The F.T. op-ed that everyone is talking about..

http://www.youtube.com/watch?v=9lubktxY5jQ

This is the most accurate economic analysis on current policies I have seen. Obama's economic policies are stuck in the 1930s, and the Republicans' are stuck in the 1980s. The stimulus could have been good if it was structured and executed differently, but it was set up to make government power grabs instead of helping our future economic structure.

I think Obama got what he wanted though. Let Pelosi spend what she wants, do health care like she wants. Then. He will get sworn in as President in late Jan 2010 and begin to do something relevant.

The point about Congress using the stimulus as a grab-bag for their own purposes was spot on as well.

"The point about Congress using the stimulus as a grab-bag for their own purposes was spot on as well."

And, Ayn Rand II, was "The Bridge to Nowhere" anything different?

And OH, GOOD! We got LICC's PhD in Economics analytical mind set to the task of running the country. Pray tell, LICC, a) What are your quals for your opinion?; and b) what would you do differently?

Moreover, "Obama's economic policies are stuck in the 1930s, and the Republicans' are stuck in the 1980s."

Expound on how those "1930's policies" are different from classical Keynesian economics, and what Milton Friedman advocated was the proper role of the central bank during periods of economic decline.

LMAO.

Not sure how we're supposed to take this one seriously..

http://www.politico.com/news/stories/1109/29471.html

President Barack Obama plans to announce in next year's State of the Union address that he wants to focus extensively on cutting the federal deficit in 2010 – and will downplay other new domestic spending beyond jobs programs, according to top aides involved in the planning.

The president's plan, which the officials said was under discussion before this month’s Democratic election setbacks, represents both a practical and a political calculation by this White House.

On the practical side, Obama has spent more money on new programs in nine months than Bill Clinton did in eight years, pushing the annual deficit to $1.4 trillion. This leaves little room for big spending initiatives.

---------------------------------------

The big question for Obama – and the country – is whether the sudden concern about deficits will be more rhetoric than reality once his first State of the Union address concludes.

Additionally, there is no evidence Democrats are willing to aggressively cut the biggest parts of the budget, such as entitlement programs and defense. Former President Bill Clinton told Senate Democrats at their policy lunch this week that one of the biggest reasons to finish health care is to allow Obama to focus on economic concerns next year – in part with more spending. Sen. Ron Wyden (D-Ore.) said afterward that Clinton had advised getting health care out of the way to “clear the tables and allow the focus to be on jobs and education and infrastructure.” None of that is free.

Never fun to have to clean up after an elephant parade.

So steve chimes in. This from a man who consistently makes the dumbest statements regarding economic principles on this board. The man who does not understand what an opportunity cost is. The man who does not know the difference between a marginal rate and an effective rate.

steve, so you believe that in 2009, Keynesianism remains as the best and most accurate understanding of economics? Of course you would think so, because you have no intuitive understanding of economics. When did you study this in college, in the 1970s? Academics were still developing the theories debunking classic Keynesianism way back then.

Thanks for making an idiot of yourself in trying to pick a fight with me again.

Yes I understand your unique concept of "opportunity cost" LICC - you ignore it. The other ad hominems I'll ignore.

Yes, I believe that Keynesian economics is the best and most accurate understanding of economics. You say, "Academics were still developing the theories debunking classic Keynesianism way back then."

What did they debunk?

"Thanks for making an idiot of yourself"

You're welcome - now, instead of attcking, answer the question: Moreover, "Obama's economic policies are stuck in the 1930s, and the Republicans' are stuck in the 1980s."

Expound on how those "1930's policies" are different from classical Keynesian economics, and what Milton Friedman advocated was the proper role of the central bank during periods of economic decline.

LMAO.

Yeah Obama is a horrible President because he hasnt been able to totally clean up the Global disaster in 8 month sthat the Republicans have created over the last 8 years...

F'ing partisan tools

Those aren't ad hominem attacks. The fact that you think that 1930s era Keynesianism is the current best understanding of economics today shows what a joke you are. The fact that you are bringing of central bank monetary policy when the discussion is focused on fiscal policy is another dumb tactic.
I am pointing out that your studies of economics (which obviously didn't take very well) took place in the 1970s, well before very significant advances in economic theories took place.
Notably, you stupidly tried picking a fight with me instead of opining on Sachs' analysis.

My honors degree in economics was granted in 1982, LICC.

If you don't think I'm right, expound your opinion.

"There are three parts of a long-term solution. The first is to promote greater exports, partly through dollar depreciation and partly through expanded government support for export financing."

The former leads to inflation and EXACTLY CONTRADICTS Freidman's neoclassical strong currency policy. The latter costs money, distorts the economy, and may very well violate international trade treaties.

"A second component is a massive expansion of education spending and job training."

This EXACTLY contradicts the supply-side theory of increasing efficiency in the provision of public goods, rather than merely increasing spending. There is no evidence that increased spending on these things leads to better education or training or, in fact, anything but increased spending. Look at what increased spending in health care has gotten us: increased spending.

"The third component is to spur an investment boom in areas of high social return that are currently blocked by the lack of clear policies. The conversion to a low-carbon economy would create jobs in the short run, a more productive economy in the medium run, and US technological leadership in the longer run."

"High social return" is EXACTLY CONTRADICTORY to supply-side economics, which is neutral on social policy. "Low carbon economy" is cap-and-trade, which you have before stated you oppose. It is a tax, and not supported by supply-side economic theory.

