Friday, Oct 26, 2012 04:45 AM PDT

Kevin Hassett: Mitt’s dumbest economist

Romney adviser Kevin Hassett doesn't think income inequality matters. His ideas are why this election is crucial

By Andrew Leonard

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Topics: 2012 Elections, Class warfare, Economic Growth, Income inequality, Tax cuts, U.S. Economy, Business News, Politics News

Kevin Hassett

Income inequality? Don’t get worked up about it, wrote two American Enterprise Institute scholars in the Wall Street Journal this week. The gap between the rich and everybody else in the United States is not getting bigger, they argue, and those who are telling you that it is (like President Obama) are “seeking political gain by inflaming class hatreds with misleading statistics.”
One of the Op-Ed’s co-authors is Kevin Hassett, a man who has been much mocked for making the worst economic prediction since Irving Fisher declared stocks to be at a “permanently high plateau” … in 1929. A Hassett-bylined column on the WSJ opinion page is not where most economists tend to look for solid, peer-reviewed analysis, so we’ll leave the painstakingly researched disembowelment of his argument to others. But the mere appearance of such an argument with less than two weeks to go before Election Day is still worth appraising. Kevin Hassett is an adviser to Mitt Romney — he’s someone who will have real influence on economic policy if Romney wins. So the real question here is not how wrong his argument might be, but why he is making the argument at all. Why does Kevin Hassett want us to believe that income inequality is not getting worse?
Could it be because there’s increasing evidence that widening income inequality isn’t good for economic growth? Could it be that the entire cathedral of supply-side dogma, entrenched in U.S. economic policy for three decades, crumbles into rubble when you realize that it’s not good for the economy when the rich get richer at the expense of everyone else? Could it be that the data on income inequality refutes everything Mitt Romney stands for?
The current issue of the quarterly magazine of the International Monetary fund, Finance & Development, highlights the research of two IMF economists who argue that there is a clear connection between inequality and the health of an economy: “Countries with high inequality are far more likely to fall into financial crisis and far less likely to sustain economic growth.”

The researchers, Andrew G. Berg and Jonathan D. Ostry, focused specifically on the “duration of growth spells,” which they defined as “the interval starting with a growth upbreak and ending with a downbreak.”
“We find that longer growth spells are robustly associated with more equality in the income distribution,” they wrote.
The IMF study naturally attracted the attention of the New York Times and other media outlets, but the argument that income inequality isn’t good for economic growth is hardly new. As Claude Fischer, a sociologist at the University of California, Berkeley, who has written extensively on income inequality, pointed out in a blog post commenting on the IMF study, researchers have been making just such an argument for at least 20 years.

But this remains important to repeat – not just because reporting the baleful effects of inequality now has the imprimatur of the IMF, but also because so many people still resist the news; they insist instead on believing the opposite, that inequality stimulates the economy, to the benefit of everyone. And, of course, this insistence has political implications right now.

It sure does! Just one month ago, on Sept. 22, Mitt Romney spelled out what this election is all about. In an interview televised on “60 Minutes” Romney responded forthrightly to a question asking whether his 14 percent tax rate was “fair.”

Yeah, I — I think it’s — it’s the right way to encourage economic growth, to get people to invest, to start businesses, to put people to work.

