The Things We Think We Know

10-Year Treasury Constant Maturity Rate

Take a look at the chart at right. It documents the history of the yield on the 10-year U.S. treasury bond. As such, it provides an ongoing record of what it costs the United States treasury to borrow money from people, pension funds, foreign countries, whatever.

As you can see, the interest rate on our national debt is at an historic low. But it can’t be. Because we all know that we are just like Greece, in the throes of an existential debt crisis so intense that Republicans have been dancing with national default now for weeks. No one wants to lend us money. They so much don’t want to lend us money that they’re willing to take a pittance in interest for the privilege of taking this enormous risk. Anybody want to explain this to me?

Our current debt crisis is just one of the many facts we know to be true that are, in fact, not true.

[Late add: I should note, although it ought to be obvious, that if Teahadists succeed in forcing a gratuitous default, we will have a debt crisis. But that has nothing to do with our capability of servicing our current debt.]

I was a bit snotty in the piece that ran yesterday describing the monumental folly on display in this debt ceiling rigamarole. That’s because the current Republican leadership in Congress is willing to publicly use a gratuitous debt default to try to extort big cuts in Medicare and Social Security from Democrats that they can then use to run against Democrats in 2012. It’s really nothing more than that. And it looks increasingly unlikely to happen with a number of leading Republicans suddenly declaring that the debt ceiling is really no big deal after all if we can just blame Obama for it. The have apparently been chatting with their big money flow contributors, who are saying, “OK, enough.”

Maybe now they’ll actually run on ending Medicare as we know it, as many of them, including Dennis Ross, have already voted to do in endorsing Paul Ryan’s steal-from-the-young-and-give-to-the-old budget plan. That will be a fun election.

Anyway, in today’s piece I want talk about something a little more fundamental to our national fate–our ability to convince ourselves of things that aren’t true and then never question ourselves about them. Let’s open the discussion with a nugget of “conservative” propaganda cranked out by a local Twitterperson.

I noticed on the Twitter machine a couple of days ago the that she dug up an old Obama quote in which he declared it a bad idea to raise taxes in a recession. (I’m putting aside the technical fact that we’re not in a recession. The economy is bad. We can all agree on that, I suspect.) It was a good moment of gotcha. The flipside of that quote, which she did not cite, of course, is that it’s foolish to cut spending in a recession, which has long been an equal bit of conventional wisdom. The theory in both cases is that extra money–either in tax cuts or government spending on services, funded by deficits–helps maintain or increase economic activity when the private sector can’t do so on its own. This is classic Keynsian economics. Most sane people agree it more or less worked to help us out of the Great Depression.

What’s interesting here is she isn’t interested in the truth of the statement she quoted, just who said it and in what context.

It turns out that I read this Tweet on the same day I learned something about Herbert Hoover, every Keynesian’s favorite punching bag. I have long known that Hoover, towards the end of his benighted Great Depression administration, began to pursue a more expansionist, Keynsian economic policy than is generally acknowledged. Watching unemployment go from 3 to 4 percent to more than 20 percent on your watch might tend to make you more ideological flexible. I wrote about that a long time ago in an article called The Graph of Doom. I remain quite proud of it.

However, I did not fully realize that in the summer of 1932, with unemployment near 25 percent, Hoover signed the largest peace time tax increase on the wealthy in our history until that time. It didn’t do him a hell of a lot of good, politically. FDR trounced him later that year in the election. But it is an undisputable fact that in the four years immediately following that giant tax increase, which corresponded with FDR’s first four years, unemployment plunged by half, to about 13 percent. I would love for some anti-tax type to explain how that could be. For that matter, maybe Barack Obama could explain it. Maybe it’s why he’s pushing for tax increases on the wealthy now. Maybe not.