Now then, I have addressed Dr. Sachs' article. You said, "This is the most accurate economic analysis on current policies I have seen."

Which completely contradicts everything you said before.

Oh what a fool you are.

And I, in fact, LICC, Keynesian that I am, would not support any of Dr. Sachs' ideas EXCEPT for cap and trade, as a way to price externalities. What about you?

I understand the reasoning that Obama is new to the office, and the use of the "George W" defense
It sounds so much like the old Soviet joke...

Moscow, 1953. Stalin calls in Khrushchev.

"Niki, I'm dying. Don't have much to leave you. Just three envelopes. Open them, one at a time, when you get into big trouble."

A few years later, first crisis. Khrushchev opens envelope 1: "Blame everything on me. Uncle Joe."

A few years later, a really big crisis. Opens envelope 2: "Blame everything on me. Again. Good luck, Uncle Joe."

Third crisis. Opens envelope 3: "Prepare three envelopes."

Really, RS?! How about the George W. claim that Clinton was responsible for 9/11?

Or Sarah Palin's claim that everybody is responsible for the disaster that she is but her?

Please. Economic disasters don't happen overnight.

As I said, you're consistent in your opinions, inconsistent in your analysis.

Remember ALL the republicans saying "Bush has ONLY been in office 9 months he is not responsible for 9/11!)

now its Obama has been in office 8 months and everything that happen before he took office is his fault.....

LICC?! Waiting on your comment!

LMAO.

Bush administration was clearly not responsible for 9/11. The argument that Bill Clinton did not take advantages of opportunities to stop Al Quaeda is debatable. Nobody is saying that Obama has caused the Credit Crisis. What many are arguing is that both the Obama administration with the Democratically controlled congress are prescribing the wrong medecine, wasting a crisis to enact the right reforms. In my own opinion, the biggest misdeed is not being true to some of his earlier pledges with regards to change.

August 13th memo to George W Bush:

BIN LADEN DETERMINED TO STRIKE IN UNITED STATES..

CIA "our hair is on fire...these guys are going to strike..."

Republican administration goes on month long vacation....

Yeah not his fault..

TOOL

Republicans NEVER take credit for their disasaters. They blame everyone else - Clinton, gays, mexicans, ..

I said this was an accurate analysis of current policies. I didn't say I agree with all of Sachs' solutions. But of course you just make things up as you go.

I said this is an accurate analysis of current economic policies. I didn't say I agree with all of Sachs' solutions. Of course steve just makes things up as he goes.

The Blame Bush for everything is juvenile. Which of Bush's domestic budget and spending policies were opposed by the Democrats? They are all to blame.

"Which of Bush's domestic budget and spending policies were opposed by the Democrats?" Pretty much all of his policies were opposed by the Democrats and were all passed on Party lines with majority support by Republicans

George Bush clearly wasn't responsible for 9/11
Obama clearly not responsible for Economic crisis
What can be argued is that the Economic prescription Team Obama/Pelosi are providing is making the patient sicker.

I said it was an accurate analysis of current economic policies. I didn't say I agree with Sachs' solutions. Of course steve just makes things up as he goes.

The Blame Bush mantra has gotten tired. Which of Bush's domestic spending and budget plans were opposed by Democrats. They are all at fault.

The Democrats now prefer to constantly repeat Bush caused the economic crisis. They bring up the example of Bush being lax on regulation and overstate the case, which ignores Bush ringing the warning on Fannie Mae and ignores how Bush reacted to Enron and signing Sarbanes. The bush bashing gets tiring. Add to that the disdain Democrats feel for Fox treatment of Obama totally forgetting MSNBC treatment of Bush.

who then was clearly responsible for an attack on this country than the guy who took the oath to serve and protect the country 9 months before, the same guy who had complete control of the military, the CIA, the FBI, the TSA?

Who if not the guy in charge what responsible?

It is just as easy.. if not more so to point to Clinton and the Comodity Future regulations act, The Financial Services Modernization Act and the Cisneros/Clinton role in GSE(subprime lending). None of the administrations prior to Obama are blameless, but there are stronger and weaker arguments to be made..

So which domestic spending items did the Democrats oppose?
How did Clinton's responses to the first WTC bombing, the embassy bombings, the Cole attack, etc. help keep us safe?

petrfitz is the right-wing version of steve.

Sorry for the repeat posts above, my comments weren't posting before.

can we at least agree that George W. Bush is 100% responsible for Iraq?

and that he is also responsible for enacting tax cuts for the wealthy that contributed to the increasing budget shortfalls following the clinton surpluses?

"I said it was an accurate analysis of current economic policies. I didn't say I agree with Sachs' solutions"

Really? What precisely do you agree with, if you disagree with the solution?

"Which of Bush's domestic spending and budget plans were opposed by Democrats."

I believe you will find that his tax cuts were passed through Reconciliation, the exact same procedure Republicans oppose for health-care reform. Remember, "Up or down vote"?

Riversider, I never said that there was nothing to be ascribed to the Clinton administration. Remember, though, that Congress was controlled by the Republicans, and the movement was headed by Dick Armey.

The increased spending was more of a problem than the tax cuts. Tax revenues increased significantly in the years following the tax cuts.

who was responsible for the increased spending?

tax revenues increased primarily because of corporate profits going up. you are implying that this increase was somehow linked to the tax decrease; kind of like saying that saddam hussein was linked al queda.

would the deficit have been higher or lower if personal income taxes had not been lowered for the wealthy?

