Opportunities Squandered

I suspect Brad DeLong is right in most of his points about things we could have done to avoid the mess in which we now find ourselves. On the other hand, I don't see that any of them were likely to have been adopted by our politicians--Democrat or Republican. Any of them would have taken more courage or insight than any of them have shown in recent times.

The Liberal Answer to Bowles/Simpson

Haven't read it all yet, but the proposal from Our Fiscal Security is here.

Why We Continually Fail to Do the Right Things for the Economy.

Brad Delong asks the question: The Retreat of Macroeconomics.

And Paul Krugman answers: The Failure of Moderation.

If one knows history, the history of economic thought and J.M. Keynes, it's hard to imagine why anyone would ever believe him to be any kind of radical or that the policies coming from his theory of the economy could be socialist. Almost entirely, Keynes' policy prescriptions were aimed at preserving the status quo as he knew it and avoiding the sort of economic conditions that might create an environment where communism or socialism became desirable options. Nonetheless, we seem unable to follow a middle path as we address economic problems.

Defunct Economists--But Which Ones?

Brad Delong talks about Keynes' famous statement. One should be impressed that because of their policy prescriptions, Keynes and Friedman find themselves in the same camp. Friedman's comments in 2000 after a speech he delivered on Japan's economic problems show he would have been a vigorous supporter of QE2. The repudiation by Friedman (always seen as the free market's champion) of the Austrians is also instructive.

Rolling Stone: Doonesbury Turns 40

For Robert. Gary Trudeau talks about Doonesbury

Those Democrats Sure Are Bad for Business

with all that socialism and uncertainty. The report on third quarter profits is out and it's the highest ever recorded. Of course, the rate of growth is no where near strong enough to return us to full employment any time soon. Too bad the business party kept the stimulus from being larger.

Are We Smarter Now?

Lessons from 1937-1938. Or are we going to make the same mistakes again?

Are Congressional Republicans Anti-American?

All available evidence suggests they are and they're not even shy about admitting it. John M. Berry in The Fiscal Times talks about the evidence and shows that this is not a new approach for the Republican Party.

This true not just for the economy, but also for foreign affairs. See this discussion on the probability that the Republicans will oppose ratification of START, even though every single US security expert in and outside the Pentagon supports it. As Ed Luce notes the chief beneficiaries of opposing ratification would be North Korea and Iran.

What Mandate?

A new McClatchy poll shows that the mandate received by the Republicans may not be what they think it was. A majority of Americans either want the new health care plan retained or expanded and a substantial majority (2 to 1 in most cases) like some of its best known benefits, such as barring insurers from denying coverage for pre-existing conditions. One thing people don't like: the mandate that everyone must buy insurance. Of course, keeping the provisions people like and dumping the mandate would bankrupt insurance companies, who would no longer be able to spread their risk.

The survey also showed that most Americans side with the administration on extending the Bush era tax cuts--but not for earners making more than $250,000.

In other words, the only mandate the Republicans received was to fix the economy and their plan is to do nothing (except extend the tax cuts).

They'll Say Anything, Part N

If one is charitable, one can assume Paul Ryan is simply ignorant--of both economic theory and history. Otherwise he is a charlatan. Either way one has to wonder if he is fit to be a member of Congress. The sad part is that it's just that he is more willing to expose his shortcomings than most of his colleagues. Publicity is what matters, not whether you have anything intelligent to say.

Update: additional examples that Paul Ryan missed during his intensive study of monetary history.

Jane Smiley's New Book on the Invention of the Computer

Wired magazine interviews Jane Smiley on her new book, The Man Who Invented the Computer

A Cautionary Tale for the US

Republicans continue to be enamored with the notion of supply-side economics as practiced during the Reagan years. This despite the fact that Reagan actually raised taxes more often than he cut them. Tax cutting is alleged to provide incentives that will stimulate the economy. However, slavish allegiance to an economic proposition whose actual practice in the US is questionable has taken Ireland to the point where the country is close to being bankrupt. Estimates of the size of the bailout needed to bring the economy into balance range as high as a third of the country's GDP. In a Bloomberg news article, Chris Farrell surveys the damage supply side economics has done to the Irish economy.

