Stagflation had a huge impact on economic thinking. Why? Mainly because it was predicted: the Friedman-Phelps natural rate hypothesis said that the apparent positive tradeoff between inflation and unemployment would prove only temporary, and that once inflation had gone on for a while, disinflation would involve a period of both high inflation and high unemployment.
So when that condition actually materialized, it gave huge prestige to the whole program of grounding macroeconomic models in microeconomic foundations. When I was in graduate school, which was just when the saltwater-freshwater divide was beginning to widen, I remember some of my classmates arguing that we should believe what the Chicago guys were saying — after all, they’d been right so far.
Of course, stagflation also gave a boost to the political right, although with much less justification; to this day, right-wingers basically wave the bloody shirt of stagflation to justify any and all opposition to government programs.
So what’s the parallel with the Nipponization of the U.S. economy? Well, like the stagflation of the 1970s, our current predicament was predicted well in advance. Liquidity-trap theorists — yes, with me playing a large and early role — told you what would happen if the economy suffered a sufficiently severe negative shock, one that pushed us up against the zero lower bound. We predicted, specifically, that:
1. Increases in the monetary base would fail to increase broad monetary aggregates, let alone boost the economy
2. Despite large monetary base expansion, the economy would slide toward deflation, not inflation
3. Despite large budget deficits, interest rates would stay low, because short-term rates would stay pinned at zeroAll of this was, like the natural rate hypothesis, grounded in a basic theoretical approach, embodied in simple models.
Everything that has happened these past two years has fit that basic model; meanwhile, those who failed to accept the implications of the liquidity trap have been wrong over and over again.
But here’s the thing: I see no signs of a rethink among most players. The slide toward deflation despite huge increases in the monetary base hasn’t shaken either the paleomonetarists who still predict hyperinflation or the it’s-all-the-Fed’s-fault crowd. The failure of interest rates to soar hasn’t shaken the deficit hawks. Instead, the usual suspects have taken the failure of an inadequate stimulus to produce a solid improvement in employment — a failure I, among others, predicted! — as proof that they were right.
Sunday, October 31, 2010
1970's stagflation, Liquidity-trap theorists, and economics gone unmoored from evidence:
Friday, October 29, 2010
The trucks won't load themselves... 4 days 2 hours and 59 mins till the polls open edition...
Milton Friedman On Japan - NYTimes.com http://post.ly/182zg
Freddie Mac: 90+ Day Delinquency Rate Declines Slightly in September http://goo.gl/fb/FwI7M
CEOs Defend Stimulus - Wall Street Journal
As Republican candidates for Congress batter U.S. stimulus programs, some company chiefs are stepping forward to defend corporate subsidies Congress enacted to help firms weather the downturn.
Ronald D. Boire, CEO of gift retailer Brookstone Inc., said a 2009 law that allowed companies to recoup taxes they paid in past years “helped us get back on a growth curve. Instead of closing stores, we opened seven new stores” in 2010, said Boire.The law allowed companies to use their current year losses to offset taxes paid up to five years prior — generating millions in tax refunds for companies like Brookstone.
The provision was part of legislation to revive the housing sector, not the $780 billion 2009 stimulus bill that has drawn the most criticism. But it is part of the broader set of stimulus efforts that some say the Democratic Congress isn’t getting enough credit for.
Brookstone’s seven new stores translate into about 100 permanent jobs, Boire said.
The company this month announced it is renegotiating its revolving credit facility, cutting long-term debt by 20%. That also would not have been possible without the net operating loss tax break, said Boire.
“The net operating loss provision was instrumental in keeping us on the right side of the bankruptcy precipice,” said Allen Tilley, CEO of American Locker Security Systems, Inc. The Grapevine, Tex. firm sells locker systems to health clubs and amusement parks.
The firm, which employs about 100, got a tax rebate of $1.4 million under the program. The additional capital helped the company land a contract with Disneyland parks in California and Hong Kong, and boost payroll by $450,000, Tilley said.
Those companies’ stories are a counterpoint to the more generalized economic doldrums.
And they are in sharp contrast to the prevailing message delivered by GOP candidates and some large business groups in this election season, which have painted the current Congress as an utter failure when it comes to job creation.