I only play historian when it comes to the pre-Depression 20s–and mostly in Florida. But doesn’t Hoover’s tax increase and stimulus-type spending at the very end of his term–and the rapid economic growth and drop in unemployment that followed–suggest that raising taxes on the wealthy in a difficult economy isn’t such a terrible idea after all? We often hear the current economic malaise described as our worst since the Great Depression. Isn’t Hoover’s tax record in the actual Great Depression–and the results that did or didn’t ensue–worth considering when thinking about what we should do to get ourselves out of this mess? Maybe Hoover deserves a little credit for late-term flexibility.

I would like to think that considering the truth of conventional wisdom in relation of public policy–not just who spews it–is the difference between being a partisan hack and a citizen.

This is serious business. Policy is not faith. We can, in many cases, test it empirically, with numbers and history and honesty. I couldn’t care less about unity or coming together to do big things or any of the meaningless rhetoric we babble about. We disagree. That’s not the end of the world. But I do care quite a bit about getting things right.

So in that spirit, I’d like to encourage readers to point out other bits of conventional wisdom that are simply wrong. Come with evidence. Just calling something wrong, libertarians, doesn’t count. I’d also encourage you to note any idea I cling to that is empirically wrong. I’m as prone to tribalism and rhetoric as anyone else. So come and call me out on something, with evidence. We’ll discuss it. I’ll be nice.

Creative Commons License chart credit: Federal Reserve Bank of St. Louis

24 thoughts on “The Things We Think We Know

  1. Democratic history and math again, sorry.  FDR’s “New Deal” did have an increase in wages following the New Deal, but unemployment was also higher as compared to the gains in productivity and prices were higher as well – erasing any “gains” from the Deal.  You can read what the UCLA economists had to say about here (http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx) – and I doubt they’re some “anti-tax type” either.  As they say at the end: “Ironically, our work shows that the recovery would have been very rapid had the government not intervened.”

  2. Do you dispute that unemployment dropped sharply and economic growth increased after 1932? Yes or no, please. Pretty easy to answer. We can discuss reasons after that.

  3. Do you dispute that unemployment dropped sharply and economic growth increased after 1932? Yes or no, please. Pretty easy to answer. We can discuss reasons after that.

    • I’ll answer for Ken, yes indeed unemployment surely did fall.

      Here are the BLS statistics for that time period.

      Year
      Unemployment rate

      1923-29
      3.3

      1930
      8.9

      1931
      15.9

      1932
      23.6

      1933
      24.9

      1934
      21.7

      1935
      20.1

      1936
      17.0

      1937
      14.3

      1938
      19.0

      1939
      17.2

      1940
      14.6

      1941
      9.9

      1942
      4.7
      A decade of unrestrained taxation and Government growth managed to keep us at very high unemployment rates for the entire time. Bravo!

      As Roosevelt’s Treasury secretary Henry Morganthau put it:
      “We have tried spending money. We are
      spending more than we have ever spent before and it does not work. And I
      have just one interest, and if I am wrong . . . somebody else can have
      my job. I want to see this country prosperous. I want to see people
      get a job. I want to see people get enough to eat. We have never made
      good on our promises. . . . I say after eight years of this
      Administration we have just as much unemployment as when we started. . .
      . And an enormous debt to boot.”

      And where did the post war bust go that they Keynesians predicted? At that time, they were preaching economic doomsday when Government spending had to fall as the war ended. What did we get? We got the largest economic expansion in history.

  4. 1933 was a hell of a year (revolution!), but recovery doesn’t seem to start until 1934. Pinning that recovery to huge tax increases on the rich seems highly unlikely (and probably punitive, seeing as how they wanted to knock off the prez), and I’m sure there are many more things that helped to spur it along. My first guess would be recovering demand for production worldwide.

    http://www.huppi.com/kangaroo/Timeline.htm

    Excerpt from 1933 in the link above: “Alarmed by Roosevelt’s plan to redistribute wealth from the rich to the poor, a group of millionaire businessmen, led by the Du Pont and J.P. Morgan empires, plans to overthrow Roosevelt with a military coup and install a fascist government. The businessmen try to recruit General Smedley Butler, promising him an army of 500,000, unlimited financial backing and generous media spin control. The plot is foiled when Butler reports it to Congress.”

