I Wish It Were Only Butter

The metaphor of guns and butter is used in macro 101 to convey the tradeoffs a nation and it's economy must make. More spent on national defense means less available to spend on consumer goods at home.

Oh, would that it were just consumer goods!

Unfortunately, the choices seem to be guns and education and jobs.

Here are some additional good links on education and jobs from Mark Thoma.

The problem here is that education, much like health, can be thought of as an investment good. It's something that enables higher rates of production both in this generation and for our children and grandchildren.

There is also strong and plentiful evidence of a strong positive correlation between education and health. Correlation is not causation, you say. Well, here's a good article by a team of first rate researchers that includes one of our best economists/econometricians, James J. Heckman (Nobel laureate, 2000) credibly identifying causal links. Understand, this relationship is not occasionally observed, it is always observed and it is observed across nations as far as I can tell. And, yes, it is observed after all the obvious possible confounders are controlled.

So if one were genuinely interested in reining in health care costs, one would not support cutting education funding. In fact, one might attempt to expand it, since it would not only help to rein in health care costs over time, it would increase productivity, which would help to grow the economy out of debt.

Two much desired fiscal objectives achieved with one policy instrument.

I will also point out that if one were sincerely concerned about our children and their children, one would not cut education funding for all of the above reasons.

Now, about not extending unemployment benefits. The issue of unemployment benefits is not only an economic issue, it's an ethical issue for crying out loud. But let's just look at the economics of it. This is probably not a good time to contract the economy further by cutting unemployment benefits. So in lieu of actual jobs creation (which seems to be stalled, still, because of all that money that for all we know is still being creatively destroyed by the finance casino), wouldn't it make sense not to withdraw dollars that are helping the jobless to weather the downturn AND that are stimulating what little demand there is? 

Unemployment benefits have the added benefit that they are the right thing to do. Unless of course you live in a world where it's OK to bail out investment banks and insurance companies with no real penalties for the guys who created the need for a bailout, but helping workers who are unemployed largely because of the antics of those crazy bankers, traders, raters, and insurers causes you to lie awake nights worrying about throwing good money after bad. Oh, would that it had occurred to you to worry about this earlier in the game.

We do not need people who hawk deficit reduction strategies with the style and substance of a carny barker. We need deficit falconers. Sensible, informed people. Not just policy makers and politicians, but the electorate, too. We are going to have to spend some money to get out of this hole. How we spend it will matter immensely both for us in the near term and for our children and grandchildren. Worrying about things that haven't happened (like inflation) and reducing debt by cutting the very things that in the long-run are our ticket out of this is as crazy and short-sighted as selling mortgages to people who have no hope of repaying them and buying complex securities composed of those mortgages under the assumption that if you can't see the risk, it must not be there.

We should be giving up some butter if we must. We should not give up education or health investment (or infrastructure or the environment (hello, BP). They may be the only legacies of any value that we pass on to our children and grandchildren.

Comments

[rjs]

A $23 billion payout to save thousands of educators' jobs faltered Thursday -- perhaps for good -- to election-year jitters among moderate Democrats over deficit spending and only lukewarm support from the White House.The proposal's chief advocate in the House abruptly canceled a committee meeting to put the money in a war spending bill. Its lead sponsor in the Senate gave up trying to do it, acknowledging he lacked the necessary votes. The developments jeopardized what progressives in Congress and some members of the Obama administration had described as a life raft for 100,000 to 300,000 teachers and other school personnel whose billions of dollars in stimulus salary subsidies run out this fall.

http://www.businessweek.com/ap/financialnews/D9FVFIEO0.htm

U.S. SPENDING IN IRAQ
Spent & Approved War-Spending - About $900 billion of US taxpayers' funds spent or approved for spending through Sept 2010.
http://usliberals.about.com/od/homelandsecurit1/a/IraqNumbers.htm

Afghan war costs now outpace Iraq's
http://www.usatoday.com/news/military/2010-05-12-afghan_N.htm

[rjs]

Bill on jobless benefits, state financial help scaled back - Under fire from rank-and-file Democrats worried about the soaring national debt, congressional leaders reached a tentative agreement Wednesday to scale back a package that would have devoted nearly $200 billion to jobless benefits and other economic provisions while postponing a scheduled pay cut for doctors who see Medicare patients. After struggling throughout the day to reach a compromise, House leaders scheduled a Thursday vote on the slimmed-down package in hopes of pushing it through both chambers before the 10-day Memorial Day recess, which is scheduled to begin Friday. Unless lawmakers act before June 1, millions of people could cease to be eligible for up to 99 weeks of jobless benefits and doctors' Medicare payments could fall by 20 percent.

