via Mark Thoma's blog
Showing posts with label Mark Thoma. Show all posts
Showing posts with label Mark Thoma. Show all posts
Tuesday, March 9, 2010
Sunday, November 29, 2009
Obama Is Doing the Right Things
TW: When the economy is doing well the Republican want to cut taxes on the wealthy, when the economy is doing poorly they wish to cut spending. The results of such policies have been poor yet many folks hue their line. Here is a progressive economists take on the situation. Demoguery is a bi-partisan sport but the demoguery on the right is reaching new heights. When someone a viciously bad as Karl Rove is writing editorials in the WSJ about the need for conservative fiscal policy, one knows the shark has been jumped.
From Brad Delong at Project Syndicate:
"From the day after the collapse of Lehman Brothers last year, the policies followed by the United States Treasury, the US Federal Reserve, and the administrations of Presidents George W. Bush and Barack Obama have been sound and helpful. The alternative – standing back and letting the markets handle things – would have brought ... higher unemployment than now exists. Credit easing and support of the banking system helped significantly...
The fact that investment bankers did not go bankrupt last December and are profiting immensely this year is a side issue. Every extra percentage point of unemployment lasting for two years costs $400 billion. A recession twice as deep as the one we have had would have cost the US roughly $2 trillion – and cost the world as a whole four times as much. In comparison, the bonuses at Goldman Sachs are a rounding error. ...
The Obama administration’s fiscal stimulus has also significantly helped the economy. Though the jury is still out on the effect of the tax cuts in the stimulus, aid to states has been a job-saving success, and the flow of government spending on a whole variety of relatively useful projects is set to boost production and employment in the same way that consumer spending boosts production and employment.
And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes ... at current interest rates. For that price, American taxpayers will get an extra $1 trillion of goods and services, and employment will be higher by about ten million job-years.
The valid complaints about fiscal policy ... are not that it has run up the national debt..., but rather that ... we ought to have done more. Yet these policies are political losers now: nobody is proposing more stimulus. This is strange... Good policies that are boosting production and employment without causing inflation ought to be politically popular, right?
With respect to Obama’s stimulus package, it seems to me that there has been extraordinary intellectual and political dishonesty on the American right, which the press refuses to see. For two and a half centuries, economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more... – and government decisions to spend more are as good as anybody else’s. ...
Obama’s Republican opponents, who claim that fiscal stimulus cannot work, rely on arguments that are incoherent at best, and usually simply wrong, if not mendacious. Remember that back in 1993, when the Clinton administration’s analyses led it to seek to spend less and reduce the deficit, the Republicans said that that would destroy the economy, too. Such claims were as wrong then as they are now. But how many media reports make even a cursory effort to evaluate them?
A stronger argument, though not by much, is that the fiscal stimulus is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree... But interest rates on US Treasury securities are very low...
Those who claim that America has a debt problem, and that a debt problem cannot be cured with more debt, ignore (sometimes deliberately) that private debt and US Treasury debt have been very different animals – moving in different directions and behaving in different ways – since the start of the financial crisis. /blockquote>
What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying – clearly and repeatedly – that the economy has too little public US government debt, which is why everyone wants to hold it."
http://www.project-syndicate.org/commentary/delong96/English
From Brad Delong at Project Syndicate:
"From the day after the collapse of Lehman Brothers last year, the policies followed by the United States Treasury, the US Federal Reserve, and the administrations of Presidents George W. Bush and Barack Obama have been sound and helpful. The alternative – standing back and letting the markets handle things – would have brought ... higher unemployment than now exists. Credit easing and support of the banking system helped significantly...
The fact that investment bankers did not go bankrupt last December and are profiting immensely this year is a side issue. Every extra percentage point of unemployment lasting for two years costs $400 billion. A recession twice as deep as the one we have had would have cost the US roughly $2 trillion – and cost the world as a whole four times as much. In comparison, the bonuses at Goldman Sachs are a rounding error. ...
The Obama administration’s fiscal stimulus has also significantly helped the economy. Though the jury is still out on the effect of the tax cuts in the stimulus, aid to states has been a job-saving success, and the flow of government spending on a whole variety of relatively useful projects is set to boost production and employment in the same way that consumer spending boosts production and employment.
And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes ... at current interest rates. For that price, American taxpayers will get an extra $1 trillion of goods and services, and employment will be higher by about ten million job-years.
The valid complaints about fiscal policy ... are not that it has run up the national debt..., but rather that ... we ought to have done more. Yet these policies are political losers now: nobody is proposing more stimulus. This is strange... Good policies that are boosting production and employment without causing inflation ought to be politically popular, right?
With respect to Obama’s stimulus package, it seems to me that there has been extraordinary intellectual and political dishonesty on the American right, which the press refuses to see. For two and a half centuries, economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more... – and government decisions to spend more are as good as anybody else’s. ...
Obama’s Republican opponents, who claim that fiscal stimulus cannot work, rely on arguments that are incoherent at best, and usually simply wrong, if not mendacious. Remember that back in 1993, when the Clinton administration’s analyses led it to seek to spend less and reduce the deficit, the Republicans said that that would destroy the economy, too. Such claims were as wrong then as they are now. But how many media reports make even a cursory effort to evaluate them?
A stronger argument, though not by much, is that the fiscal stimulus is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on US Treasury securities were high and rising rapidly as the debt grew, I would agree... But interest rates on US Treasury securities are very low...
