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A stopped clock is right twice a day, as the old joke goes, you just have to keep looking at it. Fox News is running with a story about how the states hardest hit by the stimulus bill get the least money. They are right; but they don’t tell you why, really. And they don’t exactly make sense in many of their measurements. This is sort of what you would expect from them. But let’s answer their analysis with the unasked question: "Why?"
For example:
Even after accounting for other factors, each $1,000 in a state’s per capita income means that the state got $21 more per capita in stimulus funds. With a spread of almost $38,000 in per-person income between the top and bottom states, this has a sizable impact. High-income states get considerably more stimulus money.
First, this is a bad question. Per capita income isn’t a measure of how hard a state is hit by the recession, it is entirely possible that higher income states are hit worse in a downturn than lower income states. People who have farther to fall, have harder to fall, too. Many high income states are markedly more cyclical, which is not unexpected. The real question is which states have seen the largest falls in per capita income; that’s a better measure. Second, the stimulus bill, like the one passed in 2008 and the three between 2001-2003, was — stop me if you have heard this one before — driven by reductions in income taxes. And as you would expect, lowering income taxes sends more money to states with higher per capita incomes and lower unemployment rates. That’s what the ideology of "giving money back to the taxpayer" means. The entire stance of the right wing was that giving money to people who aren’t working is to give money to undeserving people. Fox is complaining, no, bitching, that the people they wanted to give money to are the people who got the money.
Note to Fox News: income tax cuts don’t help the unemployed, and federal programs that are adjusted by state income go to states with higher income. After pushing for a Republican stimulus bill, Fox News is upset that we got a Republican stimulus bill.
To understand the reality of why unemployment statistics and per capita income are not good measures, let’s take a look at two charts. The upper one, from the Bureau of Economic Analysis (that is the Commerce Department) shows the per capita income by county in the US on the eve of the recession, in 2007. The second one is an average of the unemployment rate over the last year by county. What is obvious from the unemployment graph is that there is a pole running up the center of America, and that pole should be obvious to any student of American Presidential politics; it is the Western wing of the Republican Coalition, the pole of states that Bob Dole carried in 1996 and that McCain fought to hold in 2008. The other bright spots are the defense belt in New England, the oil patch, and the Federal District.
The per capita graph shows that on the verge of the recession those hotspots of income were closely connected with cold spots; that is, the people who have, and the people that work for them but are not close to them. When the bottom fell out of the economy the rain came down on people in real estate, and the people who worked for them. The belt in the middle was not, by and large, connected to this economy.
A low unemployment rate means something different in a state with few metropolitan regions and little job growth. In such areas, if you are long term unemployed, you are moving out. This is happening in the less densely populated areas of California as much as in the less densely populated states. It is a story that is as old as Rome: the people in rural areas heading to the cities looking for work.
What Fox News didn’t tell people was that these two graphs show the split in the Right in America. The Republican coalition has two wings: one which neither participated in the boom, nor is being hammered by the bust. The other is in two pieces. The Southern one, which rode the boom but is being hit very hard by the aftermath; and the Western slope of the Rockies, which is very tied to the coastal Pacific economy and is seeing a land bust to end all land busts. The Republican coalition is, and looks, divided because one of its two centers is in favor of doing nothing except keeping the checks coming from Washington, and it did so with the stimulus. Whereas the South has gone almost completely to the GOP, the Great Plains is more divided in its Senate representation.
Thus, when the time came to cut a deal, the Senators on the fence were not, by and large, from the South; but from the Great Plains, including those states which are, for the purposes of the Senate, annexes of the Plains: Indiana and Maine. The politics is that the senators that are right of center are needed to get to 60 votes, and they extract vast concessions for their vote. They have been given that bargaining power, and they are representing their constituents by using it. One part of the coalition wants radical action, the other, radical inaction.
Obama got caught, or walked into, the trap. First he bent over on the Stimulus bill, now he is forced to defend it, leaving people asking if we need another one; even though this is a political loser, as Mike Lux points out.
If the United States wants to get back on track, the first reality that needs to be addressed is that our present sources of Credit are Japan, which is in a deep funk; China, which does not want the price of resources to rise, and can limit purchases of Treasuries; a pool of the global wealthy; and the oil states. The road to long term recovery lies in manufacturing, which has been in a slow bleed for two generations.
It is also clear that we need to use global warming for industrial policy, and to have a national health system which shifts 5% of GDP from insurance company profits and overhead to universality and expanding health care supply. But Obama is already compromising on both of these fatally, repeating the problem of the stimulus bill: trading away efficacy for political expediency, and then having to defend provisions that the right-wing wrote from the right-wing’s media attacks.
It leaves Obama in the worst of all possible political positions: having to campaign for the support of "centrists," who ought to be his political base.