“Billions in spending, mountains of foreign debt and countless regulations that Congress didn’t even read. The only thing missing? Jobs. We have to stop stimulus,” according to an ad from Republican Florida Senate candidate Marco Rubio.
Ads from the U.S. Chamber of Commerce against Democrats have mostly shunned criticism of the stimulus bill, but have hammered Democrats on the jobs issue. “We told [Rep.] Betsy Markey [D., Colo.] we needed jobs. Why didn’t she listen?” one ad says.
For William McComb, CEO of Liz Claiborne Inc., the problem wasn’t the stimulus, it was that Congress lost focus on jobs after its initial efforts. But he thinks Congress should get credit for programs like the net operating loss tax rebate.
“Because stimulus programs get a bad rap, it’s very important to reflect and say, this had an effect,” McComb said in an interview.
Allen Sinai, chief of economic research firm Decision Economics, said the U.S. economy would have lost between 1% and 2% of economic growth without the stimulus. “We’d have been a lot worse off if we hadn’t done what we did,” he said.
But he said the effort must be viewed as a failure overall because it didn’t bring down unemployment enough and it helped turned the debt into a major problem.
The net operating loss provision may have had healthy effects, but with a projected benefit of $33 billion in 2009 and 2010, it is still “small potatoes” in the larger economic picture, said Sinai.
Milton Friedman On Japan - NYTimes.com
David Wessel has an article asking what Milton Friedman would say about quantitative easing, and concludes that he would have been in favor. But I was struck by Friedman’s 1998 remarks about Japan, in which he basically said that increasing the monetary base would do the trick:
“The Bank of Japan can buy government bonds on the open market…” he wrote in 1998. “Most of the proceeds will end up in commercial banks, adding to their reserves and enabling them to expand…loans and open-market purchases. But whether they do so or not, the money supply will increase…. Higher money supply growth would have the same effect as always. After a year or so, the economy will expand more rapidly; output will grow, and after another delay, inflation will increase moderately.”
Well, they did that: staring in 2000, the BOJ nearly doubled monetary base over a period of 3 years.
And the money just sat there. Banks did not, in fact, expand loans.
In fact, Japan’s experience is a key element of the case against monetarism. Just printing notes does not work when you’re in a liquidity trap
EU Bows to Germany's Call for Permanent Debt Mechanism, Snubs Vote Curbs
German Chancellor Angela Merkel won European Union backing for a rewrite of EU treaties to create a permanent debt-crisis mechanism by 2013 to prevent a repeat of the Greece-led shock that jolted the euro.
At a summit in Brussels, Merkel made less headway with calls to bar high-deficit countries from voting on EU decisions, dramatizing the limits of Germany’s power over the 27-nation bloc.
“All agreed that there has to be a permanent crisis mechanism,” Merkel told reporters early today after the summit’s first session. “All agreed that a limited treaty change will be necessary.”
Germany’s demands come as bond yields in deficit-strapped Ireland and Portugal inch higher, threatening to reignite concerns about government finances that brought the 16-nation euro to the brink of breaking up six months ago.
EU President Herman Van Rompuy said there was no discussion of a debt-rescheduling facility, leaving the European Commission to propose a structure for the crisis mechanism by December. The summit resumes at 11 a.m. today and wraps up this afternoon.
“The absence of a crisis mechanism almost brought down the euro,” Van Rompuy said. With the currency up 17 percent against the dollar from June’s four-year low, he said “we won the immediate battle of the euro, but the problems are not completely over yet.” The European currency bought $1.3943 at 2 a.m. Brussels time.
Biggest Contributor
As the biggest contributor to 860 billion euros ($1.2 trillion) in loans and pledges to stem this year’s debt crisis, Germany wants to head off speculation against sovereign debt by handing the bill for future bailouts to bondholders.
Wednesday, October 27, 2010
Just a note to put this election year in context...
The trucks won't load themselves
"Nothing in the world can take the place of Persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent. The slogan 'Press On' has solved and always will solve the problems of the human race." ---Calvin Coolidge (1872 - 1933)
China and US closer on trade targets
China and the US have the basis for an agreement at the summit of the Group of 20 leading nations next month on setting targets to cut trade imbalances, according to an adviser to the Chinese central bank.