Have Aliens Kidnapped Rick Perry and Put a Moron in His Place?

No, that's really Rick Perry, recently re-elected as Governor of Texas. In Texas, we get what we pay for. Wait, that's backwards.

Joe Klein's Counterpoint to Glenn Hubbard on the Deficit Comission

Joe Klein in Time Magazine comments on the reaction to The Bowles/Simpson Commission. I have some sympathy for both sides. I suspect the truth lies somewhere in between. For example, here's a link to the Tax Policy Center's analysis of the federal income tax implications of the report.

Taxes versus Spending

I don't often agree with Greg Mankiw, but this is a pretty good explanation of why the government's finances are so screwed up.

In Good Company?

Republican leadership demonstrates once again their ignorance and how bankrupt their thinking is. Eric Cantor, one of the "young stars" of the Republican Party, rejected the idea of a VAT (value added tax) as being "too European." A VAT was one potential solution to the budget problems suggested by the deficit commission. Catherine Rampell provides a map of the 150+ countries around the world that currently use this device to fund their governments. The question is: would we rather be associated with European governments (and Canada, Australia, Japan, China and India) or the likes of Saudi Arabia, Libya, Iran, Angola and Myanmar?

The Usual Suspects

As Paul Krugman notes in his NYT editorial, most of the opposition to the Fed's recent policy statement is self serving: Germany and China are afraid that a weakening dollar might erode their large trade surpluses--trade surpluses on which their current economies depend. The Republicans don't want any success on the economy until they have milked the current recession for all the political gain they can manage.

More curious are the few "economists" who wrote an open letter to Chairman Bernanke asking him to abandon QE2 because it devalued the dollar and would cause inflation. Well, yes. That's the point of the policy. Make the dollar more competitive so US manufacturers can expand their markets and stop the downward spiral of price increases to help restore consumer confidence.

Just as curious (or from my perspective, more curious) are the few economists who have always been counted in the monetarist camp who now seem to have abandoned Milton Friedman and his view of how the economy works. Bernanke, it turns out, is more monetarist than they. QE2 is the exact prescription Friedman offered the Japanese when they faced a similar situation. Ironically Chairman Bernanke offered the same solution. He may be late to the party, but at least the Chairman has the virtue of consistency with respect to his view of the economy.

Why Now Bernanke?

Way too little, way too late. After Obama gave fiscal policy a bad name, the Fed is going to give monetary policy a bad name. Now the knee jerk answer is going to be...do nothing at all. Wait--that's what the renowned economist Sarah Palin recommended.

Our Taxes are Too Low

Read the reasons why from Uwe Reinhardt: Why I Would Raise Taxes.

More on the Deficit Commisssion

Further analysis of the report, plus there's another, perhaps less political report due soon.

John Chait Deal or No Deal?

Mark Schmidt Wait for a Better Deficit Report.

Where Have All the Monetarists Gone?

One more example of the sorry state of macroeconomics. What are these formerly respectable economists thinking? In economic terms, I wasn't brought up as a monetarist, but I could recognize that there were times when that model fit the economy best (as did Keynes, as shown in his writings prior to the GT). Now some old-line monetarists seem to have forgotten all they know (or are determined to ignore it). Is this an example of the economics profession's version of just opposing everything done by those in a position to do something?

Paul Kasriel on Alan Meltzer and QE2.

Right Wing Liars--These People Will Say Anything

They hope no one will check the facts. There's way too much of this going around these days. Don't Limbaugh, Beck, Bachman, et al. have any real issues to discuss? I guess not.

Too Good to Check, Thomas L. Friedman.

Some Useful Analysis of the Bowles/Simpson Tax Proposals

Glenn Hubbard:

[W]e are in a difficult situation in large part because we have designed entitlements for a welfare state we cannot afford. And, perhaps less obviously, they show how we have used the tax code as a vehicle for special-purpose spending that weakens both the efficiency and fairness of our tax system.


