Scalia, Partisanship bias, and Long Term Stagnation

So a student asked me if the nomination for the Scalia vacancy at the Supreme Court would have any macroeconomic impact. Can't imagine what kind of effect he was thinking about, but there is a relevant question on what are the effects of the inability of the legislative to get things done. The most obvious is the inability to pass a budget that deals with the slow recovery.

It used to be the case that both parties had a a very different fiscal agenda, with Democrats being for tax and spend, in particular spend on social welfare, while the GOP was for, at least nominally, for small government. And up to the Vietnam War, hawks tended to be Democrats (certainly before World War-II, most isolationists were Republicans). But as I noted before, there has been a switch in both parties, with the GOP being since Gerald Ford the party of Big Government.

In part, the switch is explained by the fact that the GOP has become the party of the neocons, and of the shadow government that requires contracts for the Military-Industrial Complex. Big Government for corporations so to speak. And low taxes for the wealthy, hopefully allowing debt to accumulate, and creating the conditions for cutting welfare programs and spending. Democrats too have accepted some of this logic, as the speaking fees of Hillary Clinton seem to indicate (but that's another story).

At any rate, it used to be that even though the parties had different priorities, at least it was agreed that certain things were necessary (like appointing Supreme Court justices). That included, for example, spending in infrastructure. And the inability to have a healthy fiscal package after the crisis, in my view, and not a long term problem with the technologies associated with the third industrial revolution, as Robert Gordon thinks, is what is behind the new normal, the lower growth in output and productivity.

I've deal with demand driven views of labor productivity before, here and here, but there are more if you search the archive.

John Weeks - The Economics of the 1%: Neoliberal Lies About Government

From The Real News Network

NOOR: So one of the chapters in your book is titled "Lies about Government", and you start off the chapter by talking about fake economics, which is the term you use to describe mainstream neoliberal economics. And you say it includes as a central message the inherent inefficiency and intrinsic malevolence of governments at all levels. Talk about what you mean and how governments and their role in our economy is so vilified and why that's done.
WEEKS: It derives from a basic ideology that says that everybody and everybody in the world is a consumer and that you derive your pleasure in life from consuming, which, if you reflect on it, obviously is a pretty sick idea. I mean, people who actually behave that way I think are rather unhappy people. But at any rate, if you take that position, if you take that analytical position, then it follows that taxes are a burden--they take away an individual's ability to consume. And they are--some of it may be absolutely necessary. You might say that that's the more benign wing of this school of economics, which I refer to as fakery. And so they begin by saying everybody's a consumer. Taxes should be as small as possible so you can go out and consume. And anything that can be produced through the private sector should be produced by the private sector. And then, in addition to that, if it ends up being produced through the government, it will be produced inefficiently; that is, there are some things you can't avoid, one presumes. You can't have a private fire department. They would just go and put out the fires of the people that paid, not the ones next door that hadn't. But most things, you should go from the private sector, 'cause the government is inherently inefficient.

See rest here

No government shutdown or default next year, but austerity will continue

In other news, the Senate approved by a vote of 67 to 33 the budget deal, avoiding another government shutdown and debt ceiling showdown early next year. The house had voted before. There has been some commentary in the web when the House voted on how this agreement is good, since it avoids even worse austerity, but in all fairness the changes are minor and the unnecessarily restrictive fiscal policy will continue in place. Graph below shows real government consumption and investment spending.

Expect the negative trend to continue. By the way, the Obama administration has continued the tradition started with Carter and then Reagan in which the party of Big Government is the GOP. every single democrat has reduced the deficit, and spending in office (Carter, Clinton and now Obama). Austerity for all is the Dems policy, while the GOP provides Big Government for the few and corporations.