Posts Tagged ‘economy’
Of course, some (Krugman, Stiglitz) have said from the outset that the initial package was not enough, and that was before the Blue Dog Democrats reduced it further, killing off an additional 6 million jobs. Brad DeLong has an excellent post on the stimulus:
If the Obama fiscal boost program has its anticipated impact on the economy as its main effects take hold over the next year, it is still half the size of the program it now looks like we need. Only if it magically turns out to be twice as strong as we think–only with simple Keynesian multipliers of 3 rather than 1.5–is it the right size.
And, of course, if the situation deteriorates further we will need an even bigger stimulus, while if the situation improves having too-big a stimulus is not a problem because we can soak up the demand through monetary policy.
So Vice President Joe Biden completely misses the point when he says:
I think it’s premature to make that judgment [that we need a larger stimulus]. This was set up to spend out over 18 months. There are going to be major programs that are going to take effect in September, $7.5 billion for broadband, new money for high-speed rail, the implementation of the grid — the new electric grid. And so this is just starting, the pace of the ball is now going to increase.
Of course, he is paid to miss the point. Which is one reason why being Vice President is a really lousy job.
Sam Stein reports: …
Going around now via email:
The top twelve indicators that the economy is bad…
12. CEOs are now playing miniature golf.
11. I got a pre-declined credit card in the mail.
10. I went to buy a toaster oven and they gave me a bank.
9. Hot Wheels and Matchbox car companies are now trading higher than GM in the stock market.
8. Obama met with small businesses — GE, Pfizer, Chrysler, Citigroup and GM — to discuss the Stimulus Package.
7. McDonald’s is selling the 1/4 ouncer.
6. People in Beverly Hills fired their nannies and are learning their children’s names.
5. The most highly-paid job is now jury duty.
4. People in Africa are donating money to Americans. Mothers in Ethiopia are telling their kids, “Finish your plate; do you know how many kids are starving in America?”
3. Motel Six won’t leave the lights on.
2. The Mafia is laying off judges.
And my most favorite indicator of all:
1. If the bank returns your check marked as “insufficient funds,” you have to call them and ask if they meant you or them.
Very interesting article by Mark Schmitt in The American Prospect, which begins:
On June 11, 1962, John F. Kennedy delivered the commencement address at Yale. After some Harvard-Yale jocularity, he put forward the most memorable definition of that triumphal moment in what historians now call the era of liberal consensus: "What is at stake in our economic decisions today is not some grand warfare of rival ideologies … but the practical management of a modern economy." Economic problems of the 1960s, Kennedy said, are "subtle challenges for which technical answers, not political answers, must be provided."
According to Arthur M. Schlesinger Jr., the speech was the work of a supergroup of Camelot intellectuals that included himself, John Kenneth Galbraith, Theodore Sorenson, and McGeorge Bundy. Its calmly persuasive, sensible pragmatism would sound familiar coming from our current president, and Kennedy’s argument that concern about federal budget deficits was based on "myths" (marking his turn toward Keynesianism) would be at home in this magazine today.
And yet, one can recount the history of the subsequent decades largely as a chronicle of the political error of that speech. It was short-sighted in …
Banks that received government bailout money are taking heat for spending billions of dollars on bonuses, executive pay, and lavish outings. But there’s another outrage that Washington seems to be missing: The growing number of bank-owned properties in foreclosure scarring neighborhoods across the country.
The volume of bank-owned foreclosed homes – known as REOs, or real-estate owned properties – is growing at an alarming rate, compounding the foreclosure crisis by sticking hard-hit neighborhoods with vacant and often trashed homes that drive down property values even more. REOs are foreclosed homes that lenders take back after they don’t sell at foreclosure auctions or sheriff’s sales. They keep the homes in inventory until they can be sold again.