Those who claim that America has a debt problem, and that a debt problem cannot be cured with more debt, ignore (sometimes deliberately) that private debt and US Treasury debt have been very different animals – moving in different directions and behaving in different ways – since the start of the financial crisis. /blockquote>
What the market is saying is not that the economy has too much debt, but that it has too much private debt, which is why prices of corporate bonds are low and firms find financing expensive. The market is also saying – clearly and repeatedly – that the economy has too little public US government debt, which is why everyone wants to hold it."
http://www.project-syndicate.org/commentary/delong96/English
Tuesday, July 7, 2009
End Of Life Medical Spending: Choices, Choices
TW: End of life medical spending is a controversial topic. Few wish to hasten the end for themselves or loved ones. End of life medical spending is a disproportionate piece of total health care spending. To address total spending requires facing up to those challenging practical and ethical questions of end of life spending.
The topic appears superficially distasteful but in substance is not necessarily so. One knows spending a $1 billion to extend life by a day is non-sensical. But what about $1,000 to extend a day? Multiply $1,000/day X 1,000 people X 100 days and you get to the same $1 billion. Is that viable/desirable? What about that $1 billion being deployed instead on pre-natal care to increase the likelihood for healthier live births for say 1 million mothers ($1,000/mother)? Which makes more sense?
Cutting edge but highly costly treatments will present providers and funders with increasingly challenging decisions.
Resources are finite, choices must be made.
From Mark Thoma's blog:
"How much is life worth? The $440 billion question, EurekAlert: The decision to use expensive cancer therapies that typically produce only a relatively short extension of survival is a serious ethical dilemma in the U.S. that needs to be addressed by the oncology community...cost-benefit relationships for several cancer drugs, including cetuximab for treatment of non-small cell lung cancer, touted as "practice changing" and new standards of care by professional societies, including the American Society of Clinical Oncology. ...
... 18 weeks of cetuximab treatment for non-small cell lung cancer, which was found to extend life by 1.2 months, costs an average of $80,000, which translates into an expenditure of $800,000 to prolong the life of one patient by 1 year. At this rate, it would cost $440 billion annually ... to extend the lives of 550,000 Americans who die of cancer annually by 1 year.
To address the issue, the commentators recommend that studies powered to detect a survival advantage of two months or less should test only interventions that can be marketed at a cost of less than $20,000 for a course of treatment.
Every life is of infinite value, the authors say, but spiraling costs of cancer care makes this dilemma inescapable.
"The current situation cannot continue. We cannot ignore the cumulative costs of the tests and treatments we recommend and prescribe. As the agents of change, professional societies, including their academic and practicing oncologist members, must lead the way," the authors write. "The time to start is now."
http://economistsview.typepad.com/economistsview/2009/06/an-ethical-dilemma-in-end-of-life-care.html
The topic appears superficially distasteful but in substance is not necessarily so. One knows spending a $1 billion to extend life by a day is non-sensical. But what about $1,000 to extend a day? Multiply $1,000/day X 1,000 people X 100 days and you get to the same $1 billion. Is that viable/desirable? What about that $1 billion being deployed instead on pre-natal care to increase the likelihood for healthier live births for say 1 million mothers ($1,000/mother)? Which makes more sense?
Cutting edge but highly costly treatments will present providers and funders with increasingly challenging decisions.
Resources are finite, choices must be made.
From Mark Thoma's blog:
"How much is life worth? The $440 billion question, EurekAlert: The decision to use expensive cancer therapies that typically produce only a relatively short extension of survival is a serious ethical dilemma in the U.S. that needs to be addressed by the oncology community...cost-benefit relationships for several cancer drugs, including cetuximab for treatment of non-small cell lung cancer, touted as "practice changing" and new standards of care by professional societies, including the American Society of Clinical Oncology. ...
... 18 weeks of cetuximab treatment for non-small cell lung cancer, which was found to extend life by 1.2 months, costs an average of $80,000, which translates into an expenditure of $800,000 to prolong the life of one patient by 1 year. At this rate, it would cost $440 billion annually ... to extend the lives of 550,000 Americans who die of cancer annually by 1 year.
To address the issue, the commentators recommend that studies powered to detect a survival advantage of two months or less should test only interventions that can be marketed at a cost of less than $20,000 for a course of treatment.
Every life is of infinite value, the authors say, but spiraling costs of cancer care makes this dilemma inescapable.
"The current situation cannot continue. We cannot ignore the cumulative costs of the tests and treatments we recommend and prescribe. As the agents of change, professional societies, including their academic and practicing oncologist members, must lead the way," the authors write. "The time to start is now."
http://economistsview.typepad.com/economistsview/2009/06/an-ethical-dilemma-in-end-of-life-care.html
Monday, May 11, 2009
The Real 100 Days: FDR's
TW: Everyone knows the "100 days" concept came from FDR's initial months in office during the Great Depression. Arthur Schlesinger wrote a look back at FDR's 100 days in April, 1983. It is one of those interesting pieces written fifty years after the fact but also over 25 years ago. It had the benefit of distance from the actual event without the distortions of recent history, no conservative ascendancy, no 9/11, no stress of being tangled amidst the to and fro of our current Great Contraction. Many passages though are very relevant to the current debates.
From NYT via Mark Thoma's blog (original by Arthur Schlesinger April 10, 1983):
" ...The Hundred Days were only the start of a process that ended by transforming American society. Who can now imagine a day when America offered no Social Security, no unemployment compensation, no food stamps, no Federal guarantee of bank deposits, no Federal supervision of the stock market, no Federal protection for collective bargaining, no Federal standards for wages and hours, no Federal support for farm prices or rural electrification, no Federal refinancing for farm and home mortgages, no Federal commitment to high employment or to equal opportunity - in short, no Federal responsibility for Americans who found themselves, through no fault of their own, in economic or social distress?