I would argue instead that we have designed entitlements for a welfare system we are unwilling to pay for, rather than what we can afford. This is a problem for Democrats as well as Republicans. Until Democrats honestly address the costs as well as the reasons for the (weak) welfare state, they are as much to blame as the other side for any budgetary stalemate. Taking care of the less fortunate is not at odds with economic growth in the long run, but we don't seem to be able to have a reasonable discussion about our aims and their potential costs.

I don't agree with everything Hubbard says in his opinion piece, but most of it makes a lot of sense. Our tax code is a mess. So much so that it's almost impossible to know what effect changes would have on various income classes. It is entirely possible that the Bowles/Simpson proposals would end up with top earners paying more, even though their marginal rate would go down--depending on the effects of changes in deductions from income.


Glenn Hubbard in the NYT on the tax reform portion of the Bowles/Simpson deficit proposal.

Why Now?

Tea Party Principles in their own words:

Tea Party Patriots, Inc. as an organization believes in the Fiscal Responsibility, Constitutionally Limited Government, and Free Markets. Tea Party Patriots, Inc. is a non-partisan grassroots organization of individuals united by our core values derived from the Declaration of Independence, the Constitution of the United States of America, the Bill Of Rights as explained in the Federalist Papers. ... We hold that the United States is a republic conceived by its architects as a nation whose people were granted "unalienable rights" by our Creator. Chiefly among these are the rights to "life, liberty and the pursuit of happiness." ... We hold, as did the founders, that there exists an inherent benefit to our country when private property and prosperity are secured by natural law and the rights of the individual.

Message to the Tea Party - What took you so long to get angry?

You didn't get mad when the Supreme Court stopped a legal recount and appointed a President, voiding the will of the people.

You didn't get mad when Cheney allowed energy company officials to dictate energy policy and push us to invade Iraq, where thousands of American servicemen and women died.

You didn't get mad when we illegally invaded a country that posed no threat to us.

You didn't get mad when we spent over 800 billion (and counting) on said illegal war.

You didn't get mad when the Patriot Act was passed, restricting the "unalienable rights" of US citizens.

You didn't get mad when Bush borrowed more money from foreign sources than the previous 42 Presidents combined.

You didn't get mad when over 10 billion dollars in cash just disappeared in Iraq.

You didn't get mad when you found out we were torturing people.

You didn't get mad when a covert CIA operative got outed, endangering her life.

You didn't get mad when Bush embraced trade and outsourcing policies that shipped 6 million American jobs out of the country.

You didn't get mad when the government was found to be illegally wiretapping Americans, violating their basic civil rights.

You didn't get mad when Bush rang up 10 trillion dollars in combined budget and current account deficits.

You didn't get mad when you saw the horrible conditions at Walter Reed Army Medical Center.

You didn't get mad when we gave people who had already more money than they could spend over a trillion dollars in tax breaks.

You didn't get mad with the worst 8 years of job creations in several decades.

You didn't get mad when Federal regulators looked the other way while banks and Wall Street reaped billions writing faulty mortgages, short-sold the debt and even wagered that the debts would fail.

You didn't get mad when over 200,000 US citizens lost their lives because they had no health insurance.

You didn't get mad when lack of oversight and regulations from the Bush Administration caused US citizens to lose 12 trillion dollars in investments, retirement, and home values.

No, you finally got mad...

When a black man was elected President and decided that people in America deserved the right to see a doctor if they are sick.

Things Are not Looking Up

Survey of professional forecasters from the Philadelphia Federal Reserve. Note that the average of all forecasts has worsened. This is not good news, folks.

What Happens When You Lose Your Health Insurance?

It turns out to be pretty scary.

“He [newly elected Rep. Andy Harris, R. MD] stood up and asked the two ladies who were answering questions why it had to take so long, what he would do without 28 days of health care,” said a congressional staffer who saw the exchange. ... “Harris then asked if he could purchase insurance from the government to cover the gap,” added the aide.

It's called the public option, stupid.

Record Low for Inflation

Catherine Rampell in the NYT on the recent inflation numbers. Apparently Sarah Palin lives in an alternate universe.

