Five Points to Eliminate Confusion About the U.S. Macroeconomy 52 comments
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Comment on Christina Romer (2009), "The Lessons of 1937":
Let me make five points to eliminate or refute, or at least to fight against or lay down a marker that there is, well, call it "confusion" about what the right state of the American macroeconomy should be.
Last December’s Unemployment-Rate Forecast and Outcome to Date
click to enlarge
Source: Romer and Bernstein (2009).
My first point is that over the past six months the economy has been a severe disappointment. Output and employment have fallen much faster than people were projecting last December. Romer and Bernstein (2009) projected at the very start of this year that unemployment in the U.S. would reach a peak of 7.9% in the summer of 2009. But unemployment now in mid-June is about 9.7%, with 10% baked in the cake and the possibility existing that it might go much higher. The signs that the cliff-dive of employment has come to an end are very few. The level of new unemployment claims is still consistent with a rapidly-collapsing labor market nationwide.
New Weekly Unemployment Claims (Red, Right Scale, Four-Week Average) and Monthly Fall in Payroll Employment (Blue, Left Scale, Thousands)
click to enlarge
Source: Paul Krugman
Six months ago a net federal fiscal stimulus of about $1 trillion -- $400 billion each year for about 2.5 years -- seemed appropriate: that seemed to balance the benefits of filling-in the hole in aggregate demand without running too great a risk of triggering worrisome inflationary fever further down the road. Now the hole in aggregate demand is greater than was thought likely last December--about twice as great--and the likelihood of heightened future inflation is less. Thus if it was appropriate to set a $1 trillion federal fiscal stimulus in motion last December given what we knew then, if we had known then what we know now it would have been appropriate to set a roughly $2.4 trillion fiscal stimulus--$800 billion for 3 years--in motion back then.
My first point is thus that the Obama administration's federal fiscal stimulus programs are on the low side of what is appropriate by a substantial margin: this is the largest economic downturn since the Great Depression and the standard tools of expansionary monetary policy are tapped out and broken right now.
My second--related--point is that the need for federal-level fiscal expansion is reinforced by what state governments are doing right now. The federal government's discretionary actions are expanding aggregate demand by about $400 billion over fiscal year 2010, but state governments are right now cutting their spending and raising their taxes in order to offset this federal fiscal expansion more or less completely. On net, the government sector will be on autopilot as far as discretionary policy moves to stimulate the economy are concerned: federal-level expansion is offset and neutralized by state-level fiscal contraction. This is not an appropriate macroeconomic policy stance: this is the largest economic downturn since the Great Depression.
My third--unrelated--point is that the policy innovations of the past year have created a potentially dangerous weakness in the Federal Reserve system. The Federal Reserve's balance sheet has more than doubled over the past year, as it has acquired an enormous and bizarre menagerie of assets. On the liability side, it has funded this acquisition by expanding the monetary base, and has increased private-sector willingness to hold this monetary base by paying interest on reserves. This has added a fourth motive--profit--to the three traditional motives for holding reserve deposits at the Fed: the transactions demand, the emergency liquidity demand, and the speculative demand.
As long as the dollar remains the safest currency in the world, as long as the dollar remains the linchpin of the global financial system, there is no problem in the Federal Reserve's funding by what is essentially overnight borrowing the expansion of its balance sheet and the purchase of private securities that will vary up or down in market price with an eye toward holding them to maturity.
However, at some future time the dollar will cease to be the linchpin of the world financial system, in which case the Federal Reserve's financing its balance sheet via overnight borrowing will leave it vulnerable to the mother of all bank runs. It would be very good to fix this now: to give the Federal Reserve now the option to borrow not in what are essentially demand but rather in time deposits--to grant the Federal Reserve the power to issue its own bonds. This diminishes the chance of a great financial crisis in 2050 or so, with no downside that I can see.
My fourth point is the obvious one that health care is the only thing that matters for the long run budget. The other points that the Hon. Dr Christina Romer raises, are--as is almost always the case--accurate and important. America's long-run fiscal problems are caused by health care, and will not be appreciably made worse by this half-decade's federal fiscal stimulus. If restructuring the health care system can bend the curve on the rise in overall (and hence public as well as private) health care costs, then America has ample debt capacity to borrow whatever we wish in this crisis--and to borrow it at extraordinarily favorable rates as well. If the curve of rising health-care costs is not bent, then the government's long-term finances are in trouble and so is the growth of private-sector non-health living standards: health care costs that rise as fast as CBO is projecting in the baseline cause lots of long-run economic problems, of which government fiscal bankruptcy is not the worst. Health care reform to bend the long-run curve of costs is now just what it was back in 1993: the most important issue for the American political system to deal with.
Fifth, I have the sense that the Obama administration's economic policymakers have forgotten one of the most basic lessons taught by Robert Rubin during his stewardship of economic policy during the 1990s. The lesson is to think probabilistically: to project yourself forward into the possible futures, to ask in each one what would be the actions that you would then wish you had undertaken today, and then to actually take the appropriate action today.
