mark stevenson

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The Great Hunger

What is the real problem with the global economy? The traditional academic position, espoused by Paul Krugman, Christina Romer and most the White House and Federal Reserve is that this ever since 2007 we have experienced a series of severe negative demand shocks — starting with the bursting of the housing bubble, the sub-prime bubble, the implosion of AIG, Lehman Brothers, and Bear Stearns, and continuing through the European debt crisis, various natural disasters and geopolitical upheavals — which first brought us into crisis, and have since imperilled any nascent recovery. The staunchest view – pushed especially by Krugman — is that the only way to reverse the effects of these demand shocks is through massive stimulus, to create a multiplier effect and raise aggregate demand.

But I believe that simply juicing the wheels of the economy with more money is simplistic, frivolous and mechanistic. We have to understand that the negative demand shocks are not simply bad luck or statistical noise, but instead reflect the reality of severe underlying structural problems. And without solving the underlying problems, a stimulus will keep things ticking over for months or years, until the same problems rear their head again down the road.

So the dissenting view, as posited by myself among others, is as follows:

Those troubles are non-monetary — they are systemic and infrastructural: military overspending, political corruption, public indebtedness, withering infrastructure, oil dependence, deindustrialisation, the withered remains of multiple bubbles, bailout culture, the derivatives-industrial complex, food and fuel inflation and so forth.

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Job Creation 101

How would you spend $50 billion?

Last week I talked about how Warren Buffett got both the American credit rating, and the utility of gold very wrong.

This week, Warren Buffett has made a similarly provocative statement, but one I am more sympathetic to. From the New York Times:

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks. Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

While I agree that this is a fundamentally absurd situation, and that so-called “progressive” American taxation is now regressive, alas, the economics of the situation are nothing like as simple as Buffett makes out. Namely, if the system is rigged to favour the rich, then the system is rigged to favour the rich. Stating that fact doesn’t change the 20% youth unemployment rate, the record numbers of Americans claiming food stamps, and the simple reality that not enough jobs are being created to fill the supply of people graduating from school, college and being laid off. Tax reform will not directly address any of America’s problems with malfunctioning infrastructure, its dependence on Chinese imports, or its citizens’ addiction to debt: raising taxes on the rich might help pay down the deficit, but so too would cutting spending on wars and the military industrial complex. But while tax reform cannot directly solve these problems, Warren Buffett and his “progressive oligarch” friends can. How?

Job creation.  Investment in infrastructure. Investment in young people. Look at the humungous of levels bank reserves. There is cash just sitting idly that could instead be channeled into real investment in jobs and infrastructure — the kind that Paul Krugman calls for, just without the government involvement (or the Alien invasion). No doubt government has its own role to play. But why run sheepishly into the arms of government when the private sector has the means and resources to solve many of the humanity’s challenges — and at a profit? So without further ado, here’s where I would invest my money ($50 billion), if I were Warren Buffet:

  1. Carbon-Scrubbing Trees:
    While we don’t know exactly what effects climate change will have on Earth, we do know that keeping Earth’s carbon dioxide level as close to the pre-industrial baseline as possible is undoubtedly a good insurance policy. And doing so could undoubtedly create a lot of jobs. Carbon scrubbing trees allow us to do that by removing carbon dioxide from the air and releasing oxygen using a carbon dioxide removal process called “humidity swing.”
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