From Capital Gains and Games:
"That's what the Bureau of Labor Statistics reported last Thursday. 49% of the tax rebates were used to pay off debt, and 18% were saved. 3% could not be determined. Just goes to show that there's no quick way to stimulate the economy. It's takes time to get spent."
TW: You may recall my posts from early this year when the stimulus program was being defined. Conservatives yelped wanting the stimulus to be primarily tax cuts as they allegedly would act faster on the economy. The retort of many was to refer to the Paradox of Thrift whereby when times get tough folks curl into balls and stop spending their incremental dollars. The evidence above supports that thesis as less than a third of the tax rebates were spent. Dollars must be spent in order to stimulate otherwise one gets a circular treadmill of nothingness- the government borrows the $, gives it to citizens who save the same $ resulting in zero net impact on the economy.
Hard core supply siders would say but wait, rebates are not the same as long-term cuts in tax rates. The evidence on that is murky but if one is to cut long-term tax rates then would not the long-term deficit explode? Oh no, would say Larry Kudlow, if rates are cut (especially for wealthy folks) total tax revenue will grow, oh really...
Showing posts with label stimulus spending. Show all posts
Showing posts with label stimulus spending. Show all posts
Wednesday, October 21, 2009
Saturday, April 25, 2009
The Peril Of Optimism
TW: One of the things that is most concerning about this Great Contraction is the lack of visibility as to what will lift the world economy out of the slump. This piece supports the notion that the world economy may perform in a hockey stick fashion, a steep dive followed by economies wallowing around at lower levels of activities for extended periods.
They believe the massive stimulus programs and typical cyclical inventory moderation will sooner or later stabilize economies. What they do not see is the next catalyst to get world economies moving at rates other than tepid or essentially flat. How populations would react to an extended period of flat growth following a relatively steep and prolonged period of contraction would be interesting. The world would not end but the hopes and aspirations of many individuals and nations would need to evolve. This would be Japan post-1990 writ worldwide.
Japanese maintain high standards of living but they are not growing. Presumably there would be pockets of growth in various places. Those nations or groups would be positioned to acquire assets in the slower growing areas. Would these dislocations create new frictions? Perhaps but would they be any worse than already existing frictions?
From the Economist:
“But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.
...The worst is over only in the narrowest sense that the pace of global decline has peaked. Thanks to massive—and unsustainable—fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.
Consider what that means. Much of the rich world will see jobless rates that reach double-digits, and then stay there. Deflation—a devastating disease in debt-laden economies—could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs. Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess. The OECD’s member countries began the crisis with debt stocks, on average, at 75% of GDP; by 2010 they will reach 100%. One analysis suggests persistent weakness could push the biggest economies’ debt ratios to 140% by 2014. Continuing joblessness, years of weak investment and higher public-debt burdens, in turn, will dent economies’ underlying potential. Although there is no sign that the world economy will return to its trend rate of growth any time soon, it is already clear that this speed limit will be lower than before the crisis hit..."
http://www.economist.com/opinion/displayStory.cfm?story_id=13527685&
They believe the massive stimulus programs and typical cyclical inventory moderation will sooner or later stabilize economies. What they do not see is the next catalyst to get world economies moving at rates other than tepid or essentially flat. How populations would react to an extended period of flat growth following a relatively steep and prolonged period of contraction would be interesting. The world would not end but the hopes and aspirations of many individuals and nations would need to evolve. This would be Japan post-1990 writ worldwide.
Japanese maintain high standards of living but they are not growing. Presumably there would be pockets of growth in various places. Those nations or groups would be positioned to acquire assets in the slower growing areas. Would these dislocations create new frictions? Perhaps but would they be any worse than already existing frictions?
From the Economist:
“But, welcome as it is, optimism contains two traps, one obvious, the other more subtle. The obvious trap is that confidence proves misplaced—that the glimmers of hope are misinterpreted as the beginnings of a strong recovery when all they really show is that the rate of decline is slowing. The subtler trap, particularly for politicians, is that confidence and better news create ruinous complacency. Optimism is one thing, but hubris that the world economy is returning to normal could hinder recovery and block policies to protect against a further plunge into the depths.
...The worst is over only in the narrowest sense that the pace of global decline has peaked. Thanks to massive—and unsustainable—fiscal and monetary transfusions, output will eventually stabilise. But in many ways, darker days lie ahead. Despite the scale of the slump, no conventional recovery is in sight. Growth, when it comes, will be too feeble to stop unemployment rising and idle capacity swelling. And for years most of the world’s economies will depend on their governments.
Consider what that means. Much of the rich world will see jobless rates that reach double-digits, and then stay there. Deflation—a devastating disease in debt-laden economies—could set in as record economic slack pushes down prices and wages, particularly since headline inflation has already plunged thanks to sinking fuel costs. Public debt will soar because of weak growth, prolonged stimulus spending and the growing costs of cleaning up the financial mess. The OECD’s member countries began the crisis with debt stocks, on average, at 75% of GDP; by 2010 they will reach 100%. One analysis suggests persistent weakness could push the biggest economies’ debt ratios to 140% by 2014. Continuing joblessness, years of weak investment and higher public-debt burdens, in turn, will dent economies’ underlying potential. Although there is no sign that the world economy will return to its trend rate of growth any time soon, it is already clear that this speed limit will be lower than before the crisis hit..."
http://www.economist.com/opinion/displayStory.cfm?story_id=13527685&
Sunday, April 19, 2009
Its About Time...Some Serious Rail Funding
TW: Crisis breeds opportunity, the phrase uttered by terrified Republicans but to me truism if used properly. Our rail networks are grossly underfunded and have been since cars took over the hearts of consumers and fiscal minds of our governments. Due to the exigencies of this current Great Contraction and in a fit of Keynesian inspiration, the Obama administration is charging ahead with the most aggressive funding for rail in decades.
The plan is not a panacea, $8 billion gives rail a strong shove forward but does not fund the deca-billions needed to get the network up to where it should be. However, if our rails can start to offer travel times lower than achievable by car, which is not frequently the current case, then we should be headed in the right direction.
From Chicago Tribune:
"Year after year, high-speed rail in the U.S. has been a popular idea that never left the station because of a lack of political will. All that changed Thursday.
Passenger trains traveling at 110 m.p.h.—arriving in Chicago from St. Louis in under four hours—could be operating in three or four years after Obama allocated $8 billion in federal stimulus money to begin building a national high-speed rail system...
Ten high-speed rail corridors were selected as high-priority projects, including a nine-state Midwestern network that will have routes radiating 3,000 miles across the region from a rail hub in Chicago.The stimulus funding is backed up by a pledge of an additional $1 billion annually for five years for states to improve passenger rail and offer the public a more attractive alternative to the hassles of driving and flying.
...Faster trains passing through Chicago could be operating as soon as 2012 to 2014 to Milwaukee and Madison, Wis., on one corridor and Detroit and Pontiac, Mich., on another... The money for the shovel-ready projects will be awarded this summer, and work would begin immediately.
In laying out a strategic plan for high-speed rail, Obama stressed repairing existing rail infrastructure to improve travel times and increase the frequencies of service provided on routes.
Illinois, Michigan and Wisconsin are working with Amtrak to increase train speeds from the 79 m.p.h. top speed in most locations to 110 m.p.h., which is the maximum that can be safely handled by Amtrak's existing locomotives and coaches.
"We are decades behind Europe and Asia in developing high-speed infrastructure, but today marked an exciting, huge step," said Rick Harnish, executive director of the Midwest High Speed Rail Association. "Having a president who fully understands how critical this is to our future is a real game-changer."
http://www.chicagotribune.com/news/local/chi-high-speed-rail-17-apr17,0,1876557.story
The plan is not a panacea, $8 billion gives rail a strong shove forward but does not fund the deca-billions needed to get the network up to where it should be. However, if our rails can start to offer travel times lower than achievable by car, which is not frequently the current case, then we should be headed in the right direction.