Looking forward into the future, (a) I see a 10% chance that something happens to create renewed cliff diving--a recession that bottoms out not with an unemployment rate in the 10-12% range that we currently anticipate but an unemployment rate that blows through 12% and keeps on rising. (b) I see a 30% chance of a rapid recovery as confidence and asset prices recover, and firms take advantage of high unemployment to hire new workers in droves at wage levels that make increasing production very profitable. But (c) I see a 60% chance of the end of the current cliff-dive in employment being followed by what happened in Japan in the 1990s, in the U.S. after 1991, in the U.S. after 2001, and to some extent in the U.S. after 1933--a recovery that does not see the market exert sufficient upward pressure on employment to return the unemployment rate to normal levels in two or three years, but that instead sees a jobless or low-job recovery during which the unemployment rate continues to drift upward for years, or falls only then to rise again.
The Obama administration's policies appear to me to be the ones that would be adopted if we believed that there was a 75% chance of scenario (b) and a 25% chance of scenario (a). But I don't think those are the probabilities. And I wonder what the Hon. Dr. Christina Romer thinks the probabilities are. For she is the one who warns of how
[t]he 1937 episode provides a cautionary tale. The urge to declare victory and get back to normal policy following an economic crisis is strong. That urge needs to be resisted until the economy is again approaching full employment. Financial crises, in particular, tend to leave scars that make financial institutions, households and firms behave differently [than in normal times]. If the government withdraws support too early, a return to economic decline or even panic could follow...
The blunt fact is that the economic recoveries that have been rapid and seen fast growth in employment are those that ended when a Federal Reserve following strongly restrictionary policies to fight inflation eased off and significantly lowered interest rates. No such lowering of interest rates is possible this time--interest rates are already as low as they can possibly go at the short end. So I can see no reason to anticipate a rapid recovery and employment when the cliff-diving stops. And I do not understand why the Obama administration is following policies that presume such a rapid recovery--a V rather than an L for the shape of the recession--is not just possible but probable.
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This article has 52 comments:
The central issue is returning the economy to a stable growth path (notably employment growth). Removing health care costs from the cost side of doing business is minor cut at a major problem, but not sufficient. To return to growth we must have jobs and earnings in the global economy. Taxes on business must be lowered and regulation kept to a minimum. Jobs must be created by business, not government.
There is no way cutting health care cost will deliver the Romer recovery promises. We have here a move towards a social objective, not economic stability. For the sake of all we must stop the social programming/gifting and return to earning a living by working for stable business organizations.
America's long-run fiscal problems are caused by health care, and will not be appreciably made worse by this half-decade's federal fiscal stimulus. If restructuring the health care system can bend the curve on the rise in overall (and hence public as well as private) health care costs, then America has ample debt capacity to borrow whatever we wish in this crisis--and to borrow it at extraordinarily favorable rates as well
______________________...
I enjoyed the article and agreed with much of the commentary but cannot agree with the author's conclusions.
Looking forward, the country's most pressing problem is the need to craft a strategy for regaining our prominence in manufacturing; as we are learning, you cannot consume more than what is produced. We need an industrial policy or a gameplan, free of social engineering, that will layout a picture of the future and how things are likely to evolve and how US companies can establish strong market positions in existing and future industries. We need to exploit our unmatched scientific base and vigorously exploit future technologies, trends and processes.
We need a national gameplan to increase the size of the economic pie rather than dwelling upon policies to redistribute the pie; tax and regulatory policies should be aligned with this vision of the future and reward and encourage companies to invest in critical industries and technologies with the long term goal of dominance. Employment will follow.
A robust and vibrant economy will assist in addressing our second largest problem: structural budget deficits. In the material pasted above you say in one breath we are vulnerable to the mother of all bank runs and in the second breath say we can borrow all we want.
I believe your first statement is true and, by definition, makes the second statement false. We have to bring our deficits under control and curb our borrowing as we are very likely facing a drawn out recovery in which actual deficits far exceed future deficits......very similar to employment projections.
Thus does the blessing become the burden. Medicare, Social Security, and private health care all end up costing more BECAUSE OF LONGEVITY AND IMPROVED MEDICAL CARE.
There is little real triage in access to medical care. Congress will provide that by "healthcare reform" which ultimately will mean everyone will get access to less (unless you are in Congress). If the push is driven thru the private sector rather than government, it has a chance of working. The cost curve at a transactional level for non-services has continued to move down over time without help - look at the price of common drugs like Claritin or Viagra versus a few years ago.
Finally, I find it ironic that in Obama's speech to the AMA, his prescription for "fixing" healthcare includes many things; however, apparently reducing the cost burden of unnecessary lawsuits, with its by-product of higher liability insurance cost, is not part of the solution.
You suggest that the Federal Reserve issue bonds, and I find this very appealing. The Fed is in a much better position to unwind stimulus than Congress, which will saddle America with permanent government programs long after the economic cycle turns.
In addition to demographics, health care is a problem due to the disconnect between costs and benefits stemming from the third-party payer system and continuing advances in expensive medical technologies. Obviously, some sort of social system is needed to make sure that people have access to expensive treatments for serious medical problems, but those treatments have to have a reasonable cost-benefit trade-off. I do not trust government to allocate medical services nor to spur innovation. What we need is closer to a free market in medicine (including getting rid of the link between employment and health insurance) so that people have a choice of medical plans where the person paying the premiums is the same as the one receiving the benefits and is therefore in a position to make rational choices regarding cost-benefit trade-offs in their particular circumstance.
