Rolling US Economy Into The Shitbin Thread

My main concern is "How the hell am I going to make time to research exactly what's been going wrong with our economy for the past 30 years so that I can ask intelligent questions about this stimulus package?"

you don't have to do that Dan. Just trust that our elected officials to do that for you. They've been reliable in that capacity for the past 30 years.

I had to do SOMETHING.

and all this time, i thought that you appointed the Chief Justice of the U.S. Supreme Court ... o_O

you don't have to do that Dan. Just trust that our elected officials to do that for you. They've been reliable in that capacity for the past 30 years.

uh yeah not so much

I'm certain there are actually good reasons for the stimulus package and, on balance, I am much more for it than against it. It does seem to run completely counter to the way I thought economics in this country is supposed to work, though, and makes me think it's merely postponing an inevitable crash.

well, for starters, the Obama administration can appoint people to key administrative and/or advisory positions that know what they are talking about and are trustworthy. idealistic, perhaps, but that's how it's been done.

frankly, just shitcanning Paulson and his crew -- and making sure that they don't hold another position of authority at any level of government ever again -- would be a good start.

The thing is, there are clearly competing school of economic theory at war here, and someone can be very knowledgeable and trustworthy within their school but still be the absolute wrong person for the job because the parameters of the situation run completely counter to the assumptions that make their economic model work. Furthermore, it could very well be that no one has a good economic model for dealing with the economy as it is today, in which case the appointee's knowledge of current economic theory is only helpful insofar as it supports his/her ability to craft and implement new theory.

on that note, it is really, really hard for me to imagine a future which is anything but bright and bold and fan-fucking-tastic compared to the recent past, just knowing that actual competent people will be filling appointed positions. it also might help that the president-elect does not believe in the laffer curve and that his administration so far does not appear to be a gang of fucks who are explicitly bent on gutting the US government from the inside and handing their buddies blank checks to do whatever they want as long as it has nothing whatsoever to do with domestic infrastructure.

xpost to eisbaer

(there is that, too)

dan, of the two schools that appear to be "at war" in our current conundrum, one has just been massively discredited. the only defense of chicago/friedman ideas at this point is to suggest that they have been hijacked by lunatics, imo.

uh yeah dunno about massively Tombot but if there were ever a time for blindly worshiping Keynes, it's right now.

http://paul.kedrosky.com/archives/2009/01/04/is_financial_hi.html

oh look the guy who calls other posters intellectually lazy decided to respond to one of my posts - the one that's two sentences long!

also, i think that it would be mandatory that anyone running the Obama plan would have to believe in the efficacy of fiscal policy (if not being whole-hog Keynesians) -- the very idea is anathema to friedman's acolytes and that by itself may be sufficient to weed out folks who won't get with the program. and to echo Tombot, having a President who actually doesn't believe that government is per se bad or is just looking to loot the federal fisc a la Tony Soprano is a big leg-up over what we've had the last eight years (or since Reagan, really).

whether the kind of aggressive fiscal policy that Obama et. al. will want to implement will actually WORK is another question altogether.

I don't know why don't we ask eisenhower or ford or nixon what they think of "aggressive fiscal policy"

and we're also stuck with a friedmanite Fed Reserve chairman for another couple of years ;_;

though Bernanke may have shot his short-term wad and it may be a while before he can further fuck shit up.

blah so many xposts.

keynes vs. chicago debates are maybe missing the point. the reason i share tom and jho and others faith in the new admin is because it has been explicitly anti-ideology of any kind. data-driven empiricism is the best way to create policy i think theories are useful only in a very general way.

the questions don is asking are really good ones: what do we want to achieve? is this the best way of achieveing it? even a really well-run stimulus plan will have adverse effects, its more than fair to consider these. like dan i think on balance defict spending is the right thing to do, for now but there are all sorts of caveats attached to that.

okay i've had someone walk into my office three times while i'm typing this. will be glad to annoy with further clarifications when i am less busy

keynes vs. chicago debates are maybe missing the point. the reason i share tom and jho and others faith in the new admin is because it has been explicitly anti-ideology of any kind. data-driven empiricism is the best way to create policy i think theories are useful only in a very general way.

