What happened to the personal savings rate in Q4 2012?
Note the huge increase in personal saving in Q4 2012.
I’m not asking why it tanked between Q4 2012 and Q1 2013. The drop simply put it closer to it’s long term trend. I want to know why it spiked so high in Q4 2012. I came across this chart earlier this morning. I looked up “personal savings rate Q4 2012” on Google but found nothing to explain this. It’s a big jump—something like 30 percent. Any ideas?
A good piece from The Economist on “the dark clouds around the silver lining” of Fed monetary policy. A highlight:
…constraining the economy to so low a rate of average inflation is a good way to ensure that very low inflation or deflation becomes a serious threat whenever the next shock hits. That would be nasty in and of itself, given what we have learned about wage rigidity over the course of this business cycle. It is made all the worse by the very high probability that interest rates will quickly fall back to zero during the next downturn. That’s the third reason to pull one’s hair out over the Fed’s preferred approach: the lower the average inflation rate, the lower the nominal interest rate consistent with normal economic growth, and the higher the odds of hitting the zero lower bound whenever trouble strikes.
And the kicker:
…the Fed is the world’s monetary pacesetter, and it is rapidly moving toward tightening at a time when a disinflationary freeze is settling in around the rest of the globe. The Fed may tell itself that its responsibility is to take a very narrow, domestic view. Given the interconnectedness of the global financial system, taking a narrow, domestic view strikes me as a bad idea, even in terms of pure American self-interest.
I think this author is on to something important, but I don’t agree that the Fed is going to be as hawkish as he thinks. I don’t expect a rate hike in 2015 largely for those reasons this author cites. In short, I don’t think the Fed is “rapidly moving toward tightening” right now.
Breaking at Bloomberg: The Central Bank of Russia has raised its key interest rate from 10.5 to 17 percent. This hearkens back to a post I published on Friday regarding divergence among central banks with regard to monetary policy stance. Some face looming deflation (or at least disinflation), like the ECB and Bank of Japan. Others allegedly face inflation, like the Fed (though I’ve expressed my disillusionment with that theory in that same post I cite above). The Central Bank of Russia obviously falls into the latter camp.
Interestingly, the Central Bank of Russia cites existing sanctions on Russia in the first paragraph of its December Summary. Might this hint at more aggressive action to come on the part of Putin to remove these sanctions? The Summary also predicts -4.5% to -4.7% GDP growth in 2015 should oil prices remain at $60 per barrel through 2017. In short, disaster looms. A Washington Post headline tonight literally says “Russia’s economy is doomed.”
I’d like to research the interest rates moves that led up to this hike. I’d like to look for similarities with the Fed’s monetary stance—whether we can learn anything from Russia’s experience with monetary easing that applies in the U.S. I’ll do that tomorrow.
On a related note, that Summary is horribly written (or at least horribly translated). Can they not afford a professional?
An interesting piece from The Economist on “peak trade”:
In the two decades up to the financial crisis, cross-border trade in goods and services grew at a sizzling 7% a year on average, much faster than global GDP. But although trade bounced back fast from its post-crisis plunge, rising by 6.9% in 2011, it has been decidedly sluggish since, growing by only 2.8% in 2012 and 3.2% in 2013 in dollar terms, even as global GDP grew by 3.1% and 3.2%.
The author posits some possible explanations. One says that the world is exhausting gains from trade made possible by the removal of trade barriers following the completion of the Uruguay Round in 1994 and the creation of the World Trade Organization, and the integration of China and the former Soviet bloc into the world economy. Another blames the trend on a “post-crash rise in protectionism.” Both seem plausible to me.
The more interesting question to me, though, is not what’s causing “peak trade,” but whether it really matters. I think the author’s quote from Paul Krugman is spot on: “ever-growing trade relative to GDP is not a natural law … we should be neither amazed nor surprised if if stops happening.”
That said, increasing rates of global trade only boosts economic growth. But a decline in global trade it’s not something worth fighting, per se. In fact, I think rapid growth in trade is due almost entirely to liberalization and development in individual countries, and has less to do with mostly-for-show “trade agreements” and trends in global demand than we might be tempted to believe. Fighting the decline in trade by targeting the decline in trade, then, is just fighting a symptom and not a cause. What’s needed is freer markets in less-than-free economies that make international trade something worthwhile for entrepreneurs to engage in.
Ashley Kindergan writes a great piece at The Financialist on the growing divergence between central banks, the likes of which we haven’t seen in 25 years.