While many of us our net producers of value during our lifetimes, many of us live at least in part off of the productivity of others. When the redistributive and parasitic parts of the system start to threaten the productive parts, we all need to be concerned. We as a society have been so rich for so long, we seem to be forgetting what got us here. We need to quit eating our seed corn and start planting more seeds. In other words, we need to quit thinking of consumer credit as the lifeblood of the economy and start saving again.
To me the biggest confusion about the macroeconomy is the misconception that government can create prosperity. It can't. It can only create the conditions under which free market forces can create prosperity or create a command economy that will leave us all worse off.
Simple solutions are available, but there is too much lobbyist money at work to ever make an actual change. Healthcare reform will never happen. You want's their share of the pie reduced? HMO's? Insurance company's? Hospitals? Doctors? Lawyers? Who's gonna make the morale decision and say yes I will take less money? No one. Also, is healthcare truly a human right as many people claim it is? If everyone expects the latest and greatest drugs/treatments to be given to them then the system will fail. Some treatments are really expensive. Why does someone actually have the right to get this treatment when they have made 20K a year for the last 20 years, but the drug costs 50K a month. Death is natural part of life. Get used to it. Drug breakthroughs come from companies working to make money! They want to make lots of money. They have invested billions into this research and now the government and populace wants it because they are afraid of death? Is there truly a morale imperative to provide the latest and greatest medical advances to everyone in the world? Because if this is the case, the current system will completely breakdown and it is not sustainable. We think of ourselves as so special and get these morale imperative arguments. It's pretty funny, because we used to think that Earth was the center of the Universe too....
Every empire has a good run and a rough fall. It is what it is...
Are they coming from:
Retail – NOT
Financial services - NOT
Manufacturing - NOT
the auto industry - NOT
Exports - NOT
Airplane mfg industry - NOT
Electronics industry - oops, we don't have an electronics industry anymore
Apparel / furniture / appliances industries - oops, gone also
Service industry (U wipe my a$$ and I wipe yours) - Probably
Please tell me where are the jobs for 10,000,000 unemployed Americans going to come from, not in some vague distant date beyond the horizon, but in JULY, AUG, SEPT, etc......2009.
However, it lost most of its usefulness when the author lapsed into his own ludicrous optimism. The U.S. dollar has ALREADY lost its status as the "lynch-pin" of the global economy and the "safest currency".
The U.S. is hopelessly insolvent with $57 TRILLION in total debts, and unfunded liabilities rapidly approaching an ADDITIONAL $100 TRILLION.
The U.S. health-care system must be COMPLETELY DISMANTLED and rebuilt from "scratch" - or it will bankrupt the U.S. in less than a decade. This is occurring just as the EXTREMELY unhealthy generation of baby-boomers are about to retire and dump their massive health problems on the U.S. government - expecting TRILLIONS EVERY YEAR in government hand-outs to pay for their neglected health.
Therefore, present circumstance is nothing more than a jockeying for position in preparation for calamity set to make last year's swindle look like a walk in the park. The article fails to indicate how giving the Fed power to issue its own bonds will prevent this. Likewise, point #4 goes a long way toward demonstrating that the present effort at "reforming" health care is nothing more than an attempt to extract financial tribute in an effort to control the unraveling of a system that presently is already bankrupt.
Per your projections... Dude, wake up and smell the Zyclon B!
1) Incurring more debt to attempt to stimulate an economy that is collapsing from taking on too much debt is akin to giving the alcholic another bottle of Stoly. No attempts at reflation via debt creation will work here. Our problem is an economy that needs to reduce its reliance on consumption from 70% to 60% and for our savings rate to go from 0% to 10%. The only money spent should be in ways that help people to manage that transition. Anything else is stupid. So I can see putting out spending for such things as increased unemployment insurance and help with cobra payments - those help transitions, but anything else won't do anything to help the process along.
2) See my point above at #1. States have it right - live within your means. Of course it would help if we had polls who were brave enough to plan for worst case scenarios and build rainy day funds, but hey, too much to ask, I know.
3) I don't think you understand why the FED fought so hard for interest on reserves. I think you need to go read the article from this week from Pimco's managing director. It gives decent insight on why the FED wanted this tool. I think Ben wanted bond authority in the beginning, but understands now that crowding out will mean he won't have the ability to issue those bonds when the Treasury needs to float 3.6 trillion a year because Obama wants to spend on every democratic wet dream project
4) Here's the easy solution to federal spending on health care. Reduce the benefit payable. I realize that policy may seem like suicide to many politicians these days, but that is exactly what is happening in the private markets. Company's are curring back on benefits and increasing co-payments. The gov't should try it too.
5) Stop thinking that the US Gov't should control the US economy. The economy must make its own way through the great unwind. Trying to have the US Gov't micromanage it will only make it worse. Right now, households have significantly increased their savings rates and adjusted their spending levels. You see, they did not need the US gov't telling them how to adjust. We, the people are smarter than any gov't full of bureacrats. Please get that through your thick freaking skull.