The foreclosure crisis, however, is changing the REO process, with some banks holding off on following though with foreclosures or letting empty houses sit in limbo – where they deteriorate further – instead of selling them. Some banks can’t keep up with the sheer volume of foreclosures. But others are waiting for a better deal from the government for their toxic mortgage assets, avoiding booking losses so they can qualify for more bailout funds, or neglecting homes with little value, some charge – leaving the properties vacant and vandalized. And neighborhoods pay the price for it.
Some 1.5 million foreclosed homes are expected to wind up as REOs this year, according to RealtyTrac , an online foreclosure database. Prior to the foreclosure crisis, bank REO volume totaled only about 160,000 in a normal year. In January, RealtyTrac already had 68,000 new REOs listed in its database, and the firm expects overall volume to double from last year, said RealtyTrac senior vice president Rick Sharga. REO inventory peaked last year at 900,000 properties in November. “The system is just overwhelmed,” Sharga said.
There’s more pain to come…
Interesting review by Bernard Avishi:
"We sometimes, for example, hear it said," writes John Stuart Mill in his Principles of Political Economy, "that governments ought to confine themselves to affording protection against force and fraud"; that people should otherwise be "free agents, able to take care of themselves." But why, he asks, considering all the "other evils" of a market society, should people not be more widely protected by government — that is, "by their own collective strength"? Much like Mill, Paul Krugman likes capitalism’s innovations but not its crises and thinks that government has a duty to facilitate the former and protect us from the latter. He doubts that citizens will get much protection from moguls — or from most economists, for that matter — unless we trouble to grasp how the whole intricate game works, so that our legislators will form a consensus about how to regulate it. Mill supposed that we needed to see "the Dynamics of political economy," not just "the Statics." Krugman knows we need Liquidity Traps for Dummies.
So for the past twenty years Krugman has dutifully mapped the patterns, worried the numbers and issued his warnings — as in (now we can say it) his seriously underestimated book The Return of Depression Economics (1999), a primer on the financial busts of Japan, the Asian "tigers" and Latin America, transparently meant to caution Americans about their own vulnerabilities. He could not have chosen a worse time for prophesy than the end of the millennium. Technology markets were booming, Google was just a year old and Enron was voted a Fortune "Most Admired Company" (for the fourth consecutive year). Meanwhile, a budget surplus was accruing, and the Clinton White House, the Federal Reserve and Congress were all in agreement that, say, regulating "credit default swaps" would be an insult to the professionalism of investment bankers.
What about the problems that had recently hobbled other economies? Would not Wall Street rehearse Japan’s recession? Then again, most thought, what did the Japanese, with their computerless offices and hierarchical keiretsu, have to do with entrepreneurial, Lotus Notes-enveloped us? Mexico’s politically inbred financial institutions? What board member of an American insurance company — wired with information, faithful to shareholder value — would allow its executives to underwrite high-risk bets, or indeed any transactions, without appropriate reserves? I was, at the time, director of intellectual capital at KPMG International, designing a worldwide intranet for auditors and consultants; our news filters were programmed to cause any story with the word "Greenspan" in it to leap onto 100,000 desktops. The digerati, successive presidents of the United States — Andrea Mitchell, too! — seemed under the spell of the old Atlas’s shrugs. But young Krugman, I was told (and might here and there say), didn’t "get it." …
I’m still working on the numbers, but I’ve gotten a fair number of requests for comment on the Senate version of the stimulus.
The short answer: to appease the centrists, a plan that was already too small and too focused on ineffective tax cuts has been made significantly smaller, and even more focused on tax cuts.
According to the CBO’s estimates, we’re facing an output shortfall of almost 14% of GDP over the next two years, or around $2 trillion. Others, such as Goldman Sachs, are even more pessimistic. So the original $800 billion plan was too small, especially because a substantial share consisted of tax cuts that probably would have added little to demand. The plan should have been at least 50% larger.
