Topic: Election 2008
Phil Gramm - Political Criminal Phil Gramm has committed the ultimate political crime. He told the truth. Now he's off to the political gulag, at least until after November.by Dave Nalle
(Libertarian)
Sunday, July 13, 2008
Former Senator and McCain campaign advisor Phil Gramm has obviously spent too much time out of office and in the private sector, because this week he committed the ultimate political crime. He told the truth. In an interview with the Washington Times he is being quoted as having said:
"You've heard of mental depression;. this is a mental recession... We may have a recession, we haven't had one yet... You just hear this constant whining, complaining about a loss of our competitiveness, America in decline. We've never been more dominant; we've never hard more natural advantages than we have today. We've sort of become a nation of whiners."
Snippets of the video of the interview are being circulated by the most left-wing groups like Talking Points Memo as evidence that McCain's campaign is out of touch with the deep suffering of the American People, Barack Obama has made jokes about it, and McCain has had to distance himself from Gramm and make sympathetic noises about helping out the working man in this time of crisis.
What no one is going to dare to say in this campaign season where everyone has to suck up to the voters, is that Phil Gramm is right. Gramm, unlike most politicians and media talking heads, is an actual economist. He was an economics professor at Texas A&M for 12 years. He was an economic business consultant for almost a decade. After leaving the Senate he went into business as a Vice President at UBS. He may be gruff and uncharismatic and look a bit like a turtle, but he knows the economy, knows what he's talking about, and he's telling the absolute truth, no matter how politically unpopular that happens to be.
Most of those attempting to use Gramm's comments against McCain are using the comments out of context, or just selected sentences as shown in the quote above which came from today's episode of Meet the Press. Even the Washington Timesarticle paraphrases most of Gramm's lengthy remarks. But most of what is in the article doesn't seem to have made it to any other news outlets, especially Gramm's lengthy and detailed explanation of his remarks. The media wouldn't want to get bogged down in the facts of the issue, because that would interfere with their efforts to promote the "mental recession" which Gramm talks about.
Here are the facts, many of which Gramm brought up:
• Gramm pointed out that we are in "a major export boom that is the primary reason that growth continues in the economy" and it is a fact that our exports and foreign investment in the United States are at the highest level in decades. In fact, exports to Canada, Japan and Europe were at record levels and the trade deficit has shrunk despite increasing imports of higher priced oil.
• Gramm also noted that the growth of the global economy has enormously benefited the United States, where the lion's share of the profits of globalized business end up. Globally diversified companies outside of the financial industry are expected to return very good profits this quarter.
• He mentions that we are not in a recession, a truth that the left doesn't like to admit. By all the usual standards for a recession - such as the basic requirement of two quarters of economic decline - we are not in a recession. In fact, despite the mortgage crisis and high gas prices we have still had a 1% growth in the economy for the first half of the year.
• Even unemployment isn't the grim spectre the media is portraying it as. The overall unemployment rate remains at 5.5% which is historically fairly low, and current weekly unemployment claims remain substantially lower than they were during the Clinton recession in 2001. In context, unemployment in Europe and Canada increased substantially during the first half of this year.
• Gramm's most basic point is fundamentally correct. A large factor in the economy is consumer confidence and the constant negative drumbeat of the media creates the kind of "mental recession" he's talking about and works against all of the positive factors in the economy. Gramm hit the nail on the head when he said "Misery sells newspapers. Thank God the economy is not as bad as you read in the newspaper every day."
In his years away from Washington Gramm apparently forgot that a presidential campaign is all about pandering, not telling the truth. The candidates want to be able to tell people that they're going to solve all their problems, not that their problems really aren't as bad as they're being told and that they should suck it up and stop whining. There's a reason why everyone remembers Herbert Hoover and Andrew Mellon, and even if Gramm is willing to be the Mellon of our time, McCain certainly doesn't want to be the Hoover.
In fact, Gramm's a double disaster, because the only thing worse than telling the truth to the public is pointing out the bias of the media, no matter how truthfully. Every candidate needs the media on his side, and that's always been one of McCain's big strengths. He can't afford to have one of his advisers announcing that the Emperor is naked, because the Emperor still holds the power of life and death over his campaign.
So It's bye-bye Phil Gramm. Telling the truth has made him a political non-person. In a day he's gone from shoe-in for Treasury Secretary to the exile of the political gulag. That's where he'll languish until after November when truth gets rehabilitated and your expertise might actually be needed.
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The government and goverment statistic might say that the country is not in a recession.
However if you ask the working class people, most would say we are in at least a recession because we are loosing our jobs and houses brought on by financial difficuties caused by the rise in oil, foreclosures and record life changing natural dissasters.
Phil Gramm is right......... Americans are just a bunch of sniveling whinners simply because they are not happy with the economy.
As an economics professor with more tenure than Phil Gramm, I'm going to disagree.
(1) On the issue of Trade, he is correct. Some US companies ( GE Sylvania comes to mind) are alive only because of the huge exports they have enjoyed in simple products such as lightbulbs. However, while the falling dollar works for US companies that export, it also works against US companies that IMPORT. One must be balanced against the other to give a fair picture.