In 2015, global monetary policy could look like a mirror image of its 1989 self. The Bank of Japan already expanded the scope of its asset purchases in October. The European Central Bank is expected to announce quantitative easing as early as the first quarter, while the U.S. and the U.K. are expected to start tightening monetary policy in mid-2015. That’s because policy makers’ concerns have been reversed as well, with deflation a bigger worry than inflation in Europe and Japan (a 40 percent drop in crude oil prices since June has exacerbated the deflationary dynamic), and inflation emerging as a potential concern of the Fed and the Bank of England.
One qualm: I’m a little skeptical that inflation fears will be the prime mover behind Fed policymaking in 2015. The economy may be looking up as equity values soar and unemployment continues to decline, but inflation itself remains low. Janet Yellen is a deflation hawk, anyway, having repeatedly dismissed inflation fears in the past. The collapse of oil prices adds deflationary pressures to the mix that, I think, will dissuade Fed officials from raising rates in 2015. Near-zero rates through 2016 is what Janet Yellen originally wanted, anyways.
But either way, how the world’s central banks respond to these contrasting inflationary and deflationary pressures will certainly be one of the coming months’ big stories. Here’s Barry Ritholtz saying as much at Bloomberg today:
The central bankers of the world are out of synch with each other. If the U.S. economy continues to accelerate, this disparity may become even more pronounced. How that plays out could be the big question facing central bankers in 2015.
The Fed especially has an interesting puzzle, as unemployment drops ever lower while inflation remains low—a situation The Economist calls “contradictory pressures” in it’s print edition this month. A working assumption behind the economics of the Fed’s dual mandate is that inflation and unemployment should move somewhat in tandem, and that the decision to ease off the monetary gas pedal should come when both indicators look good. But what happens when one indicator moves opposite the other—when inflation drops as job growth rises, as we’re seeing today? Can unemployment get “too low” as the Fed waits for inflation to pick up before raising interest rates? Will a rate hike spark deflationary fears if the Fed acts in response to strong jobs reports while inflation remains low?
(On that note, remember when 6.5 percent unemployment was supposed to trigger a rate hike? In retrospect, that was probably one of Ben Bernanke’s worst ideas. Pegging the end of easy money to a specific unemployment rate might have eased fears of a rate hike when unemployment was still well above 6.5 percent, but pegging the two events together like that created a perverse incentive—one I wrote about last year—that turned low unemployment into something stimulus-addicted markets didn’t like.)
Here’s a nice piece from Barry Ritholtz on “stupidity.” He’s criticizing baseless accusations against economic reports, like GDP and unemployment, from people who obviously haven’t researched the way these reports are generated.
The key here, as he points out, is recognizing that some reports are derived from “noisy data sets” that don’t yield exact figures. The Census Bureau’s monthly new home sales report, for example, has a ±15-19 percent margin of error. Some scoff at this and chalk the whole thing up to a piece of government propaganda used to manipulate public opinion regarding the health of the economy. But such a large margin of error is actually a stroke of intellectual honesty—researchers at the Census Bureau are admitting the limits of their figures. So it’s not the bureaus who lead public opinion astray, but the commentators who ignore margins of error and readjustments when criticizing these figures.
This isn’t to say there aren’t problems with the way government calculates things like GDP, unemployment and new home sales. Those are plenty. But worse than using imperfect figures responsibly is publicly criticizing imperfect figures irresponsibly, especially if it’s for no other reason than a disappointment with the economic story those figures tell.
In this piece at Reason.com, economist Robert Murphy writes the following:
But the U.S. economy has stayed in this holding pattern, where people expect low consumer price inflation and so commercial banks keep their excess reserves earning 25 basis points parked at the Fed rather than make new loans. Thus the process I described above has been thwarted; the quantity of money held by the public right now is much lower than it would be, if the banks decided they would rather make loans and earn a higher interest rate than the 25 basis points currently paid by the Fed.
Unfortunately, this statement implies something about how banking works that is simply untrue, which leads Murphy to some incorrect conclusions about QE’s effect on the economy and what to think about inflation. I don’t like seeing this because I like Murphy and the school of economics he espouses. I also see this same mistake made quite often by other economists, which only confuses everyone. So here’s my attempt at explaining this error in a constructive and uncritical manner:
There is no trade-off between loans and reserves except to the extent that new loans results in higher demand for banknotes.