I agree that most of the consumption incentives are not helpful. I agree that the stimulus was badly structured. I agree that policy should be geared to improving education (although not by dumping more spending on it), developing smart infrastructure and energy systems that would raise long-term production, and supporting domestic production through smart trade and tax policies.

Bush increased domestic spending far too much. Which domestic spending programs did the Democrats oppose? Which Democrats supported Bush's calls for reducing FNMA's and FHLMC's risks?

The tax cuts helped end quickly the Clinton recession. Bad monetary policy, too much government spending, lax regulatory controls and other factors led us to the latest economic problems.

"The tax cuts helped end quickly the Clinton recession"

What "Clinton Recession"?

A cut in the payroll tax would have been more targeted and immediate than the spending package. Even Obama has pointed out(he seems to have two minds on this issue) that the package has not yet impacted unemployment or GDP. The original plan/argument for Spending package was that the country needs investment in railroads, schools, national power grid, nuclear power plants, new roads, bridges. All things the country really does need. Now we are hearing that Congress squandered the resources and we need a new Stimulus package that we won't call stimulus(for fear of past association)to do what the original one was intended to do but failed to do.

What "Clinton Recession"?
http://www.nationalreview.com/nrof_luskin/luskin200405050850.asp

The claim that the last recession started under Clinton is absolutely true. To deny this is not only to blame Bush for a problem he didn't cause, but to deprive him of the credit for fixing it with effective policies — which is exactly why the Left is so eager in this case. Here, however, are the facts:

The unemployment rate bottomed at 3.8 percent in April 2000, and started deteriorating steadily from there (during the Clinton administration).

The fed funds rate — the overnight interest rate administered by Alan Greenspan and the Federal Reserve — peaked at 6.5 percent in 2000, and had to be lowered in an emergency move on January 3, 2001, "in light of further weakening of sales and production" (during the Clinton administration).

The one and only piece of evidence offered by Media Matters that’s to the contrary is that fact that the National Bureau of Economic Research set the beginning of the last recession at March 2001 — two months into the Bush administration. Check that date on the chart above: This well-respected economic research group set the beginning of the recession after GDP growth had already crashed from almost 5 percent to near zero. But according to Media Matters, this single authority determines truth, and everyone else is a liar. The article declares that "if NBER says the recession began in March 2001, the recession began in March 2001."

The reality is that NBER is just like any other group of economists, struggling with partial and imperfect information to characterize phenomena that don't have any hard-and-fast definitions. Since NBER set the March 2001 recession start date in November 2001, there have been important negative revisions to key data. Most important, back then GDP growth for the third quarter of 2000 was reported at 1.3 percent — but now it's been revised all the way down to a negative 0.5 percent. NBER had no way of knowing that then.

In fact, NBER has been on the verge of changing the recession’s start date for this very reason. According to the Washington Post earlier this year,

NBER President Martin Feldstein said, "It is clear that the revised data have made our original March date for the start of the recession much too late," but he did not offer a different date. "We are still waiting for additional monthly data before making a final judgment," said Feldstein, a Harvard University economist. "Until we have the additional data, we cannot make a decision."
Media Matters chooses not to mention this fact.

Liberals have never felt constrained by NBER's "official" dates. For example, last year in a New York Times Magazine article, ultra-leftist economist Paul Krugman cited dates for the economic expansion during the Reagan administration that not only didn't correspond to NBER's dates, but didn't even correspond to Ronald Reagan's years in the White House! The only virtue of Krugman's unofficial dates is that they made Reagan's economic performance look worse (natch).

Of course, liberals are not at all happy with NBER's judgment that the recession that began in March 2001 ended only eight months later, in November 2001. Krugman called it "a controversial decision," and has since stated that the economy is, in fact, "still depressed."

petro, we don't often agree, but i'm with you on this one.

steve didn't even know that the U.S. economy was in recession at the end of the Clinton administration? Wow.

Also, Sachs is against cap and trade. He has written articles against it. But that doesn't stop steve from making things up about Jeffery Sachs position.

Obama may be changing his mind on cap & trade(of course a lot of good will was wasted on this then)

http://www.politico.com/news/stories/1109/29491.html

An aggressive White House push on jobs and deficit reduction in 2010 may be yet another sign that climate-change legislation will stay on the back burner next year.

“There is a growing chorus in the party that thinks we should be doing more to spur job creation and not necessarily tackle cap and trade right now,” said a moderate Democratic Senate aide.

Yet again, LICC Is wrong: "Sachs thought the way we've been doing business in terms of creating a carbon market based on the regulatory regime of the Kyoto Protocol is insufficient to meet the Herculean task of confronting global warming. He said that a carbon tax would be much more effective."

In other words, Sachs doesn't think that cap-and-trade is ENOUGH.

RS, the National Review is about as objective on the Right as The Nation is on the Left. That "analysis" rendered by Donald Luskin is sheer supply-side nonsense.

"A cut in the payroll tax would have been more targeted and immediate than the spending package"

No it wouldn't. It would suffer the same fate as the Japanese Lost Decade: it may increase the money supply, but it does nothing to increase the velocity of money. I.e., there is no guarantee that anybody would spend that money. That is why a multipronged approach is necessary.

The mood of the country is changing, to spend less, save more.... or so we hope.
If you want to put people to work,suspending the payroll tax will make it less expensive for businesses to hire and expand. As far as velocity of money, the only velocity I see is that with regards to Obama policy to depreciate the dollar.

