Kimball Corson

How Come Good Macro Policies Are Political Losers?

Danny Furman, apparently including this article, writes about "[a]ll these recent ignorant permabull articles."

I did not find this article reflecting ignorance, and I certainly did not read the article to be one by a permabull, but instead by someone who is concerned that proper policies in his view are NOT being adopted and implying there will be untoward economic consequences because of it.

This certainly sounds a bit bearish to me. Danny needs to work on his basic philology.

How Come Good Macro Policies Are Political Losers?

To conceptwizard:

very troubling, if true.

Our difficulty in assessing the article's veracity arises from the lack of transparency and full disclosure of its programs and agendas by our governement. It is hard to evaluate something like this in those circumstances.

However, for what bearing it has, Bob Chapman, the driving force behind the International Forecaster is a 72 year old doom and gloom ex-gold broker who thinks we should all be holding a lot of gold and preparing for the worst. He appears to have no special education or training in economics.

How Come Good Macro Policies Are Political Losers?

My answer to your title question includes the following elements:

1) not everyone agrees with you, Krugman and others of like mind on what good policies are,
e.g., (a) Ken Rogoff, an expert on financial crises, who has done a study of financial crises over history, thinks the more debt a country has the more the lenders need to worry about getting re-paid their money at full value, and the more prone that country is to financial crises occurring; (b) many people understand well that the decline in the purchasing power of our dollar since 1776, began and has continued with the adoption of the Federal Reserve Act, (c)
the Keynesian flow models you policy makers use (i) leave out entirely too much and (ii) as flow models, tend only to look at the short run, distracting us from the the adoption of many sound, longer run policies and practices,

2) the political election cycle is often too short for the adoption of longer term, sound economic policies,

3) Congressional politics blocks needed economic reforms contrary to the personal interests of its members and their wealthy patrons,
e.g., it refuses to seriously address our huge trade deficit and the maldistribution of income in America both of which block a full recovery to a higher level equilibrium,

4) Where economic policy makers have had their policies adopted, the results have not always been good,
e.g., Krugman, Greenspan and others believing that what we needed was a good housing bubble to get America back on its feet and look at what ensued,

5) good policies are often contrary to the interests of the wealthy who retain high priced lobbyists to coordinate and manipulate Congress for those special interests and good policies lack such advocates,

6) the understanding of basic economics by members of Congress is often very poor and dwarfed by their other interests and concerns,

7) some policies adopted by policy makers have both good and bad results and the public often focuses on and remembers only the bad results,
e.g., (a) TARP I where too much money was provided to money center banks without consideration (such as stock warrants) and concessions (salary and bonsus caps) being obtained in return,(b) the stimulus program including too much pork, too little infrastructure repair and what repair there is being too far behind,

8) policy makers are too often not well grounded in the political matters and realities and so do not know how to have their better recommendations adopted,

Off the top of my head . . .

Why I'm (Cautiously) Optimistic About the Future

Here is a reason for a bit of optimism.

The Daily Beast reports --

". . . The White House is instituting new rules for lobbyists that could eject as many as thousands of lobbyists from positions on federal advisory panels. 'Some folks have developed a comfortable Beltway perch sitting on these boards while at the same time working as lobbyists to influence the government,' White House ethics counsel Norm Eisen told the Washington Post. 'That is just the kind of special interest access that the president objects to.'

The move is by far the strongest effort yet from the Obama administration to curb their influence, affecting the approximately 1,000 advisory committees that advise federal officials on a number of policyquestions."

"Lobbyists and some businesses warn that the government may lose valuable technical expertise from panel members ejected under the new rule."

Um hum.

The Rich Are Getting Richer and the Poor Are Getting Richer Too

This article is very misleading. The obvious fallacy here is that these data are not inconsistent with the marked deterioration in the distribution of income (now bottom 60% get only 21% of all income). The poor may be richer than they were, but they are falling badly behind now in income. The author looks at absolute levels, the distribution of income, at relative levels. Also, a modern high end Matage washer is not the equivalent of an old tub machine with a hand wringer. So we undoubtedly have an apples and oranges problem here, too.

Case-Shiller Still Predicts Massive 45% Fall from Today’s Values

If what you say is true then why does Case of the Case-Shiller Index think that the housing market is bottoming? See, wallstreetpit.com/498-... What he suggests implies you are wrong.