Li Daokui, a member of the central bank’s monetary policy committee and professor at Tsinghua University, said on Tuesday there had been “good progress” at the weekend meeting of G20 finance ministers in South Korea which had moved debate from the “surface issue” of nominal exchange rates to “talking about the substance of rebalancing world trade”.
China has pushed back strongly against US pressure for a rapid appreciation of its currency, the political and economic dispute at the heart of fears about a global “currency war”.
However, although Mr Li is an adviser to the central bank rather than a policymaker, his comments suggest support in China for the US proposal of setting limits on current account surpluses and deficits at around 4 per cent of GDP.
“I was very encouraged by the G20 meeting,” said Mr Li. “It is now possible for the two governments [the US and China] and other governments to have a good understanding.”
Several articles in the Chinese business press have also indicated the government would be comfortable with the surplus target at that level.
Report: Fed will probably use gradual approach for QE2
QE2 is coming. The only question is if the Fed will announce a fairly large amount of purchases on November 3rd (like $500 billion), or a somewhat smaller amount and revisit the purchases at each FOMC meeting. It sounds like the Fed might take the 2nd approach ...
From Jon Hilsenrath and Jonathan Cheng at the WSJ: Fed Gears Up for StimulusThe central bank is likely to unveil a program of U.S. Treasury bond purchases worth a few hundred billion dollars over several months, a measured approach in contrast to purchases of nearly $2 trillion it unveiled during the financial crisis.This is the approach the NY Fed's EVP Brian Sack described earlier this month: Managing the Federal Reserve’s Balance SheetIt is hard to call "a few hundred billion dollars" a gradual approach, but this is less than current expectations for the Nov 3rd FOMC announcement.
Two lawmakers asked to repay stimulus funds
Two lawmakers asked to repay stimulus fundsEthics complaint filed over ‘disallowed’ paymentsA Republican state legislator has been given a week to repay more than $25,000 in federal stimulus money he has been told he owes to Henry County. An ethics complaint also has been lodged against the same lawmaker, Rep. Steve Davis (R-McDonough), and he has 30 days to respond to that issue.By Jason A. Smith
jsmith@henryherald.comA Republican state legislator has been given a week to repay more than $25,000 in federal stimulus money he has been told he owes to Henry County. An ethics complaint also has been lodged against the same lawmaker, Rep. Steve Davis (R-McDonough), and he has 30 days to respond to that issue.
County officials are seeking $25,313, from Davis, who worked as a real estate agent for Henry NSP, LLC, according to a letter from the director of the Henry County Financial Services Division. County officials said in the letter that Davis was the CEO of Greenwood Crest Realty, which was hired by Henry NSP LLC to facilitate the real estate transaction process, through the Henry Neighborhood Stabilization program.
“As you are aware, Henry County’s Neighborhood Stabilization Program is subject to federal conflict of interest regulations, which among other things, prohibit elected officials and any businesses in which elections are connected, from financially benefiting from, or participating in, any activities in association with the NSP program. As an assets manager for the Henry County NSP Program, Henry NSP LLC, was bound by these federal regulations,” the letter read. Davis was considered a broker and deemed to be in violation of the federal conflict of interest rules, by state and county officials.
Another state representative, John Lunsford (R-McDonough) has been told by the State Department of Community Affairs (DCA) that he, too, has obtained $15,052 from the same federal funding –– and that must be repaid.
The county’s NSP was funded through a $6,251,265 federal grant in April of 2009, according to county spokesperson, Julie Hoover-Ernst.
Letters were sent to both Lunsford and Davis, asking them to repay “disallowed” funds, said Hoover-Ernst.
“We asked for them to repay the amount that the DCA has said they would not reimburse us, due to the fact that the DCA had determined there was a conflict of interest on those particular contracts,” Hoover-Ernst said.
“Lunsford ... has said that whatever cannot be worked out with the DCA — whatever that amount ends up being — he will reimburse the county,” Hoover-Ernst said.
However, she added that Davis has yet to provide county leaders with the same types of assurances. “He has not informed us, to date, that he intends to reimburse us the amount that taxpayers have already paid, for the sales of certain properties.”
“To date, we have not heard from Steve Davis regarding this issue,” continued Hoover-Ernst. “We will take whatever steps are necessary to ensure that taxpayers are reimbursed for that money. My understanding is that Henry NSP does not feel like there should be disallowed costs.”