I believe Bush also wanted to depreciate the dollar, so in this regard , he's equally wrong. Seems to have accelerated under Obama though.

I think you need to study how free-floating exchange rates work, RS. Another supply-side misconception: it is not possible to control BOTH exchange rates and interest rates simultaneously, short of market intervention a la China. Is that what you are advocating, government intervention in the currency markets?

If you do, then you risk getting in the position of the UK v. Soros, or the Asian Currency Crisis, or the Tequila Effect, or the Argentine Dollar Parity system: all disastrous failures for those whose goal is to fix currency rates.

The federal government needs to act countercyclically - that was Keynes' argument during the Depression. The exact WRONG thing for it to do would be to cut spending right now; that would have repeated the failure of the Roosevelt Administration in the 30's. The Neoclassicists like Friedman would argue that the central bank's role is to increase the money supply, but as Japan shows that alone is not sufficient.

In other words, the Bush tax cuts were the exact WRONG policy - in flush times the debt should be reduced. Action should be countercyclical. Especially the exact WRONG time because they simultaneously cut revenue at the same time as they significantly increased spending: prescription drug benefit and, most stupidly, Iraq.

Unless Iraq is also Clinton's fault?

Typical liberal hypocrisy. That same government spending that Sachs likens to "just one more drink" given to a drunk is apparently OK when it's spent on education and "green" technologies.

So it's no surprise that he's the director of the Earth Institute at Columbia University.

People are not unemployed because they don't have educations. If that were the case, no one with an education would be unemployed today. CLEARLY, that's not the case.

The best thing we can do to heal our economy is to dismantle the Federal Reserve. As long as economic and political elites can manipulate our money supply and the broader economy, the free market system will never be truly free to grow organically.

Oh, NYCMatt! Dismantle the Fed? You are kidding, right? You're a Ron Paulist?!

Here's what happens when there is no central bank:

http://history1800s.about.com/od/thegildedage/a/financialpanics.htm

Rampant inflation followed by rampant deflation - the Fed was created PRECISELY to manipulate the money supply to prevent that from ever happening again.

The Fed needs to exist for monetary policy and act as lender of last resort.

But.. We do not need the Fed to be a regulator. Being a regulator conflicts monetary policy and its a job the FDIC or another agency can easily perform. It's also interesting to see banks push for The Fed to have increased roles in teh financial markets. If we've learned nothing in from the failure of past regulations is that one must question why a bank would ask for one regulator over another. Add to that that the Fed can appoint members to the Federal Reserve, which is like suggesting Drug companies appoint the heads of the FDA. The Federal Reserve needs a more limited defined role which would allow it to keep outside of politics. As it stands now, it performs functions that Congress is correct in wanting to audit, yet the Fed claims this would affect its ability to perform its monetary policy function. You cannot have it both ways. Keep the Fed, but limit its role to its core function.

Wrong.

The Panic of 1819 would have happened regardless of the presence of any central bank. In the wake of the panic, bad legislation failed to pass, the government embarked on no New Deal planning, and there was no great reflation. And precisely because there was no intervention, the panic ended quickly and peacefully. As was the case in the panic of 1921.

No one remembers much about the Panic of 1921, because the central bank and the government in Washington chose not to intervene. President Harding took the advice of his Treasury Secretary Andrew Mellon and did.....nothing. The 1921 Panic turned into a sharp recession which corrected itself over the course of about 18 months. The Great Depression, which started out as a recession, could have ended the same the Panic of 1921 had Hoover resisted the urge to "do something". Instead he made a "pigs breakfast" of the economy and created the conditions for FDR to come in and further experiment with some new ideas centered around the concepts of that miserable fascist invention: the command economy.

Rexford Guy Tugwell, one of the architects of FDR's policies of the 1930's said decades later, "We didn't admit it at the time, but practically the whole New Deal was extrapolated from programs started by Herbert Hoover."

So moving onto FDR. In his first 100 days in office he devalued the U.S. dollar by 40% (that helped to damage the savings of countless Americans who had prudently been saving money for their futures). Then he stole people's gold, making it a crime for Americans to possess their own gold. This was done because FDR didn't want any competition for his "fiat" money. At the same time FDR stole the gold, he took the country off the Gold Standard, which is part of how he devalued the U.S. dollar.

Inflation is actually an unhealthy aberration. It's just become so institutionalized in our country for so many decades that we believe that's "just how it works". That's NOT "just how it works" in a truly free market economy (which, as long as we have a central bank pulling the strings, we'll never have). Do you know why traditional inflation calculators don't work going back further than the creation of the Federal Reserve, in 1913? Because the value of the dollar actually ROSE during the 1800s! Prices of goods and services across the economy actually FELL as production increased, creating wealth for everyone vis-a-vis a constantly increasing number of Americans being able to afford everything from buggies to cheese. Back then, you could actually stash your money in a mattress, and years later it would have APPRECIATED in value, because it could command a greater number of goods and services.

But the dominant paradigm today panics at the very idea of prices DROPPING. Why? Can you think of one sector of the contemporary economy where price controls have not been exercised, thus allowing it to grow organically? I can -- TECHNOLOGY. From cell phones to televisions to computers, prices continue to plummet, allowing an ever-greater number of Americans to acquire them. And yet, far from the prophets of doom saying it would kill the industry, the opposite has happened: computer and technology companies are among the fasted-growing, strongest, and most profitable today!