This is seen by the fact of how the central bank’s balance sheet looks:
ΔAssets (A) = ΔReserves (R) + ΔBanknotes in circulation (BK) + ΔGovernment deposits (GD)
Rearranged, this equation looks like:
ΔR = ΔA – ΔBK – ΔGD
The implication here is that levels of reserves can change in only three ways:
Now, Murphy’s point regards the actions of commercial banks. He says that are choosing to keep their reserves “parked” at the Fed rather than make new loans.
But as I explained above, banks cannot change the amount of reserves in the system apart from actions by the Fed, the public or the government. They cannot, by making new loans, shed reserves or somehow turn reserves into an investment that earns a higher interest rate.
But one might ask: Doesn’t a new loan involve turning reserves (low-interest into loaned funds (higher-interest)?
The answer is no. When banks make a loan, they simply credit the borrowers account at the Fed (corrected 12/28/14) with new funds. They don’t take this from their reserves. They are, however, limited in the amount of funds they can loan by mandated reserve-requirement ratios. Every new loan moves them close to becoming reserve-constrained. But when they make a loan, they move closer to this limit by increasing the size of their balance sheet all around—not by moving funds around. Their total level of reserves stays the same and the total level of loaned funds increases.
In short, a new loan’s effect on a bank, ceteris paribus, is to increase assets by the amount of the loan. A loan has no effect on reserves.
Now, what could affect reserves is how borrowers use those loaned funds (public’s actions). If the loan causes demand for banknotes (cash) to increase, then reserves will fall as banks redeem such demands with banknotes. Outflow of banknotes, as explained above, reduces reserves for the bank in question, as well as for the system as a whole (assuming those banknotes aren’t withdrawn and then deposited in another bank, which merely transfers reserves from one bank to another).
Another way reserves could fall is if the borrower writes a check against their loaned funds account to someone who uses a different bank. This would result in a transfer of reserves out of the borrower’s bank and into the bank of the person to whom the check was written. This wouldn’t result in net loss of reserves for the system as a whole, though. It just transfers reserves from one bank to another.
So when Murphy says that banks might decide to make loans “rather” than keep reserves parked at the Fed, he’s mistaken. Banks might decide to increase lending, but not at the expense of losing interest on reserves at the Fed. In fact, banks would rather earn interest on both new loans and reserves at the Fed (which is possible because new loans don’t require an outflow of reserves). Ideally, Bob would write a check against his loaned funds account that is addressed to another customer of that bank. Then the bank sees no loss in reserves (and so earns the same interest on the reserves as before) plus an increase in loaned funds which, of course, earns interest.
This is a very subtle point, but has huge implications for predicting inflation and gauging the effects of QE and growth in the monetary base. For example, there is no threat of sky-high levels of reserves “turning into” loans funds and thereby launching us into hyperinflation. Sure, a higher level of reserves pushes banks further from being constrained by their reserve-requirement ratio, which means they can increase lending. But banks are normally not reserve-constrained, so the relationship between reserves and loans is not direct, and might be hardly related at all.
This is not to say that inflation won’t happen at all, or that QE doesn’t fund malinvestment to levels that will ultimately prove unsustainable. In fact, Murphy is right about the general, distortive effects of QE. He’s just wrong about why QE induces more lending, which has implications for his predictions regarding inflation (and, I think, might explain why his original predictions were wrong).
Now, if you’re following this closely, you might have a question: If reserves can’t be lent out and don’t have a substantial effect on how much banks lend, what’s the point of increasing them with QE?
The answer is that QE changes the aggregate portfolio composition held by the private sector by buying government debt and other securities with reserves and bank deposits—something economist Paul Sheard aptly calls “portfolio rebalancing effects.” In short, this induces more confidence among borrowers and encourages banks to lend by “liquefying” their balance sheets.
In short, banks cannot lend out reserves. We shouldn’t expect to see any net outflow of reserves apart from action on the part of the Fed and the government unless the public increases it’s demand to hold cash—an event over which individual banks have virtually no control.
So Murphy is wrong to say that banks might choose to lend “rather than” keep reserves parked at the Fed. When they lend, their reserves stay parked at the Fed no matter what.
And finally, note the implication here that banks wouldn’t want to see diminished reserves as long as interest paid on those reserves is positive. Even if interest rates on loans and other investments is higher, they’d rather earn interest both on their reserves at the Fed plus on these higher-earning investments. This is possible, again, because loans do not “come from” excess reserves. As Sheard explains:
…banks do not need excess reserves to be able to lend. They need willing borrowers and enough capital – the central bank will always supply the necessary amount of reserves, given its monetary stance (policy rate and reserve requirements).