Hoover-Ernst said the Henry County Board of Commissioners, in August, determined a second letter should be sent to the asset-management teams for the properties, asking for reimbursement. “That letter was mailed out on Oct. 21,” Hoover-Ernst said.
Davis did not return a phone call to the Henry Daily Herald regarding this story.
“This is the most egregious political attack that I’ve probably ever witnessed,” Lunsford said. Lunsford said the county’s version of his, and Davis’ involvement with the NSP program, is inaccurate.
On Monday, the State Ethics Commission received a formal complaint against Davis, alleging that he violated the Ethics in Government Act. The complaint was lodged by the campaign for Democrat Matt Roberts, who is seeking to unseat Davis in the Nov. 2 election.
Lunsford criticized county leaders, and the Roberts camp, for their respective actions against Davis and himself.
“What I actually told the county was, I believe you are incorrect. But, if I have done anything illegal, immoral or unethical, I will refund your money,” said Lunsford. “I never sold the county a house that was my listing. And I never listed one of their houses for sale, or was paid commission by the county.
“I did find the county some houses, some of which I sold them for free, some of which I got paid a cooperating fee from the other agent,” Lunsford continued. “But never did I collect one dime from the county government. I quit working in the program in 2009, by choice. The ruling that they’re pouting about, didn’t even occur until 2010.”
Davis’ activities within the NSP program, as an elected official, came under scrutiny by the state, in December of 2009, said Hoover-Ernst.
The county contacted the Georgia DCA, regarding “disallowed” funds paid to Davis as part of the NSP program. Davis should not have been able to purchase properties in the endeavor, added Hoover-Ernst.
“As soon as we became aware that there was a potential conflict of interest, we notified the DCA in December,” she said. “Later that month, we were informed that there did appear to be a conflict of interest. At that point in time, on Dec. 14, 2009, Henry County placed a moratorium on the purchase of additional properties, so that we did not put future taxpayer dollars at risk.”
Hoover-Ernst said a total of 57 houses in the county, as of Sept. 30, had been acquired through the NSP program, and all but one were under contract. She said at that time, Davis and Lunsford were believed to be benefiting from the NSP program.
Davis’ Democratic opponent has weighed in on the controversy.
“[I believed] Steve Davis had not disclosed all of his financial dealings in accordance with the Georgia Code of Ethics, and that he’s deceiving the Ethics Commission by violating federal and state law,” said John Cain, a political consultant, and Matt Roberts’ campaign manager.
“I know most people are going to perceive this as a campaign stunt,” he said. “But, because of my personal and professional code of ethics, I wouldn’t do that. Elected officials should uphold the very same laws they help to create, and they should be looking out for the interests of their constituents, instead of their own self-interests,” Cain added.
“He’s taking advantage of a program designed to help the economy,” Cain said.
Hoover-Ernst said the county is making changes, regarding oversight of the NSP program. “We are bringing the entire process in-house, to enable us to better manage the funds,” she said. “We believe that the NSP program is helping people to get into their homes, and to rehabilitate our neighborhoods. But we do not want to risk taxpayer dollars again.”
Arguing With Markets: Austerity vs. Negative real interest rates...
One confusion I often run into is the belief that there’s some contradiction between times when I and others argue that markets are wrong — as I did when diagnosing a housing bubble, and now in questioning the market’s optimistic beliefs about inflation — and my point that low interest rates undermine the argument for immediate fiscal austerity.
What people don’t get is that in all cases I’m starting from the fundamentals. It’s the austerity types who are appealing to market psychology to reject those fundamentals — and the point then is that this market psychology is all in their imagination.
The key argument against fiscal austerity now is that it’s bad economics: it would depress the economy, while doing very little to improve the long run budget position (and might even make that long-run position worse.) I’ve done the math repeatedly on this blog.
But the austerians argue that the numbers don’t matter — we have to cut now now now or the bond vigilantes will attack.
And then the question is, where are those vigilantes? I guess they’re suckering us in by lending to the US government at negative real interest rates.
So the point isn’t that market are always right; it’s that if you’re going to claim that appeasing the markets trumps rational economic analysis, you really should have some evidence that the markets care at all about what you’re demanding.
Tuesday, October 26, 2010
FOR IMMEDIATE RELEASE: Nichols Calls on Opponent to Return Contributions from Rep. Steve Davis
Rep. Davis scams stimulus money
First Rep. Steve Davis son threatens School Board opponent.