Regards
Are problems are vast and we need to bite the bullet now before they get even worse.
Private health care is a joke. We can do low cost copay gov health care for 1/2 what we pay now. This will make our businesses more cost competitive and people more productive and stop 60% of bankruptcies. They say it will lead to rationing! What do they think we have now? Most drugs, ect are developed by NIH, Uni's, ect, not drug companies who will sell you poison if they can make a profit and do. This will cut lawsuits greatly too.
Next we need to tax oil, coal their true cost instead of the huge subsidies now we pay in our income taxes. This will allow a true free market and stop the need for RE subsidies.
This will cause a large shift with the money formally going to oil instead into factories, installers, maintainers of the RE equipment which at $1T/yr is a hell of a lot of jobs while stabilizing the economy from oil/energy price shocks. It also cuts our military budget by 50% as we no longer need to be in the Persian Gulf, ect saving more money, about $400B/yr plus the $500B/yr for imported oil.
Next we need to pay off the national debt which the above increase in the economy will greatly help. A VAT will cut imports, increase US manufacturing while paying off the debt and get corps to pay their share.
SS needs to be folded into the income tax so the rich pay their share of retirement costs and it becoming need based.
Those who say the Gov can't do as well as business are wrong in many cases. Here in Fla under JEB! Bush as he called himself we privatized a lot of Fla services and they ended up costing more with the workers getting less and doing a much worse job. So now most are back under gov service at less cost, better service.
I'm not saying gov should do everything but they can compete if business doesn't do the job like it should.
The above will cut peoples costs giving everyone a better standard of living and keep us from going bankrupt. Not doing them will make us a has been nation.
No mention of our monstrous, unique legal system in any article on SA I can recall. It has destroyed our competitiveness and skyrocketed medical costs more than anything.
We get the government we deserve, so I can only hope that can change. Without mass-unemployed incumbents, we will go the way of Detroit.
at some point employers will bail out on health insurance because the cost will be to high for any possible return.
and health care costs are going up in spite of a deflationary trend today
On Jun 19 06:47 AM whidbey wrote:
> Making health care the central issue for fiscal policy is just nonsense.
> The current policy drivers are the prevailing social programs (SS,
> Medicare) which are not funded or managed for the long run. At the
> rate we are going there will be no solution without major tax reforms.
> Congress is the devil in this tangle.
>
> The central issue is returning the economy to a stable growth path
> (notably employment growth). Removing health care costs from the
> cost side of doing business is minor cut at a major problem, but
> not sufficient. To return to growth we must have jobs and earnings
> in the global economy. Taxes on business must be lowered and regulation
> kept to a minimum. Jobs must be created by business, not government.
>
>
> There is no way cutting health care cost will deliver the Romer recovery
> promises. We have here a move towards a social objective, not economic
> stability. For the sake of all we must stop the social programming/gifting
> and return to earning a living by working for stable business organizations.
On Jun 19 09:50 AM Henry Buttal wrote:
> I think Brad, if I were I doctor, I would say that you are confusing
> symptons with the root cause of the malady. In this miraculous world
> of modern health we live in, it is more likely we live to a ripe
> old and enjoyable age.
> Thus does the blessing become the burden. Medicare, Social Security,
> and private health care all end up costing more BECAUSE OF LONGEVITY
> AND IMPROVED MEDICAL CARE.
>
> There is little real triage in access to medical care. Congress will
> provide that by "healthcare reform" which ultimately will mean everyone
> will get access to less (unless you are in Congress). If the push
> is driven thru the private sector rather than government, it has
> a chance of working. The cost curve at a transactional level for
> non-services has continued to move down over time without help -
> look at the price of common drugs like Claritin or Viagra versus
> a few years ago.
>
> Finally, I find it ironic that in Obama's speech to the AMA, his
> prescription for "fixing" healthcare includes many things; however,
> apparently reducing the cost burden of unnecessary lawsuits, with
> its by-product of higher liability insurance cost, is not part of
> the solution.
2) if the feds stayed in their means (depending on how you look at it) then we would likely to have needed to surrender before we entered WW2
3) PIMPCO only puts out what helps it, nothing more
4). reducing federal health care payouts (medicare) is suicide. for the elderly. and who ever proposes it too
the real debt problem that scares every one else is you and I and business owes several times more to them than the Feds do.
On Jun 19 12:12 PM levin70 wrote:
> My rebuttal to your five points
>
> 1) Incurring more debt to attempt to stimulate an economy that is
> collapsing from taking on too much debt is akin to giving the alcholic
> another bottle of Stoly. No attempts at reflation via debt creation
> will work here. Our problem is an economy that needs to reduce its
> reliance on consumption from 70% to 60% and for our savings rate
> to go from 0% to 10%. The only money spent should be in ways that
> help people to manage that transition. Anything else is stupid.
> So I can see putting out spending for such things as increased unemployment
> insurance and help with cobra payments - those help transitions,
> but anything else won't do anything to help the process along.<br/>
>
> 2) See my point above at #1. States have it right - live within
> your means. Of course it would help if we had polls who were brave
> enough to plan for worst case scenarios and build rainy day funds,
> but hey, too much to ask, I know.