These social changes have won general approval. Even the Reagan counterrevolution, for all its 19th-century laissez-faire and Social Darwinist passions, shrinks from abolishing the framework of social protection -the ''safety nets'' - created by the New Deal.
But what of the narrowly economic results? How effective was the New Deal in reducing unemployment, promoting economic growth and altering the distribution of income? And does the experience of half a century ago offer any guidance to the nation in its economic perplexities today?
The technique of the New Deal was improvisation and experiment. ... In the intellectual circumstances of the time, there was really no alternative to experiment. The Hundred Days
found the country in a state of invincible ignorance. No one knew the causes of the Depression. No one knew the cure. Business leaders and academic economists alike were analytically baffled and impotent. ...
Economists had been so wrong in the recent past and were in such hot disagreement in the urgent present that no non-economist could take the profession seriously...
...The President-elect emerged from this varied experience with a patrician disdain for business wisdom and a curiosity about economists. ''This nation asks for action, and action now,'' he said in his inaugural address.
...But the New Deal came to public spending earlier and for its own reasons...He took his ideas from two now forgotten American economic writers, William Trufant Foster and Waddill Catchings, whose irreverent critique of Say's Law in the 1920's had demonstrated the perils of oversaving, concluding with the brisk injunction: ''When business begins to look rotten, more public spending.'' ...
The third prong in the Second New Deal was targeted attention to weak sectors in the economy - the South, the West, housing, railroads...[the New Deal] liberated the colonial South and West from the New York capital market and used government money to lay the foundation for the postwar boom in the Sun Belt...(The Sun Belt today repays Washington's initiative by opposing, in the sacred name of free enterprise, government intervention on behalf of other parts of the country, as, for example, the decaying industrial heartland of the Middle West and Northeast.)
...As has been often noted, the New Deal did not solve the problem of unemployment. By 1940 the jobless rate had been cut by nearly two thirds, to 9.3 percent of the labor force from 25.2 percent in 1933. Still five million people lacked jobs.
So much re-employment in half a dozen years was a not inconsiderable accomplishment...The reason the New Deal did not do even better was that Roosevelt, though much denounced at the time as a profligate spender, remained at heart a budget-balancer and a planner. In any event, the hysterical opposition of businessmen to public spending for anyone but themselves made it politically impossible for him to spend very much.
The largest peacetime deficit the big spender produced was a feeble $3.5 billion in 1936. The increase in public debt through the 1930's hardly offset the contraction in private debt. It was not until war legitimized really effective deficits - $18 billion in 1942, $54 billion in 1943 - that unemployment disappeared; proving incidentally how right Eccles and Keynes were.
The New Deal, aided by wartime full employment, also had some impact on the distribution of income. The top fifth of American families received only 46 percent of aggregate personal income in 1946, down from 54.4 percent in 1929, while the share of the lowest two-fifths rose to 16 percent from 12.5 percent.
This was not a great change. But it was the only reversal in the trend of income distribution in American history before or since (except for a brief moment in the 1960's, and is thereby an achievement.
Roosevelt was concerned not only with getting out of the Depression but with preventing new depressions in the future. For the Great Depression was a traumatic experience. Mass unemployment, doubt whether democratic institutions could master economic crisis, the waiting specters of Communism and fascism - all this gave democratic society such a scare in the 1930's that a primary New Deal goal was to make the American economy depression-proof.
Before the New Deal, in those glorious days of the gold standard and the unregulated marketplace, the nation had gone through a bad depression every 20 years or so - 1819, 1837, 1857, 1873, 1893, 1907, 1921, 1929. The New Deal now moved to equip the economy with built-in stabilizers designed to protect individuals against unemployment, businesses against bankruptcy and society as a whole against the roller coaster of boom-and-bust.
...But we have come to understand that, in an economy dominated by market power concentrated in large corporations and unions, fiscal and monetary policy can restrain inflation only by very crude-tuning - to put it bluntly, by inducing mass unemployment.
...Rereading the inaugural today, one is struck by a different passage - by Roosevelt's stinging indictment of the ethic of the ''money changers'' who, ''stripped of the lure of profit by which to induce our people to follow their false leadership ... have fled from their high seats in the temple of our civilization.''
The time had come, Roosevelt said, to ''restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.
...These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and our fellow men.''
Perhaps our nation will be more united, more equitable and more prosperous, too, if we abandon the current program of cutting taxes for the rich and social programs for the poor and recall the proposition Roosevelt set forth in his second inaugural:
''The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.''
http://economistsview.typepad.com/economistsview/2009/05/the-hundred-days-of-fdr.html
From NYT via Mark Thoma's blog (original by Arthur Schlesinger April 10, 1983):
" ...The Hundred Days were only the start of a process that ended by transforming American society. Who can now imagine a day when America offered no Social Security, no unemployment compensation, no food stamps, no Federal guarantee of bank deposits, no Federal supervision of the stock market, no Federal protection for collective bargaining, no Federal standards for wages and hours, no Federal support for farm prices or rural electrification, no Federal refinancing for farm and home mortgages, no Federal commitment to high employment or to equal opportunity - in short, no Federal responsibility for Americans who found themselves, through no fault of their own, in economic or social distress?
These social changes have won general approval. Even the Reagan counterrevolution, for all its 19th-century laissez-faire and Social Darwinist passions, shrinks from abolishing the framework of social protection -the ''safety nets'' - created by the New Deal.
