The social value of interest

Paul Krugman has an interesting take on the interest-rate debate
http://krugman.blogs.nytimes.com/2013/10/30/rentiers-entitlement-and-monetary-policy/

His basic point is about the social function of interest -- as a 'reward for waiting' to spend. That is, savings usually have a social value, in that one person's savings become available to do something else of social value. Imagine, for example, that your bank takes your savings & lends them out to your county to repair roads and sewers. The interest you get paid (in normal times) is your payback for letting others use your money to the benefit of all.

Right now, however, we have too much savings, and for whatever reason (some of it is lack of political will or consensus) those savings cannot be usefully employed. Lack of demand in the economy is part of that, but I would argue that we have a screaming need for infrastructure improvement, investment in education, etc. There is plenty of 'demand' for your capital, but the right wing does not want capital deployed in that way. As a result -- according to Krugman -- real interest rates are very low.

Now here's the paradox: The rich want interest rates to go up, because they would like to have a better risk-free return on their capital. They don't actually need this additional money, mind you, and they wouldn't spend it if they had it, they'd just whine for a better return on it by keeping interest rates high.  High interest rates would discourage business investment, and keep employment down. In others words, the economy would get even worse, with still more depression of demand. But if those same rich would support some spending on infrastructure, education, etc., that would increase the demand for their capital to invest, and their returns would rise. A rising tide lifts even the rich.

But no, that would be too simple. After all, there is no more certain guide to the right-wing mentality than the belief that 'government' is the enemy.

The Widening Gyre

It's September, and the Republicans are coming to the crunch on the Affordable Care Act (Obamacare). They are acting increasingly screw-loose, threatening to shut down the Federal government and/or cause the US to default on its debt. All in a hissy-fit over Obamacare.

They can't block the ACA, of course, so instead the GOP lunatics in the House voted last week for drastic cuts in Food Stamps. Nothing makes a plutocrat feel better than to starve a few poor kids, I guess.

Paul Krugman muses on his blog about why they so hate the poor.
Here
http://krugman.blogs.nytimes.com/2013/09/21/more-snap-judgments/
and here
http://krugman.blogs.nytimes.com/2013/09/22/hating-on-food-stamps/

A big-time nation cannot go on for long with crazies fouling up its government. Something has to change here, but I seriously doubt that it can or will change at the 2014 midterms. The slightly saner Republicans in the Senate are trying to say this to the House, but they can't hear it.

Maybe if they get crushed (again) in the 2016 presidential election? Nope, if 2012 didn't do it, nothing will. They will simply get crazier and believe ever more in their Rush-fueled conspiracy theories.

Antipsychotics in the water supply, anyone?

        Turning and turning in the widening gyre

        The falcon cannot hear the falconer;
        Things fall apart; the centre cannot hold;
        Mere anarchy is loosed upon the world....

                      W.B. Yeats, The Second Coming

Causes and Effects

Been gone a while; might as well have been on Mars, for all the progress the US has made. Looks like we avoided disaster in 2008-09, but didn't really fix much of anything.

Here it is 2013, and suddenly the punditocracy is discovering that economic inequality and political inequality may be related to each other.

Duh!

Have a look at this:

Bonica, Adam, Nolan McCarty, Keith T. Poole, and Howard Rosenthal. 2013. "Why Hasn't Democracy Slowed Rising Inequality?" Journal of Economic Perspectives, 27(3): 103-24.

http://www.aeaweb.org/articles.php?doi=10.1257/jep.27.3.103

And here’s the stunning point:

“…the rich have been able to use their resources to influence electoral, legislative, and regulatory processes through campaign contributions, lobbying, and revolving door employment of politicians and bureaucrats.”

Where do they find these economists? It's jaw-dropping that people can make a living from this.

This seems to be a battle that has to be re-fought every few decades. Listen to the FDR speech below ("Refighting 1936"). Who has the guts now to talk about "economic royalists" or "malefactors of great wealth"?

We got a Gilded Age in the 1890s, in the 1920s, in the 1990s. It may not be an accident that each culminates after a prolonged period of Republican dominance. (And if you're wondering, from an economic perspective, Jimmy Carter and Bill Clinton were moderate Republicans!)  What’s really striking is that each time the result is (1) An economic Depression, followed by (2) Changes in politics that begin to reduce the inequality and bring back general prosperity, although slowly.

A naïve spectator might begin to link these things causally, eh? I'll have more on that later.

But last time we didn’t have trash TV and trash sports to distract people from what needed to be done. This worries me.