    • I don’t think I’m “pinning that recovery to huge tax increases on the rich.” Point to where I do say that, DR, if you can.

      What I am saying is that huge tax increases on the wealthy, or taxes in general, in the conservative, libertarian mindset, equal long-term job killers, correct? That’s a giant part of your soul, right? Taxes should have killed the recovery, right? And yet not taxing coincided with an unemployment increase of 20 points or more. Right after taxing, we enjoyed a 10 to 12 point drop. 

      We can sit down together one day with the spreadsheets and mark the precise moment of turn. But if your worldview, as I understand it, is correct, what happened in America between 1933 and 1937 should not have happened. Would you agree with that? For that matter, what happened from 1992 to 2000 shouldn’t have happened either. That period followed significant tax increases from two presidents, one from each party.   

      My point is not to declare myself right; it’s to challenge the kind of foolish axiomatic thinking that has us on the cusp of defaulting for absolutely no reason.

    • I don’t think I’m “pinning that recovery to huge tax increases on the rich.” Point to where I do say that, DR, if you can.

      What I am saying is that huge tax increases on the wealthy, or taxes in general, in the conservative, libertarian mindset, equal long-term job killers, correct? That’s a giant part of your soul, right? Taxes should have killed the recovery, right? And yet not taxing coincided with an unemployment increase of 20 points or more. Right after taxing, we enjoyed a 10 to 12 point drop. 

      We can sit down together one day with the spreadsheets and mark the precise moment of turn. But if your worldview, as I understand it, is correct, what happened in America between 1933 and 1937 should not have happened. Would you agree with that? For that matter, what happened from 1992 to 2000 shouldn’t have happened either. That period followed significant tax increases from two presidents, one from each party.   

      My point is not to declare myself right; it’s to challenge the kind of foolish axiomatic thinking that has us on the cusp of defaulting for absolutely no reason.

      • First of all, “I” am much more than a party or political ideology, so these ideas being “a giant part of my soul” is incorrect.

        Second, about your comment, “I don’t think I’m “pinning that recovery to huge tax increases on the rich.” Point to where I do say that, DR, if you can.” Allow me to point to another part of your comment: “And yet not taxing coincided with an unemployment increase of 20 points
        or more. Right after taxing, we enjoyed a 10 to 12 point drop.” That seems pretty clear that you’re pinning recovery on huge tax increases on the rich.

        Further, correlation is not causation, and as I said before, there were many factors that influenced that drop.

        My worldview tells me that tax increases alone did not spur recovery in either period mentioned. Disregarding all the jobs acts by Roosevelt and the amazing new technology of the internet in the 1990s probably had more influence on the economies of the times. I think you would agree that the GW Bush economy would’ve been much worse had the housing boom not been going on.

        Also, my worldview is more about fairness, in a more universal sense. Simply put, it is not fair to heavily tax those who earn more simply because they earn more. On the flip side of that coin, those who illegally evade their fair share of taxes should be prosecuted. Those who use loopholes in the tax system should not be punished; those who created the loopholes should be punished (at the very least a few swift kicks to the ass). The way to eliminate loopholes seems to be a flat tax, and while highly debatable, I don’t see how our graduated tax system has been a boon to us as a nation. To accountants, yes, but our nation, no. Arbitrary earnings take a certain percent of your money; in 10-20 years, $200,000 may be closer to what a well-to-do but middle class employee earns, and then we what… cry for the heads of those who earn $500,000 and up, because now they’re the evil ones? Ridiculous classism, disgusting and below us. Focus on fair for everyone, and you’ll see the benefit of far less government intrusion because government makes many things unfair.

        So I hope that long-winded rant cleared some things up.

      • First of all, “I” am much more than a party or political ideology, so these ideas being “a giant part of my soul” is incorrect.

        Second, about your comment, “I don’t think I’m “pinning that recovery to huge tax increases on the rich.” Point to where I do say that, DR, if you can.” Allow me to point to another part of your comment: “And yet not taxing coincided with an unemployment increase of 20 points
        or more. Right after taxing, we enjoyed a 10 to 12 point drop.” That seems pretty clear that you’re pinning recovery on huge tax increases on the rich.