Monday, October 25, 2010
The trucks won't load themselves 8 days 3hour 43min till the polls open edition...
“When you get into a tight place and everything goes against you, till it seems as though you could not hold on a minute longer, never give up then, for that is just the place and time that the tide will turn.”
---Harriet Beecher Stowe
the Bush tax cuts did not even come close to paying for themselves. The Bush tax cuts
costus around $1.7 trillion in revenue from 2001 through 2008, in part because of weak output and job growth following the cuts (contrary to assertions about how the tax cuts would stimulate economic growth).As for the cost of extending the tax cuts to the wealthy, the Tax Policy Centerestimates
that making all the Bush tax cuts permanent, as opposed to extending them only for the middle and lower classes, would cost $680 billion over the next decade.The disappointing part is that the press still lets them get away with this. At best, the press generally says something like "some economists claim this isn't true," implying there's a debate about this issue -- that some credible economists think the tax cuts will, in fact, pay for themselves -- when there is no debate and the answer is clear. Tax cuts don't pay for themselves.
If the press won't call them on this obvious falsehood, how can we trust them on anything? Instead of reflecting poorly on the press, this ought to bring the general credibility of the people making these claims into question. The press ought to ask something like, "Are you this ignorant about economics, in which case why should anyone vote for you, or are you deliberately misleading people? I'll assume you aren't ignorant, so here's the question. If you are willing to make false claims about the revenue generated from tax cuts in order to promote them for the wealthy, what other falsehoods will you be willing to promote in order to serve political ends? If voters can't trust you to tell the truth about tax cuts, how can they trust you on anything?"
When it turned out that "post-partisanship" actually meant creating a consensus among wealthy people about how best to repair the damage of the Bush years without in any other way disturbing the status quo—well, who could blame independent voters for being disappointed?
As they face the certainty of losses, Democrats are in a sense victims of their own success after winning 55 seats and expanding far into conservative territory over the last two election cycles. Now they are trying to defy history and demographics as they struggle to hang on to the districts in a midterm election with their party in the White House.
Its not all Anti-Obama, or anti-RomneyCare. Many of the loses that Democrats will have on election day are a part of the normal systemic shifts that occur historically.
Christina Romer doesn't even bother to try to make an argument for additional fiscal intervention with an eye toward job creation. She has, apparently, given up all hope that fiscal policymakers will provide the additional help that the economy needs. Instead, she is doing her best to prevent Congress from making things worse
Indeed. With the output gap at a post-WWII high, and with current forecasts projecting no shrinkage of the output gap at all over the next year, now is a time to twiddle all of the policy knobs the government has at its disposal up to 11: federal purchases increases, tax postponements, aid to states, partial or full nationalization of mortgage finance, loan guarantees, raising inflation targets, talking down the dollar, quantitative easing--especially since the expansion of government spending to offset the fall in private demand in the recession never happened.
A few commentators will point out, with much more justice, that Mr. Obama never made a full-throated case for progressive policies, that he consistently stepped on his own message, that he was so worried about making bankers nervous that he ended up ceding populist anger to the right.
But the truth is that if the economic situation were better — if unemployment had fallen substantially over the past year — we wouldn’t be having this discussion. We would, instead, be talking about modest Democratic losses, no more than is usual in midterm elections.
The real story of this election, then, is that of an economic policy that failed to deliver. Why? Because it was greatly inadequate to the task.
When Mr. Obama took office, he inherited an economy in dire straits — more dire, it seems, than he or his top economic advisers realized. They knew that America was in the midst of a severe financial crisis. But they don’t seem to have taken on board the lesson of history, which is that major financial crises are normally followed by a protracted period of very high unemployment.
If you look back now at the economic forecast originally used to justify the Obama economic plan, what’s striking is that forecast’s optimism about the economy’s ability to heal itself. Even without their plan, Obama economists predicted, the unemployment rate would peak at 9 percent, then fall rapidly. Fiscal stimulus was needed only to mitigate the worst — as an “insurance package against catastrophic failure,” as Lawrence Summers, later the administration’s top economist, reportedly said in a memo to the president-elect.