From Chicago Tribune:
"Year after year, high-speed rail in the U.S. has been a popular idea that never left the station because of a lack of political will. All that changed Thursday.
Passenger trains traveling at 110 m.p.h.—arriving in Chicago from St. Louis in under four hours—could be operating in three or four years after Obama allocated $8 billion in federal stimulus money to begin building a national high-speed rail system...
Ten high-speed rail corridors were selected as high-priority projects, including a nine-state Midwestern network that will have routes radiating 3,000 miles across the region from a rail hub in Chicago.The stimulus funding is backed up by a pledge of an additional $1 billion annually for five years for states to improve passenger rail and offer the public a more attractive alternative to the hassles of driving and flying.
...Faster trains passing through Chicago could be operating as soon as 2012 to 2014 to Milwaukee and Madison, Wis., on one corridor and Detroit and Pontiac, Mich., on another... The money for the shovel-ready projects will be awarded this summer, and work would begin immediately.
In laying out a strategic plan for high-speed rail, Obama stressed repairing existing rail infrastructure to improve travel times and increase the frequencies of service provided on routes.
Illinois, Michigan and Wisconsin are working with Amtrak to increase train speeds from the 79 m.p.h. top speed in most locations to 110 m.p.h., which is the maximum that can be safely handled by Amtrak's existing locomotives and coaches.
"We are decades behind Europe and Asia in developing high-speed infrastructure, but today marked an exciting, huge step," said Rick Harnish, executive director of the Midwest High Speed Rail Association. "Having a president who fully understands how critical this is to our future is a real game-changer."
http://www.chicagotribune.com/news/local/chi-high-speed-rail-17-apr17,0,1876557.story
Tuesday, March 17, 2009
Mark Sanford Free Rider On the Back Of the Rest Of Us
From the AP:
"the Obama administration...rejected South Carolina Gov. Mark Sanford's (R) request to use his state's $700 million in stimulus money to retire debt. "White House Budget Director Peter Orszag said in a letter to the Republican ... that the federal stimulus law doesn't allow President Barack Obama to make an exception for that cash. Sanford sought a waiver last week, asking to pay off debt rather than use the money to create jobs and avoid deep program cuts."
TW: Much has been discussed on certain Republicans wanting to adopt Hooverite economic policies calling for greater savings amidst the largest demand contraction in decades. To repeat we are all caught up in the Paradox of Thrift by which individually it makes sense to squirrel away our nuts but in doing so we create a cycle of more demand destruction and associated asset depreciation. But there is another angle to an effort such as Sanford's, crass selfishness in pursuit of another economic concept: free-rider effect.
Some have expressed concern about our stimulus program "leaking" to other countries benefit. If the stimulus money goes to buy Chinese steel or German machine parts then we are stimulating Chinese and German instead of the presumed American target. This is a legitimate concern and why you hear about the need for "global stimulus" so that all countries are participating in the process.
The same concept can apply within the U.S., if a state like South Carolina could opt out of the program by using the money to retire debt (thereby offsetting indirectly their contribution to the stimulus program via federal taxes) they could enjoy the demand (e.g. by exporting goods or services to the other states) created by the other 49 states without incurring the costs. They would in effect become a free-rider. Nice try Mr. Sanford.
"the Obama administration...rejected South Carolina Gov. Mark Sanford's (R) request to use his state's $700 million in stimulus money to retire debt. "White House Budget Director Peter Orszag said in a letter to the Republican ... that the federal stimulus law doesn't allow President Barack Obama to make an exception for that cash. Sanford sought a waiver last week, asking to pay off debt rather than use the money to create jobs and avoid deep program cuts."
TW: Much has been discussed on certain Republicans wanting to adopt Hooverite economic policies calling for greater savings amidst the largest demand contraction in decades. To repeat we are all caught up in the Paradox of Thrift by which individually it makes sense to squirrel away our nuts but in doing so we create a cycle of more demand destruction and associated asset depreciation. But there is another angle to an effort such as Sanford's, crass selfishness in pursuit of another economic concept: free-rider effect.
Some have expressed concern about our stimulus program "leaking" to other countries benefit. If the stimulus money goes to buy Chinese steel or German machine parts then we are stimulating Chinese and German instead of the presumed American target. This is a legitimate concern and why you hear about the need for "global stimulus" so that all countries are participating in the process.
The same concept can apply within the U.S., if a state like South Carolina could opt out of the program by using the money to retire debt (thereby offsetting indirectly their contribution to the stimulus program via federal taxes) they could enjoy the demand (e.g. by exporting goods or services to the other states) created by the other 49 states without incurring the costs. They would in effect become a free-rider. Nice try Mr. Sanford.
Wednesday, February 18, 2009
Where Economists Agree...But Policy Does Not Follow
TW: Much is made of economists quarreling especially these days relative to the stimulus and bank bailouts. But as Mankiw points out there are actually many areas where economists are in general agreement. Frequently, however, politicians (reflecting the will of the people) are unable or unwilling to execute policies consistent with the agreed economic rationale.
From Greg Mankiw (former Bush economic advisor):
"1)A ceiling on rents reduces the quantity and quality of housing available. (93%)
TW: Rent controls are thankfully rare but for NYC. Although some proposals meant to address the "housing" crisis may start to adopt some of these characteristics.
2) Tariffs and import quotas usually reduce general economic welfare. (93%)
TW: Protectionism is a looming threat here and abroad amidst the economic contraction. I hope it is resisted.
3) Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
TW: Flexible rates have been a huge contributor to post WWII world economic growth, but they will be under intense scrutiny now. The Chinese yuan and US $ in particular are under a microscope, will one or both fold?
4) Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
TW: Okay there is consensus amongst the economists on the need for stimulus but certainly the Republicans favor tax cuts while Dems the spending. BUT, those Republicans demagoguing about "spending our grand children's future" are acting contrary to this consensus or merely playing politics. One has to go into deficit during contractions else one contributes to the downturn cycle. John McCain has been one of the chief demagogues during the recent debate.
5) The United States should not restrict employers from outsourcing work to foreign countries. (90%)
6) The United States should eliminate agricultural subsidies. (85%)
TW: Strongly agree but the tyranny of the minority dominates here. Non-proportional representation (i.e. Louisiana having as many senators as CA or NY or TX) leads to minority interests such as sugar growers having disproportionate and irrational sway over policy.
7) Local and state governments should eliminate subsidies to professional sports franchises. (85%)
TW: Agree. This is one of those game theory situations, if no one did it society would be better off, but someone always does it.
8) If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
TW: Yes!! Which is why the Republian demagoguery re "spending our grand children's money" is just that. The time to have been balancing the budget was 2001 to 2006 (and recall it was balanced through 2000).
9) The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
10) Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
11) A large federal budget deficit has an adverse effect on the economy. (83%)
12) A minimum wage increases unemployment among young and unskilled workers. (79%)
13) The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
14) Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
TW: Carbon taxation is the answer!!
From Greg Mankiw (former Bush economic advisor):
"1)A ceiling on rents reduces the quantity and quality of housing available. (93%)
TW: Rent controls are thankfully rare but for NYC. Although some proposals meant to address the "housing" crisis may start to adopt some of these characteristics.
2) Tariffs and import quotas usually reduce general economic welfare. (93%)
TW: Protectionism is a looming threat here and abroad amidst the economic contraction. I hope it is resisted.
3) Flexible and floating exchange rates offer an effective international monetary arrangement. (90%)
TW: Flexible rates have been a huge contributor to post WWII world economic growth, but they will be under intense scrutiny now. The Chinese yuan and US $ in particular are under a microscope, will one or both fold?
4) Fiscal policy (e.g., tax cut and/or government expenditure increase) has a significant stimulative impact on a less than fully employed economy. (90%)
TW: Okay there is consensus amongst the economists on the need for stimulus but certainly the Republicans favor tax cuts while Dems the spending. BUT, those Republicans demagoguing about "spending our grand children's future" are acting contrary to this consensus or merely playing politics. One has to go into deficit during contractions else one contributes to the downturn cycle. John McCain has been one of the chief demagogues during the recent debate.