Case-Shiller Still Predicts Massive 45% Fall from Today’s Values

The correct baseline is not an extrapolated trend. It is a combined trend line of real rentals and real housing construction costs. Real housing prices need to be figured in relation to the other two because those three markets need to be together in equilibrium. Real housing prices slid out of wack a few years back.

Is Dubai's Default a Black Swan Event?

Good article. I don't find much to quibble with. Keep at it.

Mini Thanksgiving Meltdown

. . . now would you like [a DOW] 1400 points straight down for Christmas?

NOT.

We are going to have a December rally. The Dubai tempest in a teapot only makes the world love Treasuries all that more and that in turn helps the dollar.

The Troubled Role of Government in the Economy

Tim Miles wrote:

"Your blog reflects some misunderstanding of how the U.S. Government and its three branches work (perhaps it is due to a poorly taught Civics course in high school or none at all).

In general, government is damned if it does and damned if it doesn't in this country. Numerous parties step up to the public trough every day and all kinds of groups both conservative and liberal are trying to influence public policy-making."

My response:

The latter part is true; the former is not.

Further, in sorting among the various efforts to influence public policy by paid lobbyists, the core problem is Congress does not hardly consider whether a particular proposal put to them is truly in the public interest, e.g., further tax breaks for the wealthy and virtually eliminating the estate tax in the face of a very bad national distribution of income. The trickle down theory was the rationale, when the true economic result was to pour more money up to the wealthy and worsen the already bad distribution of income in America.

Members of Congress, as with dealing with pork legislation, consider, not the broad public interest, but instead how a particular proposal is going to affect them financially (personally, down the road, and more immediately in regard to campaign finances) and also whether it will increase their individual power and influence bases.

That is the core civics lesson you missed, which of course is not taught in high school at all. The reason is, as one high school civics teacher told me recently, there is a need to make America look good in such courses because America gets better citizens and soldiers that way. Foreigners looking at American high civics curricula are typically appalled at the pap.

The New Normal Could Be That Way for a While

To: random guy and bob adamson -- But what I am saying is that until we fix the trade deficit and maldistribution problems we are NEVER going to get back to where we otherwise would have been.

To tuckfinitee: You raise two interesting points --

1."Could it be that shifting huge money flows to the gov and finance isn't really good for income distribution?" I am going to have to think about this one and so should readers here. Much shifting -- like tax reductions for the rich and virtual elimination of the estate tax -- were just by law -- the monies did not flow into Washington. In fact, they partially stopped flowing in.

2. "Regarding the [trade deficit], there is no scientific reason for the US not to be energy independent." I think this is probably mostly true and it reflects a lack of public and private leadership to address the problem. Too, perhaps America's unwitting love affair with gas guzzling SUVs is a factor. In Brazil, cars are not an extension of people's egos. The rich and super rich drive tiny, economical cars. It is interesting to see multimillion dollar homes, all with economical cars in the driveways.

To Joseph L. S... Most all special interest legislation is for the purpose of changing the law or the Congressional CFRs to allow those special interests to get more income, directly or indirectly, almost invariably at the expense of the middle and lower classes. It is not about working hard, savings and thrift. It is all about acquiring governmental opportunism and Congresional complicity, mostly with highly paid lobbyiests doing the leg work.

The Troubled Role of Government in the Economy

Before this was an article and was just an instablog, lower98th asked, didn't I mean trickle down economics, instead of trickle up? I responded as follows:

"As one can see from the income distribution over time, income has, with the great help of Congress, actually been trickling up, from the middle and lower classes to the upper classes. The lower 60% now only get 21% of all income, while the upper 40% get 79% of all income. (The upper 1/10 of 1% actually get over 6%!) A much better balance for the economy would be, say 40% lower and 50% upper.

"But nobody wants to talk about this, especially members of Congress and the wealthy whom they have aided big time in regard to skewing the income distribution in favor of themselves and the wealthy. The problem is, it is hurting the economy seriously by reducing aggregate demand and GDP and creating bubbles in the markets for financial assets. See my other new [article, today], explaining how."

What the U.S. Long Bond Market Is Telling Us

I don't really see the matter the way you and Paul Krugman do. Also, you both seem muddled on what the carry trade is.