But economies that have experienced a severe financial crisis generally don’t heal quickly. From the Panic of 1893, to the Swedish crisis of 1992, to Japan’s lost decade, financial crises have consistently been followed by long periods of economic distress. And that has been true even when, as in the case of Sweden, the government moved quickly and decisively to fix the banking system.
To avoid this fate, America needed a much stronger program than what it actually got — a modest rise in federal spending that was barely enough to offset cutbacks at the state and local level. This isn’t 20-20 hindsight: the inadequacy of the stimulus was obvious from the beginning.
• US authorities failed to investigate hundreds of reports of abuse, torture, rape and even murder by Iraqi police and soldiers whose conduct appears to be systematic and normally unpunished.
• A US helicopter gunship involved in a notorious Baghdad incident had previously killed Iraqi insurgents after they tried to surrender.
• More than 15,000 civilians died in previously unknown incidents. US and UK officials have insisted that no official record of civilian casualties exists but the logs record 66,081 non-combatant deaths out of a total of 109,000 fatalities.
In this year’s congressional midterm elections, big business in America is – for the most part – rallying for a sweeping Republican victory. Business groups, such as the US Chamber of Commerce, which is almost exclusively backing Republicans, have long argued that Barack Obama, US president, and the Democrat-controlled House and Senate are anti-business. Republicans seeking election this year, including Tea Party-backed candidates, such as Senate hopeful Rand Paul of Kentucky, are running on an agenda to cut taxes and roll back regulations.While these might be business priorities, there are questions about how friendly to business some of the Tea Party candidates will be on other issues: from education and immigration to trade and industry tax policy and subsidies. Mr Paul, for example, has denounced the Federal Reserve and has campaigned against the federal bail-out of the banking and car industries – programmes that companies largely supported.“The broad impact of the Tea Party on the Republican party is not to make it a more pro-business party,” says Vin Weber, a former Republican congressman who now works as a business lobbyist.“These are nationalists. And their views on trade are pretty much unknown. For those who believe in immigration reform, and if you will a more liberal policy, there is no good news.”
Norm Ornstein, a political scientist at the American Enterprise Institute, says that while corporate America and the Tea Party will stand together on some issues, big business could be disappointed by the ripple effects of electing politicians whose priority is limiting government sizespanspanspanspan
Sunday, October 24, 2010
On Juan Williams/NPR affair...
A story missing from the 2010 horse-race reporting...
As they face the certainty of losses, Democrats are in a sense victims of their own success after winning 55 seats and expanding far into conservative territory over the last two election cycles. Now they are trying to defy history and demographics as they struggle to hang on to the districts in a midterm election with their party in the White House.
Its not all Anti-Obama, or anti-RomneyCare. Many of the loses that Democrats will have on election day are a part of the normal systemic shifts that occur historically.
Friday, October 22, 2010
Job duty #1 of a Representative of the people: Show Up
Thursday, October 21, 2010
The trucks won't load themselves...
Wednesday, October 20, 2010
Why the Correlation Between Top Marginal Rates and Real Economic Growth is Positive
To start with, there is no question that if you tax someone's efforts enough, they will reduce their efforts. Any answer that is true will have to be consistent with both that statement and the facts (i.e., the positive correlation between top marginal income tax rates and real GDP per capita growth). I can think of several such answers, and I believe all are true to some extent. Now, before I lay out these answers, there is something I should note. I've listed these answers in order, from more believable and less important to less believable and more important. The reason I think most people will find the most relevant explanations most believable is that they don't quite believe that pesky fact, that the correlation between top marginal income tax rates and real GDP per capita is positive. With that warning, here goes: 1. Top marginal tax rates are simply not high enough to induce people who pay it to reduce their efforts. That's an answer a number of bloggers (Mark Thoma is a good example) gave in response to Mankiw; raising the top marginal tax rate from 35% to 39.6% shouldn't change Mankiw's behavior much at all as the difference probably amounts to peanuts for Mankiw. That may be true, but it does nothing to explain why growth rates were highest during periods when marginal tax rates were in the 70% range and up. 2. Dissuading people from putting in certain efforts doesn't prevent others from putting in the same efforts. Linda Beale is one of several bloggers to note that others might happily step in to do Mankiw's job should he choose. I'm sure this is not what Linda Beale had in mind when she wrote it, but finding people willing to give policy advice that contradicts the known facts and results in sub-part growth shouldn't be all that difficult, frankly. 