But what of the narrowly economic results? How effective was the New Deal in reducing unemployment, promoting economic growth and altering the distribution of income? And does the experience of half a century ago offer any guidance to the nation in its economic perplexities today?
The technique of the New Deal was improvisation and experiment. ... In the intellectual circumstances of the time, there was really no alternative to experiment. The Hundred Days
found the country in a state of invincible ignorance. No one knew the causes of the Depression. No one knew the cure. Business leaders and academic economists alike were analytically baffled and impotent. ...
Economists had been so wrong in the recent past and were in such hot disagreement in the urgent present that no non-economist could take the profession seriously...
...The President-elect emerged from this varied experience with a patrician disdain for business wisdom and a curiosity about economists. ''This nation asks for action, and action now,'' he said in his inaugural address.
...But the New Deal came to public spending earlier and for its own reasons...He took his ideas from two now forgotten American economic writers, William Trufant Foster and Waddill Catchings, whose irreverent critique of Say's Law in the 1920's had demonstrated the perils of oversaving, concluding with the brisk injunction: ''When business begins to look rotten, more public spending.'' ...
The third prong in the Second New Deal was targeted attention to weak sectors in the economy - the South, the West, housing, railroads...[the New Deal] liberated the colonial South and West from the New York capital market and used government money to lay the foundation for the postwar boom in the Sun Belt...(The Sun Belt today repays Washington's initiative by opposing, in the sacred name of free enterprise, government intervention on behalf of other parts of the country, as, for example, the decaying industrial heartland of the Middle West and Northeast.)
...As has been often noted, the New Deal did not solve the problem of unemployment. By 1940 the jobless rate had been cut by nearly two thirds, to 9.3 percent of the labor force from 25.2 percent in 1933. Still five million people lacked jobs.
So much re-employment in half a dozen years was a not inconsiderable accomplishment...The reason the New Deal did not do even better was that Roosevelt, though much denounced at the time as a profligate spender, remained at heart a budget-balancer and a planner. In any event, the hysterical opposition of businessmen to public spending for anyone but themselves made it politically impossible for him to spend very much.
The largest peacetime deficit the big spender produced was a feeble $3.5 billion in 1936. The increase in public debt through the 1930's hardly offset the contraction in private debt. It was not until war legitimized really effective deficits - $18 billion in 1942, $54 billion in 1943 - that unemployment disappeared; proving incidentally how right Eccles and Keynes were.
The New Deal, aided by wartime full employment, also had some impact on the distribution of income. The top fifth of American families received only 46 percent of aggregate personal income in 1946, down from 54.4 percent in 1929, while the share of the lowest two-fifths rose to 16 percent from 12.5 percent.
This was not a great change. But it was the only reversal in the trend of income distribution in American history before or since (except for a brief moment in the 1960's, and is thereby an achievement.
Roosevelt was concerned not only with getting out of the Depression but with preventing new depressions in the future. For the Great Depression was a traumatic experience. Mass unemployment, doubt whether democratic institutions could master economic crisis, the waiting specters of Communism and fascism - all this gave democratic society such a scare in the 1930's that a primary New Deal goal was to make the American economy depression-proof.
Before the New Deal, in those glorious days of the gold standard and the unregulated marketplace, the nation had gone through a bad depression every 20 years or so - 1819, 1837, 1857, 1873, 1893, 1907, 1921, 1929. The New Deal now moved to equip the economy with built-in stabilizers designed to protect individuals against unemployment, businesses against bankruptcy and society as a whole against the roller coaster of boom-and-bust.
...But we have come to understand that, in an economy dominated by market power concentrated in large corporations and unions, fiscal and monetary policy can restrain inflation only by very crude-tuning - to put it bluntly, by inducing mass unemployment.
...Rereading the inaugural today, one is struck by a different passage - by Roosevelt's stinging indictment of the ethic of the ''money changers'' who, ''stripped of the lure of profit by which to induce our people to follow their false leadership ... have fled from their high seats in the temple of our civilization.''
The time had come, Roosevelt said, to ''restore that temple to the ancient truths. The measure of that restoration lies in the extent to which we apply social values more noble than mere monetary profit.
...These dark days will be worth all they cost us if they teach us that our true destiny is not to be ministered unto but to minister to ourselves and our fellow men.''
Perhaps our nation will be more united, more equitable and more prosperous, too, if we abandon the current program of cutting taxes for the rich and social programs for the poor and recall the proposition Roosevelt set forth in his second inaugural:
''The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.''
http://economistsview.typepad.com/economistsview/2009/05/the-hundred-days-of-fdr.html
Saturday, March 7, 2009
An Economist Twists Off
TW: I read Mark Thoma pretty closely. He is certainly a liberal economist but not as preachy as Krugman. He apparently got fed up yesterday with some of the Obama critics. I read the conservative economics blogs too. They have had a very clear strategy:
1) downplay the crisis (because they fear the bigger the crisis the more rope Obama has to change things)
2) starting about two weeks ago start blaming the stock market fall and the economy on Obama
3) starting this week, stop downplaying the crisis (why? see #2)
It is all highly cynical. I understand their fear of change since careers and power have been built on supply side drivel and tax cuts. But unfortunately for them fiscal discipline, entitlement reform and ultimately sustainable economic growth were never part of their program. A sophisticated Ponzi scheme of cheap credit and under regulation was, I am not saying they planned it that way but that is what we got (and yes it was a bi-partisan effort to mess things up but our ideology was not as rotten to the core as the Republicans).