Almost by definition the carry trade is borrowing in a low interest rate or return environment (usually ours) and taking that money abroad to higher return areas and investing it there. Owned capital does the same thing, but is not a part of the carry trade. Foreign central banks, getting those dollars as they are converted into local currencies to invest, usually prefer to hold Treasuries rather than dollars in order to get a return and so use those dollars to buy them, leaving the dollar in a more or less neutral position. If instead those banks all decided to buy Eurobonds, for example, we would have a serious problem. But why would they do so?

The long term Treasury return reflects almost only pure risk in that return because short term Treasuries are almost at zero or a cash equivalent. If current long term Treasuries returns are in line with what is usual historically for this zero interest rate environment, then I would say there is no problem. If they are increasing or the Treasury is havng trouble selling them, then buyers are perceiving greater risk in regard to their purchases. Then the question is why?

Given the mess we are in and what needs to be done, the deficit and debt levels are not really that high. Health care may change that until we get a handle on silly medical costs, and I know that is bothering a lot of sensible people. But the real problem is different. It turns out to be much more based on expectations. If there is too much talk about doom and gloom, debt through the ceiling, the government doing badly, the Fed going to monetize the deficits, etc, etc., then this talk and rising deficits and debt levels might induce central banks getting so many dollars from the carry trade and capital migrations to want want higher returns for the added risk on long term Treasuries or, worse, they will take ther money elsewhere and buy say Eurobonds in greater proportion. They might do that anyway, just to be safer.

This development, and with others doing the same thing, could make it more difficult to sell long term treasuries, make it more expensive as the return has to rise, send a louder message to the world that we are in trouble, and put much downward pressure on the dollar as people dump it to buy something other than Treasuries. This can get to be a vicious circle. There is a real threat here, but it is self induced and keying on expectations which regrettably are being shaped by deficit and doom and gloom hysteria.

However, for now, the dollar is not in freefall and the long term Treasury rate is not going through the ceiling, so where is the problem, aside from the doom and gloom and deficit hysteria . . . which, unfortunately, is growing? Republicans, contrary to the best interests of the nation, are now leading the hysteria choir in a coordinated fashion. It is just stupíd.

That is the way I see it.

The Troubled Role of Government in Our Economy -- An Overview.

As one can see from the income distribution over time, income has, with the great help of Congress, actually been trickling up, from the middle and lower classes to the upper classes. The lower 60% now only get 21% of all income, while the upper 40% get 79% of all income. (The upper 1/10 of 1% actually get over 6%!) A much better balance for the economy would be, say 40% lower and 50% upper. But nobody wants to talk about this, especially members of Congress and the wealthy whom they have aided big time in regard to skewing the income distribution in favor of themselves and the wealthy. The problem is, it is hurting the economy seriously by reducing aggregate demand and GDP and creating bubbles in the markets for financial assets. See my other new post, explaining how.

Another Crisis Looms Right Around the Corner

This is absolute doom and gloom deficit hysteria with little sensible economic analysis involved, but much ranting and raving. It is absurd and to look at the favorable comments it has drawn shows you how many permabears and dooms day guys there are out there who really do not understand what is going on, but assume the worst. The anaysis and reference to an analysis of the carry trade, for example, is in grossly incomplete, inaccurate, too sketchy and reflects a basic misunderstanding about what it going on there.

The hysteria at base stands on little more than the debt to GDP ratio is high and the author gets that wrong, too. Your 2005 U.S. debt ratio of 360% is mistaken. In 2005, it was actually 64.6%. As of 2007, the debt of the United States ranked as the 23rd-largest in the world as a percentage of GDP. Your figure includes future trust obligations as well, but ignores incomes sources for those obligations such as social secuity taxes and employment taxes. For the truth here, see en.wikipedia.org/wiki/...

Moreover, a high debt to GDP ratio is not justification for buying bullion, hoarding money and buying foodstuffs, guns and ammo for your bomb shelter, in preparation for moving it. This approach and mind set is pure foolishness. You bring nothing factually accurate or sensible to the table except gloom and doom hysteria.

Remember well who wrote this article and when. His bear faced credibility is on the line here. As a great economist once said, optimism is born a baby and grows normally until a major crisis and then pessimism is born . . . full grown. America's public trust is not being destroyed so much by government as it is being slandered and undermined by much such foolishness and error as we have here.