Back to FDR. Many of you probably think that FDR's "bank holiday" of March 4th, 1933 was a good thing. It was supposed to ensure that only "healthy and strong banks" would continue to serve the American people. Roosevelt declared the holiday as an excuse to temporarily deprive depositers of their money. More than 5,000 banks still in operation when the holiday was declared did not reopen their doors when it ended, and of these, over 2k never did thereafter. Almost all the bank failures in the U.S. were caused by "unit banking laws" - laws that prohibited banks from opening branches in other states and thereby diversifying their risk portfolios. In Canada, no such laws existed and in contrast, there was not one bank failure in that country during the 1930's. Strangely, critics of capitalism who love to blame the market for the Great Depression never mention that fact.

By Scott Lanman
Nov. 13 (Bloomberg) -- The chairwoman of an oversight panel
for the Troubled Asset Relief Program said there’s “reason to
question” the governance of the Federal Reserve, which gives
private-sector banks a say in choosing some officials.
“I think there is reason to question the current
governance of the Federal Reserve,” Elizabeth Warren, head of
the Congressional Oversight Panel for the $700 billion program,
told reporters today at the Bloomberg Washington Summit.
She was asked about a proposal by Senate Banking Committee
Chairman Christopher Dodd, Democrat of Connecticut, to give
Congress a greater say in naming Fed officials.
The Dodd draft legislation, which also would strip the Fed
of its bank-supervisory powers, is “strong,” Warren said.

omg i totally totally love elizabeth warren!!!!!

I semi agree with that, RS: some of the Fed's regulatory authorities can be taken over by other bodies. But in the end, the Fed is the one that is most interested in the solvency of the financial system.

Some of what the Fed does does need to be kept confidential in the medium-term: disclosing an ailing bank that can be saved could cause it to fail just out of panic. That is not something to be desired.

"which is like suggesting Drug companies appoint the heads of the FDA"

You mean they don't?

Inflation is both a tax and a disease. Nothing good can come of it. It's a shame, this is Obama team's solution.

They don't, but the FDA is loaded with "former" pharmaceutical executives. And the USDA is loaded with "former" beef, dairy, and consumer food industry executives.

I have no issue with former Drug Company people(hopefully from R&D) in the FDA. Likewise I am not opposed to former bankers at the Federal Reserve.

What I am against is the banks voting and electing their regulators(Federaal Reserve governors)

There is no hint of inflation now, RS, so I don't know what you're worried about.

You listen too much to Larry Kudlow for your own good.

"I have no issue with former Drug Company people(hopefully from R&D) in the FDA. Likewise I am not opposed to former bankers at the Federal Reserve.

What I am against is the banks voting and electing their regulators(Federaal Reserve governors)"

It's the same thing.

When you have company executives able to move freely between industry and government (as they currently do today), you have an incestuous relationship that results in the government watchdog agencies' loyalty shifting from the consumer to the industry.

The dollar has depreciated considerably against a number of important currencies; purchasing power has clearly eroded when measured in that context. Add to that rising Gold price and increased talk of basket resserve currencies and it paints a troubling picture.

and I have a love/hate relationship with Kudlow. Sometimes I like him , other times I can't stand him.

It's the same thing.

When you have company executives able to move freely between industry and government (as they currently do today), you have an incestuous relationship that results in the government watchdog agencies' loyalty shifting from the consumer to the industry.

I understand your argument, but breaking the direct link is important. It creates more independence. It would also be impractical to ban someone from the Fed or FDA because of past employment.

You listen too much to Larry Kudlow....

From Grants

......the dollar is the world's
currency and the Fed is, for that reason, the world's central banker. Zero-
percent interest rates light a match under Asian real estate as surely as they
do under American junk bonds.
A little syllogism:
The funds rate is a price.
Price controls distort resource allocation.
Therefore, the Fed, through its control of the funds rate, distorts
resource allocation.
We will, in fact, go further. By its manhandling of the yield curve, the
Bank of Bernanke is fostering a kind of alternative financial reality.
It can be no accident that some of the bubbliest of the world's markets are
the so-called emerging ones. The overproduction of U.S. dollars sets in train a
familiar process of parallel credit creation. Foreign central banks buy dollars
to stem the unwanted appreciation of their own currencies. The money they spend
is money they are licensed to print. The upshot is a global upsweep of that
110-proof elixir called liquidity.

"purchasing power has clearly eroded when measured in that context"

No it hasn't: by definition purchasing power is adjusted for foreign exchange rates. It is measured in terms of goods.

No problem per se having some bankers in top regulatory positions, but there are people who are professional regulators, and that should remain.

but there are people who are professional regulators, and that should remain.

AGREED!

Sachs believes a carbon tax is much preferable to cap and trade. Is believes either is preferable to doing nothing, but he is not in favor of cap and trade, he is in favor of a carbon tax.

Way to be wrong again steve.

"Therefore, the Fed, through its control of the funds rate, distorts resource allocation"

That's EXACTLY what it's supposed to do, and it does it not only through the funds rate, but through reserve requirements and the discount rate, and through regulatory action.

Every economic action by every economic player - which is everybody, just about - distorts resource allocation. Opportunity cost, by definition, involves decisions that distort resource allocation.