From Mark Thoma:
"Reading through a few anti-stimulus sites today, I am unusually annoyed.
All of you that say this recession isn't as bad as [pick recession and series of your choice], and are showing this or that graph to prove it, what, exactly is your point? That people are just a bunch of whiners, that it's not really that bad?
It's bad.
I'm guessing you'll deny any responsibility, or say that you are on the right side of the argument (e.g. that the stimulus package will somehow hurt us on net), but I think you ought to feel guilty for contributing to the delay in putting policy in place to help people affected by the downturn. Or are you proud that you delayed policy until it was too late to help a lot of people who are now unemployed, people whose lives have been ruined by sudden unemployment? Do you hold your head high and tell people about your hard work to delay and trim back the stimulus package so it would be less effective and allow even more lives to be ruined? It's not just politics like you tell yourself, there are livelihoods at stake, though I suppose it's comforting to believe it's all just a game, all about making Obama look bad, rather than about helping people struggling to make ends meet.
And those of you still saying it's not that bad, or not as bad as [pick episode], what are you thinking? You were wrong to this point, very wrong, and people are worse off because of it. Many of you believe stimulus policies will work, but keep saying we can't do them fast enough. You are still arguing, unashamedly, that you know a recovery is just around the corner and any attempts to help people will come too late to do any good. It's the same argument you've been making for more than a year now and it was wrong then, and it's likely to be just as wrong now. The end is not just around the corner, especially for employment which lags behind output, yet here you are dishing out more of the same.
So when you hear about someone who worked hard all their lives to provide for their family, someone who always did the right thing but is now unemployed and unable to meet the household's needs due to unemployment, someone who might have benefitted from an earlier and more aggressive stimulus package, pat yourself on the back and say "I helped to make that happen."
1) downplay the crisis (because they fear the bigger the crisis the more rope Obama has to change things)
2) starting about two weeks ago start blaming the stock market fall and the economy on Obama
3) starting this week, stop downplaying the crisis (why? see #2)
It is all highly cynical. I understand their fear of change since careers and power have been built on supply side drivel and tax cuts. But unfortunately for them fiscal discipline, entitlement reform and ultimately sustainable economic growth were never part of their program. A sophisticated Ponzi scheme of cheap credit and under regulation was, I am not saying they planned it that way but that is what we got (and yes it was a bi-partisan effort to mess things up but our ideology was not as rotten to the core as the Republicans).
From Mark Thoma:
"Reading through a few anti-stimulus sites today, I am unusually annoyed.
All of you that say this recession isn't as bad as [pick recession and series of your choice], and are showing this or that graph to prove it, what, exactly is your point? That people are just a bunch of whiners, that it's not really that bad?
It's bad.
I'm guessing you'll deny any responsibility, or say that you are on the right side of the argument (e.g. that the stimulus package will somehow hurt us on net), but I think you ought to feel guilty for contributing to the delay in putting policy in place to help people affected by the downturn. Or are you proud that you delayed policy until it was too late to help a lot of people who are now unemployed, people whose lives have been ruined by sudden unemployment? Do you hold your head high and tell people about your hard work to delay and trim back the stimulus package so it would be less effective and allow even more lives to be ruined? It's not just politics like you tell yourself, there are livelihoods at stake, though I suppose it's comforting to believe it's all just a game, all about making Obama look bad, rather than about helping people struggling to make ends meet.
And those of you still saying it's not that bad, or not as bad as [pick episode], what are you thinking? You were wrong to this point, very wrong, and people are worse off because of it. Many of you believe stimulus policies will work, but keep saying we can't do them fast enough. You are still arguing, unashamedly, that you know a recovery is just around the corner and any attempts to help people will come too late to do any good. It's the same argument you've been making for more than a year now and it was wrong then, and it's likely to be just as wrong now. The end is not just around the corner, especially for employment which lags behind output, yet here you are dishing out more of the same.
So when you hear about someone who worked hard all their lives to provide for their family, someone who always did the right thing but is now unemployed and unable to meet the household's needs due to unemployment, someone who might have benefitted from an earlier and more aggressive stimulus package, pat yourself on the back and say "I helped to make that happen."
Friday, January 30, 2009
The Birds Coming Home To Roost
TW: Have commented on the hypocrisy of Republicans who ignored our fiscal deficits really all the way back to Ronald Reagan, who are now making much noise about the deficit spending embedded in the Obama plan. Imagine if the Republicans had not jammed through the tax cuts for the wealthy in '01 and '03, imagine if we had not spent a trillion $ in Iraq. Water under the bridge but why would we rely upon the Republicans now to most effectively address our economic woes?
I am a deficit hawk (unlike most Republicans) but there is a time and place for everything.
From economist Mark Thoma:
"During the Bush administration, the federal debt " nearly doubled," going from $5.7 trillion to $10.6 trillion. This was no accident, but rather part of the Republican's "starve the beast" strategy for shrinking government. While this was going on, many of us warned that if big trouble hit, and if we had high deficits at the time, it would limit our ability to respond in the most effective manner. E.g., from January 2006:
We are in a better position with respect to monetary policy now, but for awhile we had very low interest rates coupled with very high budget deficits. In such a case, when you've already thrown your two best punches, what do you do if trouble hits? It's important to reload the policy guns - get deficits and interest rates in order - so when trouble hits you won't have already fired your best shots. I also wonder if we are saving enough for the next rainy day.