(2) Unemployment. Looked at in simple terms, 5.5% unemployment is not out of line with historic figures, although it feels that way because we fell all the way to 2.9% in the 1990s. However, it is the story behind the figure that tells the real story.
There are different kinds of unemployment. If this was all "Frictional" unemployment, it would be no big deal. Frictional unemployment is 'voluntary,' or people 'between stations in life.' College kids graduating, people moving, leaving one job to seek work elsewhere, etc. But we are experiencing Structural Unemployment - skills mismatches between those out of work and those seeking laborers - and that takes time and retraining to correct. And it would be fair to say we are also experiencing Cyclical Unemployment, meaning that there just ARE NO jobs. Ask any middle-aged MBA seeking a salaried position, and you'll sense their frustration.
Second, to be included in the Federal Unemployment figures, you must meet three criteria: you must be over 16, you must not have ANY job at all (even part-time), and you must be actively seeking work.
That means that thousands of homeless vets living in boxes in our urban centers DO NOT COUNT because they are not 'actively seeking work.' It also means that the worse things get, and the longer people are out of work, the more likely they are to grab a job - any job - just to have SOME money coming in to try and avoid losing their homes. So, if you lost your $45,000 year job with the airlines, and you've been out of work 3 months so you grab a $20,000/year job in retail, you are no longer Unemployed. In other words, THE WORSE THINGS GET, THE MORE LIKELY YOU'LL GRAB ANYTHING, AND THE LOWER THE UNEMPLOYMENT RATE GOES because once you have a job again, you are not unemployed. So this 5.5% rate does NOT measure "Underemployment," the steps DOWN the ladder that Americans have taken to survive. The drop in income is NOT a 'mental recession.'
(3) It is true that we have not had negative growth for two quarters in a row, which is the technical definition the GOVERNMENT uses of "recession." However, Economists know that anything less than 3% is IN FACT a recession (we call it a "Growth Recession." I know, only economists could come up with that name...) That is because you need to grow at 4% or greater just to maintain what you have.
My students will often ask "why do we always have to be producing MORE?" I liken it to their homes: sure, you can build a house, but at some point, you need to clean the carpet, replace the roof, fix the broken window, repaint the exterior, point up the chimney, etc. In other words, in order to MAINTAIN what you have, you MUST spend more in maintenance. Same goes for tools, factory equipment, roadways, etc. A 'growth' rate of 1% DOES NOT KEEP UP with 'maintainance.' It is like driving down the exit ramp on the Interstate: yes, you are going forward, but at costantly decreasing speeds and you're not going to get anywhere fast. 1% growth may not indicate a 'recession' by government standards, but it DOES indicate one by Economic standards, and an "Economist" like Phil Gramm should know that.
When one factors those realities in, along with cost-push inflation and gas prices both reducing disposible income; rising foreclosures and mortgage default rates; destruction of the last three years worth of investment income in securties; restaurant receipts off as much as 50%; I think its fair to say that this is NOT just a 'mental' recession, it is a very real manifestation of the Stagflation we havent seen since the 1970s.
Of course, the ONLY remedy for Stagflation is to cut business costs (eliminate corporate income tax, reduce business regulation, etc), but thats not going to be a very PC thing to propose.....)
As an economics professor with more tenure than Phil Gramm, I'm going to disagree.
I'm just a lowly history professor, though I also had more tenure than Gramm before I left to make real money, but I can still tell a hawk from a handsaw and I count his years in the private sector as even more valuable than his time in academia.
(1) On the issue of Trade, he is correct. Some US companies ( GE Sylvania comes to mind) are alive only because of the huge exports they have enjoyed in simple products such as lightbulbs. However, while the falling dollar works for US companies that export, it also works against US companies that IMPORT. One must be balanced against the other to give a fair picture.
A valid point, but what you fail to take into consideration is that the trade deficit isn't down because of a decline in imports coupled with an increase in exports. In fact both imports and exports are up, but exports are up more than imports. Imports were up .3% in May and are expected to surge even more in June and July.
(2) Unemployment. Looked at in simple terms, 5.5% unemployment is not out of line with historic figures, although it feels that way because we fell all the way to 2.9% in the 1990s.
Unemployment was never as low as 2.9% in the 1990s, in fact it has never been that low. Most analysts believe that it is virtually impossible for unemployment to go below 3%. The low for the 1990s was 4.2% and the yearly average for that decade was 5.9%. Our historic low for unemployment was 3.5% in 1969.
There are different kinds of unemployment. If this was all "Frictional" unemployment, it would be no big deal. Frictional unemployment is 'voluntary,' or people 'between stations in life.' College kids graduating, people moving, leaving one job to seek work elsewhere, etc.
So you're saying that this particular summer there are no longer any kids? The unemployment rate always jumps a few tenths in the summer because of the frictional unemployment you mention. How is this summer different?
But we are experiencing Structural Unemployment - skills mismatches between those out of work and those seeking laborers - and that takes time and retraining to correct. And it would be fair to say we are also experiencing Cyclical Unemployment, meaning that there just ARE NO jobs. Ask any middle-aged MBA seeking a salaried position, and you'll sense their frustration.
