Standards of living are determined mainly by lifetime incomes, not by income in any particular year. Given the pattern described above, lifetime income for someone who worked, say, from 1940 to 1985 was well below that for someone in a similar class position who started work in 1970, just when the long increase in real wages was slowing for most and stopping for some. For every year of their working life, the 1970 starter gets a wage (adjusted for age, education and so on) that’s as high as the maximum attained by the 1940 starter after 30 years of steady growth. Unsurprisingly, that translates into a bigger house, and more of most items that require savings, whether or not their price has risen relative to the CPI.
To make this more concrete, suppose that Bob earns $10 during the first year of his working life, and forty years later, adjusted for inflation, he earns $20. Bob's average wage over his lifetime was $15, for a total lifetime income of $600.
Now suppose that Alice begins her career at the end of that period, and further suppose that income growth has flattened completely. Alice earns $20 her first year and $20 her last year, for a total lifetime income of $800. So even with a stagnant income, she's still better off than her parents, which is probably one of her main points of reference.
But now even that's coming to an end. Someone who's entered the workforce in the last decade or so not only has a stagnant income in real terms, but also a stagnant income compared to her parents. That's a double whammy, and really brings home the reality that things are tight and are going to stay tight. One conclusion you might draw from this is that if you thought the previous generation was resistant to higher taxes, you ain't seen nothin' yet. When incomes are growing smartly, higher taxes are pretty bearable. When they start to stagnate, they become more onerous. And when they stagnate completely, they become completely intolerable. I hardly need to spell out the long-term problem this poses.
If you study tech, you will see a bright present and also a bright future. If you study K-12 education, you will see a mixed to dismal present and a possibly bright future. If you study energy economics and the environment, you will see an OK present and a dismal future, no matter what policies we choose.
That's hard to argue with, and it explains why Tyler isn't sure a carbon tax would do much good (though he favors one anyway). Click the link for a longer list of reasons to be skeptical. Most of them are well taken, but as usual, I'd ask "Instead of what?" That is, even if a carbon tax has limited effectiveness, is it better or worse than the alternatives? My own take is that even if a carbon tax accomplishes only a third of what its supporters hope for, that still makes it a better way of raising revenue than an income tax, a payroll tax, an excise tax, a capital gains tax, a sales tax, or a dividends tax. If I'm going to discourage an activity, even just a little bit, I'd say we're better off discouraging use of dirty energy than we are discouraging work, imports, investment, or consumption. That's especially true since the latter taxes seem to discourage the latter activities only slightly, while carbon taxes appear to be reasonably effective at discouraging fossil fuel use. At the margins, and even granting that it's no panacea, it still seems like a better bet than most of the alternatives.
UPDATE: Reworded slightly to make clear that a carbon tax discourages only dirty energy use, not all energy use. Obviously it encourages people to switch to clean energy like wind, solar, geo, etc.
Ed Yong writes this week about various examples of crowds making better collective guesses than individuals: counting beans in a jar, guessing the weight of an ox, or the Ask The Audience option in Who Wants to be a Millionaire? And he notes a problem:
But all of these examples are somewhat artificial, because they involve decisions that are made in a social vacuum. Indeed, James Surowiecki, author of The Wisdom of Crowds, argued that wise crowds are ones where “people’s opinions aren’t determined by the opinions of those around them.” That rarely happens. From votes in elections, to votes on social media sites, people see what others around them are doing or intend to do. We actively seek out what others are saying, and we have a natural tendency to emulate successful and prominent individuals. So what happens to the wisdom of the crowd when the crowd talks to one another?
Long story short, it fails completely. This is why I've always been skeptical of the whole wisdom of crowds thing. You can make up all sorts of contrived situations where it works, but there aren't very many examples from real life where people don't communicate in one form or another and form feedback loops. We're a social species, and lots of communication is very much the norm, not the exception.
Is the crowd doomed to groupthink? Not quite. King found that he could steer them back towards a wiser guess by giving them the current best guess....But King’s study still reflects an artificial situation, because he knew beforehand what the right answer was and could provide the crowd with the closest guess. Real crowds rarely, if ever, have that luxury....You can insert your own modern case study here, but perhaps this study ends up being less about the wisdom of the crowd than a testament to the value of expertise. Maybe the real trick to exploiting the wisdom of the crowd is to recognise the most knowledgeable individuals within it.
Well, sure, and that's what most of us do on issues that are anywhere outside our own sphere of expertise — which is to say, most of them. Unfortunately, in practice most of us choose to follow experts who already agree with us. After all, track records are pretty hard to know in the best of cases, and in real life, where we seldom even agree on what constitutes being right in the first place, it's just about impossible. Sadly, neither the wisdom of crowds nor reliance on the best experts provides much of a shortcut for getting things right.
We've seen this result before, but here's some confirmation from a recent CBS poll. If you ask Democrats if their politicians should stick to their guns come hell or high water, virtually no one thinks that's a good idea. Compromise reigns supreme. Ask Republicans, and you get a very sizeable chunk who are ready to die for every hill — and, undoubtedly, ready to punish any politicians who aren't. I'm not sure that a single poll question can explain Washington all by itself, but if there is one, this is it. Republicans are scared of their base; Democrats aren't.