5) The United States should not restrict employers from outsourcing work to foreign countries. (90%)
6) The United States should eliminate agricultural subsidies. (85%)
TW: Strongly agree but the tyranny of the minority dominates here. Non-proportional representation (i.e. Louisiana having as many senators as CA or NY or TX) leads to minority interests such as sugar growers having disproportionate and irrational sway over policy.
7) Local and state governments should eliminate subsidies to professional sports franchises. (85%)
TW: Agree. This is one of those game theory situations, if no one did it society would be better off, but someone always does it.
8) If the federal budget is to be balanced, it should be done over the business cycle rather than yearly. (85%)
TW: Yes!! Which is why the Republian demagoguery re "spending our grand children's money" is just that. The time to have been balancing the budget was 2001 to 2006 (and recall it was balanced through 2000).
9) The gap between Social Security funds and expenditures will become unsustainably large within the next fifty years if current policies remain unchanged. (85%)
10) Cash payments increase the welfare of recipients to a greater degree than do transfers-in-kind of equal cash value. (84%)
11) A large federal budget deficit has an adverse effect on the economy. (83%)
12) A minimum wage increases unemployment among young and unskilled workers. (79%)
13) The government should restructure the welfare system along the lines of a “negative income tax.” (79%)
14) Effluent taxes and marketable pollution permits represent a better approach to pollution control than imposition of pollution ceilings. (78%)
TW: Carbon taxation is the answer!!
Tuesday, February 17, 2009
We Are All Pine Trees Now
TW: Maine has 0.4% of the total US population but two of the 5 or 6 most important Senators in Ms. Olympia Snowe and Ms. Susan Collins. Governance ultimately occurs not with the base but with the marginal votes and I suspect one will hear their names frequently for at least the next 23 months if not longer (if the Dems should gain more seats in the '10 elections then their power while still important will recede greatly).
The two are both representative of a dying breed, Rockefeller Republicans- socially liberal and fiscally conservative (my own self described positions). They along with Judd "Wimp" Gregg are the only remaining Republicans in either house of Congress in all of New England.
Thankfully the two ME senators, like their ME constituents, appears to be pragmatists and reasonable unlike many of their fellow senators from both sides of the aisle.
From WaPo:
"...with just over 1.3 million residents, were a metropolitan area, it wouldn't be among the country's 25 biggest. It accounts for just seven-tenths of 1 percent of the votes in the presidential electoral college and four-tenths of 1 percent of the U.S. population.
...their politics usually align, hewing to a time-tested formula that appeals to Maine voters, who tend toward "liberal on social issues and conservative on fiscal matters
...Collins felt the bill was getting larded with projects that had nothing to do with stimulating the economy, such as pandemic flu research, as well as money to re-sod the National Mall in Washington and for preventing sexually transmitted diseases.
...By Friday, it was clear that a deal would be struck and that the Maine senators and Specter were the ones making it happen. Conservative blogger Michelle Malkin dubbed them the 'turncoat caucus.' "
The two are both representative of a dying breed, Rockefeller Republicans- socially liberal and fiscally conservative (my own self described positions). They along with Judd "Wimp" Gregg are the only remaining Republicans in either house of Congress in all of New England.
Thankfully the two ME senators, like their ME constituents, appears to be pragmatists and reasonable unlike many of their fellow senators from both sides of the aisle.
From WaPo:
"...with just over 1.3 million residents, were a metropolitan area, it wouldn't be among the country's 25 biggest. It accounts for just seven-tenths of 1 percent of the votes in the presidential electoral college and four-tenths of 1 percent of the U.S. population.
...their politics usually align, hewing to a time-tested formula that appeals to Maine voters, who tend toward "liberal on social issues and conservative on fiscal matters
...Collins felt the bill was getting larded with projects that had nothing to do with stimulating the economy, such as pandemic flu research, as well as money to re-sod the National Mall in Washington and for preventing sexually transmitted diseases.
...By Friday, it was clear that a deal would be struck and that the Maine senators and Specter were the ones making it happen. Conservative blogger Michelle Malkin dubbed them the 'turncoat caucus.' "
Monday, February 16, 2009
Why So Much Pork?
Question from a reader:
"Partisanship aside, what do you say when you look at the itemization of the package and there are spending initiatives that clearly look like pet projects and are not part of stimulating the economy. Some of these can add up to a quarter of the total spending. It strikes me as odd that these would be tacked onto such an important bill in an important time, and right after the elections- where both candidates pledged no "pork". Why is the Obama admin not addressing/defending some of these items and why are they there in the first place?
On a separate note, this link has a pretty good graphic of the overal allocation of funds. http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html"
TW: My take:
1) Your pork is someone else's relevant spending. You, me and ten other folks might comb through the bill and pick out many things we regard as unnecessary, the problem would be few of the items would be common amidst all twelve folks or even most of them. I would especially anticipate this problem if you are talking about big dollars (i.e. the 25%). Which items do u consider pork?
2) Despite #1, there are things a majority might regard as dubious but generally those are smaller dollar items. Politically trimming those items at risk of alienating key supporters within Congress is a losing proposition. Those items make great bait for the skeptics but are not ultimately the key provisions.
3) In other words the process of governance breeds "pork", I do not regard it as a partisan issue. Could Obama put his foot down and demand we change "how government is done", sure. But would we have a stimulus package today, I strongly doubt it. Circular yes, real also yes.
4) Finally even if it "pork" it may still be useful:
From Mark Thoma (economist)
"What people miss, I think, is that if enhanced macroeconomic stability makes people better off, i.e. if the increased stability from countercyclical government spending has value, then it's possible for government spending to be worthwhile even if the spending is on wasteful goods. When the government spends money there are two effects, there is the benefit derived directly from the spending on things like roads and water treatment plants, and there is a second benefit from the increased employment and output (the enhanced stability) that results from the extra spending. If this stabilizing effect is large enough, then there can be overall benefits even if the direct effects from the spending are small. It's best to maximize benefits, of course, and the stimulus plan does very well relative to standard government operations like this, but the the lack of direct benefits does not, in and of itself, mean the net benefits are necessarily negative. When unemployment is high and there is slack in the economy, the benefits from enhanced stability can be large."
"Partisanship aside, what do you say when you look at the itemization of the package and there are spending initiatives that clearly look like pet projects and are not part of stimulating the economy. Some of these can add up to a quarter of the total spending. It strikes me as odd that these would be tacked onto such an important bill in an important time, and right after the elections- where both candidates pledged no "pork". Why is the Obama admin not addressing/defending some of these items and why are they there in the first place?
On a separate note, this link has a pretty good graphic of the overal allocation of funds. http://www.washingtonpost.com/wp-dyn/content/graphic/2009/02/01/GR2009020100154.html"
TW: My take:
1) Your pork is someone else's relevant spending. You, me and ten other folks might comb through the bill and pick out many things we regard as unnecessary, the problem would be few of the items would be common amidst all twelve folks or even most of them. I would especially anticipate this problem if you are talking about big dollars (i.e. the 25%). Which items do u consider pork?
2) Despite #1, there are things a majority might regard as dubious but generally those are smaller dollar items. Politically trimming those items at risk of alienating key supporters within Congress is a losing proposition. Those items make great bait for the skeptics but are not ultimately the key provisions.
3) In other words the process of governance breeds "pork", I do not regard it as a partisan issue. Could Obama put his foot down and demand we change "how government is done", sure. But would we have a stimulus package today, I strongly doubt it. Circular yes, real also yes.
4) Finally even if it "pork" it may still be useful:
From Mark Thoma (economist)
"What people miss, I think, is that if enhanced macroeconomic stability makes people better off, i.e. if the increased stability from countercyclical government spending has value, then it's possible for government spending to be worthwhile even if the spending is on wasteful goods. When the government spends money there are two effects, there is the benefit derived directly from the spending on things like roads and water treatment plants, and there is a second benefit from the increased employment and output (the enhanced stability) that results from the extra spending. If this stabilizing effect is large enough, then there can be overall benefits even if the direct effects from the spending are small. It's best to maximize benefits, of course, and the stimulus plan does very well relative to standard government operations like this, but the the lack of direct benefits does not, in and of itself, mean the net benefits are necessarily negative. When unemployment is high and there is slack in the economy, the benefits from enhanced stability can be large."