that's true, but the chicago-school types (at least the hardcore friedmanites) eliminate fiscal policy from the get-go in favor of monetary policy. and the Obama plan is largely a Keynesian one.

i think theories are useful only in a very general way

this is my personal mantra

i thought "likes black girls" was your personal mantra

that is my creed

no, that's wrong; that's my epitaph

http://www.serge.org/images/Creed.jpg

NOW we're in the shitbin.

well yeah, the experts who saw it coming were not immediately affected because it's not hard to dodge a bullet if the bullet is actually an elephant and the elephant is actually being pushed towards you on a cart so slowly it will be five years before it gets to you

so of course the "experts" most immediately effected didn't see it or pretended not to see it, presumably hoping as in Reagan's two terms that the "into the shitbin" moment wouldn't happen until the next chump was sworn in

and proving milton friedman's bullshit to be a bunch of bullshit doesn't make any of this crap a "black swan" either

― TOMBOT

Experts I was talking about are/were banks & lending institutions, ratings agencies, brokerage houses, etc. People who not only claim expertise, but who back it up with shit-tons of their own and other people's money. People who pin their careers on their supposed expertise on a daily basis. This crisis happened, in large part, because these people, the people who had the most to lose (and, presumably, the best understanding of what was actually going in the investment economy) were taken unawares.

It's easy, after the fact, to claim that it had to happen. Of course it had to happen. Everyone can see that now. And of course there were voices raised in warning prior to the collapse. But none of that changes the fact that this hit the global financial markets, financial institutions & professionas, and ideological/political financial experts like a bomb. In a few decades' time, we'll look back at this as the moment in which everything changed. And regardless of how many people now claim to have seen it coming since way back, regardless of how much shit we always thought Friedman was full of, were it not a black swan, its effect could not have been so catastrophic.

Your argument seems based on the idea that to say, "almost no one saw this coming," is the same as, "we had no reason to doubt the paradigm under which our governments/markets were operating." But I don't think A is necessarily a product of B.

Don I'm not sure how it ended up being my responsibility to describe your problems with Obama's stimulus proposal. Wasn't it you that said there were big problems with it, and that it has a good chance to fuck us up long-term? Why don't you spell out your reasons for thinking that? I can't have both sides of the debate all by myself.

I won't deny that I have an "ideology" - it's left-wing - but I honestly don't know how to apply it in this situation. For instance, I never thought I'd hear myself say "yay taxcuts!" but it seems to be what the situation calls for. Similarly, I never thought I'd hear myself silently nodding at proposals for handing out vouchers directly to taxpayers, redeemable at businesses but not at banks. I doubt anyone will do that though.

that Lewis-Einhorn NYT piece was so good I almost understood half of it.

Lewis is an almost insidiously good writer.

Don I'm not sure how it ended up being my responsibility to describe your problems with Obama's stimulus proposal. Wasn't it you that said there were big problems with it, and that it has a good chance to fuck us up long-term? Why don't you spell out your reasons for thinking that? I can't have both sides of the debate all by myself.

You're the one who said that the package would be scuttled "on the grounds of bloating the deficit and national debt." I pointed out that deficits/debt are legitimate concerns, which is absolutely true whether it's ideologically based or not. If you're not concerned about a couple of trillion dollars in new government spending being added in the next few years, if you're not concerned about the waste and corruption that will likely follow, if you're not concerned that there will be significant ramifications to fiscal policy in addressing current needs (healthcare/SSA/our military obligations, etc.) or the ramifications to monetary policy, then you're ignoring history and basic economic theory. Our impulse to throw money at shit to solve problems has a horrible track record. We let things get screwed up with TARP; why shouldn't we demand better for something much bigger?

This is a very serious subject, one that demands an honest intellectual discussion from a broad spectrum of economists. Smart people--not you and I--should be vetting this stimulus package very thoroughly.

http://www.boston.com/bostonglobe/editorial_opinion/oped/articles/2009/01/05/who_should_get_the_federal_stimulus_funds/

You're the one who said that the package would be scuttled "on the grounds of bloating the deficit and national debt."