Now the centrists have shaved off $86 billion in spending — much of it among the most effective and most needed parts of the plan. In particular, aid to state governments, which are in desperate straits, is both fast — because it prevents spending cuts rather than having to start up new projects — and effective, because it would in fact be spent; plus state and local governments are cutting back on essentials, so the social value of this spending would be high. But in the name of mighty centrism, $40 billion of that aid has been cut out.
My first cut says that the changes to the Senate bill will ensure that we have at least 600,000 fewer Americans employed over the next two years.
The real question now is whether Obama will be able to come back for more once it’s clear that the plan is way inadequate. My guess is no. This is really, really bad.
Very interesting article in Financial Times, which begins:
On Friday, August 17 2007, 21 of Wall Street’s most influential investors met for lunch at George Soros’s Southampton estate on the eastern end of Long Island. The first tremors of what would become the global credit crunch had rippled out a week or so earlier, when the French bank BNP Paribas froze withdrawals from three of its funds, and in response, central bankers made a huge injection of liquidity into the money markets in an effort to keep the world’s banks lending to one another.
Although it was a sultry summer Friday, as the group dined on striped bass, fruit salad and cookies, the tone was serious and rather formal. Soros’s guests included Julian Robertson, founder of the Tiger Management hedge fund; Donald Marron, the former chief executive of PaineWebber and now boss of Lightyear Capital; James Chanos, president of Kynikos Associates, a hedge fund that specialised in shorting stocks; and Byron Wien, chief investment strategist at Pequot Capital and the convener of the annual gathering – known to its participants as the Benchmark Lunch.
The discussion focused on a single question: was a recession looming? We all know the answer today, but the consensus that overcast afternoon was different. In a memo written after the lunch, Wien, a longtime friend of Soros’s, wrote: “The conclusion was that we were probably in an economic slowdown and a correction in the market, but we were not about to begin a recession or a bear market.” Only two men dissented. One of those was Soros, who finished the meal convinced that the global financial crisis he had been predicting – prematurely – for years had finally begun.
His conclusion had immediate consequences…
From an email sent by the Center for American Progress:
Yesterday, in a 244-to-188 vote, the House approved an $819 billion economic recovery plan written by House Democrats and supported by President Obama. Despite Obama’s aggressive outreach efforts, the entire Republican caucus, along with 11 Democrats, voted against the plan. Afraid of crossing Obama’s high approval ratings, conservatives are claiming that they are enthusiastic to work with him. “We’ve made it clear that we will continue to work with the president to develop a plan that will work,” said House Minority Leader John Boehner (R-OH), who led his caucus in opposition to Obama’s plan. “We just don’t think it’s going to work.”
Instead, Boehner and his colleagues pushed for a return to Bushonomics. “We have said let’s do tax cuts, let’s let the American people make the decisions on how they’ll spend the money,” said Rep. Spencer Bachus (R-AL), on CNBC earlier this week.”That will stimulate the economy more than bringing all that money to Washington and then distributing it out in all sorts of government programs.” The alternative proposed by House Republicans yesterday, which was defeated 266-170, was composed almost entirely of tax cuts. “These are the same people who told us the Bush tax cuts were going to lead to nirvana,” said Rep. Earl Blumenauer (D-OR) in response to the conservative focus on tax cuts. On MSNBC yesterday, one of the most prominent proponents of the tax-cut-only approach, Rep. Mike Pence (R-IN), complained that the Democrats’ recovery plan would take “America in a new direction.” Though conservatives might be happy to be free from the “burden” of President Bush, they still seem to be longing for his failed economic policies.
SAME OLD ARGUMENTS: In 2001 and 2003, Bush pushed massive tax cuts through Congress, claiming that they were “vital” to boosting the economy and creating jobs. Though Bush initially sold his 2001 tax cut by insisting “that the federal government was running an excessive budget surplus,” he quickly changed his argument as the economy worsened, claiming they would be “a form of demand-side economic stimulus.” “The economy has slowed down, in which case we need to accelerate tax cuts,” Bush said in a March 2001 radio address. “You see, tax relief will put money in people’s pockets, which will help give the economy a second wind.” “By ensuring that Americans have more to spend, to save and to invest, this legislation is adding fuel to an economic recovery,” announced Bush in 2003, as he signed his tax cut legislation. “We have taken aggressive action to strengthen the foundation of our economy so that every American who wants to work will be able to find a job.”