In other words, the question of “fairness” shouldn’t even come into the conversation: Income inequality — unfairness — is good for America. Because that’s what Romney is really saying. In the context of an era in which the richest Americans have grabbed a larger and larger share of the national income, Romney has consistently argued that it is appropriate for the wealthy to pay a smaller percentage of their income in taxes than the middle class or poor, because keeping the load light on the upper crust will be good for economic growth that benefits everyone. It’s classic supply-side, trickle-down economics, warmed-over Reagan revolution boilerplate. And it perfectly represents the ruling philosophy of the U.S. for most of the last 30 years.
This means it’s a big deal if the evidence shows that the opposite case is true — that allowing the rich to devour a larger and larger slice of the pie isn’t good for the economy. If widening inequality puts a damper on economic growth, then the Romney campaign finds itself in a bit of a pickle.
It can try arguing, a la Hassett, that growing income inequality just isn’t happening: Hey, look over there, at all those kids with cellphones and living rooms full of HDTVs! Even poor people have air conditioners now, so who cares how many yachts or car elevators the 1 percent own?
But that’s an argument that keeps running head on into the lived reality of Americans: the escalating costs for healthcare and college education, the shrinking benefit packages, stagnating wages and family income.
Or it can even try, as Hassett also does in his Op-Ed, to argue that the growth in the safety net adequately compensates for widening income inequality. In this framework, when we look at the widening gap between rich and poor, we’re not taking into account food stamps and Medicaid and extended unemployment benefits.
But that argument creates an immediate paradox. Romney’s case for why he’d make a better president than Obama is largely predicated on his promise to reduce the size of government, and trim back the welfare state. That means carrying out his agenda would remove what his adviser already admits is one of our chief coping mechanisms for dealing with growing income inequality!
According to the IMF researchers, one reason why recent economic recoveries have been so weak compared to what we witnessed prior to 1990 is precisely because widening inequality has hollowed out the middle class. Without a thriving middle class, there simply isn’t the broad-based demand necessary to fuel fast economic growth.
It’s good to have people around with cash in their pockets to buy things. This is a principle that was recognized as far back as 1914, when Henry Ford surprised his own employees, his competitors, and the business press by raising wages for his workers to a princely $5 a day. His motivations were certainly mixed — in part, he just wanted to reduce attrition — but he also clearly saw that there was a huge advantage to paying his workers well enough that they could afford to purchase the cars that they were assembling. He saw the benefits inherent in jump-starting a market for his company’s products. (He also shortened the work week, reasoning that workers with more leisure time would spend more of their cash on consumption.)
We live in quite a different world now, one in which the dominant ideology among corporate executives and the Republican Party holds that squeezing workers while generating maximum profits for shareholders is the best way to achieve economic growth. Few men who have run for president exemplify that ideology more than Mitt Romney. Most Republican politicians simply believe that keeping taxes low on the rich and screwing workers is the right economic philosophy. Romney actually did it.
And that tells you all you need to know why one of his economic advisers is claiming that growing income inequality isn’t actually happening. Because if it’s not a problem, then it certainly can’t be responsible for slow economic growth, and thus, can’t negate the fundamental underpinnings of conservative economic dogma. If it isn’t happening, we can cut taxes some more, slash government services and sail merrily forward on the path Ronald Reagan trail-blazed. That’s what this election is about.

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Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21. More Andrew Leonard.

Doonesbury Censored in Right-wing Media

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Word Play

Humour An effectiv response to the belligerent stupidity of Rush Limbaugh and to those Renaissance Dittoheads who criticize his extreme language while endorsing his policies.

Contraceptives -

I don't like responding to the likes of Rush Limbaugh or to his emulators in the current Republican primaries nor do I want to involve myself in the reaction based on gender politics that characterizess Limbaugh's views and those of his party as an attack on women and women's health by men. In fact the vast majority of men support the use of contraceptives and measures that would make them more freely available.A substantial portion of contraceptives used in America are purchased by men for use by men to prevent the spread of sexually transmitted diseases as well as to prevent unwanted pregnancies which condemn many women and their children to poverty. And I certainly don't support those who condemn Limbaugh's extreme statements and name-calling  while hypocritically agreeing with his views on financing contraceptives.

The United States and its religious denominations have always considered sex as a tool of the devil rather than a normal mammalian function. Until the 1960's, it was virtually illegal to educate people about the human sexuality. Distributing contraceptive devices or educating people about their use was a criminal offence.(The exception was the armed forces where soldiers received free condoms and instructions for their use - funny, isn't it - when the military gets free contraceptives no one complains about the cost.The reason: because soldier's lives are considered important and so it doesn't matter when the pope says life begins, or how much the program costs soldiers get their sex subsidized by taxpayers). In the century before the 1960's, Comstock Laws were passed throughout North America banning any activity that focused on human sexuality. Like Prohibition, sex was forced into the dark recesses of society often controlled by a criminal subculture. Ignorance and guilt promoted the spread of sexually transmitted diseases and sex crimes. At one point there was a section in the Criminal Code that described the offence of  "having carnal knowledge of a woman having deceived her as to the nature and quality of the act." The Limbaughs of their day assumed that women were so ignorant of sex that they could be exploited by sexually sophisticated men. Before the "sexual revolution" of the 1960's churches were able to build an industry based on the fear, guilt and ignorance that they propagated around the sexual function.  Girls who became pregnant were taken out of school and placed in "homes for unwed mothers" generally run by churches - teenage girls who were sexually active could be declared "incorrigible" by their parents and  placed in reform school -Willingdon School for Girls was the one in British Columbia. It was finally closed in the 70's. In some jurisdictions, women could be committed to mental hospitals if they were diagnosed as "hysterical" a word from the same root as hysterectomy and referring to mental health problems of uterine origin.