For further reading, check out this short, excellent paper by Paul Sheard (here’s a one-page summary if you really don’t have time). I’m channeling him, really, as well as Forbes’ Frances Coppola and Nathan Lewis.
Finally, while I think I understand this issue quite well, I’m no expert on banking. Let me know if I’ve made a mistake and I’ll make updates as appropriate.
Here’s nice summary of four economists’ in-their-own-words views on why inflation is so low despite five years of quantitative easing. I find Schiff unconvincing, Henderson refreshing, Sumner quite convincing, and Murphy wrong (disappointingly). Check it out and see if you can tell why.
*MILD SPOILER ALERT*
I finally saw Interstellar last night. Good movie. But here’s a rant on why movies like it annoy me:
They ignore the biggest problem facing a group of people trying to decide how to save the world—the collective action problem.
For example, most people in Interstellar suffer from apparent mindlessness. Not the main characters, but everyone else. While government scientists slaved away building a massive spaceship to take them to another world, everyone else just went about their lives. A government bureau manned by hundreds of people working in secret operated, as far as we know, without any significant conflict between the individuals who comprise it. This, despite shrinking budgets and sky-high stakes (whoever gets on the ships first has the best shot at surviving). Everyone just goes along with what’s being dictated from the top, but those at the top don’t seem to possess any real enforcement mechanism that would allow them such control over their subordinates. Everyone just does what they’re told, apparently never thinking that they might know better than their bosses.
Of course, it’s not impossible that tons of people could get along without serious conflict. The collective action problem isn’t a logical necessity. It’s merely something we observe in the world—something that plagues almost every attempt at group action. So perhaps this government bureau and all the other people in the world who just sit around peacefully waiting for someone to do something about the pending apocalypse could be an exception. I guess it’s possible that a government bureau wouldn’t change course after 25 years of no results from their original course of action, or that no one would begin to doubt the head honcho physicist who, after decades of thinking, never did solve the problem necessary for them to succeed and survive. That could happen. But such a world bores me. It’s not interesting or one worth putting in a movie. It skips over what is perhaps the most endemic problem facing groups of people trying to achieve a common end.
I’d rather watch a movie about how this society came to achieve such a harmony—not one that assumes this incredibly complex problem isn’t interesting or is just something humans will get over once their species matures a little bit. That’s because the problem is interesting and humans won’t ever get over this as long as they all have independent minds and subjective values and live in a world of scarce means.
I’ve seen this annoying theme in other movies, too. In Divergent, 80 percent of the world’s population is ruled by 20 percent. It’s not like the real world, where people generally agree to be ruled by their leaders (at least in theory). Everyone in the Divergent world is assigned to their “faction” according to the results of some serum-based aptitude test. This test is administered by one particular faction, who it seems has never thought to use this power to improve their own lot or advance their own faction’s causes (this faction also happens to govern the other factions). They just go along with the existing order, despite huge gains to be had from manipulating the test.
For example, here’s an unintentionally hilarious quote from Divergent:
We lead a simple life, selfless, dedicated to helping others. We even feed the Factionless—the ones who don’t fit in anywhere. Because we’re public servants, we’re trusted to run the government.
“Trusted to run the government.” As if this power isn’t questioned or challenged every single day by anyone who disagrees with any decision that government makes. Everyone just agrees to get along. Yes, the movie is about one faction taking over the others, but the way it happens actually magnifies the problem I cite here because the faction who tries to seize power is not the one that already “runs the government.” Instead, it’s another faction for whom seizing control comes at a much higher cost.
In short, movies like this make people out to be too passive. Their plots ignore the problem of collective action and make the jump to solving whatever other problem a group faces facing by removing any semblance of independent thinking on the part of the group’s individual members. Not every movie does this, of course, but too many do. What I find truly interesting about people is not what a group can solve once they are all of one mind, but how they come to solve anything at all while of different opinions about what should be done, and what the process of achieving that order looks like.
In fact, I’d love to see a movie about that—one where human beings face annihilation if they don’t do X, but never get around to doing X because they can’t agree on how to do X. Or one where a protagonist comes up with a way to reason with dissidents or align incentives such that everyone agrees and they accomplish X. Such stories might not be as action-packed, but they’d at least give people a more realistic picture of how the world works instead of one that regrets the fact that we all think independently, have different subjective ends and would benefit from simply following our leaders.