Saturday, February 14, 2009
Lieberman Back To the Forefront...As a Democrat
TW: The most powerful Senators, and due to the composition of the House where ultimately the Dems do not need Republican votes the most powerful Congress persons generally; are Collins and Snowe of Maine, Specter of PA, some conservative Dems and none other than Joe Lieberman. Those on the left sqwauking about tossing Lieberman to the wolves (aka the Republicans) in the after-glow of Nov. 4th, should be thankful for Obama's judgment. Our national policies will now be ruled by a group of 10-12 "moderate" Dems and Republicans. I reamin hopeful that Lieberman will be knocked out in 2012 by a less strident voice for Middle East policy but in the mean time he could help.
From Huff Post:
"...While national attention has been heaped on Collins and Nelson, the hidden story of the stimulus negotiations is the role played by Lieberman...Lieberman initially stayed at the edge of negotiations, but as they dragged on, he inserted himself more forcefully, leveraging the close relationships he has with Republicans
..."He does have a solid relationship" with Republicans, said Nelson. "He's been here quite a long time, so he and Senator Specter have been here together the longest of the group."
...Lieberman is a liberal when it comes to fiscal policy and his vote was never in doubt. He attended the meetings as an observer at first, he said, but then saw the talks begin to fall apart and took a more assertive role."
http://www.huffingtonpost.com/2009/02/13/lieberman-stepped-up-role_n_166905.html
From Huff Post:
"...While national attention has been heaped on Collins and Nelson, the hidden story of the stimulus negotiations is the role played by Lieberman...Lieberman initially stayed at the edge of negotiations, but as they dragged on, he inserted himself more forcefully, leveraging the close relationships he has with Republicans
..."He does have a solid relationship" with Republicans, said Nelson. "He's been here quite a long time, so he and Senator Specter have been here together the longest of the group."
...Lieberman is a liberal when it comes to fiscal policy and his vote was never in doubt. He attended the meetings as an observer at first, he said, but then saw the talks begin to fall apart and took a more assertive role."
http://www.huffingtonpost.com/2009/02/13/lieberman-stepped-up-role_n_166905.html
Friday, February 13, 2009
The Republican Mentality In a Nutshell: Caoing To Pressure
TW: Below sums up the mentality of the current Republican party- lockstep opposition or else. One must wonder what pressures the Republican leadership exerted on Cao (or Gregg for that matter). He obviously Caoed under...but seriously you cannot tell me the Republicans are serious about anything other than playing politics at this point. It would be better for the country if they chose to participate rather than merely oppose it will be much easier for the Dems to march down a more partisan path if the Republicans swat away any notion of bi-partisanship. This stimulus bill is not radical or uni-dimensional .
From the Economist:
"ANH "JOSEPH" CAO, the Republican elected to Congress in New Orleans' fluke runoff election[TW he took the tainted William Jefferson seat], had strong feelings about the stimulus package:
"I'm voting along what my conscience dictates and the needs of the 2nd Congressional District dictate, even if I were to be the only member of the GOP to vote for the stimulus package. Even though it is going to be a humongous bill, even though we will be in debt for years, I believe that more likely than not, I will vote for it because the 2nd Congressional District needs a stimulus package... A lot of the provisions in the bill will be good for the district, because we need almost everything. You name it, we need it."
One day later, Mr Cao... voted against the stimulus package. He can rest easy, though, knowing that he has created at least one job: a seat in Congress for the Democrat who beats him in 2010."
From the Economist:
"ANH "JOSEPH" CAO, the Republican elected to Congress in New Orleans' fluke runoff election[TW he took the tainted William Jefferson seat], had strong feelings about the stimulus package:
"I'm voting along what my conscience dictates and the needs of the 2nd Congressional District dictate, even if I were to be the only member of the GOP to vote for the stimulus package. Even though it is going to be a humongous bill, even though we will be in debt for years, I believe that more likely than not, I will vote for it because the 2nd Congressional District needs a stimulus package... A lot of the provisions in the bill will be good for the district, because we need almost everything. You name it, we need it."
One day later, Mr Cao... voted against the stimulus package. He can rest easy, though, knowing that he has created at least one job: a seat in Congress for the Democrat who beats him in 2010."
Monday, February 9, 2009
Learning From the Politics Of Stimulation
TW: Nate Silver is back at it with some good analysis of the politics surrounding the stimulus package. I would especially focus on #2. I actually think Pelosi is a good Speaker but I know many of my friends do not agree. Reid is in substance a tough character but his persona reeks of fecklessness. Net net, Obama could have done much worse but certainly much better as well, as with many things in life it is all about the learning curve. I suspect he will move up the curve quite rapidly.
From Nate Silver at 538.com:
"1. Republicans have nothing to lose. Public perceptions of Congressional Republicans are also significantly down from their already-low levels since the stimulus debate began. But, the Republicans will gladly torpedo their own brand if it means taking Obama down with them. They are dangerous to him, in the way that a gang of rabid velociraptors is dangerous to a T-Rex.
2. Obama has to do the heavy lifting himself. Support for the stimulus dwindled when the Congressional Demorcats, who are not much more popular than their Republican colleagues, were charged with the job of selling it. The more Nancy Pelosi and Harry Reid are the faces of the Democratic Party, the more Barack Obama's approval ratings will come to resemble those of Nancy Pelosi and Harry Reid.
3. The benefits of "bipartisanship" are dubious. The public says they want bipartisanship, and a large majority of the public believes that Obama acted in a bipartisan fashion during the stimulus debate. And yet, his approval ratings fell significantly during this period.There are, obviously, a lot of factors to keep in balance here, but more than anything else the public seems to be seeking strong leadership from Obama; they don't want him to be deferential to either Congressional Democrats or Congressional Republicans."
From Nate Silver at 538.com:
"1. Republicans have nothing to lose. Public perceptions of Congressional Republicans are also significantly down from their already-low levels since the stimulus debate began. But, the Republicans will gladly torpedo their own brand if it means taking Obama down with them. They are dangerous to him, in the way that a gang of rabid velociraptors is dangerous to a T-Rex.
2. Obama has to do the heavy lifting himself. Support for the stimulus dwindled when the Congressional Demorcats, who are not much more popular than their Republican colleagues, were charged with the job of selling it. The more Nancy Pelosi and Harry Reid are the faces of the Democratic Party, the more Barack Obama's approval ratings will come to resemble those of Nancy Pelosi and Harry Reid.
3. The benefits of "bipartisanship" are dubious. The public says they want bipartisanship, and a large majority of the public believes that Obama acted in a bipartisan fashion during the stimulus debate. And yet, his approval ratings fell significantly during this period.There are, obviously, a lot of factors to keep in balance here, but more than anything else the public seems to be seeking strong leadership from Obama; they don't want him to be deferential to either Congressional Democrats or Congressional Republicans."
Question For Conservative Economists
TW: If tax cuts are such a great incentive for workers to work so hard (classic supply side theory), why has labor force participation been going down since 2000?Sunday, February 8, 2009
In Defense of Pork
TW: Republicans draped the term "pork" all over the stimulus package. Pork is rife with negative connotations of ill-spent monies shepherded by feckless bureaucrats pursuing their pet interests. Some provisions in the stimulus are or were of dubious value but to let the Republicans tar any or most spending as porcine is wrong and can lead ineffective policy. Especially when, as appears to have happened, certain useful spending has been replaced by things like a housing credit.
Republicans will approve almost anything as long as the word tax cut or credit is attached. Yet many spending initiatives can be far more useful than tax initiatives. The bill sponsors claimed the housing credit will cost $18 billion, economists who have looked at it figure more like $35 billion. If someone needs to move, it may help subsidize their move but do little to help create new jobs (i.e. new demand, the thing that is the real problem). This is populist crack substituted for alleged pork, it is not progress.