On the left, Domino is trying to figure out what happened to her squirrel. We've never had a squirrel in our backyard before, but yesterday a lovely hazel-colored specimen zipped up a tree, zipped down and into another one, zipped up that tree, and then zipped down to the fence and zipped off. Domino was mesmerized. On the right, Inkblot, as usual, is clueless about what's going on spending some quality time thinking about his next campaign white paper. I think it has to do with loan guarantees to solar-powered cat food companies or something. He's worried that in this crucial industrial sector the Chinese are eating our lunch, literally. Perhaps some nice squirrel stew would have made him feel better.
The real answer, of course, is: "Because they'd tell us that spending cuts will hurt the economy and be bad for jobs. And that's not something we have any interest in hearing."
But perhaps you can think of something better. What excuse should Republicans use? It's a waste of precious CBO resources? The CBO is hiding the truth from us by refusing to use time-tested supply-side models? Doug Elmendorf once went to dinner with somebody who was friends with someone else who invested in Solyndra? There's gotta be something.
Conservative economics columnist James Pethokoukis recently wrote a piece arguing that the 2009 stimulus bill actually made things worse. Shazam! Even Rick Perry only claims it created zero jobs, not a negative number. I suspect Pethokoukis got this envelope-pushing idea from Amity Shlaes, who's become a conservative hero for her book arguing that the New Deal prolonged the Great Depression.
But Ezra Klein tells me something I didn't know: Pethokoukis actually made two arguments in his column. I didn't know that because I quit reading after I hit the first one. I'll let Ezra explain:
Pethokoukis’s first argument is that the White House’s “own economists predicted the stimulus would prevent the unemployment rate from hitting 8 percent. But the rate actually rose as high as 10.1 percent...."
The Bernstein-Romer calculations were conducted in December 2008 and released in January 2009....And they weren’t alone. Every private-sector forecaster — from Macroeconomic Advisers to Moody’s to Goldman Sachs — was making the same mistake....The bottom line is simple, and it need do no damage to Pethokoukis’s case: In the fourth quarter of 2008, our economic inputs were wrong. So forecasts using those inputs to make predictions about the future produced answers that were also wrong. That says nothing about whether the stimulus worked or failed.
....(In general, I have actually found this to be a useful test: When economic commentators use this argument, I know not to take them seriously, because they either don’t know the facts or aren’t letting them stand in the way of their argument.)
See? That's exactly how I felt. The only difference is that because it was obvious Pethokoukis was making such a dumb argument, I just quit reading. Ezra, tenacious reporter that he is, actually slogged his way through the rest.
And guess what? It wasn't any better! Imagine that.
Was the 2009 stimulus bill too small and too badly designed? Bruce Bartlett says yes, but argues that this is understandable. Congress just wasn't going to pass anything bigger, and an imperfect set of tax and spending priorities is pretty much inevitable when you're operating quickly with fuzzy information. But he does blame Obama for then taking his eye off the ball:
Once the stimulus was enacted, he turned his attention elsewhere. He appeared to believe that he had done quite enough to turn the economy around and thus moved on to other issues such as health reform, the environment and energy policy, which occupied an enormous amount of White House attention in 2009 and 2010.
....Imagine that instead of wasting months on health reform and other non-economic and non-time-sensitive measures in 2009 and 2010, Obama had single-mindedly kept his attention on the economy. If the time he spent being briefed on health reform had instead been spent with his economic advisers, then perhaps he would have been more aware than he appears to have been that the stimulus was insufficient. Perhaps there might have been opportunities during the appropriations process to raise and redirect funds into more economically stimulative channels. Perhaps the Federal Reserve could have been pressured to be more aggressive in terms of monetary policy.
I have to confess that this line of criticism has always perplexed me. What does it mean to "single-mindedly" keep his attention on the economy? I just don't understand how that translates into concrete action. I think Obama got briefed plenty to understand the trajectory of the economy (you really don't need eight hours a day to figure that out) and I have a hard time thinking that it's a good use of presidential time to insert himself into the details of the appropriation process. I also doubt that Obama really had much influence over Ben Bernanke.
Maybe I'm missing something. Certainly you can argue that Obama's pivot to the deficit in early 2010 was a mistake. But look at the jobs chart above. Yes, there were signs by early 2010 that the stimulus hadn't been big enough, but as late as May job growth was continuing to tick up smartly, reaching over 400,000 that month — and plenty of liberals were crowing over this. True, some of that was temporary census hiring, but most of it wasn't. The jobs picture really did look promising. Given numbers like that, what were the chances that Obama could have persuaded a nervous Congress to pass another big stimulus bill?
In retrospect, sure: of course Obama should have spent more time on the economy. But in the first half of 2010 that really wasn't so obvious, and it's light years from obvious that he could have done anything to prod Congress into significant action so soon after the 2009 stimulus anyway. Republicans were in full-out war mode, after all, and that's not even counting the half dozen conservative Democratic senators who also would have been dead set against more spending.