I’m sure I’m overstating this point. There are probably some subtle things in each of these movies that explain why people in them are so passive. But I’d still like to see the collective action problem made more prominent in science fiction movies. It’s not worth marginalizing, even if to make a point about something that requires easy collective action, because it will always be with us.
…
Oh, and one more thing that annoyed me: Romilly seemed a little to normal after supposedly waiting 23 years for Cooper and Amelia to return from Dr. Miller’s planet. Feel free to disagree, but I think he’d have gone crazy by then, being alone on the other side of a black hole and all.
Jorg Guido Hulsmann writing in today’s Mises Daily:
But it’s not sufficient that the people tell government officials what they should be doing. It is equally important, if not more important, to dictate how much money the government will have to achieve those ends. So, it is not enough to tell the government that it will only protect private property. This mandate could be pursued with $100,000 or a billion dollars depending on what the people are willing to pay. So if the budget is not controlled, a limited mandate in itself offers no limitation on taxation or how much money is spent.
A South Korean financial regulator has pinned the cost of revitalizing North Korea’s economy after a hypothetical reunification at $500 billion. This is based on bringing North Koreans per capita GDP from roughly $1,200 to $10,000. Of course, as this article notes, forecasting this cost is an almost meaningless task, given the virtually endless number of possible scenarios that might bring about reunification.
Some interesting things to think about, though, with regard to Korean reunification:
Low-light imaging of the Korean Peninsula at night. Notice the difference between North and South.
All this said, it’s not a given that South Koreans would support reunification were it ever to seem possible. From the article cited above:
A survey released by the Unification Ministry earlier this year showed that while 70 per cent of South Koreans supported the idea of a unified peninsula, almost half had no interest in helping cover the massive financial cost.
Over at EconLog, Scott Sumner wonders why smokers don’t seem to have the lobbying clout of other special interest groups. Considering the number of smokers in the U.S. remains in the tens of millions, you’d think we’d hear more complaining about the sky-high taxes on cigarettes that exist in several states (he notes that one pack a day would equal $1,600 per year in Massachusetts).
A fair question, but here’s an example of where economics alone just isn’t enough to answer this question. Go talk to some smokers. You’ll find that many of them want to quit. They think smoking is unhealthy and want government to discourage people from smoking. Most of my smoker friends think like this. In fact, two in five of all smokers even think higher taxes on cigarettes are justified!
I’ve written before about how economics, specifically public choice, can be arrogant—how economists too often make the subtle but fatal leap from saying “people respond to incentives” to claiming with near-certainty to what incentives people will respond and how they will act. Assuming that smokers want to lobby for lower taxes on cigarettes is one such jump. Not every group of people sharing some interest constitutes a cohesive “special interest group,” nor is everyone targeted by a new tax increase going to lobby against, or even oppose, that tax. Few real-world “interest groups,” I think, fit neatly into the Public Choice model. Most good examples I’ve heard are cherry-picked.
In fact, it’s even laughable to me, now that I understand Public Choice, to think that anyone would sit around and wonder why people wouldn’t respond as the Public Choice model predicts. It’s like being totally baffled by the fact that someone would ever turn down a job that entails a massive, one hundred percent raise. Yeah, it happens. Despite what the average economics textbook might imply, not everyone is driven by pecuniary profits alone, or more than by any other motivation. Likewise, not every smoker wants lower taxes on their cigarettes because it means more money in their pockets.
So here’s my answers to Sumner’s question: Smokers just don’t care enough, on average, to lobby for lower taxes on cigarettes. This comes not from what I know about economics or Public Choice, but from my many conversations with smokers living and breathing (no pun intended) in the real-world, here and now.
Economists need to get out more.
I’m quoted in this piece at Casey Research on minimum wage. Coincidentally, I’ve met this author before, though I doubt he remembers me. He was president of the Mises Institute when I attended Mises University in 2011.
Costs are subjective.
This alone is a strong argument against coercive regulation. If a justifiable regulation is one that passes a cost-benefit analysis, we can never justify a regulation because costs are inherently immeasurable.
Sure, regulators can (and do) assign monetary values to perceived costs. The annual per capita cost of foodborne illness in the United States, say, might be said to equal $250—the average total medical bill balance charged due to foodborne illness.
This seems reasonable, but it doesn’t fully capture all costs associated with foodborne illness. What about lost income? Certain life-long side-effects? Physical pain that some victims might value far higher than the balance of their associated medical bill?
These might seem trivial, but they’re anything but. All money costs arise from subjective costs like these.
