full employment and a fiscal surplus – but it was running a current account surplus of 7.1% GDP.
SOMEBODY has to consume all the stuff that the Germans are producing, but unwilling to consume. But this is not a viable solution for the world. We can’t ALL run a current account surplus.
1. Does investment generate less employment than consumption? Or, perhaps, does investment generate employment for different social classes than does consumption?
2. Economics evolved in a world of scarcity. What to make of a world of abundance? Arguably, the most valuable people may become those with EXCACTING standards, who can create demand for LOTS of labor through sheer force of will. Imagine Cecil B. DeMille, directing casts of thousands to create films, or judgy landscape architects who require workers to scour the earth to find bluestone of just the right shade.
> Does investment generate less employment than consumption?
Generally not. But if you stuff the money in your sock drawer it doesn’t generate any employment at all.
This will show up as lower monetary velocity, I suppose.
Ok, I’m struggling with this. A policy that provides a marginal incentive for people to shift from consumption to investment would result in an economy that fails to reach full employment—even though investment does not generate less employment than consumption. I sense I’m missing something here.
> Ok, I’m struggling with this. A policy that provides a marginal incentive for people to shift from consumption to investment would result in an economy that fails to reach full employment
Let me rephrase:
A policy that provides a marginal incentive for people to shift from consumption to NOT SPENDING THEIR MONEY would result in an economy that fails to reach full employment
The problem is that the savings don’t all get invested in the sense that they are translated into real-world spending on physical goods and services. That’s why aggregate demand falls and the economy fails to reach full employment.
Basically:
savings != investments
More specifically, if people DO invest all their savings in the absence of productive investment opportunities, then you get a bubble.
In the absence of investment opportunities that generate a risk-adjusted return the savers demand, you only get full employment if you have a bubble (typical: real estate, new industries) to soak up the excess savings, a government deficit to soak up the excess savings, or a current account surplus which soaks up the excess savings.
The bubble is what you get when you DON’T have investment opportunities with a sufficient risk-adjusted return, but you have something that LOOKS LIKE such an investment opportunity. If you squint.
Just remember that Venezuelans also argued about policies and tax rates…and then they realized it was cheaper to set notes on fire than to pay for wood. Our country is slipping away.