3. Rising top marginal tax rates may dissuade some people from working, but generally won't dissuade those doing productive work. This is related to explanation 2, but it is subtly and importantly different. Simply put, most people are easily replaceable. Charles De Gaulle famously said "The cemeteries of the world are full of indispensable men." By that, I imagine he meant that in general, most people are easily replaceable. That holds even for folks who are deemed irreplaceable; I suspect if you replaced almost everyone working for the Fortune 100 or the Ivy League tomorrow, the change would be un-noticeable pretty quickly. (An exception appears below.) Now, there are some people that genuinely are irreplaceable, that genuinely do change things, but there aren't many of these people, and beyond a certain point, they aren't motivated by money. Heck, most of them don't end up all that wealthy despite being irreplaceable, and those few unique innovators that do accumulate vast fortunes (Steve Jobs would probably be an example) would happily do what they as long as they were making enough to meet some relatively basic needs. The few people who can't be replaced if they upped and quit because the big bad gubmint raised their taxes aren't the sort of people to go Galt in the first place. 4. A substantial percentage (and no, I don't know what percentage that is) of people who are motivated enough by money that they might reduce their output in the face of even small changes to the top marginal rates are engaged in activities that are not good for society. For example, they might be Harvard professors who peddle theories that are 180 degrees opposed to reality. Or perhaps they develop or implement financial instruments that help bring down the world economy. There is a bit of a self-selection bias at play; people who care enough about money to become homo universitus of chicagus are also the kind of people willing to generate massive negative externalities with nary a thought to the victims (except perhaps to call them "losers"). Loss of their services is to be encouraged, not decried. 5. At the margin, the gov't can be more efficient with resources than many people whose needs are sated. The primary motivation for such folks may be not risking what they accumulated and paying as little in taxes as possible. The result, in many cases, is paying vast sums to accountants and keeping the money parked or hidden rather than in productive use.
Thursday, October 14, 2010
Trade Deficit increases sharply in August
The Census Bureau reports:
[T]otal August exports of $153.9 billion and imports of $200.2 billion resulted in a goods and services deficit of $46.3 billion, up from $42.6 billion in July, revised.Click on graph for larger image.
The first graph shows the monthly U.S. exports and imports in dollars through August 2010.After trade bottomed in the first half of 2009, both imports and exports increased significantly. However in 2010 export growth has slowed, and imports have been increasing much faster than exports. The second graph shows the U.S. trade deficit, with and without petroleum, through August.The blue line is the total deficit, and the black line is the petroleum deficit, and the red line is the trade deficit ex-petroleum products. The increase in the deficit in August was due to both oil and China, although the bulk of the increase was because of trade with China. The trade deficit with China increased to $28.0 billion in August from $25.9 billion in July (NSA). The imbalances have returned ...
Wednesday, October 13, 2010
Justices Turn Down Appeal Over Speech Ejections
Once again Republican majority on Supreme Court prove they are partisan activist who have nothing to do with conservativism in the Edmund Burke sense of the word.
From The New York Times:
Justices Turn Down Appeal Over Speech Ejections
The Supreme Court let stand the dismissal of a suit from two people ejected from a speech given by President Bush.
Tuesday, October 12, 2010
US warning to China on maritime rows
Disputes in the South China Sea were of international concern, Robert Gates, US defence secretary, said on Monday, highlighting the rising tensions between Washington and Beijing over security in Asia.
Speaking in Hanoi, Mr Gates said Washington had a strong interest in maritime security in Asia, rejecting Beijing’s view that the territorial rows that have flared up in the past two years should be resolved with its neighbours bilaterally.
“We need multilateral institutions in order to confront the most important security challenges in the region,” he said in a speech at Vietnam National University.
But despite their differences, Mr Gates accepted an invitation from Liang Guanglie, the Chinese defence minister, to visit Beijing early next year, resuming a high-level military dialogue suspended by Beijing since the start of the year over US arms sales to Taiwan.
Mr Gates and Mr Liang met ahead of a key regional security summit in the Vietnamese capital on Tuesday.
Regional tensions have been rising over a more aggressive diplomatic posture adopted by Beijing over its claims to the disputed Paracel and Spratly Islands – all or parts of which are also claimed by Brunei, Malaysia, the Philippines, Taiwan and Vietnam. China also recently clashed with Japan over disputed island territories.