Maybe I'm off base here. But I really think we often overestimate just how much difference presidential "attention" makes. It's just not possible to stay focused laser-like on the economy for years at a time when (a) things really do seem to be improving, and (b) your own party is eager to get moving on other stuff. That was the situation in early 2010. I'm not convinced that there was really all that much Obama could have done about it.
Are presidential nominations mostly controlled by the grass roots of the party? Or mostly by party thought leaders acting indirectly? Jonathan Bernstein says that political scientists think it's mostly the latter, and in the case of Republicans one of the biggest thought leaders is Fox News. So Walter Shapiro sat through 50 hours of Fox News a couple of weeks ago to find out who they were rooting for. The answer wasn't hard to come by:
No Republican makes Fox squirm like Ron Paul....Meanwhile, Newt Gingrich and Rick Santorum were each granted a single, respectful, prime-time interview and were otherwise mercifully left on the cutting-room floor.
....When I began this undertaking, I was braced for a bacchanalia of Michele Bachmann coverage....[But] without a major gaffe or gotcha moment, Bachmann was almost entirely absent, like a Red Army general excised from the Great Soviet Encyclopedia after being purged by Joseph Stalin. She was almost never pictured on screen, even though she was on a four-day campaign swing through Florida. When her name came up, it was usually coupled with a glib dismissal of her chances.
....The Bachmann blackout was, of course, the direct result of Rick Perry pandemonium. More rapidly than the rest of the press corps, Fox News simplified the GOP battle to Perry versus Mitt Romney. Eric Bolling, one of the regular panelists on “The Five,” captured the glow surrounding Perry, saying, “We have had this discussion every day since Perry got in the race—that he is the real deal.”....Where does Romney fit into the prevailing Perrymania? Awkwardly. Romney has not been ignored like Bachmann, since every two-man race needs a second banana.
....Still, it wasn’t hard to infer where the preferences of most Fox personalities lie. Late-night Fox host Greg Gutfeld offered the most memorable summary on “The Five.” “Mitt Romney is like somebody you hook up with periodically until you get serious and you want to meet somebody serious,” he said. “He [is] friends with benefits. And Perry is marriage material.” Yikes.
So there you have it. The GOP's most influential thought leaders have made their preference clear, and they have the biggest megaphone around. (Shapiro: "According to a 2010 poll by the Pew Research Center, 40 percent of Republicans habitually watch Fox News.") The rest of the party's mandarins had better rally around Romney pronto if they really think he's their only chance to beat Obama next year.
President Barack Obama speaks at an event at Solyndra in May 2010. The company went belly-up in August.
You've probably heard of Solyndra by now, right? It's the solar power company that got $500 million in Recovery Act loans from the Department of Energy and then went belly up a couple of weeks ago.
Conservatives have been trying to paint this as a big scandal of some kind, despite the fact that: the company had plenty of private investors too; it's the only DOE loan that has failed so far; and there's no real evidence that anyone in the White House did anything worse than push OMB to speed up their decision-making process a bit in 2009. Stephen Lacey has the full timeline here.
Watching this unfold over the last week, I keep thinking back to "Climategate." When it first broke back in late 2009, lefties and bloggers and Dem lawmakers just ignored it, because it was obviously dumb. This left the field entirely open to a massive attack from the right, coordinated among ideological media, staffers, lobbyists, and pols. When the left finally stirred itself to action, all that emerged were a bunch of long, boring investigations into the details and good-faith efforts to be fair about how both sides a point. By the time five separate investigations had cleared the scientists of all wrongdoing, the damage was done. Now we're seeing the same script play out again.
…The right is going after this whole hog, trying to make the name synonymous with clean energy boondoggle. And the left is flailing around, throwing out this fact and that fact with no coherent message. Lord am I tired of watching this script play out.
Unfortunately, I think that a bit of flailing was inevitable. Conservatives had a clear attack line: anything and everything that makes Solyndra look bad. They didn't care what. Liberals didn't have the same luxury. At the time this story broke, none of us knew enough about Solyndra to really have any idea if the company itself was defensible, so a bit of hesitancy was inevitable. But Dave is right: At this point we do know enough, and there's really no reason to hesitate any longer. Basically, Solyndra was working on a solar technology that promised to be cheaper than silicon, and at the time of the loan it looked really promising both to DOE and to private investors. But then the market turned: Silicon prices dropped, and China started producing super low-cost silicon PV. That spelled doom for Solyndra. They had a good idea, but it didn't work out.
In any case, Solyndra is a tiny fraction of DOE's green-energy loan program, and Solyndra's loan guarantees are dwarfed by those of both fossil fuel and nuclear companies, which range into the multiple billions. There was no scandal in the loan process, and there's nothing unusual about having a certain fraction of speculative programs like this fail. It's all part of the way the free market works.
Want to learn more? Read the timeline here, and then listen to Rep. Ed Markey at Wednesday's hearing. You'll learn the facts from one, and how to talk about Solyndra from the other. No more flailing, okay?