>
> 3) I don't think you understand why the FED fought so hard for interest
> on reserves. I think you need to go read the article from this week
> from Pimco's managing director. It gives decent insight on why the
> FED wanted this tool. I think Ben wanted bond authority in the beginning,
> but understands now that crowding out will mean he won't have the
> ability to issue those bonds when the Treasury needs to float 3.6
> trillion a year because Obama wants to spend on every democratic
> wet dream project
>
> 4) Here's the easy solution to federal spending on health care.
> Reduce the benefit payable. I realize that policy may seem like
> suicide to many politicians these days, but that is exactly what
> is happening in the private markets. Company's are curring back
> on benefits and increasing co-payments. The gov't should try it
> too.
>
> 5) Stop thinking that the US Gov't should control the US economy.
> The economy must make its own way through the great unwind. Trying
> to have the US Gov't micromanage it will only make it worse. Right
> now, households have significantly increased their savings rates
> and adjusted their spending levels. You see, they did not need the
> US gov't telling them how to adjust. We, the people are smarter
> than any gov't full of bureacrats. Please get that through your
> thick freaking skull.
>
> Regards
about the only ones growing are
health care
education
and the last one not for long
On Jun 19 10:58 AM Tom Colangelo wrote:
> Instead of speaking in esoteric terms about such a gritty statistic,
> please tell me where the jobs are coming from that are improving
> the new and continuing jobless claims.
>
> Are they coming from:
>
> Retail – NOT
>
> Financial services - NOT
>
> Manufacturing - NOT
>
> the auto industry - NOT
>
> Exports - NOT
>
> Airplane mfg industry - NOT
>
> Electronics industry - oops, we don't have an electronics industry
> anymore
>
> Apparel / furniture / appliances industries - oops, gone also<br/>
>
> Service industry (U wipe my a$$ and I wipe yours) - Probably
>
> Please tell me where are the jobs for 10,000,000 unemployed Americans
> going to come from, not in some vague distant date beyond the horizon,
> but in JULY, AUG, SEPT, etc......2009.
Thats like saying, "credit card interest rates are too high and bad for society. In order to bring down interest rates, i will mandate that all citizens get an extra $10,000 in credit."
Is it just me or is this bass ackwards?
If you want prices to come down, you need an organized boycott of healthcare products across the board.
Keynesian stimulus has never worked it will not work. We tried it in Depression and the 70s, Japan tried it in the 90s. Keynesianism is simply a feel good idea - but from an economic stand point total waste - counterproductive actually. Economy improves with efficiency and the correct allocation of capital. Govt. spending does the total opposite. Japan had a new stimulus plan every year, paved the entire country side - nothing - despite the world economy being in a boom. So now with worldwide recession- is it even possible to attempt a stimulus - the answer would be no. But money would be wasted anyway.
Economy needs a driver for growth- some new technology, market or idea- we have no one at this time. Green does not cut it, BRICs can only do so much.
In the long term we are all dead, leaving the debts to our children. That is what this stimulus will do.
Officials want consumers to start to spend again.
But government leaders can hardly afford
to urge consumers to spend, spend, spend.
Excessive consumer spending for the
last 25 years is one of the main reasons
for the current financial mess and the
worst recession since the 1930s. So at the moment we are in
the classic catch 22 situation.
If everyone saves and few
spend, the economy suffers , if we start again with excessive spending we never get out of this mess. No good !
> please tell me where the jobs are coming from
>
> Are they coming from:
>
> Retail – NOT
>
> Financial services - NOT
>
> Manufacturing - NOT
>
> the auto industry - NOT
>
> Exports - NOT
>
> Airplane mfg industry - NOT
>
> Electronics industry - oops, we don't have an electronics industry
> anymore
>
> Apparel / furniture / appliances industries - oops, gone also<br/>
>
> Service industry (U wipe my a$$ and I wipe yours) - Probably
>
Beautiful post, Tom - I'm going to instablog it !
Politics is dictated by perception. That's why BHO's administration must project the somewhat rosier scenario. Otherwise, things would very likely seize up entirely. We cannot afford that.
One potential escape from this disaster lies in technology, but as long as new drugs take 10+ years to develop, I don't see any hope.
That means I expect an 80% probability that the US will have a lost decade (or more) like Japan.
I just don't see any of the initiatives to fix our badly broken economic system--banking, real estate (really nothing here), etc--as having a significant impact in repairing our current situation or preventing a further similar crisis.
I'm very disappointed in Pres. Obama's national economic policies so far & see little hope for improvement.
I believe the first issue - where we are now - is a critical one, and one the average person just doesn't grasp, partly due to all of the propaganda from the government and from those who would benefit from "feel good" economics that would generate an influx of investment into the stock market. Every time I read another story where a mutual fund manager says we're on the road to recovery, I cringe. Brad did a good job of defining the problem, and his piece was well written.
Where most of us would disagree is how we fix this mess. I have my own thoughts, just as each of you has your own. But I would argue the most important part of the equation, right now, is just knowing where we are. The administration would have us believe that we're stepping out of a sinking boat onto dry land. I'm not seeing any land. And there's the rub. How do you structure a truly meaningful set of corrective actions when you are denying the extent of the problem?
Thanks, Brad.