        Further, correlation is not causation, and as I said before, there were many factors that influenced that drop.

        My worldview tells me that tax increases alone did not spur recovery in either period mentioned. Disregarding all the jobs acts by Roosevelt and the amazing new technology of the internet in the 1990s probably had more influence on the economies of the times. I think you would agree that the GW Bush economy would’ve been much worse had the housing boom not been going on.

        Also, my worldview is more about fairness, in a more universal sense. Simply put, it is not fair to heavily tax those who earn more simply because they earn more. On the flip side of that coin, those who illegally evade their fair share of taxes should be prosecuted. Those who use loopholes in the tax system should not be punished; those who created the loopholes should be punished (at the very least a few swift kicks to the ass). The way to eliminate loopholes seems to be a flat tax, and while highly debatable, I don’t see how our graduated tax system has been a boon to us as a nation. To accountants, yes, but our nation, no. Arbitrary earnings take a certain percent of your money; in 10-20 years, $200,000 may be closer to what a well-to-do but middle class employee earns, and then we what… cry for the heads of those who earn $500,000 and up, because now they’re the evil ones? Ridiculous classism, disgusting and below us. Focus on fair for everyone, and you’ll see the benefit of far less government intrusion because government makes many things unfair.

        So I hope that long-winded rant cleared some things up.

        • “That seems pretty clear that you’re pinning recovery on huge tax increases on the rich.” No. I wrote “coincided”, which by definition does not mean caused. I certainly won’t rule it out, but nowhere have I asserted a cause. I have shown you juxtapositions. I’d like you to acknowledge that or provide me with the alternative definition of coincided that I’m not aware of. It’s important that we are honest about each other’s words. 
          If I’ve ascribed to you a worldview you don’t have, well then good for you for correcting me. But, let me ask this, when you hear someone declare, “Oh, taxes kill jobs,” do you ever say, “well, there’s historical evidence that suggests otherwise.” Or do you save your googling and linking for fools like me who actually care about what history and honesty can tell us about these matters.?

          Do you ever interrogate your gauzy definitions of “fairness” and “what’s right” with observations and facts that might tend to change what’s fair and what’s right? You seem only to interrogate mine, which is fine, because it makes me better to closely consider and defend  my perceptions. I think, far more than unity or hand-holding, honest confrontation of facts that tend to undermine our emotional/ideological positions is what we most need.

          • “I would love for some anti-tax type to explain how that could be.”

            Are you foolish enough to expect us readers to believe that when you put the “facts” of tax hikes on the rich and lower unemployment for the next four years (starting 1934, not 1933) in the same paragraph, you aren’t trying to show that one is causing the other (aka pinning higher taxes on the rich to lower unemployment numbers)? You even snidely ask for an explanation from “some anti-tax type” of how raising taxes on the rich would lead to lower unemployment numbers, as the quote shows. What kind of silly undergrad semantic games are you playing? After all, “This is serious business.”

            Explain what you mean by “gauzy definitions,” as I thought I was clear. As for my positions on political aspects based on my libertarian philosophy, I examine them almost daily. No philosophy covers every aspect perfectly, but I have found libertarianism is a good guideline leading to the greatest good for the greatest amount of people. I’m guessing you would disagree, but then I’d also guess that you have a different view of what libertarianism is than I have.

          • I guess you cannot come up with an alternative definition of coincide. Again, for the third time, I have shown historical evidence that calls into question a treasured bit of rhetoric and belief for self-descibed economic conservatives and libertarians: tax increases kill jobs. There is simply no historical evidence that’s true. I certainly don’t know that Hoover’s tax increase cause the growth of FDR’s first 4 years; but I also clearly know that it didn’t cause it not to happen.