Hillary Clinton, US secretary of state, angered Beijing in July by insisting that the dispute over the South China Sea was of strategic importance to Washington and offering to act as a mediator. Mr Gates and his Chinese counterpart did not discuss the matter during their meeting, according to Guan Youfei, a Chinese rear admiral and deputy director of the defence ministry’s foreign affairs office.
He said the meeting was “very short but also very candid and constructive” and “an important consensus was reached” on the need to “strengthen dialogue and communication and promote understanding and trust”.
Adm Guan said that the “strange, on-again, off-again cycle” in US-China military relations was largely the result of US arms sales to Taiwan.
Blow to plans for dealing with bank crisis
Regulators are struggling to create a global mechanism that could wind down a big financial institution without the disruption caused by Lehman Brothers’ collapse in 2008.
The US is due on Tuesday to propose its own so-called “resolution” regime that would allow officials to stabilise a big, distressed bank, sell off assets over time and force creditors to take a discount on the value of their debt, without taxpayer money or market disruption.
But policymakers attending meetings around the International Monetary Fund and Institute of International Finance criticised the US regime and cast doubt on whether anything but a modest set of principles could be agreed at the Group of 20 meeting in Seoul next month.
Paul Tucker, deputy governor of the Bank of England, said it was a “mistake” by the US to equate keeping a seized bank open with a bail-out. He questioned whether the system could work if no buyers were on hand to pick up some assets.
Mr Tucker said he thought employees would stop coming to work at an institution slated for closure. “And I suspect that even if it’s risk-free, some counterparties will move away because what’s the point of dealing and placing money with an institution that has no future?” he said.
European policymakers want to allow “open bank resolutions” that keep an institution running, but the US is opting for a system of mandatory liquidation, partly because the multibillion dollar bail-outs of AIG and Citigroup created immense political pressure for creditors, shareholders and executives to bear financial responsibility. The US is also far less enthusiastic than some Europeans on the introduction of instruments such as “contingent capital” and “bail-ins”, designed to convert debtholders’ stakes in a bank into more loss-absorbent equity when it gets into trouble.
Lael Brainard, the senior Treasury official responsible for international affairs, said that “more analysis” was needed of bail-in instruments and they should serve only as “complements to effective resolution frameworks”.
But more important than US scepticism might be a lack of investor appetite, according to some bankers and investors meeting in Washington.
“I’m severely concerned,” said Raj Singh, chief risk officer at Swiss Re. “That’s not the kind of bet I’m buying into when I’m buying into bank debt: who’s really going to fund all these things that people are talking about in these resolution mechanisms? It certainly won’t be people like us.”
Yen, commodities hit Asian shares
Traders are taking some riskier bets off the table as further monetary restrictions in China raise fears that one of the world’s main economic engines could slow.The FTSE All-World index is down 0.4 per cent and industrial commodities are softer as news that Beijing was raising capital requirements for some major banks, in order to cool lending, encourages profit taking, particularly in Asia, after the recent strong run.
US equity futures are down 0.7 per cent. Mainland China stocks are firmer, however, reflecting the fact that they have already underperformed global benchmarks by about 20 per cent so far in 2010.
European bourses are slated to open lower by 0.5 per cent.
Factors to Watch. Early in the European session, the UK will reveal its September consumer price data.
Later, in the US, the third-quarter earnings season gets back under way. Chip bellwether Intel will deliver its numbers after the closing bell.
Before that, traders will be able to get an insight into the deliberations at the Federal Reserve's Open Market Committee’s rate-setting meeting in September when the minutes are released. With markets expecting more quantitative easing at the November meeting, any suggestion that the FOMC was unsure of the need for such action may come as a blow to some.
Asia-Pacific. Shares are trading sharply lower as the yen’s strength weighs on Japanese exporters while commodity shares in Australia are falling after a recent string of gains.
The FTSE Asia-Pacific Index is down 1.3 per cent, hobbled by weak performances in Tokyo – back after Monday’s holiday – and Sydney, off 1.7 per cent and 1.3 per cent respectively.
South Korea’s Kospi index is down 0.7 per cent and India’s Sensex is off 0.9 per cent after the pace of industrial output growth in August disappointed.