So I don't see the point.

opinions cannot be wrong. The logic behind them can be unsound however.

oh riversider: such an exciting day for you. someone is actually responding. you must be beside yourself.

http://online.wsj.com/article/SB122757308122854859.html

Former Senator -- and former Democrat -- Phil Gramm likes to say there are two kinds of Democrats on economics: those who want to milk the cow but so dislike the cow that they want to punish it, and those who want to milk the cow and thus want it to grow. The good news about Barack Obama's emerging economic team is that most of them don't hate the cow.

Take Larry Summers, the economist who will run Mr. Obama's National Economic Council at the White House. We have our differences with the former Harvard President, in particular on the incentive effects of high taxation and the growth impact of government spending. Mr. Summers thinks marginal tax rates can rise significantly -- above 50% -- before they deter risk-taking and reduce federal revenues. But at least he thinks that taxes matter at some point.

As for spending, Mr. Summers is one of those economists who believes in the Keynesian "multiplier." This quaint notion holds that every dollar of federal spending yields something like 1.5 times that in economic growth. This ignores the fact that the $1 in spending has to come from somewhere, which means it is taken from the private economy in higher borrowing or higher future taxes. We thought we'd buried this Keynesian money illusion 30 years ago, but it's now coming back to justify a half-trillion dollars in new spending.

On the other hand, Mr. Summers understands that government decisions can do real economic harm. And on financial regulation in particular, he has sometimes played a constructive role. At Treasury during the 1990s, he let his staff raise doubts about the taxpayer-subsidized risks of Fannie Mae and Freddie Mac. This summer, as Fan and Fred melted down, he explained what went wrong:

"The illusion that the companies were doing virtuous work made it impossible to build a political case for serious regulation. When there were social failures the companies always blamed their need to perform for the shareholders. When there were business failures it was always the result of their social obligations. Government budget discipline was not appropriate because it was always emphasized that they were 'private companies.' But market discipline was nearly nonexistent given the general perception -- now validated -- that their debt was government backed. Little wonder with gains privatized and losses socialized that the enterprises have gambled their way into financial catastrophe."

**************************************************************

"A second component is a massive expansion of education spending and job training. The unemployment rate among college graduates is only 4.7 per cent, while it is 15.5 per cent among those without a high-school diploma."

Could someone explain this one to me, please? If there're NO NEW JOBS, what exactly do we hope to accomplish by college-educating additional masses? It's not like college graduates are at full employment, far from it.

I'd think, the first step out of this mess would be to create JOBS, not keep the youngsters in school longer and longer...

Well, if someone can't get a job, then by going back to school or extending your education, a person hopes to increase their worth later on. Also those in college are not competing for jobs. Many laid off Wall Street people have gone back to Business School or obtain a law degree. I don't see anything wrong with that.

there are no jobs to create. what do we have need for that they can produce (goods and services) more cheaply than someone overseas? job losses are even showing up in education and health care. the only thing is infrastructure, and that seems to have been given little emphasis thus far.

putting them in school takes them out of the unemployment numbers. my cynicism disturbs even me.

btw, i don't think the expansion pertains mostly to college education. i think it's mainly in trade, GED, and general skills training. the comparison is to college educated vs. those with NO high school diploma. there's room in between.

"This ignores the fact that the $1 in spending has to come from somewhere, which means it is taken from the private economy in higher borrowing or higher future taxes."

Not necessarily either. Taxes can remain or even fall in terms of rates if the economy grows. What the complaint should be is government spending as a PERCENTAGE of the economy. This uniformly INCREASES the more developed a nation is, as taxes provide eduction and infrastructure, which are both necessary for economic growth.

What is false is the supply-side notion of the evils of taxation: there is no empirical evidence anywhere that the highly taxed are worse off than the lowly-taxed. In fact, the relationship is inverse: the wealthier the location, the greater the tax burden. The wealthy SEEK OUT high tax districts because they provide better services that only the government can provide well.

Phil Gramm was a Democrat when the KKK was the paramilitary wing of the Democratic Party; after Johnson signed the Voting Rights Act and Nixon began his Southern Strategy, they all switched to the Republican Party. The result is now come to fruition: an isolated, backwater party limited to mostly impoverished states which, paradoxically, are the ones that receive the MOST federal largess.

What the Republicans need now is more - or at least one - Rockefeller Republican. Mainstream, normal people, not radicals.

My point was, instead of spending money on education, better spend money on job creation. We already have more than enough college graduates (and MBAs and lawyers, for that matter). What we do not have enough of are JOBS.

How do you "spend money on jobs"? That makes no sense. What governments do is spend money on infrastructure projects, education, police, military, and health care: the things the government does best. NYS is famous for "spending money on jobs" by hiring guards to guard empty jails upstate, so as not to lose the "job". Those types of "jobs" are a waste of money. Tax incentives to farmers and aluminum producers and the like are a waste of money. Subsidizing public transportation is a good use of money.

drujan, i don't disagree. but which jobs? where? what do we NEED that we aren't producing that we can't get overseas? more houses? increased health care for the uninsured?

i keep reading report after report by analysts advising their clients that demand will be anemic in the US, and if they want to expand or consider new opportunities they should do so elsewhere. why would you invest here when the cheapest labor is in Mexico, and their education level isn't so different than our unskilled labor, and health care isn't the issue that it is here?

infrastructure is the only thing that would be necessary to do here. r&d? we cut dramatically this decade the amounts we spend on r&d, both private and public. reducing costs increased productivity.

sorry, not productivity, profits.

steve is so lost. If government spends beyond its revenues, the money has to come from someplace, either through borrowing which increases the tax burden to repay, or increases inflation. Either way, the capital is siphoned from one place to go to another. Beyond a certain point, high taxation burdens economic growth. Keynesians could never accept that simple concept.