From WaPo via Big Picture re spending:
"To Sen. Johanns of Nebraska [Republican] who branded it not a stimulus but spending plan that would not create jobs, Pearlstein says:
Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.
To Daniel Henninger, who objects to money being spent on government agencies, Pearlstein says:
Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.
What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending."
From Calculated Risk re the house credit:
"...This is more of an incentive to get people to move as opposed to putting people back to work...The key problem for housing is prices are too high [TW- the remaining overhang from the bubble]. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?This tax credit seems ill-conceived, and probably should be removed from the stimulus package. No one has adequately explained how this helps "fix housing first".
http://www.calculatedriskblog.com/2009/02/homebuyer-tax-credit.html
Republicans will approve almost anything as long as the word tax cut or credit is attached. Yet many spending initiatives can be far more useful than tax initiatives. The bill sponsors claimed the housing credit will cost $18 billion, economists who have looked at it figure more like $35 billion. If someone needs to move, it may help subsidize their move but do little to help create new jobs (i.e. new demand, the thing that is the real problem). This is populist crack substituted for alleged pork, it is not progress.
From WaPo via Big Picture re spending:
"To Sen. Johanns of Nebraska [Republican] who branded it not a stimulus but spending plan that would not create jobs, Pearlstein says:
Johanns was too busy yesterday to explain this radical departure from standard theory and practice. Where does the senator think the $800 billion will go? Down a rabbit hole? Even if the entire sum were to be stolen by federal employees and spent entirely on fast cars, fancy homes, gambling junkets and fancy clothes, it would still be an $800 billion increase in the demand for goods and services — a pretty good working definition for economic stimulus. The only question is whether spending it on other things would create more long-term value, which it almost certainly would.
To Daniel Henninger, who objects to money being spent on government agencies, Pearlstein says:
Actually, what’s striking is that supposedly intelligent people are horrified at the thought that, during a deep recession, government might try to help the economy by buying up-to-date equipment for the people who protect us from epidemics and infectious diseases, by hiring people to repair environmental damage on federal lands and by contracting with private companies to make federal buildings more energy-efficient.
What really irks so many Republicans, of course, is that all the stimulus money isn’t being used to cut individual and business taxes, their cure-all for economic ailments, even though all the credible evidence is that tax cuts are only about half as stimulative as direct government spending."
From Calculated Risk re the house credit:
"...This is more of an incentive to get people to move as opposed to putting people back to work...The key problem for housing is prices are too high [TW- the remaining overhang from the bubble]. How does this tax credit help reduce prices? Why are we trying to artificially increase the turnover rate? And why are we targeting a tax credit at higher income individuals?This tax credit seems ill-conceived, and probably should be removed from the stimulus package. No one has adequately explained how this helps "fix housing first".
http://www.calculatedriskblog.com/2009/02/homebuyer-tax-credit.html
Saturday, February 7, 2009
A Simple Stimulus Example
TW: A simple example of how government spending mitigates the collapse of demand. This is one type of stimulus the Republicans almost never oppose but for some reason cannot understand how it could work for almost any other type of spending (prison construction excepted of course).
From Floyd Norris at NYT:
"The durable goods orders for December, released today, provide more evidence that the economy fell off sharply late last year. There is a little bit of evidence that things stabilized a bit in January, but it is too early to say.
As it is, using a three-month moving average to smooth out somewhat volatile numbers, durable goods orders from October to December were down 16.8 percent compared with the same period of 2007. That is the sharpest year-over-year fall since they started collecting data in 1958.
But the real news is in the breakdown. Durable goods orders other than the military were down 18.6 percent, also a record. Within that group, car industry orders were off 25.9 percent, and nonmilitary aircraft and parts orders — hello, Boeing — were down 66.9 percent.
But military orders were up 18.4 percent.
Pentagon orders are notoriously volatile, so that might be a fluke if it was not continuing a trend. For the whole year, such orders were up 26.8 percent, while orders for nonmilitary goods were down 7.3 percent.
Perhaps that was economic stimulus. Perhaps it was an effort to spend the money before the Democrats took over. In either case, the Pentagon seems to be one of the few willing buyers these days."
From Floyd Norris at NYT:
"The durable goods orders for December, released today, provide more evidence that the economy fell off sharply late last year. There is a little bit of evidence that things stabilized a bit in January, but it is too early to say.
As it is, using a three-month moving average to smooth out somewhat volatile numbers, durable goods orders from October to December were down 16.8 percent compared with the same period of 2007. That is the sharpest year-over-year fall since they started collecting data in 1958.
But the real news is in the breakdown. Durable goods orders other than the military were down 18.6 percent, also a record. Within that group, car industry orders were off 25.9 percent, and nonmilitary aircraft and parts orders — hello, Boeing — were down 66.9 percent.
But military orders were up 18.4 percent.
Pentagon orders are notoriously volatile, so that might be a fluke if it was not continuing a trend. For the whole year, such orders were up 26.8 percent, while orders for nonmilitary goods were down 7.3 percent.
Perhaps that was economic stimulus. Perhaps it was an effort to spend the money before the Democrats took over. In either case, the Pentagon seems to be one of the few willing buyers these days."
Friday, February 6, 2009
Temporary, Timely And Targeted Does Not Mean Permanent Tax Cuts
TW: Many economists are urging the stimulus to be: temporary, timely and targeted; in order to optimize the impact of the measures. I certainly agree although I think the timely piece has been too narrowly defined down to 6-12 months when a 24-36 month horizon for certain measures is relevant given the likely depth of the contraction. Many Republicans are complaining loudly about the slowness with which some of the spending measures will impact the economy making them "untimely". Many conservatives are trying to push permanent tax cuts as the alternative Obama's plan.
The Republicans have a dilemma, their theoretician Milton Friedman is very clear on the need for the tax cuts to be permanent in order for the magical psychological impacts he attributed to the cuts to become real. Permanent tax cuts are most definitely not temporary and would greatly exacerbate our long-term fiscal challenges associated with entitlements. Therefore, the Republicans are yelling tax cut while quietly mentioning their permanent nature without the slightest effort to reconcile how they would ever fund them.
From Economist:
"THERE has been no shortage of debate in the economics blogosphere over how a stimulus package should be constructed. While some have argued strongly for government spending to be part of the bill, others have suggested that tax rebates are the only valid method of fiscal stimulus. This debate has become fierce enough to generate intellectual cage matches between rival economists.
But practically every economist out there, on either side of the debate, suggests that if fiscal stimulus is to be the order of the day, it should be temporary, timely, and targeted. You know what doesn't fare well on those criteria? This:
o Permanently repeal the alternative minimum tax once and for all;
o Permanently keep the capital gains and dividends taxes at 15 percent;
o Permanently kill the Death Tax for estates under $5 million, and cut the tax rate to 15 percent for those above;
o Permanently extend the $1,000-per-child tax credit;o Permanently repeal the marriage tax penalty;
o Permanently simplify itemized deductions to include only home mortgage interest and charitable contributions.o Lower top marginal income rates from 35 percent to 25 percent.
o Simplify the tax code to include only two other brackets, 15 and 10 percent.
o Lower corporate tax rate as well, from 35 percent to 25 percent.
That is Republican senator Jim DeMint's stimulus counter-proposal. And when that counter-proposal was submitted as an amendment to the stimulus bill, all but five Republican senators voted for it...while Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe actually decided that this was, in fact, a stupid plan.
This, in a nutshell, is why "changing the tone" will prove extraordinarily difficult—most of the opposition is quite simply using a different set of economic rules. It's also why Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe will wield a substantial amount of power in this Congress. "
The Republicans have a dilemma, their theoretician Milton Friedman is very clear on the need for the tax cuts to be permanent in order for the magical psychological impacts he attributed to the cuts to become real. Permanent tax cuts are most definitely not temporary and would greatly exacerbate our long-term fiscal challenges associated with entitlements. Therefore, the Republicans are yelling tax cut while quietly mentioning their permanent nature without the slightest effort to reconcile how they would ever fund them.