There's Still Time to Take Off the Gloves

As far as the economy goes, Obama has wasted two years. Will he waste the rest of his first term? If he does, he'll be a one-term President.

How do you get from Texas to Ireland?

Lone Star Bailout and
Ireland's Big Mistake

Just after the S&L bailout I was in Texas playing golf. A friend of mine who is in commercial real estate took us over to Padre Island to look around. We went up to a penthouse apartment that was once owned by a prominent Texas politician. The politician had taken out a $1.5 million loan to buy the property, which was on the market at that point for $250,000. $1.25 million up in smoke. Sound familiar? As the two articles above indicate, Texas was the worse financial sector abuser during the 80s. That's why there are almost no locally owned large financial institutions in the state. They all failed and were bought up by out-of-state companies.

Paul Krugman

Some recent columns that help explain current economic trends:

Axis of Deflation

The Problem

Swan Songs

Merchants of Misery

Liquidationists of the World Unite where some people who ought to know better show that politics trumps economics. The list of economists against QE2 is informative in that it includes almost no prominent "Republican" economists.

Alan Blinder on QE2

With all the hysteria surrounding recent Fed actions, it's refreshing to read--in the WSJ, no less--a reasoned assessment of the context and likely effects of QE2. Alan Blinder, in a column in the WSJ, takes on the critics (some of whom ought to be embarrassed by their comments--they are in positions of responsibility within the Fed no less--demonstrating as they do a complete lack of economic comprehension on the level of Econ 101). The irony is that Blinder does not even completely agree with the Fed's policy, but at least he understands it and its intended effects. (To read this column, Google "In Defense of Ben Bernanke Alan Blinder" and select the first hit--otherwise you need to be a subscriber to the WSJ)

One Path to Resuming Economic Growth.

Ed Dolan argues that tax reform could have dual benefits--deficit reduction and laying a sounder base for future economic growth. The US tax code has to be one of the biggest impediments to a stable growth path. Rationalizing the code by reducing or eliminating the patchwork of deductions would allow lower marginal rates and still yield the income necessary to fund the federal budget. If we want to introduce certainty and simplicity into the government's finances, this is the place to start.

Henry Aaron on the Deficit Commission

Henry Aaron, probably the most respected public sector economist in the country has offered a take on the report of the Bowles/Simpson commission. Here are some highlights:

● The plan calls for a reduction from baseline in federal health care spending of about one-third by 2040, but doesn’t say how that target will be achieved.

● The plan would block grant Medicaid, which would increase the marginal cost to the states of Medicaid— benefit levels and coverage—by anywhere from 100 percent to more than 200 percent. The result would be powerful incentives to cut benefits.

● The plan presents four options for modifying the tax system, but doesn’t endorse any. All would tax capital gains as ordinary income, which means doubling the rate on them.

● All tax plans would end or curb deductions for charitable contributions. That would curtail the capacity of the private sector to provide relief to vulnerable populations, at the same time that the principal programs supporting these very populations – Medicare, Medicaid and Social Security -- would be slashed.

● The deductions for mortgage interest and property taxes would be curbed or eliminated—this, during the most severe housing price collapse in at least seventy-five years.

● Deductions for contributions to IRAs, Keogh plans, and 401k plans would be ended.

● Social Security benefits would eventually be cut by 25 percent for people earning $43,000 today and by 40 percent for those earning $100,000. Note the double whammy—less Social Security and no tax-sheltered savings plans. The plan actually contains some modest increases in Social Security benefits, so that it actually increases the deficit until well after 2020

● The plan says it would fix the Medicare fee cuts for doctors scheduled for next month, but it doesn’t say how – other than to establish a new payment system to reduce costs and improve quality.

● The plan would freeze salaries of federal employees for three years, cut the federal work force by 10 percent, and dump 250,000 contract employees. To offset these cut backs, the plan calls for an increase in productivity of federal workers, but it doesn’t say how.

This report, which is apparently supported only by the two chairman, has to go down as the most useless expenditure of human time in the history of the United States. The commission was supposed to bring an actionable plan that could be voted up or down by Congress. Instead we have a hodge podge of half-baked proposals that are not only not actionable, but are ridiculous on their face.