If you think the country has shifted left, you are absolutely wrong. Public ideological perceptions go through cycles, and left peaked last year. The country is generally center to center-right, and the pendulum is swinging back because now the Democrats in power are the reckless ones that are pushing their agenda to far.

Infrastructure, R&D, whatever we can still export... The entire revamping of the economy is needed. Outsourcing is going full steam ahead, but there're no jobs to replace it. Education spending for the jobs that do not exist is madness.

"reducing costs increased productivity." - by the way, turns out this is not true! There was an eye-opening and hair-raising conference for economists this week. Main point of discussion? GDP is inflated and "productivity gains" are bogus, because current methodology counts cheap imports as if they were US produced goods - at double the actual costs. So a worker loses a job, the parts he used to produce are now imported from China, the imported parts are still counted as US produced (at inflated US cost) and counted in GDP -> as if the remaining fewer workers became "more productive".

Short term profits, yes.

SO LIC what is going on with all those condos in lic....will they start doing auctions like solaria and that most recent one in greenpoint cant think of the name.. and how come Vere on jackson does not have 1 closing yet...

drujan, i changed my post to profits. productivity was a brain fart.

education to train totally unskilled labor how to operate machinery is different than college classes.

AR, true. We can use more trades training.

Yet the main issue remains, where are the jobs coming from, and what jobs do we need training for? "Tricle down" won't work if business continues to prefer investing overseas.

"So steve chimes in. This from a man who consistently makes the dumbest statements regarding economic principles on this board."

LIC, those who live in glass houses shouldn't throw stones.... I've called out Steve on some stuff, but you're top producer of nonsense posts...

"Former Senator -- and former Democrat -- Phil Gramm likes to say there are two kinds of Democrats on economics: those who want to milk the cow but so dislike the cow that they want to punish it, and those who want to milk the cow and thus want it to grow. "

He leaves out the third kind...
Those who want to kill the cow and eat it for dinner in the interest of "fairness".

Of course, then we're just talking about the goose that lays the golden eggs, aren't we...

"steve is so lost"

Don't think so.

"If government spends beyond its revenues"

That was not the assumption. What was stated was that if the government spends $1, it increases taxes. That is not necessarily so.

"either through borrowing which increases the tax burden to repay, or increases inflation."

Tell us, please, precisely how borrowing "increases inflation."

"Beyond a certain point, high taxation burdens economic growth. Keynesians could never accept that simple concept."

No, in fact, Keynesians recognize that, and Keynes himself never advocated a marginal tax rate above 25%. Unless you think he did, and can show us where.

"The country is generally center to center-right"

You're swallowing the Kool-Aid, LICC. The Democratic Party has dominated the government since FDR. There was a slight shift right after Reagan, but it didn't last long, nor will it, and it is a direct result of Johnson and Nixon, as stated above. And even when Republicans controlled Congress, Democrats actually got more votes, but because of the way the senators are chosen (2 to a state) and congressional districts are gerrymandered, Republicans won more seats.

The Republican Party dominated the government from the Civil War through FDR, when blacks in the South shifted their allegiance from Republican Party (the party of Lincoln, remember) to the Democratic Party. That had the strange effect of the entire South - black and white - voting Democratic, which ended with Reagan, by which time white Southern Democrats had shifted to the Republican Party. This has led to a defection of more liberal northern and western Rockefeller (centrist) Republicans to the Democratic Party, giving us our current political makeup.

There is little hope for the Republicans if they don't shift to the center. Alas, it seems they're doing exactly the opposite.

Go Sarah!

dru, how do we increase domestic production in the way you are discussing when there is such a differential in labor costs between the U.S. and other countries?

somewhere - since you can't point out any "nonsense" posts of mine, I'll just chalk yours up as being meaningless.

Actually, I should say labor and business costs.

The way we increase our output is through productivity, and moving upstream toward higher margin products. We need to encourage economic endeavors that take advantage of American ingenuity and do not depend on cheap labor. What the administration can do is support that through ensuring we have the best infrastructure and business environment.

Remember how everyone was upset the u.s. was no longer in making cheap color televisions. Well there's no money in $200 color tv sets. Japan gave it up too. Another lesson from the t.v. set example is that government is terrible at picking what industries should survive. They'd support failed tv set makers and inefficient car companies... no wait , they did that..

And steve's claim that Japan is an example of failure of supply side economics is also either ignorant or intentionally misleading. Japan engaged in massive government spending on infrastructure that is generally considered to have brought no economic benefit.

"[John Maynard] Keynes was one of the most influential thinkers of our century, and his influence has been almost entirely bad. Since time immemorial, governments have debased their currency, misappropriated their people's wealth, and diverted the proceeds from productive investment to garish monuments to themselves. It was Keynes who supplied governments with arguments - and since Keynes was Keynes, brilliant arguments - to justify this outrageous conduct. If John Maynard Keynes had never lived, the Western world might still be the overtaxed, inflationary statist mess that it is, but at least the people responsible for the mess would have to pretend to be embarrassed about it. Instead, Keynes' fertile and subtle mind manufactured a huge armoury of clever defences of bad public policy. Since the publication of his 1936 masterwork The General Theory of Employment, Interest, and Money, opponents of profligacy in government and state manipulation of the economy have had to contend not merely with the usual selfishness and cowardice of politicians but also with the subversive power of Keynes' mordant and glittering mind."