From Economist:
"THERE has been no shortage of debate in the economics blogosphere over how a stimulus package should be constructed. While some have argued strongly for government spending to be part of the bill, others have suggested that tax rebates are the only valid method of fiscal stimulus. This debate has become fierce enough to generate intellectual cage matches between rival economists.
But practically every economist out there, on either side of the debate, suggests that if fiscal stimulus is to be the order of the day, it should be temporary, timely, and targeted. You know what doesn't fare well on those criteria? This:
o Permanently repeal the alternative minimum tax once and for all;
o Permanently keep the capital gains and dividends taxes at 15 percent;
o Permanently kill the Death Tax for estates under $5 million, and cut the tax rate to 15 percent for those above;
o Permanently extend the $1,000-per-child tax credit;o Permanently repeal the marriage tax penalty;
o Permanently simplify itemized deductions to include only home mortgage interest and charitable contributions.o Lower top marginal income rates from 35 percent to 25 percent.
o Simplify the tax code to include only two other brackets, 15 and 10 percent.
o Lower corporate tax rate as well, from 35 percent to 25 percent.
That is Republican senator Jim DeMint's stimulus counter-proposal. And when that counter-proposal was submitted as an amendment to the stimulus bill, all but five Republican senators voted for it...while Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe actually decided that this was, in fact, a stupid plan.
This, in a nutshell, is why "changing the tone" will prove extraordinarily difficult—most of the opposition is quite simply using a different set of economic rules. It's also why Susan Collins, George Voinovich, Arlen Specter, and Olympia Snowe will wield a substantial amount of power in this Congress. "
Finally a Succinct Pro Case For the Stimulus
TW: I think progressives forget to outline the affirmative case sometimes. The stimulus plan has absorbed broadsides form the Right, Reich comes in with a pro case that hits most of the relevant points.From Reich's blog:
"...We're deep into the most vicious of economic cycles: Consumers are slashing their spending because they're perilously in debt and worried about keeping their jobs. But as a result, businesses are facing shrinking sales of goods and services, so they're slashing payrolls, which of course makes consumers even more anxious and further reduces their spending power. Meanwhile, businesses are cutting way back on new investments in equipment, which hurts upstream suppliers, who are now slashing their payrolls. And so it goes, downward.
The gap between what the economy could produce if it were running near full capacity and what it's now producing continues to widen. The shortfall is projected to be over a trillion dollars this year.How do we get out of this downward plunge?Regardless of your ideological stripe, you've got to see that when consumers and businesses stop spending and investing, there's only entity left to step into the breach. It's government. Major increases in government spending are necessary, and the spending must be on a very large scale.
In the last several weeks the President has put forward the outlines of a stimulus plan, and has left it to the House and Senate to fill in the details. A tiny portion of the details that made it into the House version should be stripped away because they seem like old-fashioned pork. But most spending in the bill is absolutely appropriate. My worry is there's not nearly enough of spending to fill the shortfall in overall demand.
Yet at this very moment, Senate Republicans are seeking to strip the President's stimulus package of many of its spending provisions and substitute tax cuts. Part of this is pure pander: They know tax cuts are more popular with the public than government spending, even though spending is a far more effective way to stimulate the economy (more on this in a moment). Another part is pure partisan politics: Republicans are emboldened by Obama's willingness to court Republicans (taking three Republicans into his cabinet, bringing Republican leaders into the White House for consultations, putting all those business tax cuts into the stimulus bill in order to gain Republican favor) without getting anything at all back from the GOP.
House Republicans snubbed the bill entirely. So, Senate Republicans say to themselves, what's to lose?
Take a look at this chart[above], which comes from calculations by Mark Zandi and his colleagues at economy.com. You see that each dollar of spending has much more impact than each dollar of tax cut.
There are three reasons for this. First, most people who receive a tax cut don't spend all of it. They use part of it to pay down their debts or they save it. Most of us did one or the other last spring with that tax rebate. From the standpoint of any particular individual, paying down debts or saving may be smart behavior -- even commendable. But what's intelligent for an individual does not necessarily translate into what's good for the economy as a whole. The only way to get businesses to create or preserve jobs is through additional spending. And unlike tax cuts used to pay down personal debt or add to savings, every dollar of government spending flows directly into the economy and adds to overall demand.
Second, even that portion of a tax cut we might actually spend doesn't necessarily go into the American economy. It goes all over the world. I have nothing against creating or preserving the jobs of Asians who assemble those flat-panel TVs you see at the mall, for example, but right now we're trying to create or preserve jobs here in America. Sure, the retail workers at the mall who sell the flat-panel TV's might benefit, but remember we're talking about how to get the biggest bang for every dollar. When government spends to repair a highway or build a school or help pay for medical services, the money and the jobs stay here in America.
Finally, those who say cutting taxes on businesses is the best way to create or preserve jobs forget about the demand side. Even with a tax cut, businesses won't hire workers unless there are customers to buy what those workers produce. A government stimulus that creates jobs is a necessary precondition.
Finally, those who say cutting taxes on businesses is the best way to create or preserve jobs forget about the demand side. Even with a tax cut, businesses won't hire workers unless there are customers to buy what those workers produce. A government stimulus that creates jobs is a necessary precondition.
This isn't a matter of more or less government, however much Republicans and conservatives would like to wedge it in that old ideological box. The issue is how to revive the economy. When consumers and businesses can't or won't spend enough to keep the economy going, government has to be the spender of last resort. Period"
Thursday, February 5, 2009
Useful Perspective On the Stimulus Process
TW: Joe Klein reminds folks about how messy the legislative process is and how the media gets all tied in knots covering the process as opposed to the substance.
From Klein at Time:
"In 1993, I did a pretty shabby job of covering Bill Clinton's economic plan. It was, in sum, a very good plan--it worked wonders for the economy--but I focused on the mishaps. (Clinton, for example, pulled the rug out from under House Democrats by offering a carbon tax, which they voted for...and then the President removed it from the bill.) Clinton couldn't get any Republican votes for the package. A disaster! He had trouble getting Democratic votes for it; he had to beg Bob Kerrey for his vote to get it through the Senate. His presidency was in ruins! He had lost all credibility! (Actually, those of us who had focused on some big ugly trees rather than the blooming forest were the ones who had lost credibility.)
It pains me to watch normally reasonable colleagues overreacting to Obama's situation now--which is far less dire than Clinton's was. Some form of stimulus will pass. If it doesn't revive the economy, then more stimulus will be passed. Obama's maintaining the proper balance of reaching out to Republicans, making some compromises, but staying firm on the need for a bill that includes public works as well as tax cuts. A Republican Senator, a vocal opponent of the bill, told me the other day: "The guy has really impressed us. We may not vote for the bill, and he may have to learn that you have to give us more than he wants to give us to make us happy, but he's made a really strong start that will work to his benefit down the road."
3. The legislative process is as ugly as a wart. We only notice it when an earth-shattering monstrosity like the stimulus bill comes gallumphing down the track, but there is no such thing as elegant legislation. You always have to throw in a little sweetener--the museum of organized crime in Las Vegas, the military kazoo band, whatever--if you want to cobble together the votes needed to win. This is business as usual--and Barack Obama is guilty as charged: he's trying to get this thing through the old-fashioned way. So what? What's new is his priorities: his efforts to put the needs of the working poor and the unemployed ahead of the wealthy, to build a new green economy, to fund inner city education and remake the health insurance system. That is what the American people voted for after an era of Republican neglect. The messiness of the current process is not only inevitable, it also says very little about Obama's ability to deliver on those very necessary goals."
From Klein at Time:
"In 1993, I did a pretty shabby job of covering Bill Clinton's economic plan. It was, in sum, a very good plan--it worked wonders for the economy--but I focused on the mishaps. (Clinton, for example, pulled the rug out from under House Democrats by offering a carbon tax, which they voted for...and then the President removed it from the bill.) Clinton couldn't get any Republican votes for the package. A disaster! He had trouble getting Democratic votes for it; he had to beg Bob Kerrey for his vote to get it through the Senate. His presidency was in ruins! He had lost all credibility! (Actually, those of us who had focused on some big ugly trees rather than the blooming forest were the ones who had lost credibility.)