A Proposal for the Reform of Macroeconomics Instruction

Brad DeLong.

Take the NYT Deficit Puzzle--If You Dare

It's harder than it looks. No matter what your political persuasion, it's likely you'll have to kill (or at least injure) some sacred cows if you are really serious about solving the deficit. If nothing else, the puzzle shows how difficult it is for people to really be serious (and not just give lip service) to deficit reduction. Here's the puzzle: NYT Deficit Puzzle. And David Leonhardt's explanation of where the policy options came from.

My budget puzzle solution.

The Deficit Commission Boondoggle

The beginning rather than the end? We already had a beginning. This is no help at all. Paul Krugman on the Deficit Commission and here. They didn't do their job. Krugman:

"Under the guise of facing our fiscal problems, Mr. Bowles and Mr. Simpson are trying to smuggle in the same old, same old — tax cuts for the rich and erosion of the social safety net."

Great Football Day for NU and Mizzou

The 'Cats own Iowa--victories in 5 of the last 6 games. Today it was 21-17 with a touchdown by the Cardiac 'Cats with less than a minute and a half to go.

Mizzou bounced back with a victory over another ranked team, beating K-State 38-28. Blaine Gabbert bounced back from a horrific performance against Texas Tech.

Go 'Cats!!

MIZ--ZOU. Fight Tiger!!

Happy Veterans Day from Rick Perry

Texas Republicans set to cut support for veterans.

It's Time to Dump the Erudition and Get To Work

Harold Pollack on President Obama. We cannot let the Republicans claim a mandate they didn't get. There is no evidence that the "people" fail to support the policies of the Obama administration and the legislation that has come from them. The results of the mid-term elections demonstrate that people are tired of the economic stresses we face and don't think the government has done enough. The results don't mean that they think Republican policies are the answer.

As Serious as a Heart Attack

If you've read anything at all about the recently released report from the Deficit Commission, you should know that it is another slap at the middle class and a transparently obvious attempt to lower taxes on the rich. It makes our tax system more regressive, it makes unnecessary proposals regarding Social Security and fails utterly to deal with the most dangerous budget issues facing our country over the next three decades. In a recent column, Kevin Drum provides graphic evidence that viewing the Commission's report as even a starting point may be a significant mistake.

Thinking Straight About Health Care Reform

At The Incidental Economist there is a lot of good stuff explaining the state of health care in the US and about the PPACA. This particular article explains how the act is a piece of whole cloth--or using their analogy, a three legged stool. Other posts illuminate the shocking state of health care in our country relative to the rest of the world.

Ordinary People Aren't the Only Ones Who Vote Against Their Own Interests

Despite the degree to which US businesses have profited from the first two years of Obama's presidency, their consensus view remains that he is bad for business. Too bad he didn't give them more stimulus--they would probably be rioting in the streets if their profits were even higher. This follows a perplexing historical trend. Democratic administrations have historically been better for business than Republicans, yet businesspeople continue to see them as the enemy. Apparently they didn't stay awake in either their history or economics classes. Bloomberg comments on the current crop of businesspeople with a gun aimed squarely at their feet.

If You Are Over 65 and Voted Republican in Texas, Here's Your Reward

Texas Republicans consider dropping out of Medicaid.

Actually, Justice for the Guilty Rich

Joseph Stiglitz, "Justice for the Few." This will go down as one of the most shameful episodes in American economic history. The victims of the recession caused by the financial crisis are victimized again by the perpetrators of that crisis. How Bank of America, et al. can complain that their property rights are violated by homeowners claiming bankruptcy over their excessive mortgage debt is laughable. Did they or did they not make these loans of their own free will? Bad judgment on their part doesn't protect them from the workings of the law.

Mark Morford--Gonzo Editorialist

I'm going to start reading this guy regularly. His most recent column.

He Really IS Crazy

Rick Perry on Social Security. The Over 65 crowd will regret voting for Republicans.

Stephen Suh on Cogitamus: Rick Perry's talk of seceding from Social Security is surprisingly incoherent, even for a Texas Republican. He just won reelection, which suggests to me, at least, that he is already setting his sights on the 2012 GOP presidential nomination.