Where did I say that?? I mean sure, I guess it's a danger. Obama could cave on key provisions and then the whole thing runs a risk of not working. It's funny how conservatives suddenly get very concerned about the deficit when money is getting spent on people and services that directly benefit people, rather than on corporations. But when giant tax cuts are announced they don't give a shit.

And why on earth do you keep insisting I'm "not concerned" about waste, corruption, etc? I've said we have to insist on stringent oversight, again and again! It's like you're not reading what I'm writing. I agree - Congress can't afford to keep getting bamboozled by Friedmanite technocrats like Bernanke and Paulson! Yes that's part of the recent history between executive appointees and Congress in dealing with this mess. But a more directly relevant historical comparison, which you are apparently happy to ignore, is the WPA and similar programs that were implemented during the New Deal. They had very strong oversight. They worked, and were free of corruption.

i'm more worried about the "blue dog democrats" who will try to scuttle any Obama-led economic recovery package on the grounds of bloating the deficit and national debt. we can debate how much of that comes down to ideology or self-interest.

― Mad Vigorish (Eisbaer), Monday, 5 January 2009 13:34 (Yesterday) Bookmark Suggest Ban Permalink

Back to you, though:

If you're not concerned about a couple of trillion dollars in new government spending being added in the next few years

...

the ramifications to monetary policy

Two trillion dollars? How do you get that figure? In any case - again, what are the ramifications? What are the effects of adding this new spending? I'm not claiming there aren't any. I genuinely don't know. You seem to have strong ideas about this. What are they?

Tracer, Don's repeatedly saying that this should be sorted out somewhere and that that somewhere probably shouldn't be ILX (and that it shouldn't be you and him): you might disagree, but he's been really very clear on that!

On the other hand, one of the links in Don's chain of thought seems to be that government programs = wasteful and corrupt, presumably in comparison to the private sector. Which y'know is quite a claim considering the sterling work they've been doing in raising the bar in the last 18 months.

what's another trillion among friends

http://www.bloomberg.com/apps/data?pid=avimage&iid=i0YrUuvkygWs

And that chart doesn't include the $700B Obama wants, or the $1T+ that other people like Krugman want him to give away.

Do we or should we have to spend a lot of money now to avoid long term consequences? Sure. But what are the long term consequences of putting government spending at 50% or more of GDP? Nobody seems to be asking that question. This kind of debt load is unprecedented--the New Deal cost only $500B in today's dollars. I'm not an economist (a half dozen graduate courses in econ barely scratches the surface) but it seems to me that we are a) flying blind, b) increasing our debt ratio and creditors to this magnitude is risky especially given our other liabilities, and c) have no obvious means to fund expansion like this. Is an honest pro forma too much to ask for?

All I'm trying to do is look at this spending plan as part of our overall investment in the federal government. It might cost us $20T to fix the mess. That's fine. Just tell me why it costs this much, how we think we can fund it, and what the possible negatives are for spending this much where we are spending it.

As you know Don, I am utterly opposed to thinking these questions through.

http://clusterstock.alleyinsider.com/2009/1/obama-stimulus-tax-plan-details

dunno about the veracity of this guy's calculator
http://www.ritholtz.com/blog/2008/11/big-bailouts-bigger-bucks/#comment-129191

but it means good news for you Tracer--the New Deal was 73% of GDP and the bailouts right now are only looking like 40%.

So let the money flow, my brutha! I'm now on board!

oh, and looky here...a nice chart!

http://anepigone.blogspot.com/2008/03/government-spending-as-percentage-of.html

As the plan stands now, about 40% of the cost will come as direct tax cuts for workers and businesses. So if the total cost is $775 billion, including the tax cuts, that's actually "only" $445 billion in "new spending". Not $2T.

Or do you consider all tax cuts a form of spending? It's a pretty reasonable view.

I'd be interested to know why this is a bad idea, as a replacement for the tax credits/tax cuts to individuals:

Earlier this month I suggested simply giving the lavish sums being expended on banks back to consumers in the form of three-month spending coupons, say of £300 a month. The proposal is being actively considered to boost demand in Germany, Taiwan, Australia and elsewhere. It is better than VAT reductions, tax credits or ponderous public works contracts in instantaneously translating subsidy into demand. At the very least it puts money into the economy rather than taking it out, as do Alastair Darling's banking subsidies.

http://www.guardian.co.uk/commentisfree/2008/dec/31/simon-jenkins-comment-debate-banks

this party was getting boring...so we're here to juice it up! HUZZAH!

