Infrequently Noted

hey David:

So I'm not decrying the rise in commodity prices. It had to happen as we encourage the rest of the world to join us in prosperity, and would have happened more precipitously had we decided to end our destructive farm subsidies. That burden is yet to come, and there's no hiding from that. What hasn't been a foregone conclusion, however, is that we would undermine our own stability to prop up the illusion of propsperity well beyond our means and spend that capital on things which don't contribute to the productive economy. Energy policy comes to mind, and not in the simple-minded "oil is a global commodity, what could we have done?" sort of way. This is about rates of change, and we have seen what 8 years of sticking your head in the sand (or worse) can do. I'm not pegging this on any one party, though. Of course the Clinton administration deserves its share of blame. Greenspan promoted at least one of our dual asset bubbles under a Democratic administration, and his "stewardship" allowed much of the housing asset bubble to form. The best we've had so far has been Ben Bernanke and Henry Paulsen who have at least seen to it that counter-cyclical policies continue and that outright failures of large institutions aren't permitted. Bernanke and Paulsen are the appointees of a Republican administration, so there's no partisan bent to this IMO. It is painful to have to watch them pretend not to vehemently disagree with the ideological bits of the administration, though. Can't wait to see what kind of hearing the Republicans in congress will give their inevitable proposals for more regulation.

It's curious to me that you're suggesting that contraction of the economy (the exact forms of austerity promoted by conservative economists) via reduction in productive use of capital is a positive side benefit. We've lost our stability, so now we should dispense with growth? I suppose that shrinking the economy is one way to deal with the deficit and a weaker currency, but I'm not personally looking forward to the result of such a policy prescription. It has been tried on many smaller economies with disastrous consequences. So long as the US dollar is the international reserve currency, we can still get out of this without too much pain (lower growth rates over the next N years, etc.). McCain's economic policies appear to have so little grounding in the reality-based world, though, that I don't see much of a way for a McCain presidency to not result in further devaluing of the currency and the eventual replacement of the US dollar as the international reserve currency. That is where the policy differences can really hurt us right now: a lack of credibility in the next president's fiscal policies undermining the current hints of competency by Bernanke et. al. Ugg.

Regards

With an excerpt line like:

Note: this post is far afield of my usual discussions. In the interest of not distracting those who read this blog because I usually discuss web-oriented things, the content of the post is beyond the jump.

I had no choice but to click on the "...read more" and see what it was you felt was left field. You could have written a post about growing roses, making coleslaw or cloud formations in the Austrian Alps and I'd have read it with a hook like that hanging. ;-)

Whatever you may think of the current fiscal policy and tax structure, it's not responsible for the inflation that we see. You're essentially decrying that commodities prices are going way up, and emerging economies have started to strain supplies. This is not something that happened over night, and not the Bush administrations fault, no matter how stupid they are. Sure, you could say that wasted 8 years not preparing for this, but you could also accuse the Clinton administration of the same thing.

Whatever progressive tax policies you favor, they are not going to turn back inflation anymore than drilling for oil off the coast is. If you tax more disposable income away from the wealthy, they make consume less, but it isn't going to make a dent in worldwide demand.

And while revenues from progressive taxes could be used to subsidize those effected by inflation or invest in long term programs to increase supplies, either through efficiency gains or scaling up, it again, isn't something that can be solved overnight.

Ironically, regressive taxes do help, because they hit consumption across the largest swath of population. If you want people to drive less, to waste less electricity, one way of doing it (admittedly not optimal, not desirable) is to tax their activities, either through explicit government taxes, or implicit ones like inflation.

At worse, you could blame the Bush administration for massively increasing the budget deficit, which is closely linked to the trade deficit, by lowering national savings. The larger trade deficit devalues the dollar, which causes increased demand for US assets and good/services, driving up prices. Due to the nature of the dollar as an international reserve currency, the Fed has been exporting inflation for the last several presidential administrations, and all those foreign dollars will eventually be looking to be cashed in as the dollar declines, bring the inflation back home to roost.

The problem with people on the left and the right, is they always search for short term blame, and to tie blame to their opposition. The reality is, there are big structural shifts happening in the world today that are out of the control of fiscal or tax policy fixes.

I'm voting for Obama, but if you think even 8 years of solid Democratic rule, and progressive taxation is going to fix this, I hope you're right. Unfortunately, I don't see the progressive OECD countries fairing that much better in the face of massive commodity inflation.

It's simply not an issue of Republicans vs Democrats. Both parties have been complicit in letting the situation fester. When times are good, politicians don't want to enact policies which could rock the boat, and when times are bad, they don't have the fiscal freedom to enact long term fixes.