We weren't, and as I said, that was intentional. You see, the advocates of starve the beast policies believed that capitalism had entered a new era since Reagan. We had thrown off the limitations imposed by intrusive government making us, unlike Europeans who had not followed suit to anywhere near the same degree, highly resistant to shocks. Much was written about how effectively the relatively government free U.S. economy could absorb shocks relative to Europe (Phelps comes to mind). We could take a licking and keep on ticking. So they saw no real danger in pushing a large deficit, starve the beast type policy. Many denied that government could help, government is always the problem, never the solution, but in any case big shocks - the kind that produce depressions - couldn't happen in a free, capitalist system, and they would point to the Great Moderation and events such as Katrina where the economy hardly lost a breath as evidence for that position.
But they were wrong about that, and what many of us were so worried about has now come to pass. Because of the high levels of government debt, our hands are not as free as they should be to deal with the crisis. Republicans - the very party that created the such a large problem by denying that it could ever occur - are now the ones wringing their hands about increasing the deficit any further. But instead of complaining, they should be apologizing profusely for leaving us in such a bad position. Their belief that capitalist economies, if only freed of government, can absorb any shock almost without blinking, and their conscious decision to try to starve government, particularly social insurance programs so necessary in a downturn like this one, has left us in a bad position. We may not be able to do as much as we need to do because of the objections to increasing the debt as much as will be needed. And if we cannot do what we need to do, it won't be the beast that is starved, it will be families who no longer have jobs, healthcare, etc., and have no place to turn to get the help that they need, at least not in sufficient quantity. "Starving the unemployed" may not have been the goal, but if Republicans get their way and limit the recovery package based upon deficit fears, it could very well be the result."
http://economistsview.typepad.com/economistsview/2009/01/starving-the-un.html
I am a deficit hawk (unlike most Republicans) but there is a time and place for everything.
From economist Mark Thoma:
"During the Bush administration, the federal debt " nearly doubled," going from $5.7 trillion to $10.6 trillion. This was no accident, but rather part of the Republican's "starve the beast" strategy for shrinking government. While this was going on, many of us warned that if big trouble hit, and if we had high deficits at the time, it would limit our ability to respond in the most effective manner. E.g., from January 2006:
We are in a better position with respect to monetary policy now, but for awhile we had very low interest rates coupled with very high budget deficits. In such a case, when you've already thrown your two best punches, what do you do if trouble hits? It's important to reload the policy guns - get deficits and interest rates in order - so when trouble hits you won't have already fired your best shots. I also wonder if we are saving enough for the next rainy day.
We weren't, and as I said, that was intentional. You see, the advocates of starve the beast policies believed that capitalism had entered a new era since Reagan. We had thrown off the limitations imposed by intrusive government making us, unlike Europeans who had not followed suit to anywhere near the same degree, highly resistant to shocks. Much was written about how effectively the relatively government free U.S. economy could absorb shocks relative to Europe (Phelps comes to mind). We could take a licking and keep on ticking. So they saw no real danger in pushing a large deficit, starve the beast type policy. Many denied that government could help, government is always the problem, never the solution, but in any case big shocks - the kind that produce depressions - couldn't happen in a free, capitalist system, and they would point to the Great Moderation and events such as Katrina where the economy hardly lost a breath as evidence for that position.
But they were wrong about that, and what many of us were so worried about has now come to pass. Because of the high levels of government debt, our hands are not as free as they should be to deal with the crisis. Republicans - the very party that created the such a large problem by denying that it could ever occur - are now the ones wringing their hands about increasing the deficit any further. But instead of complaining, they should be apologizing profusely for leaving us in such a bad position. Their belief that capitalist economies, if only freed of government, can absorb any shock almost without blinking, and their conscious decision to try to starve government, particularly social insurance programs so necessary in a downturn like this one, has left us in a bad position. We may not be able to do as much as we need to do because of the objections to increasing the debt as much as will be needed. And if we cannot do what we need to do, it won't be the beast that is starved, it will be families who no longer have jobs, healthcare, etc., and have no place to turn to get the help that they need, at least not in sufficient quantity. "Starving the unemployed" may not have been the goal, but if Republicans get their way and limit the recovery package based upon deficit fears, it could very well be the result."
http://economistsview.typepad.com/economistsview/2009/01/starving-the-un.html
Tuesday, January 27, 2009
Tax Cuts Won't Build Schools
TW: Mark Thoma is a progressive economist but appears fairly level-headed about it. Lets high-strung than say Paul Krugman but then Thoma is not shelled personally and repeatedly daily like Krugman. His points are simple: we need infrastructure (broadly defined) re-built, and the sooner the better.
From Mark Thoma's blog:
"Tax cuts won't build schools, or any other public good.
And right now, with so much of our infrastructure in need of attention, we need public goods.
We tried the tax cut approach to stimulating the economy once, we had no choice since Bush and the Republicans would not have passed any other type of stimulus package.
Guess what? It didn't work very well, and we have little to show for it. Had we, say, rebuilt water systems instead, at the very worst we'd have better water. That's not so bad in any case.
And it's been interesting, if that's the right word, to watch the same people who delayed fiscal policy for months and months and months as they insisted that we try tax cuts first now tell us that it will take too long to put the spending in place. They don't seem to realized that's because of their insistence on the use of tax cuts rather than spending. If we had started on these projects a year ago instead of enacting the tax cut package to appease the right, timeliness would not be such an issue - we might already be repairing sewage systems, rebuilding roads, and so on.