If so, they'll actually have a fight on their hands between Perry and Palin for who combines the least amount of intelligence with the most amount of pure insanity. It'll be interesting to see how Perry manages to use secession language as a platform for becoming president of the nation from which he so desperately wants to secede.

Holding My Nose

Like Hussein Minstrel Boy, I wish this wasn't how I feel when I vote for most Democrats. Stages of Dealing --Anger. On the other hand, this is a great Joan Jett song.

The Surprising Reaction to Quantitative Easing

Paul Krugman: The simple fact is that we have a global excess supply of savings, which is doing terrible things to workers. The reasonable thing is to do something about it; it’s deeply unreasonable, and deeply irresponsible, to invent reasons not to act because you’re clinging to simplistic slogans. Read more of this excellent analysis here. Also, the WSJ remains a bastion of stupidity.

What Does Transitivity Mean?

Apparently the football polls don't know: Missouri beat Oklahoma 36-27 (and the game wasn't that close). Missouri also beat Texas A&M 30-9 (at A&M). Plus Texas A&M beat Oklahoma 33-19. However, the polls rank Oklahoma above Missouri. Somebody's not paying attention.

Transitivty: a relation between three elements such that if it holds between the first and second and it also holds between the second and third it must necessarily hold between the first and third. I.e. Missouri>Texas A&M, Texas A&M>Oklahoma, thus Missouri>Oklahoma. In this case we also have the absolute: Missouri>>Oklahoma. There is no justification whatsoever for the ranking order in the polls. At least the computers like Missouri better. The Human polls are looking increasingly like they make no sense whatsoever.

Look What "We" Did.

Elect the legend, ignore the facts. Texas vs. the "big spending states."

Marching Mizzou Is 125 Years Old this Year

The "Big M of the Midwest." The fight songs: Every True Son/Fight Tiger.

M-I-Z

New Music

Some more Texas music. I got back from Chicago tonight and saw that I had a new episode of Austin City Limits on the DVR. Here's the link if you're interested: Robert Earl Keen and Hayes Carll on Austin City Limits. I've posted a signature Robert Earl Keen song over on the left. I like him a lot, particularly his tribute to Levon Helm--"The Man Behind the Drums."

Why Did the Financial Sector Turn on Obama?

Simon Johnson argues in an opinon piece in the NYT that despite the financial lifeline that Obama threw the banking system, they gave generously to the Republicans in the recent election. Why would this be so? This morning the reasons became clear. Bloomberg News reported that House Republicans are already talking about restricting the impact of the financial reform legislation through "Congressional oversight."

Fact vs. Fantasy

How does the US experience with fiscal policy during the last few years compare with other countries? It's now widely (if wrongly) accepted that fiscal policy was tried in the US, but failed. Paul Krugman has some charts that compare the US and German experience. The US has done better regarding output than Germany, which is widely viewed as having eschewed fiscal expansion in favor of austerity. The irony is that, as the data shows, real government expenditures grew more rapidly in Germany than in the US.

Sound Advice

Matt Yglesias suggests that Obama should "move to the White House," i.e. act more presidential. I think that Obama has devalued the office a bit during his first two years. Partly this was forced, because he needed to deal directly with recalcitrant members of Congress (many in his own party) in order to get key parts of his agenda passed. Now it's time to concentrate on some of the powers explicitly granted him in the Constitution, specifically filling vacant judgeships and foreign policy.

The Reasons Why

Paul Krugman's "pre-mortem." I've always argued that the most important thing about electing a president was to see who he would have as his advisors. Usually I've meant that in the sense that I expected the advisors to be smarter than the president. In Obama's case, he surrounded himself with people who weren't as smart and who were willing to settle for less than he promised. Why Obama let them convince him that less was good enough will remain a mystery.

Stiglitz on QE2 and the Stimulus.

Ezra Klein's conversation with Joseph Stiglitz. Not just an argument about the likely ineffectiveness of quantitative easing. Professor Stiglitz also describes the fiscal stimulus and its effect in simple terms.