Russian gas disruption spreads across Europe
http://news.yahoo.com/s/nm/20090106/ts_nm/us_russia_ukraine_gas

MOSCOW (Reuters) – Russia sharply cut gas flows to Europe via Ukraine on Tuesday in a dramatic worsening of a pricing dispute with Kiev that threatened to disrupt supplies as far west as Italy and Germany.
Russian export monopoly Gazprom said it had supplied around 65 million cubic meters (mcm) to Europe on Tuesday through ex-Soviet neighbor Ukraine, a fall of 78 percent from the 300 mcm it had been shipping since the dispute erupted on January 1.
The European Union, dependent on Russia for a quarter of its gas, urged Moscow and Kiev to find a solution this week. The head of Ukraine's state energy firm said he would fly to Moscow on Thursday, while Gazprom said it was ready to talk any time.
Bulgaria, Turkey, Macedonia, Greece and Croatia said flows of Russian gas via Ukraine had come to a halt, creating what Bulgaria called a "crisis situation" in the middle of winter.
EU members Austria and Romania said deliveries were down 90 percent and 75 percent respectively, and German energy firms warned there could be gas shortages in Europe's biggest economy if the dispute dragged on and sub-zero temperatures persisted.
"Even our possibilities will reach their limits if these drastic cuts in shipments last and if temperatures continue to stay at very low levels," E.ON Ruhrgas Chief Executive Bernhard Reutersberg said.

Hmmm.

http://www.independent.org/blog/?p=840

Where's the beef, Don.

The scariest testimony of the day came from Stephen Harbeck, President and CEO of the Securities Investor Protection Corporation (SIPC), the congressionally chartered organization that backs accounts at bankrupt broker-dealers up to $500,000 for losses unrelated to market declines. Mr. Harbeck informed the congressional members that $830 to $850 million of assets had been located for Mr. Madoff’s firm. On top of that, SIPC has $1.6 billion in assets; a credit line of $1 billion from the U.S. Treasury and another $1 billion commercial credit line. Because Madoff’s firm was a broker dealer, SIPC’s reserves could be wiped out, forcing it to assess new fees on the Wall Street firms who fund it; the very firms who have lobbied against the regulatory measures that might have prevented the Madoff fraud; the very firms that have lobbied to allow kickbacks (referral fees and commissions) to be paid to accountants by broker dealers. This would be sweet justice were it not for the fact that taxpayer money is now propping up these firms....

http://www.counterpunch.org/martens01062009.html

Haha wow.

We let things get screwed up with TARP; why shouldn't we demand better for something much bigger?

Like what, you want us to elect a new president or something?

Krugman runs the numbers

http://www.nakedcapitalism.com/2009/01/krugman-runs-stimulus-numbers-and-finds.html

that, to me, is focusing on keynesian aspects of all this to a fault, I don't think Obama is necessarily interested in managing demand for labor to the extent that blogger (or presumably a number of like-minded progressives) expects; I would imagine that the administration is going to be far more interested in shoring up infrastructure and managing demand for goods and services overall by taking the possibly less-expensive (and imo better in the long term) route of trying to make sure the greatest number of people feel secure enough to go out and buy stuff, whether it be a roomba or a maid or a new water heater. certainly as we've seen in the past "creating jobs" for the sake of reducing unemployment doesn't mean shit when those jobs are just taking people off of state bennies so they can live hand-to-mouth in non-career positions

(anybody else read The Big Con? I just started, nice companion piece to Dean's Cw/oC)

Tracer, I think the problem with coupon plans is that the US needs progressive tax reform first before placebo refunds (similarly disagree with the temporary tax rebate/refund plans put forth in that clusterstock link don provided above) - with the savings rate being actually in the negative recently, I'm of a mind that the "middle class" just be given some money to rebuild their own safety net that isn't tied up in the value of their house, fuck "coupons" for shit-I-don't-need-right-now