I've even heard some who ought to know better argue that because forecasts say the recession will end soon, we can't possibly get the spending in place soon enough. That is, they argue that by the time the spending hits the economy, the economy will have already recovered (these are often the same people who reassured us that there was no housing bubble, and there was not worry anyway because the recession, if it hit at all, would be very mild and easily absorbed by our dynamic, flexible economy). Never mind that forecasts beyond around six months ahead are not much better than a coin flip, and they know it, some forecast somewhere says that the recession will end before spending is in place, and that's enough for them to take the argument public. What if the forecast is wrong?
It's not completely clear to me that the fact that the recession might end soon undercuts the case for government spending anyway. If the money is spent on large, socially beneficial projects - and lots of infrastructure comes under this heading - then so what if the economy recovers? These are things we very much need, and that won't change just because the economy is doing better. There will be net benefits no matter the state of the economy, but the net benefits will be higher if we pursue these projects when the costs are low. If we are lucky, and the economy recovers very fast, much faster than expected, then there will still be benefits, they just won't be as large. "
http://tinyurl.com/bhhjss
From Mark Thoma's blog:
"Tax cuts won't build schools, or any other public good.
And right now, with so much of our infrastructure in need of attention, we need public goods.
We tried the tax cut approach to stimulating the economy once, we had no choice since Bush and the Republicans would not have passed any other type of stimulus package.
Guess what? It didn't work very well, and we have little to show for it. Had we, say, rebuilt water systems instead, at the very worst we'd have better water. That's not so bad in any case.
And it's been interesting, if that's the right word, to watch the same people who delayed fiscal policy for months and months and months as they insisted that we try tax cuts first now tell us that it will take too long to put the spending in place. They don't seem to realized that's because of their insistence on the use of tax cuts rather than spending. If we had started on these projects a year ago instead of enacting the tax cut package to appease the right, timeliness would not be such an issue - we might already be repairing sewage systems, rebuilding roads, and so on.
I've even heard some who ought to know better argue that because forecasts say the recession will end soon, we can't possibly get the spending in place soon enough. That is, they argue that by the time the spending hits the economy, the economy will have already recovered (these are often the same people who reassured us that there was no housing bubble, and there was not worry anyway because the recession, if it hit at all, would be very mild and easily absorbed by our dynamic, flexible economy). Never mind that forecasts beyond around six months ahead are not much better than a coin flip, and they know it, some forecast somewhere says that the recession will end before spending is in place, and that's enough for them to take the argument public. What if the forecast is wrong?
It's not completely clear to me that the fact that the recession might end soon undercuts the case for government spending anyway. If the money is spent on large, socially beneficial projects - and lots of infrastructure comes under this heading - then so what if the economy recovers? These are things we very much need, and that won't change just because the economy is doing better. There will be net benefits no matter the state of the economy, but the net benefits will be higher if we pursue these projects when the costs are low. If we are lucky, and the economy recovers very fast, much faster than expected, then there will still be benefits, they just won't be as large. "
http://tinyurl.com/bhhjss
Monday, December 8, 2008
Averting a Depression Another Primer
TW: Mark Thoma, a very good economics blogger, pulls together highlights from another economist's, Bruce Bartlett, piece in Forbes. It helps if you are trying to wrap your arms around where we are and more importantly where we need to go policy wise over the next few months. To repeat what has become a mantra on this blog, we need government spending not something else at this point.
From Thoma/Forbes/Bartlett:
"Every day that goes by makes clearer the parallels between the current financial crisis and the one that led to the Great Depression. Then, as now, the core problem was one of deflation... What few people understood at the time was that the Federal Reserve was primarily responsible for the deflation...
In its initial stages, the Fed might have been able to prevent a full-blown depression by being a lender of last resort. It should have been aggressive about buying every financial asset it could lay its hands on and created as much money as necessary to do so. But it ... was passive and, as the value of financial assets collapsed, banks closed and vast amounts of wealth simply vanished.
The money simply disappeared, because there was no federal deposit insurance in those days. According to ... Milton Friedman and Anna Schwartz, the nation's money supply fell by one-third between 1929 and 1933, which induced a 25% fall in price levels...
As prices fell, businesses were forced to sell goods for less than they cost to produce. They couldn't cut costs easily because that meant reducing wages, which workers naturally resisted. Layoffs were the only way to cut costs, but this meant workers didn't have any income with which to buy goods, since there was no unemployment compensation either. This created a downward spiral that proved very difficult to stop. ...
The decline in wealth also reduced spending, and the fall in prices had the effect of magnifying debts. Debtors were forced to repay loans in dollars worth 25% more than those they borrowed in the first place. Farmers ... were especially hard hit. In effect,... they took out loans that were worth X number of bushels of wheat and ... they needed 25% more bushels to repay. ...
When the rate of deflation exceeds the nominal interest rate,... no one is going to lend money at a negative nominal rate; they will just hold on to it. When this happens, we have what economists call a liquidity trap, and the Fed cannot inject liquidity into the economy to stop the deflation. ...
Another problem that policymakers back then didn't grasp is that the money supply's effectiveness depends on how quickly people spend it; something economists call velocity. If velocity falls because people are hoarding cash, it may require a great deal more money to keep the economy operating. ...
This is essentially the problem we have today. Unlike in the 1930s, the Fed is not allowing the money supply to diminish. ... But velocity is collapsing. Banks, businesses and households are all hoarding cash, not spending except for essentials. This is bringing on the deflation that is crippling the economy. ...
The problem today is that velocity is falling faster than the Fed can pump up the money supply by buying financial assets... What Keynes figured out is that when conditions such as these exist, the federal government must step in to raise spending in the economy and thereby increase velocity. This means running a budget deficit, but that is only part of the solution. ...