Additionally, how are regulators supposed to fully account for the cost of implementing a particular rule? Certain controls on food production designed to limit the incidence of foodborne illness might cost food manufacturers just $1,000 per month in the form of equipment and wages. But this added cost might drive a young, small firm out of business that would otherwise have thrived, or deter entrepreneurs from entering the market in the first place. Associated compliance costs might raise food prices enough to put a healthy dinner out of reach for some family sometime—a time when dinner would have made the difference between sick or healthy children, married or divorced parents, a happy or unhappy evening.
The analysis also cannot not account for psychic costs to those who might, for whatever reason, despise the regulation and suffer psychologically. This cost may seem insignificant, but isn’t being happy priority number one? Indeed, even the most financially-efficient regulation only makes things worse if its net result is to decrease total happiness.
For these reasons, many people take issue with regulation. Regulators cannot possibly know the true cost of their rules—who are they to think transgressing on property rights is all good and well without guarantee of a net-positive outcome?
But there’s flipside to this argument that undermines its usefulness as a criticism of regulation: The same logic applies to deregulation.
If regulators cannot know costs because costs are subjective, they cannot justify new regulation in terms of costs and benefits. Likewise, they cannot justify deregulation in terms of costs and benefits, given that those affected by the proposed deregulation have adjusted their behavior in accord with the regulation under review. Deregulation, like regulation, changes things in ways that might be undesirable for some people—ways that might have real economic costs.
So opposing regulation because costs are subjective and therefore cannot be measured or justified from a cost-benefit perspective undermines arguments for deregulation, too, for neither can its costs be measured.
But this is not the only way to justify deregulation. Regulation imposes costs on unwitting, and often unwilling, people, which might be unfair. It weakens property rights, which itself has a cost. Even if a deregulatory initiative cannot be justified from a cost-benefit perspective, it still might be worth doing. But merely citing the subjective nature of costs as a reason to oppose regulation is not a justification for deregulation. If anything, it’s an argument against any further regulatory action whatsoever—even deregulation.
Let us call to all the people for thrift and economy, for denial and sacrifice if need be, for a nationwide drive against extravagance and luxury, to a recommittal to simplicity of living, to that prudent and normal plan of life which is the health of the republic. There hasn’t been a recovery from the waste and abnormalities of war since the story of mankind was first written, except through work and saving, through industry and denial, while needless spending and heedless extravagance have marked every decay in the history of nations.
Warren Harding, soon to be president, 1920
Can you imagine a presidential candidate saying this today, let alone one who would go on to win the general election? I can’t. Will any of 2016’s presidential hopefuls call on the American people to save, make sacrifices and put off “heedless extravagance”? I doubt it. But what worries me most is not just that this wouldn’t happen today, but that it did happen so recently. 1921 can seem like ancient history, but more than one million Americans living today were alive when Harding was president. Some even remember this inauguration. In a sense, we’re less than one generation removed. What happened?
Since beginning my masters program in economics three months ago, I’ve become more hopeful about the skills and intelligence of those around me. This country, and the world, is full of smart people who value human rights and civil liberties. People who want to make the world a better place. This is especially true of young people, I think. We are very technically-savvy. We know how to prioritize time and make things more efficient. We’re anything but trapped by old ways of doing things. We’re eager to make a difference. I’ve yet to meet a classmate who doesn’t fit this bill.
In fact, I’m not sure I know a single person who wouldn’t at least give Harding an ear, were he alive and campaigning today. I think lots of people would even agree with him. This is, after all, what millions of Americans vote for when they elect small government, libertarian-ish candidates to office. Despite what some models might predict, every election cycle sees some candidates win who promised anything but more special-interest payouts, short term economic gain, no cuts to spending or benefits.
But then where are these millions of people whose opinions make speeches like Harding’s acts of political suicide? I’m not sure. They’re definitely in the minority, at least of people who vote. Perhaps their influence is exaggerated. Maybe politicians spend too much time catering to a small minority of people whose influence might affect how the media covers their campaign, but who ultimately have little power to say who wins in the end.
I’m sitting in a Panera Bread right now. Three people are reading the Wall Street Journal. Several are working on their laptops. Some are reading old-fashioned books. One old man, at least eighty years old, is reading on an iPad. Do these people really respond so caustically to talk like Harding’s? Granted, my neighbors are mostly well-educated. But they’re also quite liberal. Do most people really not understand why short-term pain is sometimes necessary to achieve long-term gain?
I’m not sure, but I’m hopeful about the future. I think most people can learn to see things properly, if only someone is willing to take a risk and point the way.