            Now, I guess you’re saying that you don’t care about the actual impact of policy. You think mostly that it’s unfair “to heavily tax those who earn more simply because they earn more,” whatever unfair, or heavily, actually mean, reagrdless of the consequences for the country. And here we are back to faith, which is the point of this exercise.

            I would submit, DR, that the emotional satisfaction of declaring that your worldview is based on “universal fairness,” far outweighs your wilingness to consider seriously the meaning of fairness or universal or anything else. Who needs observation when you have faith? You’re actually quite religious in your way. I’m not. I think that’s the difference between us. 

          • I guess you cannot come up with an alternative definition of coincide. Again, for the third time, I have shown historical evidence that calls into question a treasured bit of rhetoric and belief for self-descibed economic conservatives and libertarians: tax increases kill jobs. There is simply no historical evidence that’s true in any general sense. I certainly don’t know that Hoover’s 1932 tax increase cause the growth of FDR’s first 4 years; but I also clearly know that it didn’t cause it not to happen. In the conservative worldview, that tax increase should have killed that recovery. Instead, you had huge growth.

            Now, I guess you’re saying that you don’t care about the actual impact of policy. You think mostly that it’s unfair “to heavily tax those who earn more simply because they earn more,” whatever unfair, or heavily, actually mean, reagrdless of the consequences for the country. And here we are back to faith, which is the point of this exercise.

            I would submit, DR, that the emotional satisfaction of declaring that your worldview is based on “universal fairness,” far outweighs your wilingness to consider seriously the meaning of fairness or universal or anything else. Who needs observation when you have faith? You’re actually quite religious in your way. I’m not. I think that’s the difference between us. 

          • Show me where you say “coincide” in the article. Your word games amuse me, but don’t help the conversation at all.

            “I certainly don’t know that Hoover’s tax increase cause the growth of
            FDR’s first 4 years; but I also clearly know that it didn’t cause it not
            to happen.”

            So what’s your article about? You don’t know that tax increases caused/helped employment, and you do know that tax increases didn’t cause/help unemployment… your article amounts to nothing. Without some sort of conviction on which way you expect such a proposal to go, why would it be okay to disproportionately increase taxes on only some of the public? How can you only propose that tax increases don’t hurt jobs and not explore that there are many other factors that influence job creation? In this light, pointing to one or two episodes of tax increases that coincide with job creation means absolutely nothing.

            By showing a coincidence, the evil shibboleth of “taxes kill jobs” will be vanquished!

            Was this on your mind when you wrote the article? This is what it turned into, so knowing if that’s where you started would be interesting.

          • Show me where you say “coincide” in the article. Your word games amuse me, but don’t help the conversation at all.

            “I certainly don’t know that Hoover’s tax increase cause the growth of
            FDR’s first 4 years; but I also clearly know that it didn’t cause it not
            to happen.”

            So what’s your article about? You don’t know that tax increases caused/helped employment, and you do know that tax increases didn’t cause/help unemployment… your article amounts to nothing. Without some sort of conviction on which way you expect such a proposal to go, why would it be okay to disproportionately increase taxes on only some of the public? How can you only propose that tax increases don’t hurt jobs and not explore that there are many other factors that influence job creation? In this light, pointing to one or two episodes of tax increases that coincide with job creation means absolutely nothing.

            By showing a coincidence, the evil shibboleth of “taxes kill jobs” will be vanquished!

            Was this on your mind when you wrote the article? This is what it turned into, so knowing if that’s where you started would be interesting.

          • The title is the “The Things We Think We Know”. Lots of people believe/know, including almost an entire political party, in the “shibboleth” that “taxes kill jobs.” I was, obvious to everyone but you apparently, attempting to cast factual doubt on that shibboleth as an example of those things we know to be true that might be so true after all. (As a bonus, I was trying challenge some of things we “know” about Hoover.)

            In your world, apparently, it is irrelevant to point that American taxes increased quite a bit in the summer of 1932 and that 1933-1936 became years of strong growth and tumbling unemployment. It is not irrelevant to mine. The reader can decide who is playing semantic games and who is not.