We also know from the experience with tax rebates in 1974, 2001 and 2008 that this doesn't do any good, either. People mostly save the money...
Keynes argued that the only thing that will really work is if the federal government uses its resources to purchase goods and services. It must buy "stuff"--concrete, computers, paper, glass, steel--anything as long as it is tangible. In other words, the government must spend the way households do, by buying things. ... This is what ends an economic crisis. Unfortunately, it was not until World War II that the federal government spent enough on real resources ... to make Keynes' theory work in practice.
The challenge for Congress and the Obama administration will be to devise a spending program that draws a significant amount of real resources out of the economy fast enough. A massive public building program would be one way, but that will take more time to gear up than we may have. ... We need something today that can affect the economy within months. ...
For what it's worth, Keynes didn't know what to do in this situation, either. He suggested building pyramids and burying bank notes in deep mine shafts that had been filled in. As people tried to dig up the money, they would be forced to employ labor and purchase equipment that would raise spending and thereby growth. In the end, it took the greatest war in history to make Keynes' theory work. ...
We ... have the advantage of important institutions like deposit insurance and much better leadership at the Fed. But in the end, there is a limit to what the Fed can do by itself. At some point, government spending must be the engine that pulls the economy out of recession...
But it must be the right kind of spending. It must draw real resources out of the economy--that is the only kind of spending that will work. ..."
http://economistsview.typepad.com/economistsview/2008/12/what-would-keyn.html
http://www.forbes.com/opinions/2008/12/04/depression-deflation-velocity-oped-cx_bb_1205bartlett.html
From Thoma/Forbes/Bartlett:
"Every day that goes by makes clearer the parallels between the current financial crisis and the one that led to the Great Depression. Then, as now, the core problem was one of deflation... What few people understood at the time was that the Federal Reserve was primarily responsible for the deflation...
In its initial stages, the Fed might have been able to prevent a full-blown depression by being a lender of last resort. It should have been aggressive about buying every financial asset it could lay its hands on and created as much money as necessary to do so. But it ... was passive and, as the value of financial assets collapsed, banks closed and vast amounts of wealth simply vanished.
The money simply disappeared, because there was no federal deposit insurance in those days. According to ... Milton Friedman and Anna Schwartz, the nation's money supply fell by one-third between 1929 and 1933, which induced a 25% fall in price levels...
As prices fell, businesses were forced to sell goods for less than they cost to produce. They couldn't cut costs easily because that meant reducing wages, which workers naturally resisted. Layoffs were the only way to cut costs, but this meant workers didn't have any income with which to buy goods, since there was no unemployment compensation either. This created a downward spiral that proved very difficult to stop. ...
The decline in wealth also reduced spending, and the fall in prices had the effect of magnifying debts. Debtors were forced to repay loans in dollars worth 25% more than those they borrowed in the first place. Farmers ... were especially hard hit. In effect,... they took out loans that were worth X number of bushels of wheat and ... they needed 25% more bushels to repay. ...
When the rate of deflation exceeds the nominal interest rate,... no one is going to lend money at a negative nominal rate; they will just hold on to it. When this happens, we have what economists call a liquidity trap, and the Fed cannot inject liquidity into the economy to stop the deflation. ...
Another problem that policymakers back then didn't grasp is that the money supply's effectiveness depends on how quickly people spend it; something economists call velocity. If velocity falls because people are hoarding cash, it may require a great deal more money to keep the economy operating. ...
This is essentially the problem we have today. Unlike in the 1930s, the Fed is not allowing the money supply to diminish. ... But velocity is collapsing. Banks, businesses and households are all hoarding cash, not spending except for essentials. This is bringing on the deflation that is crippling the economy. ...
The problem today is that velocity is falling faster than the Fed can pump up the money supply by buying financial assets... What Keynes figured out is that when conditions such as these exist, the federal government must step in to raise spending in the economy and thereby increase velocity. This means running a budget deficit, but that is only part of the solution. ...
We also know from the experience with tax rebates in 1974, 2001 and 2008 that this doesn't do any good, either. People mostly save the money...
Keynes argued that the only thing that will really work is if the federal government uses its resources to purchase goods and services. It must buy "stuff"--concrete, computers, paper, glass, steel--anything as long as it is tangible. In other words, the government must spend the way households do, by buying things. ... This is what ends an economic crisis. Unfortunately, it was not until World War II that the federal government spent enough on real resources ... to make Keynes' theory work in practice.
The challenge for Congress and the Obama administration will be to devise a spending program that draws a significant amount of real resources out of the economy fast enough. A massive public building program would be one way, but that will take more time to gear up than we may have. ... We need something today that can affect the economy within months. ...
For what it's worth, Keynes didn't know what to do in this situation, either. He suggested building pyramids and burying bank notes in deep mine shafts that had been filled in. As people tried to dig up the money, they would be forced to employ labor and purchase equipment that would raise spending and thereby growth. In the end, it took the greatest war in history to make Keynes' theory work. ...
We ... have the advantage of important institutions like deposit insurance and much better leadership at the Fed. But in the end, there is a limit to what the Fed can do by itself. At some point, government spending must be the engine that pulls the economy out of recession...
But it must be the right kind of spending. It must draw real resources out of the economy--that is the only kind of spending that will work. ..."
http://economistsview.typepad.com/economistsview/2008/12/what-would-keyn.html
http://www.forbes.com/opinions/2008/12/04/depression-deflation-velocity-oped-cx_bb_1205bartlett.html
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