By using the greater computer power of today we can have a much higher turn over of capital in the capital market. This higher turnover will make the market harder to game or control and the market will no longer have the unstable run ups or declines. Who can change or control the market when say 20% of the capital is trading each day?
So now that we have the compute power to provide for all these transactions that will smooth out the market how do we force people to turn over at a rate of 20% a day? Easy, put a cap gains tax of 0% (zero) on all gains of 7 days or less and put a cap gains tax of 90% of all gains of more than 7 days.
The likes of Yahoo, Micosoft and/or Sun Micro Systems will give us the systems that will provide automated software agents to support turning over one's investments every 7 days (based on the specs you give the agent).
A system like this will make the financial markets work as smoothly as the local fruit market.
Actually, there is one fix, up the tax rate to 90% on the top 1% of Americans and then, crisis of over-production is solved, end of story, capitalism gets another 70 years or so of "life" before the next Depression; last one out please leave the lights on... Thanks for reading. Nothing too complicated now, is it? By the way, the last depression of the 1930's saw tax rates go up to 90% of the top 1% of Americans.
Oh and one last thing, please read up on your Marx b/c it won't be long before once thought dead economic models are once again looked on as the "answer". I'm not saying it is or it isn't, simply because it has never been seriously tried. And no, the caricature of socialism which was the Soviet Union was no democratic socialist state, I'm sure most would agree.
Hmmmm. Yes, a very confused article it is! Well titled!
Simultaneously deploying Quantitative Easing and Keynesian Deficit Government Spending, in an environment of high current Government Debt, is a dicey proposition. One must realize that QE and Keynesian Deficit spending were theories developed in an environment of low or zero existing Government Debt.
Jared “The King of Spin” Bernstein is the non-Economist Economist. He has no degree in Economics. His undergraduate is in Double Bass (no kidding) from the Manhattan School of Music. The remainder of this training is in Social Welfare. Not exactly the person to expound on Unemployment Forecasts.
Romer on the other hand has published a study concluding tax cuts have a higher multiplier effect than government spending. However, in the employment forecast, Romer showed the exact opposite in that the Government Spending Multiplier effect was greater than tax cut multiplier. Huh?
Romer also cherry picks lessons learned from the Great Depression. The one lesson she never mentions is the lack of incentives for Private Capital Formation during the Great Depression. Private Capital Formation must occur for private sector jobs to occur.
The reference to Krugman’s call for more stimulus via Keynesian Government Deficit Spending ($2.4 Trillion rather than $800 Billion) is proposition that can‘t possibly be financed. Another non factor, non proposition brought to you by Krugman.
The current stimulus plan is ill conceived. Matter-of-fact the current stimulus plan needs recalled. A Keynesian Deficit Spending Plan based on Social Engineering and 6000 ear marks is not a job creator. Recall the Stimulus plan, try reading it this time around, and go back to the drawing board.
In regards to state governments trying to reach budget equilibrium, the states have long known they were creating champagne spending tastes on a beer budget. Now the states are saddled with a bloated unionized work force they can not reduce due to political clout. Rather than reducing labor size they merely cut services and raise taxes with basically the same labor component/size.
1. Why are we shifting leverage in the system from the private sector to the public sector and thinking that this is going to work? Everyone believes that too much leverage is a major cause of our problems but we are not reducing it we are just shifting it. The federal debt is still an obligation of the tax paying public so our individual balance sheets are not looking better when we add on our share of the federal deficit. If we inflate our way out of these obligations it will destroy the purchasing power of the consumer so government leverage is no panacea.
2. Why oh why did Obama buy GM? The fact that nobody else wanted to buy them should tell us that it is too big, too complex and chances of failure are high. The competition in this sector is increasing as many car companies exist versus 50 years ago when Detroit ruled the world. That alone tells a story and we are also in the midst of a technology turn which will be very expensive. GM will be a black hole on the Federal Balance Sheet for a long time and may be extremely difficult to get off the Balance Sheet as nobody will want it.
3. Why are we building roads in a fiscal stimulus package when the car companies are struggling and gas prices are at $2.50 per gallon? People are driving less. And this is a capital intensive business not people intensive so how is this going to help employment? This is a lousy investment.
4. Does anyone remember the GSA's? Freddie Mac and Fannie Mae? Those are governement run companies and look at the disaster they have made of the housing market. Our government with their shady finances thought they could run it off balance sheet and then walk away when things got tough but that did not happen.
5. Remember the House Banking Scandal of 1992 when representatives overdrew their checking accounts for months on end? Enough said.
I could go on and on but essentially we are headed for hard times because we have a bunch of green people in Washington trying to run a multi trillion dollar economy and the chances they screw it up is extremely high. On the health care side we should just mandate private insurance like we do car insurance and then help people who cannot pay it.............that would drop the un-insured number down from around 49 million to a fraction of that number. Anyone who is not a US Citizen should pay for it out of their own pocket.
The reason Canada cities fair well on the worlds best is in part to the social medicine ability to take the stress away from a possible clamity. China and America are both places where you had better have cash if you need medicine, and as a result there is plenty of equipment and short waiting periods if any.
I colonized medicare system for America would have economy of scale that would greatly improve the coverage and vailability.