BUSH’S TAX CUTS DIDN’T WORK: Before he left office this past month, Bush told he U.S. Hispanic Chamber of Commerce that “when people take a look back at this moment in our economic history, they’ll recognize tax cuts work.” But the fact is that they didn’t. As Center for American Progress Senior Fellows Christian Weller and John Halpin noted in 2006, the outcome of the 2001 tax cuts was “the weakest employment growth in decades.” The 2003 tax cuts didn’t fare much better, resulting in job creation that was “well below historical averages.” When Bush’s White House proposed the 2003 cuts, they promised that it would add 5.5 million new jobs between June 2003 and the end of 2004. But “by the end of 2004, there were only 2.6 million more jobs than in June 2003.” As Paul Krugman has pointed out, the belief that Bush’s tax cuts successfully stimulated the economy is a form of mythology. CAP’s Michael Ettlinger and John Irons wrote in September, “Economic growth as measured by real U.S. gross domestic product was stronger following the tax increases of 1993 than in the two supply-side eras” that followed Reagan’s 1981 tax cuts and Bush’s 2001 tax cuts. Indeed, employment growth was much stronger post-1993 than post-2001. The average annual employment growth was 2.5 percent after 1993 and just 0.6 percent after 2001. Unfortunately, the supply-side myth that tax cuts cure all still lives on today, as conservatives complain about progressive approaches to fixing the mess left by Bush.
TAX CUTS ARE INEFFECTIVE STIMULUS: The underlying folly of the conservative push for an all-tax cuts approach is the simple fact that tax cuts are ineffective stimulus. Mark Zandi, a former adviser to Sen. John McCain’s (R-AZ) presidential campaign and the chief economist of Moody’s Economy.com, has argued for months that the “fiscal bang for the buck” of tax cuts is significantly inferior to spending increases. According to Zandi’s research, a corporate tax cut delivers $0.30 in real GDP growth for every $1 invested. In comparison, infrastructure spending delivers $1.59 in GDP for every $1 spent. Zandi isn’t alone in this belief: the Congressional Budget Office “deemed last year that corporate tax cuts are ‘not a particularly cost-effective method of stimulating business spending.'” Despite these economic facts, conservatives like Sen. John Ensign (R-NV) continue promoting corporate tax cuts as the solution. “If we could lower the corporate tax rate, that would be one of the best things that we could do to make American business more competitive in the world and actually help stimulate the economy,” Ensign claimed this week.
About three weeks ago, House Minority Leader John Boehner (R-Ohio) sought out economists to oppose the idea of a government rescue package in response to the economic crisis. He knew he didn’t like the idea of injecting money into a struggling economy, he just needed some credentialed conservatives to tell him how right he is. As Matt Yglesias put it, Boehner “picked his policy position first, and then started looking for experts to back him second.”
And how’s the initiative going so far? Brad DeLong took a closer look at some economists who chose not to endorse the House Republican caucus’ opposition to a stimulus plan.
In fact, no current or former member of the President’s Council of Economic Advisers — Democrat or Republican, living or dead, sane or insane — has signed up for the Republican House caucus’s list of economists opposed to the stimulus package. None. Zero. Nada. Sifr. Efes. Wala sero. Kosong sifar. ‘Ole. Knin. Pujyam. Mann. Dim. Nocht. Null. Meden. Hitotsu. Sifuri. Ling. Sunya. Mwac. Ataqan. Saquui. Hun. Illaq. Wanzi. Wanzi. Pagh. Na. Uqua.
That should tell you something about today’s Republican Party.
It does, indeed.