It pains me to watch normally reasonable colleagues overreacting to Obama's situation now--which is far less dire than Clinton's was. Some form of stimulus will pass. If it doesn't revive the economy, then more stimulus will be passed. Obama's maintaining the proper balance of reaching out to Republicans, making some compromises, but staying firm on the need for a bill that includes public works as well as tax cuts. A Republican Senator, a vocal opponent of the bill, told me the other day: "The guy has really impressed us. We may not vote for the bill, and he may have to learn that you have to give us more than he wants to give us to make us happy, but he's made a really strong start that will work to his benefit down the road."
3. The legislative process is as ugly as a wart. We only notice it when an earth-shattering monstrosity like the stimulus bill comes gallumphing down the track, but there is no such thing as elegant legislation. You always have to throw in a little sweetener--the museum of organized crime in Las Vegas, the military kazoo band, whatever--if you want to cobble together the votes needed to win. This is business as usual--and Barack Obama is guilty as charged: he's trying to get this thing through the old-fashioned way. So what? What's new is his priorities: his efforts to put the needs of the working poor and the unemployed ahead of the wealthy, to build a new green economy, to fund inner city education and remake the health insurance system. That is what the American people voted for after an era of Republican neglect. The messiness of the current process is not only inevitable, it also says very little about Obama's ability to deliver on those very necessary goals."
Do We Really Need More Housing Subsidies
TW: I may be in the minority on this but I think the one area where our government should go light in terms of action is providing further subsidy to the housing market. Yes the housing market is fried but we already subsidize the hell out of real estate. Yet "helping homeowners" is now a bi-partisan populist move. Yesterday the Senate passed a preliminary additional subsidy without opposition and the bill was sponsored by a Republican. I get particularly galled with this since the Republicans bleat on like a herd of goats regarding dreaded "spending" but latch onto these "tax credits" like children in a candy store. I also enjoy the deep analysis provided by the bill's sponsor, nothing like an anecdote to serve as the basis of legislation.
From NYT:
"....The measure would give buyers a tax credit of 10 percent of the price of a primary residence purchased within the year, up to $15,000 ...“We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now,” [Senator Johnny Isakson, Republican of Georgia] said at a news conference. “Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living"
[From Calculated Risk]:
In early 1975, a $2000 tax credit on the purchase of only new homes only in calendar year 1975 was passed into law (I believe this is correct). The current tax credit is good for both new and existing home purchases. The difference is the purchase of new homes does stimulate the economy by creating construction jobs - the purchase of existing homes does not.
New home sales increased from a 477 thousand SAAR in March 1975 to over 600 thousand SAAR later in the year. But that was from a depressed level as shown on the graph. The real boom in sales happened when the economy recovered - so I'm not sure of the actual impact of the 1975 tax credit."
http://www.calculatedriskblog.com/2009/02/15000-tax-break-for-homebuyers.html
From NYT:
"....The measure would give buyers a tax credit of 10 percent of the price of a primary residence purchased within the year, up to $15,000 ...“We do have a history in this country with housing and it goes back to the crash of 1974, which actually in terms of inventory and price declines was comparable to what’s happening now,” [Senator Johnny Isakson, Republican of Georgia] said at a news conference. “Within one year of the inception of that tax credit, two-thirds of the available inventory that was on the market was gone. The market moved back to a balanced inventory, values stabilized and things became very healthy. The only reason I know all of that is I was selling houses in 1974, that’s what I was doing to feed my family and make a living"
[From Calculated Risk]:
In early 1975, a $2000 tax credit on the purchase of only new homes only in calendar year 1975 was passed into law (I believe this is correct). The current tax credit is good for both new and existing home purchases. The difference is the purchase of new homes does stimulate the economy by creating construction jobs - the purchase of existing homes does not.
New home sales increased from a 477 thousand SAAR in March 1975 to over 600 thousand SAAR later in the year. But that was from a depressed level as shown on the graph. The real boom in sales happened when the economy recovered - so I'm not sure of the actual impact of the 1975 tax credit."
http://www.calculatedriskblog.com/2009/02/15000-tax-break-for-homebuyers.html
Wednesday, February 4, 2009
Time For BHO To Bring the Hammer Down
TW: This stimulus negotiation has been fun but it is time for Obama to bring it to a close. The Republicans get credit for winning some tactical political points by employing the Dick Morris "nitpicking" strategy (i.e. point out every $50 million spending piece that sounds funky and maybe even is funky like Hollywood producer subsidies) and by employing the Newt Gingrich "big government!!! big government!!!" approach.
From WaPo:
A Dick Morris Nitpick Example-
"The most ambitious effort to cut the bill is being led by Sens. Ben Nelson (D-Neb.) and Susan Collins (R-Maine), moderates in their parties who share a dislike of the current version...Among the items that the Collins-Nelson initiative is targeting: $1.1 billion for comparative medical research, $350 million for Agriculture Department computers, $75 million to discourage smoking, $20 million in Interior Department funding, $400 million for HIV screening and $650 million for wildlife management." [TW: total about $2.5 billion]
TW: The optics on some of the nitpicking maybe be poor and should be addressed but ultimately they are distractions. The far more serious issue would be if some senior Republicans did what they apparently want to do:
From WaPo:
"...Some Republicans in the group are seeking a much broader rewrite of the legislation, and they want Obama to lead the effort...Sen. Lindsey O. Graham (S.C.), who supports an alternative drafted by Sen. John McCain (R-Ariz.) that would cost $445 billion.
Graham said he could back something between the McCain bill and the House bill. Although some Republicans would prefer to shelve the measure temporarily, hoping that spending demand will cool..."
TW: Tweaking spending details would be one thing, cutting the stimulus package in half a strategic mistake. I have posted on this numerous times but we need measures to combat the collapse in demand within our economy. Tax cuts while relevant are not the panacea Republicans make them out to be. Furthermore our country desperately needs infrastructure, some of which can be initiated immediately some of which will take time to ramp up. Obama has the fundamental components of the plan correct: infrastructure (broadly defined), stabilization measures (i.e. support for the unemployed, local and state subsidies); and some limited tax benefits.
Obama needs to step up and articulate to the American people why he is right. To date he may have taken the support for granted, I know the Republicans think so. He needs to put his foot down soon.
http://tinyurl.com/d5hzon
From WaPo:
A Dick Morris Nitpick Example-
"The most ambitious effort to cut the bill is being led by Sens. Ben Nelson (D-Neb.) and Susan Collins (R-Maine), moderates in their parties who share a dislike of the current version...Among the items that the Collins-Nelson initiative is targeting: $1.1 billion for comparative medical research, $350 million for Agriculture Department computers, $75 million to discourage smoking, $20 million in Interior Department funding, $400 million for HIV screening and $650 million for wildlife management." [TW: total about $2.5 billion]
TW: The optics on some of the nitpicking maybe be poor and should be addressed but ultimately they are distractions. The far more serious issue would be if some senior Republicans did what they apparently want to do:
From WaPo:
"...Some Republicans in the group are seeking a much broader rewrite of the legislation, and they want Obama to lead the effort...Sen. Lindsey O. Graham (S.C.), who supports an alternative drafted by Sen. John McCain (R-Ariz.) that would cost $445 billion.
Graham said he could back something between the McCain bill and the House bill. Although some Republicans would prefer to shelve the measure temporarily, hoping that spending demand will cool..."
TW: Tweaking spending details would be one thing, cutting the stimulus package in half a strategic mistake. I have posted on this numerous times but we need measures to combat the collapse in demand within our economy. Tax cuts while relevant are not the panacea Republicans make them out to be. Furthermore our country desperately needs infrastructure, some of which can be initiated immediately some of which will take time to ramp up. Obama has the fundamental components of the plan correct: infrastructure (broadly defined), stabilization measures (i.e. support for the unemployed, local and state subsidies); and some limited tax benefits.