This is true. The unwillingness of workers in some sectors of the economy and some parts of the country to retrain or move to where the jobs are creates another kind of unemployment which is also essentially voluntary. Of course, if that MBA was willing to move to Arizona or Texas or Florida he could get a job in a snap.
Second, to be included in the Federal Unemployment figures, you must meet three criteria: you must be over 16, you must not have ANY job at all (even part-time), and you must be actively seeking work.
This isn't news. But unemployment is a relative figure, and your homeless vets and long-term chronic uinemployed have NEVER been counted.
So this 5.5% rate does NOT measure "Underemployment," the steps DOWN the ladder that Americans have taken to survive. The drop in income is NOT a 'mental recession.'
The evidence for this phenomenon you describe is very sketchy. At several levels of the workforce we're facing critical labor shortages and having to import workers. The composition of the forkforce does change in a dynamic and evolving workforce. The whining Gramm is talking about is manifested in people not being willing to do what it takes to get the better jobs which are available. Your airline worker is insisting that he has a right to the same job at the same salary rather than taking a couple of night courses to brush up his computer skills so he can get a new job at a similar or better salary.
(3) It is true that we have not had negative growth for two quarters in a row, which is the technical definition the GOVERNMENT uses of "recession." However, Economists know that anything less than 3% is IN FACT a recession (we call it a "Growth Recession." I know, only economists could come up with that name...) That is because you need to grow at 4% or greater just to maintain what you have.
Wouldn't that be dependent on other variables like the CPI or inflation? And by your own definition our 3.7% growth rate for the first quarter of 2008 would also not be a recession.
I think its fair to say that this is NOT just a 'mental' recession, it is a very real manifestation of the Stagflation we havent seen since the 1970s.
Stagflation suggests a stagnant economy, and that does not appear to be the case in our current situation. As for the 'mental' character of the 'recession', Gramm still has a valid point. If you convince consumers they are in trouble they will stop spending and that will make the situation which might not really be so bad, substantially worse. The US economy has always been driven by consumer spending, so creating an unjustified negative attitude among consumers is always a bad idea.
Of course, the ONLY remedy for Stagflation is to cut business costs (eliminate corporate income tax, reduce business regulation, etc), but thats not going to be a very PC thing to propose.....)
Sounds good to me. And I'm sure Phil Gramm would approve.
"Unemployment was never as low as 2.9% in the 1990s, in fact it has never been that low. Most analysts believe that it is virtually impossible for unemployment to go below 3%. The low for the 1990s was 4.2% and the yearly average for that decade was 5.9%. Our historic low for unemployment was 3.5% in 1969."
Sorry, but you're absolutely wrong there. I suspect thats becasue you're referring to Annual rates, while I was referring to quarterly rates. I was teaching macroeconomics the very semester it happened, and remember it quite distinctly. It has been even lower (2.8%) on a regional basis in New England, West North Central, and Hawaii on several occasions during the 90s.
"So you're saying that this particular summer there are no longer any kids? The unemployment rate always jumps a few tenths in the summer because of the frictional unemployment you mention. How is this summer different?"
No, actually it does not always jump in the summer. In fact, due to the existance of Seasonal jobs, it often falls a bit. In either case, we're not talking about a few tenths..we're talking about the full 5%. 5% frictional doesnt cause worry (or 'whining'); 5% structural does. Even you admit to structural when you write of airline workers needing to take a "few night courses." God, I bet they wish it was that easy.
."This is true. The unwillingness of workers in some sectors of the economy and some parts of the country to retrain or move to where the jobs are creates another kind of unemployment which is also essentially voluntary. Of course, if that MBA was willing to move to Arizona or Texas or Florida he could get a job in a snap."
I think that is hard-hearted, unrealistic, and deserving of the 'political gulag.' It is not sound to tell people to just sell their house (when its lost 25% of its value), find another one (in a tight morgage market), rip families out of their schools and communities, retrain, and just take up work elsewhere. That does NOT happen in the short term. People are not robots.
The evidence for this phenomenon you describe [Underemployment] is very sketchy. At several levels of the workforce we're facing critical labor shortages and having to import workers. The composition of the forkforce does change in a dynamic and evolving workforce. The whining Gramm is talking about is manifested in people not being willing to do what it takes to get the better jobs which are available.
Again, I think you sound fine on paper, but this is unrealistic when applied to the real world. In fact, rather than a Libertarian, you sound like a Central Planner just dying for a chance to reassign people to homes and jobs where they'd be more efficient...these things take TIME.
Wouldn't that [GDP growth] be dependent on other variables like the CPI or inflation?
No. To measure GDP (actual production), prices are held constant (or, if you will, adjusted for inflation). CPI (or price fluctuations) do NOT affect GDP at all.
And by your own definition our 3.7% growth rate for the first quarter of 2008 would also not be a recession.
I tend to go with the less-than-4% sucks aproach.
Stagflation suggests a stagnant economy, and that does not appear to be the case in our current situation.
Stagflation simply means we have rising unemployment and rising prices are rising at the same time. Even by your own numbers, thats where we're at.
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