But then no one could have predicted this.
12 Comments
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I wonder with all the attacks on Fox News if less kids cite them as a source for their papers?
A Fox News article on the economy, healthcare etc their teachers probably know that the kids would do better to cite the Daily Show.
Before unemployment gets to 15% I’m betting Obama fires Geithner and Summers blames them for the economy and goes LEFT.
Or I worry that everything you say might be right.
Ending both wars would that free up enough funding?
I think every Empire’s decline begins when speculation starts to replace production. Roman Grain ships late speculators win. Spanish Silver fleet late speculators don’t get paid. American grow or die Ponzai scheme business plan does not grow fast enough we get Enron, Lehman Brothers or we get a Federal bailout Chrysler, the S @ L bailout, the Airlines after 9/11 (was that ever repaid) between 2 Bush Presidents 3? bailouts.
The Bank Bailout, the Airline bailout the S @ L bailout am I missing any
I’m thinking we can’t afford Jeb.
Empires decline when the speculators all know what the bottlenecks are, and get to charge for getting in the way of growth. Right now, everyone knows that oil will drive the next American recovery, so speculators sit in oil. Every one knows that there will be consumer credit. Which is why credit card rates are pornographic. Even usurious doesn’t tell the story.
As for fighting in wars, note the ease the supplemental military budget went through. The military is the only stimulus Americans don’t have problems voting for.
What’s ironic here is that Fox News is somewhat right. It isn’t surprising that a bill centered around income tax reductions helps high earning states with low unemployment more than lower earning areas with high unemployment and bankruptcy. Having fought sending money to people who are in trouble, FoxNews discovers that the money didn’t go to the people who are in trouble.
Tax cutting your way to prosperity is like drinking your way to sobriety.
lol
Thanks Stirling. I am always smarter when the sun sets on Sundays.
There is no more urgent need for America’s economic future than a single payer universal health system which compensates physicians for health patient outcomes and imposes substantial surcharges on individuals who smoke and who are significantly overweight.
A broad-based consumption tax can fund such a system for far less than what we now spend annually on non-results oriented health care, while also raising some hundreds of billions for higher education funding and national debt reduction.
What will get Obama and the Democrats killed is the armadillo approach to solving our economic woes. A consumption tax will leave more money in the pockets of consumers, will provide for the next generation of thinkers and doers to fuel American economic growth, and begin the serious business of paying back the trillions we owe to people and entities that would rather not see us self-sufficient again.
Great explanation sitting on the bottlenecks like a Slug on an artery eventually the parasite gets to big for the host to survive.
Consumption tax is not preferable to taxing the wealthy regular can’t afford to pay more right now the rich can pay after we we did just bail out their banks.
Agreed this is a great talking point I wish our Dems on TV would use on the GOP.
Book Salon a couple of flights upstairs with Scott Page’s The Difference hosted by Cosma Shalizi
While I recognize two important factors here. First, that economic recoveries tend to ride on the back of export booms (something we aren’t likely to see, strong Dollar, lack of global demand, etc). Second, that a services-based economy isn’t a panacea, because despite analytical services being essentially limitless; there is a limit on the utility of splitting minutiae, and price flexibility has a lower-bound on time; just like manufacturing does on cost of materials.
That said, I fundamentally don’t understand how manufacturing is going to help us. This assumes that there’s some legitimate utility gap to be filled by our excess productive capacity. This seems false. As we’re seeing increases in employment displacement, we’re not simultaneously experiencing slackening in supply of consumable goods and services.
What would be the benefit to simply producing more stuff that nobody buys, and is that even sustainable as a mode for the economy? I keep getting the feeling that people are asking for re-industrialization, and I’m not convinced it makes sense. Do we really need to put people to work expending resources manufacturing more consumables, when we’re not seeing anything resembling a shock to supply? Perhaps we need get to a point where we understand advanced economies fundamentally don’t need all these people engaged in pointless pursuits for their own sake. It seems like we’re trying to prop up our antiquated industrial era income/compensation regimes, because we’re not tackling more fundamental questions about the inherent competition and conflict-of-interest between our micro and macroeconomic incentives?
In the same way that we eventually had to recognize the perils, and necessity to abandon, the propping up of the gold regime as multiple economies moved to industrialization. I’m of increasing suspicion that we’re going to have to look very hard at the role and necessity of maximum-employment in advanced economies; where enterprise continues to pursue automation and mechanization of production.
In short, there just doesn’t seem to be a whole lot for people to do, and perhaps that’s exactly what we’ve been working so hard to achieve. Is the problem unemployment, or could it be that our macroeconomic and social systems aren’t yet capable of dealing with the leisure glut left behind by our microeconomic success?