Obama needs to step up and articulate to the American people why he is right. To date he may have taken the support for granted, I know the Republicans think so. He needs to put his foot down soon.
http://tinyurl.com/d5hzon
Stimulus v. Banking System Triage
From Krugman at NYT:
"...there’s widespread public confusion between the fiscal stimulus plan — which should, on its face, be very popular — and the bank bailouts, which are deeply (and understandably) unpopular. Spending on infrastructure commands broad support; rescuing bankers from the consequences of their own folly, broad revulsion.
And the Obama administration hasn’t done much to make the distinction — and the result is much less public support for the stimulus plan than we should have.
The Bush administration was brilliant at linking really elitist stuff to small middle-class benefits — pay no attention to the huge cut in the top marginal rate, look at those child tax credits! — as a way of getting its agenda through. Right now, the Obama administration seems to be doing the opposite: dragging down its pro-worker stimulus plan by creating a linkage in peoples’ minds to the outrageous bank bailout."
TW: I agree with Krugman's basic point that there is a tendency for many folks to lump the banking system carnage and the associated attempts to address it with the "stimulus" initiative. I disagree with his belief that the stimulus enjoys universal support because a significant minority believes tax cuts are a better means to address the demand collapse than spending initiatives. There is also a much smaller minority of pollyannas who refuse to believe the demand contraction is sufficiently bad to require any strong measures.
The banking system issue is even more convoluted, nebulous and ultimately damaging and costly than the "stimulus" issue. Where there is confusion there is opportunity for political obfuscation and grandstanding in particular by lumping the issues together.
The Republicans did that with the original TARP negotiations in October. While TARP is flawed, I challenge you to find a mainstream economist who felt "nothing" should have been done at the time. We still have a functioning banking system which is an accomplishment that should not be dismissed. It is also a status quo that is subject to change.
"...there’s widespread public confusion between the fiscal stimulus plan — which should, on its face, be very popular — and the bank bailouts, which are deeply (and understandably) unpopular. Spending on infrastructure commands broad support; rescuing bankers from the consequences of their own folly, broad revulsion.
And the Obama administration hasn’t done much to make the distinction — and the result is much less public support for the stimulus plan than we should have.
The Bush administration was brilliant at linking really elitist stuff to small middle-class benefits — pay no attention to the huge cut in the top marginal rate, look at those child tax credits! — as a way of getting its agenda through. Right now, the Obama administration seems to be doing the opposite: dragging down its pro-worker stimulus plan by creating a linkage in peoples’ minds to the outrageous bank bailout."
TW: I agree with Krugman's basic point that there is a tendency for many folks to lump the banking system carnage and the associated attempts to address it with the "stimulus" initiative. I disagree with his belief that the stimulus enjoys universal support because a significant minority believes tax cuts are a better means to address the demand collapse than spending initiatives. There is also a much smaller minority of pollyannas who refuse to believe the demand contraction is sufficiently bad to require any strong measures.
The banking system issue is even more convoluted, nebulous and ultimately damaging and costly than the "stimulus" issue. Where there is confusion there is opportunity for political obfuscation and grandstanding in particular by lumping the issues together.
The Republicans did that with the original TARP negotiations in October. While TARP is flawed, I challenge you to find a mainstream economist who felt "nothing" should have been done at the time. We still have a functioning banking system which is an accomplishment that should not be dismissed. It is also a status quo that is subject to change.
Tuesday, February 3, 2009
Debate Resolved: We Do Not Know And Neither Do the Economists
TW: Economist comes out and states of the obvious but rarely spoken . The economists of both left and right do not really know what is going on and more importantly what to do. Therefore in the vacuum they fall back on biases and ideology. I strongly empathize with the sentiment. Anyone stridently calling for one solution or the other is likely an ideologue and probably not particularly well-informed.
Obama is striving for a hybrid spending/investment/tax cut approach. It will pass, it might actually help. Lets hope so.
From the Economist:
"...the thing which has stood out through this roundtable, from Olivier Blanchard's initial piece to the contributions of academics, correspondents, and readers, is the extent to which we're able to discuss the issues involved at an extremely broad and vague level. We don't sound like expert diagnosticians debating which of several potential infections could be causing a patient's trouble. We sound like witch doctors who can't agree on just where in the body the lifeforce can be found. We're not comparing engineering schematics. We're pondering the shape of the earth. Is the issue animal spirits? Do we need a placebo? Are debt concerns most important, or should stimulus be as large as politically possible?
...so many of the crucial debates concerning diagnosis of the crisis, financial treatment, regulatory reform, and economic stimulus have resulted in disputes over rather significant points.
I don't want to excessively diminish the contributions of economists. Thanks to the work of previous generations of economists, we understand the danger of contractionary monetary and fiscal policy in situations such as this, and it's unlikely we'll make the mistakes that produced 25% unemployment in America in the 1930s.
But it remains the case that the economist's great decider—statistical analysis—struggles to parse the significant macroeconomic events of the past two centuries; there just aren't enough great global depressions to know what causes what under what circumstances. And as such, we're left with multiple, variably useful models through which to view the world, and no good way to adjudicate the disputes. Go and read Paul Krugman's blog for the past few weeks. At times, it seems as though he's debating children, like a modern astronomer arguing with an adherent of a Ptolemaic solar system. Go to an outpost from the other side of the debate and, give or take the rhetorical tropes, you see much the same thing.
In the wake of the current economic crisis, scholars will focus on improving their models and attempting to generate a better picture of how the financial system and global economy operate. But there are equally important methodological questions outstanding. Economists need to step back and figure out how to adjudicate questions that can't be solved by turning to standard errors. The experience this time—of dueling op-eds citing papers the relevance of which no one can agree upon—is less than heartening."
http://www.economist.com/blogs/freeexchange/2009/02/blanchard_roundtable_in_conclu.cfm
Obama is striving for a hybrid spending/investment/tax cut approach. It will pass, it might actually help. Lets hope so.
From the Economist:
"...the thing which has stood out through this roundtable, from Olivier Blanchard's initial piece to the contributions of academics, correspondents, and readers, is the extent to which we're able to discuss the issues involved at an extremely broad and vague level. We don't sound like expert diagnosticians debating which of several potential infections could be causing a patient's trouble. We sound like witch doctors who can't agree on just where in the body the lifeforce can be found. We're not comparing engineering schematics. We're pondering the shape of the earth. Is the issue animal spirits? Do we need a placebo? Are debt concerns most important, or should stimulus be as large as politically possible?
...so many of the crucial debates concerning diagnosis of the crisis, financial treatment, regulatory reform, and economic stimulus have resulted in disputes over rather significant points.
I don't want to excessively diminish the contributions of economists. Thanks to the work of previous generations of economists, we understand the danger of contractionary monetary and fiscal policy in situations such as this, and it's unlikely we'll make the mistakes that produced 25% unemployment in America in the 1930s.
But it remains the case that the economist's great decider—statistical analysis—struggles to parse the significant macroeconomic events of the past two centuries; there just aren't enough great global depressions to know what causes what under what circumstances. And as such, we're left with multiple, variably useful models through which to view the world, and no good way to adjudicate the disputes. Go and read Paul Krugman's blog for the past few weeks. At times, it seems as though he's debating children, like a modern astronomer arguing with an adherent of a Ptolemaic solar system. Go to an outpost from the other side of the debate and, give or take the rhetorical tropes, you see much the same thing.
In the wake of the current economic crisis, scholars will focus on improving their models and attempting to generate a better picture of how the financial system and global economy operate. But there are equally important methodological questions outstanding. Economists need to step back and figure out how to adjudicate questions that can't be solved by turning to standard errors. The experience this time—of dueling op-eds citing papers the relevance of which no one can agree upon—is less than heartening."
http://www.economist.com/blogs/freeexchange/2009/02/blanchard_roundtable_in_conclu.cfm
Subscribe to:
Posts (Atom)