The trillions where spent on the wrong industries, banks have it and are sitting on it with little trikle down if you wanted consumers to spend.
On Jun 20 05:53 AM W.E. Heasley wrote:
> 5 Points To Eliminate Confusion About US Macro Economic Policy.
>
>
> Hmmmm. Yes, a very confused article it is! Well titled!
>
> Simultaneously deploying Quantitative Easing and Keynesian Deficit
> Government Spending, in an environment of high current Government
> Debt, is a dicey proposition. One must realize that QE and Keynesian
> Deficit spending were theories developed in an environment of low
> or zero existing Government Debt.
>
> Jared “The King of Spin” Bernstein is the non-Economist Economist.
> He has no degree in Economics. His undergraduate is in Double Bass
> (no kidding) from the Manhattan School of Music. The remainder of
> this training is in Social Welfare. Not exactly the person to expound
> on Unemployment Forecasts.
>
> Romer on the other hand has published a study concluding tax cuts
> have a higher multiplier effect than government spending. However,
> in the employment forecast, Romer showed the exact opposite in that
> the Government Spending Multiplier effect was greater than tax cut
> multiplier. Huh?
>
> Romer also cherry picks lessons learned from the Great Depression.
> The one lesson she never mentions is the lack of incentives for Private
> Capital Formation during the Great Depression. Private Capital Formation
> must occur for private sector jobs to occur.
>
> The reference to Krugman’s call for more stimulus via Keynesian Government
> Deficit Spending ($2.4 Trillion rather than $800 Billion) is proposition
> that can‘t possibly be financed. Another non factor, non proposition
> brought to you by Krugman.
>
> The current stimulus plan is ill conceived. Matter-of-fact the current
> stimulus plan needs recalled. A Keynesian Deficit Spending Plan
> based on Social Engineering and 6000 ear marks is not a job creator.
> Recall the Stimulus plan, try reading it this time around, and go
> back to the drawing board.
>
> In regards to state governments trying to reach budget equilibrium,
> the states have long known they were creating champagne spending
> tastes on a beer budget. Now the states are saddled with a bloated
> unionized work force they can not reduce due to political clout.
> Rather than reducing labor size they merely cut services and raise
> taxes with basically the same labor component/size.
On Jun 20 03:44 AM Al-USA wrote:
> This is how capitalism always ends: in a crisis of over-production.
> If human lifespans were in the 100's of years what is happening now
> would be of little surprise to most people. You can expect nothing
> but the total collapse of the capitalist model of economies. <br/>
>
> Actually, there is one fix, up the tax rate to 90% on the top 1%
> of Americans and then, crisis of over-production is solved, end of
> story, capitalism gets another 70 years or so of "life" before the
> next Depression; last one out please leave the lights on... Thanks
> for reading. Nothing too complicated now, is it? By the way, the
> last depression of the 1930's saw tax rates go up to 90% of the top
> 1% of Americans.
>
> Oh and one last thing, please read up on your Marx b/c it won't be
> long before once thought dead economic models are once again looked
> on as the "answer". I'm not saying it is or it isn't, simply because
> it has never been seriously tried. And no, the caricature of socialism
> which was the Soviet Union was no democratic socialist state, I'm
> sure most would agree.
On Jun 19 05:36 PM Fighting Yoda wrote:
> Unemployment is already ahead of what was projected - without the
> stimulus. That is a sad read on the economists- 'Economists exist
> only to make the weathermen look good.' So that much money already
> wasted.
>
> Keynesian stimulus has never worked it will not work. We tried it
> in Depression and the 70s, Japan tried it in the 90s. Keynesianism
> is simply a feel good idea - but from an economic stand point total
> waste - counterproductive actually. Economy improves with efficiency
> and the correct allocation of capital. Govt. spending does the total
> opposite. Japan had a new stimulus plan every year, paved the entire
> country side - nothing - despite the world economy being in a boom.
> So now with worldwide recession- is it even possible to attempt a
> stimulus - the answer would be no. But money would be wasted anyway.
>
>
> Economy needs a driver for growth- some new technology, market or
> idea- we have no one at this time. Green does not cut it, BRICs can
> only do so much.
>
> In the long term we are all dead, leaving the debts to our children.
> That is what this stimulus will do.
Thank you for the compliment.
Public Sector Economists like Delong tickle me. You read their analysis, then you laugh, you cry, you kiss five minutes of wasted reading goodbye.
Its sort of like this, since Krugman somehow won the Noble Prize in Economics, you can consider yourself a Noble Prize winner in Economics as well. Congratulations!
On Jun 20 12:07 PM Jeff Nielson wrote:
> W.E. Heasley, your comment was much more useful and insightful than
> the commentary above!
1. Maintain low short term interest rates and expansionary monetary policy (quantitative easing) to help banks get healthy and counter deflation;
2. Reduce price controls on labor (minimum wage, union empowerment, license restrictions) to make us more internationally competitive, counter inflation, and put more people to work;
3. Cut back a bit on government entitlements (social security, medicare, medicaid) to reduce deficits;
4. Enable more competition in education so citizens can be better trained by schools for the future;
5. Minimize government activism, incentives, and regulatory change so that people can count on a more stable environment over a longer horizon and live with lower returns given lower risk.