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/26/AR2010052605148.html

Uncertainty over Medicare pay sets doctors on edge - May 28th, 2010 (AP) — For the third time this year, Congress is scrambling to stave off a hefty pay cut to doctors treating Medicare patients — even as the Obama administration mails out a glossy brochure to reassure seniors the health care program is on solid ground.The 21.3 percent cut will take effect June 1 unless lawmakers intervene in the next few days. Recurring uncertainty over Medicare fees is making doctors take a hard look at their participation in a program considered a bedrock of middle-class retirement security.If the problem is allowed to fester, it could undermine key goals of President Barack Obama’s health care overhaul, which envisions using Medicare to test ideas for improving the quality of care for all Americans.

http://www.andalusiastarnews.com/2010/05/28/uncertainty-over-medicare-pay-sets-doctors-on-edge/

here's where the priorities are:

Senate Approves Nearly $60 Billion for Wars - The Senate on Thursday approved a nearly $60 billion measure to pay for continuing military operations in Afghanistan and Iraq as House Democrats struggled to round up votes for a major package of business tax breaks and safety-net programs for the long-term unemployed.Senators delivered a bipartisan 67-to-28 vote for the war financing bill after rejecting a series of Republican proposals on border protection as well as a plan by Senator Russ Feingold, Democrat of Wisconsin, to require President Obama to produce a timetable for withdrawing from Afghanistan. With lawmakers eager to begin a Memorial Day recess, House Democratic leaders ran into stiff resistance from rank-and-file members uneasy about supporting the approximately $143 billion tax and unemployment measure. More than $80 billion of it would be deficit spending — a hot-button issue in the midterm Congressional campaigns and an increasingly frequent line of Republican attack.

http://elpasoinc.com/readArticleNYT.aspx?guid=FTP_NYTNS___W-USA_926180_1.xml

[wjd123]

The reason we are in the economic mess we are in is because of educated people. It was the brightest of the bright that destroyed our economy. So why is the cure for our problems to educate more people. Education in what, economics? Which school?

What we need is more ethics and more morality. Right actions, ethics,can be taught in our schools but one wonders if it can be practiced in our society, a society where the establishment can't even bring itself to pass laws that encompass the indignation and anger of society, morality.

Where is the motivation to study ethics if right action can't be practiced in business. Where is the reinforcement of morality by laws that say, 'This practice is dangerous to society and is forbidden."

If the establishment can't even bring itself to be the guardian of society what good is it? If the establishment can't even bring itself to punish its own that prey on society, where does that leave the rest of us?

We need systemic change and the will to change. Throwing more money into education won't do that.

What we don't need is more money wasted on people who equate success with money. Not just the accumulation of personal fortunes but the accumulation of political war chests to stay in power.

The ultimate purpose of corporations is to provide for the needs of society and be rewarded for it and not to prey on society for ever greater profits: think, health insurance companies.

There is not much difference between the ignorant that prey on society and the educated who prey on society. And the greater amount of evil is surely done by the educated.

I can only speculate on how social assholes are made, but surely the process should end with higher education. It doesn't. Instead, of education being a bulwark against those who would prey on society, the highly educated are easily defeated by a corporate culture of profits over all.

I'm not against education. I'm just not ready to jump on the education-is-the-answer-to-all-our-problems bandwagon. Neither is ethics and morality, but they can't always be the odd man out.

Emile Durkheim believed there were two reasons people obeyed the law: they became autonomous human beings who were able to see the good in the law or they feared the sanctions of the law.

Since today's establishment can't even pass laws that embody the indignation and anger people feel toward corporations and the system, a new establishment is needed, One that is prepared to sanction their own; one that is willing to embody in the law the indignation we feel we toward the ethically and socially challenged; one that will allow our youth to come out of our universities able to distinguish a social interest from an individual interest; one that is willing to lay down the law and re-enforce it through the use of its sanctions.

Without systematic change students will be forever short-changed in ethics and morality and as a result society will be forever short-changed.

We need individuals who can see the good in protecting social interest by curtailing individual interest, but more importantly we need a society that has room for them. To get there we need a new establishment.

[Sam Taylor]

Maxine-

Anyone who has read, understands and appreciates "Gaudy Night" starts off with a star in my book. Your perceptive economic and social analysis does not come as a surprise. Keep up the good work. I am sending a link to your site to my college junior granddaughter.

Sam Taylor