The sexual revolution was produced by the birth control pill. It opened opportunities for women to schedule pregnancies so that they could pursue education and career objectives that weren't open to them before. It allowed men and women to enjoy normal sexual lives free of the fear that an "accident" would result in a career destroying pregnancy and an unplanned, unwanted child.The last step in the sexual revolution was to make contraceptives available to all regardless of income but unfortunately the sexual counter-revolution has set in. Its leaders in the christian extreme right, the republican party and the pharmaceutical industry have set themselves up as moral bean-counters. "we can't afford to provide free contraceptives, they say, it will bankrupt the health care industry" Of course pharmaceuticals are among the most over-priced agents in health care insulated from competition by patent protection and by laws against price negotiations passed by politicians paid off by industry lobbyists. The assertion that we can't afford to finance contraceptives as part of our health care program is false, hypocritical and immoral. Any industry that can afford to buy the US Congress can afford to subsidize the distribution of contraceptives

The Golf Links by Sarah N. Cleghorn

The Golf Links

The golf links lie so near the mill

That almost every day

The laboring children can look out

And see the men at play

Newt’s War on Poor Children

New York Times Op-Ed Columnist

Newt’s War on Poor Children
By CHARLES M. BLOW
Published: December 2, 2011

Newt Gingrich has reached a new low, and that is hard for him to do.
Nearly two weeks after claiming that child labor laws are “truly stupid” and implying that poor children should be put to work as janitors in their schools, he now claims that poor children don’t understand work unless they’re doing something illegal.

On Thursday, at a campaign stop in Iowa, the former House speaker said, “Start with the following two facts: Really poor children in really poor neighborhoods have no habits of working and have nobody around them who works. So they literally have no habit of showing up on Monday. They have no habit of staying all day. They have no habit of ‘I do this and you give me cash’ unless it’s illegal.” (His second “fact” was that every first generational person he knew started work early.)

This statement isn’t only cruel and, broadly speaking, incorrect, it’s mind-numbingly tone-deaf at a time when poverty is rising in this country. He comes across as a callous Dickensian character in his attitude toward America’s most vulnerable — our poor children. This is the kind of statement that shines light on the soul of a man and shows how dark it is.

Gingrich wants to start with the facts? O.K.

First, as I’ve pointed out before, three out of four poor working-aged adults — ages 18 to 64 — work. Half of them have full-time jobs and a quarter work part time.

Furthermore, according to an analysis of census data by Andrew A. Beveridge, a sociologist at Queens College, most poor children live in a household where at least one parent is employed. And even among children who live in extreme poverty — defined here as a household with income less than 50 percent of the poverty level — a third have at least one working parent. And even among extremely poor children who live in extremely poor areas — those in which 30 percent or more of the population is poor — nearly a third live with at least one working parent.

For this analysis, the most granular national data available — census areas with 100,000 or more people — were compared. For reference, New York City has 55 of these areas. You’d have to slice the definition of neighborhoods rather thinly to find a few areas that support Gingrich’s position.

Lastly, Gingrich vastly overreaches by suggesting that a lack of money universally correlates to a lack of morals. Yes, poverty presents increased risk factors for crime. But, encouragingly, data show that even as more Americans have fallen into poverty in recent years, the crime rate over all — and, specifically, among juveniles — has dropped.

“Facts” are not Gingrich’s forte. Yet he is now the Republican front-runner. It just goes to show how bankrupt of compassion and allergic to accuracy that party is becoming. •