          • Sadly, what you say you do and what you did are two different things, as I painstakingly pointed out to you. You cast no doubt on the shibboleth because correlation is not causation. Maybe if I speak more slowly, you will get it?

          • You’re just shutting down now. Again, I’m quite happy to leave it to the readers which of the two of us requires slower speaking. Have the last word.

          • Deflection seems to be your coin of the realm, and offering me the last word is noble, but it shows who, in fact, is shutting down: it is you.

  5. “… for absolutely no reason.

    Oh there’s a reason all right. It’s because too many of us
    aren’t Americans anymore – We’re Republican-Americans, Democrat-Americans,
    Christian- Americans, and just about every other hyphenated American flavor you
    can think of. 

     

    What we’re not anymore is “Americans.” And, “United We
    Stand, Divided we fall” is as true now as it was in Patrick Henry’s day.  But we have a Senate Minority Leader whose
    stated top two priorities have nothing to do with good governance and
    everything to do with partisan politics. 
    That’s the same kind of warped divisive thinking that caused Republicans
    to fall in line behind an un-indicted felon and elect him Governor of
    Florida.  I’m not picking on Republicans here;
    all of the other hyphenated-American groups are contributing their own share of
    insanity to the equation as well.

     

    What the petulant children on Capitol Hill and the rest of
    us need to understand is that the only reason we enjoy the privileges of being
    a “fill-in-the-blanks-hyphen” American is because we’ve always been “Americans” first
    and we’ve created a culture and a government which allows, tolerates, and
    encourages incredible individual freedoms. 
    But the minute a sizable number of us (and those who govern us) see
    themselves as Republicans, Democrats, Christians, Muslims, Black, White – or whatever
    first, our system falls apart. We simply have to put that stuff aside and do
    what’s right for the Nation.  Everything
    else will follow naturally.

     

    Instead of uniting, we’re becoming more divisive every
    day.  That’s the shameful, if simplistic,
    truth about why we’re down to the wire and still refusing to deal with the realities
    of the debt/budget situation.  We cannot
    default without destroying the world economy. 
    To avoid default, we must raise the debt ceiling.  Pretty simple – a no-brainer for most of
    us.  After doing that, Congress has to
    clean up the mess that it’s made over several generations by fixing the tax code,
    prioritizing what we spend money on, and much more.  That’s how how fix the national debt problem.  What we can’t do in the remaining time, is
    fix anything but the debt ceiling.  The
    elected children on the Hill have frittered away that opportunity by being
    Republicans, Democrats, and Tea Partiers first – rather than acting like Americans
    with 236 years of common interests, goals and experience to unite us.  Shameful!

    • I, too, am against the “Hyphenated-American” positions a lot of people take, but I find this less of an issue than the general malaise in which Americans as a whole have found themselves. When you allow yourself to be badmouthed during deserved and undeserved debates, people start to believe the hype. Lately, when you see patriotism, or strong belief in the American values of individual liberty and entrepreneurial spirit, you might have a pang of guilt. Am I supposed to be proud of this country when it does bad things and seems to turn its back on what we, collectively, are supposed to believe?

      Yes, we should be proud. We can still fight for what’s right, we still have our voices and a will to change the problems we see in front of us, and we in America have a unique sense of spirit. As long as we focus on America the Land of Liberty and Opportunity, we can often see a clear path ahead. People may want to hyphenate when they’re going more tribal, fracturing into groups to find protection and benefits given out as largesse, but the strength to unhyphenate will bring the most power to us all.

      Liberty and opportunity are the keys to the kingdom.

  6. “but the strength to unhyphenate will bring the most power to us all.”

    And the first step in the instant crisis would be for for elected adolescent representatives in the House and Senate to forget all of the Republican/Democrat/Libertarian/Tea Bag (etc.) labels and dogma.  

    Dennis Ross (for example) is NOT a  “Republican US Congressman.”  He’d better be simply a “US Congressman” concerned first about the state of the Nation.  Multiply that times 535. Then the Congress could start to act in the best interests of the Nation as a whole.

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