From the FRB Minneapolis Quarterly Review:

More generally, Keynes held the view that government
policies that significantly changed the incentives
to work and save did not have any significant negative
effects. In the 1940s he argued that the United Kingdom
should significantly increase the taxation of capital
income and adopt a capital levy, and his views considerably
influenced U.K. tax policies through the 1970s.
During the early stages of World War II, Sir John Hicks
debated Keynes about the effect of high capital income
tax rates. Hicks argued that high tax rates would reduce
the rate of capital accumulation and growth, to which
Keynes replied, “My Dear Hicks, I scarcely imagine
that individuals are as actuarially-minded as you presume
they are.” The view that capital accumulation was
insensitive to taxes led Keynes to conclude that capital
income should be taxed at nearly 100 percent during the
war, and that a permanent capital levy should be adopted
following the war.

Keynesianism’s track record is inconclusive at best. From a strictly numerical point of view, Franklin Roosevelt’s New Deal fell far short of the mark. There were 15 million Americans out of work when he assumed office in March, 1933, and 11 million unemployed in 1937, when the economy turned down again. Full recovery from the Great Depression only arrived with rearmament and war.

Keynsianism took full credit for the post-WWII-era prosperity, but in reality it was never put to the test. A massive, pent-up demand for goods and services, the baby boom and suburbanization, cheap raw materials, new technologies, moderate wages, strong export markets, high levels of investment and a stable international order all combined to create a wave of expansion. The U.S. Marshall Plan, responding to the massive destruction of capital, buildings, homes and all manner of infrastructure in Europe, created unusual investment opportunities. Government fiscal stimulus boosted domestic demand, too, but it was hardly the critical factor.

As for the highly touted Keynesian counter-cyclical demand management, it was almost nowhere in evidence. Deficits alternated with surpluses, but they were rarely the result of deliberate economic policy. Recessions automatically caused deficits as a result of lower tax revenues and increased expenditures on unemployment insurance payments and welfare benefits. The reverse brought surpluses in periods of recovery. With such favourable conditions for economic growth, then, these automatic stabilizers, together with active central banks controlling the supply of money and the rate of interest, were sufficient to smooth out the business cycle and sustain the post-war prosperity.

Shouldn't increased global trade be part of the fix?
Interesting quote from Malaysia's Prime Minister
***************************************************
http://www.ft.com/cms/s/0/af6e6b56-d01f-11de-a8db-00144feabdc0.html

Asian leaders on Friday called on President Barack Obama to reassert US leadership on global free trade before his Sunday meeting in Singapore with national leaders representing half the world’s economy.

Their statements focused on the need for the US to back aggressively the resumption of the Doha trade round but they also reflect underlying wariness about the rapid rise of China.

Lee Kuan Yew, Singapore’s first prime minister and a regional elder statesman, said the US risked economic exclusion from Asia unless it reversed its protectionist stance.

Mr Lee said Washington had been preoccupied for the past eight years by Iran, Iraq and Afghanistan, and had missed the opportunity to conclude a trade agreement with the 10 countries of the Association of South East Asian Nations.

Meanwhile, China had concluded a deal with Asean, and with other countries including South Korea and India.

A further eight years of protectionism, assuming Mr Obama won a second term and without a change of policy, and the US would be “out of the economic race, and if you are out of the economic race you will lose in the long run”, he said.

One of the strongest calls came from Najib Razak, Malaysia’s prime minister, who told the Asia Pacific Economic Cooperation summit in Singapore that progress on trade liberalisation was “imperative” for global recovery.

“The thing I liked about President Bush’s foreign policy is that he was very pro-free trade. I hope the same message will be repeated.”

Their statements were backed by a formal statement on Thursday from the foreign and trade ministers of the 21 Apec countries, which include China, Japan and South Korea, calling for urgent action on Doha.

.

your most incisive post ever. keep em coming.

I love LICC as an original thinker!

"Keynes was one of the most influential thinkers of our century, and his influence has been almost entirely bad" --> An excerpt from David Frum's "The Nietzsche of Economics"

"Keynesianism’s track record is inconclusive at best" --> The Return of Mr. Keynes, Cy Gonick | March 6th 2009

LICC, you're sure good at taking quotations from wingnuts who believe the same thing that you do. Unfortunately, there is no empirical evidence to back up the opinions.

Opinions like these are in a very small minority among economists, led by Larry Kudlow & Crew. They sound pretty, and at the extremes there is some validity to what they say, but in 99% of the circumstances, the policies are discredited and don't work. Even Greenspan admitted a "flaw" in his theory.

Quite the "flaw" it was, too.

steve, maybe in the circus where you work, these opinions are a minority view, but in economic circles much of Keynes' theories have been discredited or highly modified. You obviously don't understand anything of Milton Friedman's and Anna Schwartz' work. Not even the far-left economist Paul Krugman would say that Keynes' theories were correct without significant modification.

You have another bad habit of insulting the messenger when you know the message is correct and makes your views look stupid.

No one doubts their contributions to historical research on monetary policy, LICC. But their position that monetary policy alone is enough to bring an economy out of a recession or depression is not held by many.

Here you can read Krugman's introduction to Keynes' seminal work:

http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

You will find that you don't understand either Keynes or those who claim to have refuted what he said.

Sorry. Yet again you know not what you speak.