Instead, we seem to be going in the opposite direction- perhaps explaining economic and market collapse as these policies were being discounted into our future. So- how long until the market can start to discount in correct choices? 2010 elections, or 2012?
its how your employer can actually better rates.
thats because the risk pool is based on number of employees.
but if you buy it your self, its based on a risk pool of maybe 1
On Jun 19 05:32 PM mlonz wrote:
> I dont understand how forcing all residents to purchase, and therefore,
> consume healthcare will result in lower prices.
>
> Thats like saying, "credit card interest rates are too high and bad
> for society. In order to bring down interest rates, i will mandate
> that all citizens get an extra $10,000 in credit."
>
> Is it just me or is this bass ackwards?
>
> If you want prices to come down, you need an organized boycott of
> healthcare products across the board.
so your advocating the race to the bottom?
also eliminating a lot of potential consumers?
and a few more bankruptcies from companies who lost their custumer?
and of course your also advocating euthanasia for the elderly too? cause if you take health care away from them as you suggest, they have only one option at that point.
so far we tried that deregulation scheme. and how did that work out?
we had banksters and others gaming the system for very short term gains. that we are all paying for now. we have had our incomes collapsing thanks to wall street. we have the closest call to a depression in 50 or so years thanks to deregulation.
so are you just testing us to see how stupid we are?
On Jun 20 01:51 PM Dirk McCoy wrote:
> Usually after a big party where money is no object, you have to tighten
> your belt and get to work. What America needs to do:
>
> 1. Maintain low short term interest rates and expansionary monetary
> policy (quantitative easing) to help banks get healthy and counter
> deflation;
> 2. Reduce price controls on labor (minimum wage, union empowerment,
> license restrictions) to make us more internationally competitive,
> counter inflation, and put more people to work;
> 3. Cut back a bit on government entitlements (social security, medicare,
> medicaid) to reduce deficits;
> 4. Enable more competition in education so citizens can be better
> trained by schools for the future;
> 5. Minimize government activism, incentives, and regulatory change
> so that people can count on a more stable environment over a longer
> horizon and live with lower returns given lower risk.
>
> Instead, we seem to be going in the opposite direction- perhaps explaining
> economic and market collapse as these policies were being discounted
> into our future. So- how long until the market can start to discount
> in correct choices? 2010 elections, or 2012?
On Jun 20 01:49 PM Firat Ünlü wrote:
> An important point that is rarely mentioned is that government borrowing
> drives up mortgage rates through higher yields on government bonds.
> Which means that any sort of stimulus is short-lived as the housing
> market deteriorates (higher rates, lower prices).
Underutilization is a serious issue in healthcare costs. See this article for a discussion of how extra beds drive extra costs:
www.usatoday.com/news/...
Or visit your local hospital and see how many diagnostic tools, or even beds, are idle.
As most hospitals raced to have the latest (best) technology, the utilization of these tools has not kept up. In addition, there has been an increase in non-paying or under-paying customers- more overhead. Then top that off with expensive malpractice costs, insurance, and overtesting, and it's no wonder medical costs have risen as they have- any manager should understand overhead absorption. Then you have doctors with little incentive to NOT prescribe longer hospital stays and testing, and people wonder why these costs are rising?
I am all for patient choice in medical care. But patients need to bear some expense for their choices. Food, shelter, and clothing all come at a cost- so must health care. And the incentives for doctors to overproscribe (especially when data indicates there is little improvement in outcomes) need to be better balanced with the incentives to control costs.
1. Healthcare cannot be done in a vacuum. It must be done with retirement security. Most healthcare is done for retirees who then choose between housing/food and medicine.
2. Government healthcare rules are the reason why it is so expensive. If government paid the cash price as the uninsured are asked to, we would get real reform. Maybe something like a first payer system.
3. We all pay taxes for others but get no benefit for our healthcare. Politicians seem to think that employers should be responsible for their employees and families. Government should provide a first payer system for all citizens. Then employers could provide additional insurance as a benefit rather than a requirement. This would lower the cost of business, making the USA more competitive in the global marketplace.
4. Having dealt with MediCaid for a relative, it is an expensive system with absolutely no upside for anyone except the increasing bureaucracy to run it. The system locks people into government dependency for life.
5. SCHIP is immoral by requiring adults who are responsible for the kids without healthcare to have no healthcare themselves.
My personal opinion would be to have a Canadian style system even though it rations care. Basic and emergency care are at least covered. It would be a good start for a 'first payer' system.
I should have been more clear. I do NOT want ANYONE in the U.S. government to issue more debt. I had a poor choice of words.
What I should have said is that the Fed can withdraw liquidity more easily than Congress. Once Congress votes a new program into existence, it is almost impossible to eliminate it.
That's why I am suspicious of using budget deficits to fight recessions. The deficits live on long after the recession is gone.
On Jun 19 10:28 AM Robert Martorana wrote:
> Well said.
> You suggest that the Federal Reserve issue bonds, and I find this
> very appealing. The Fed is in a much better position to unwind stimulus
> than Congress, which will saddle America with permanent government
> programs long after the economic cycle turns.