Rolling US Economy Into The Shitbin Thread

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i love how this says bad idea elliot spitzer

Low diamond rating.

slate holiday party got to be a seriously icky place

ok I had to read that piece and it is some seriously foolish business

I don't even know what else to say about it. so dumb

"Obama hates the internets" good job Slate I hope you paid him a lot for that

maybe they paid him in hookers ;)

i believe they employ a hooker diamonds for hits system

explains so much

quick roundup of what some actual, real economists are thinking about the stimulus. this post is for those who are opposed, or at least skeptical.

in an amusing example of the uselessness of theory willem buiter raises the specter of ricardo for the lol grad students in a long and rambling post that he then summarizes as such:

Given the bad fiscal position of the US Federal government and given the vulnerability of the external position of the US and its growing reliance on foreign funding, the scope for expansionary fiscal policy in the US is much more limited than president-elect Obama’s advisers appear to realise.

its a strange and wandering post; it seems like he doesn't know who to blame and hearing a FT dude complain that "the actual performance of key regulators like the Fed and the SEC has been appalling, with astonishing examples of incompetence and regulatory capture" is a little o_O but he isn't completely wrong, either.

then there's tyler cowen on npr:

The biggest problem with a fiscal stimulus is this: our economic problems stem from having spent too much in the first place.

this is also a pretty good argument - not only can we not really afford a stimulus, a stimulus doesn't speak to the underlying problems that caused the current recession

david backus via greg mankiw lays out a quick series of problems with the stimulus package, as is. the most interesting of which, to me, is that he too is pushing for a strong overhaul of the financial system.

i can post more but the current opposition seems to stem from:

a) the u.s. cannot afford to borrow more money indefinitely caught between current domestic commitments, increasing reluctance of foreign agents to extend credit and the inability of taxes to increase to cover future transfers

b) any stimulus package will have a significant multiplier problem

c) cost-benefit is hard to do correctly and wasted spending will leave people worse off and prolong already in place inefficiencies

d) spending money does not address important structural problems like the saving rate and does not even guarantee that a recession is softened

other options:

a) tax cuts esp cuts to payroll taxes: unlikely to be saved, egalitarian, will not cause inefficiencies

b) increased transfers to the states

c)

as for economists who support the plan most seem, like robert reich, to accept the points made by the con side but take a more optimistic view:

Most of the declines in our debt-GDP ratio over the years have been achieved through higher levels of economic growth rather than through less debt. The sooner we return to growth, the better able we will be to reduce this ratio.

not an academic but james surowiecki argues that the stimulus is necessary for any kind of confidence in the market:

The point is that it isn’t just some group of pointy-headed Keynesians saying that a big stimulus package will be good for the economy: the collective wisdom of the market is saying the same thing

and martin wolf, again from the FT:

The second lesson is that the economy cannot be analysed in the same way as an individual business. For an individual company, it makes sense to cut costs. If the world tries to do so, it will merely shrink demand. An individual may not spend all his income. But the world must do so.

unlike his colleague wolf remains optimistic that the countries buying u.s. debt will acknowledge that a global recovery will be u.s-led and that we will make "the necessary attempt to reconstruct the global economic order".

also for lulz here is brad delong on the black swan dude:

http://delong.typepad.com/sdj/2009/01/how-does-one-be.html

spending money does not address important structural problems like the saving rate and does not even guarantee that a recession is softened

otm

martin wolf also probably otm I think; but I also think that the deficit must be addressed as soon as possible (in a political sense, unfortunately timing of this kind of activity is very dependent on the US election cycle I think) so that all those trillions tied up in the government can be used elsewhere; rather unfortunate that foreign countries are owed so much of it now but then again perhaps that can be subtly leveraged to gain concessions in the form of market reforms in some of those nations (eg labor, underwriting, QC standards in chinese exporters hey what)

ha youre all going to be so pleased when check this thread tomorrow morning.

there are a number of threads to the stimulus debate and feel like i don't have a great handle on any of them. i'm bothered both by the mushiness of the debate and by my own inability to get a handle on it. i'm like a bulimic ordering dinner, unable to decide what i want and certain every option will have me vomiting it back up anyway.

the sense of inevitability about the stimulus package bothers me as well. i feel like the response hasn't been measured - in both senses of the word - and that as james surwiecki points out we've reached a point where we almost cannot afford not to or we risk precipitating a complete crash. and that feels like being held hostage by the same incompetent investor class that is so very responsible for the mess in the first place.

even people like tyler cowen have bowed to something happening, simply attempting to limit spending as much as possible. and there is almost no one willing to push a monetary policy solution. which is probably for the best but the debate seems limited, somehow.

there's also the sense that one bill will attempt to do too much. i was reading something this week and i cannot remember where about the dangers of using single-policy instruments to address multiple policy issues. cowen and ed glaeser are right - infrastructure needs investment but trying to force investment to fit a stimulus package will cause us to rush investment in the wrong areas. and green investment won't address employment, welfare policy reforms won't boost spending and none of these things deal with liquidity.

i still have tremendous faith in the new admin and i think that the errors of TARP won't be repeated. but don is right; there is a significant cost to what is being proposed and implicit in that is a motivation to do too much with fiscal policy.

"do too much" is a bad way of expressing it - overdoing it in the wrong places, yes, but reversing a recession and clocking the debt doesn't sound like "too much" imo

"bad way of expressing it" is my m.o. at this point - i meant "too much" in the sense of "address all these problems with one solution" and that in the course of reversing the recession we would end up with bad health care policy, to use just one example.

i guess my point is that "reversing a recession and clocking the debt" is one problem and there's immense temptation to say "while we're throwing money at things let's give people health insurance" and there's all sorts of ways those two things intersect but the i think the policy solutions do not. if just for the simple reason that the timeline doesn't work - we need a stimulus package to be effective immediately and for a short-term and we need any health insurance program to be gradual and long-term.

this is my fiscally conservative attitude to the problems facing our man obama

recession effects brought on by real estate contraction = disgustingly necessary and will not be resolved by anything other than printing free money until everything else inflates to match houses, which I hope everyone understands is clearly insane.

recession effects brought on by everyone being scared shitless due to the problem described above: haha well just hold on to your horses, mostly everything should be okay in a couple of years, sorry if you meant to retire in that time frame. now watch me end the war and stop torture.

i hope americans will find non-stupid economic activities to engage in in a few years. i'm still kind of afraid that we'll try to go back to a granite countertop-based economy.

yesterday's Evening Standard relayed the shocking news that house prices in Britain were down to levels not seen since... spring 2005

Even Martin Feldstein wants to light money on fire in hopes that it will create enough heat

http://www.nytimes.com/2009/01/07/business/economy/07spend.html?ref=business

Hmm in the article it says that he calls for "useful research" and replacing depleted and obsolete military supplies. Is that wasteful?

It's fascinating to me how any form of public spending, so long as it is directed or purposeful, gets derided as "throwing money away" while any form of private spending, even if it's the manufacture of Sanrio milkshake flip flops, is considered productive and healthy and forward-looking.

there's obvious, inherent market risk in private spending and very little in public spending, not to mention the fact that spending someone else's money is a lot different than spending your own. But you knew that already, Tracer.

the two things that worry me most:

the sense of inevitability about the stimulus package bothers me as well. i feel like the response hasn't been measured - in both senses of the word

because already, this issue is becoming partisan which leads to

there's also the sense that one bill will attempt to do too much

and the inevitable sweetening of the honey pot to get enough votes.

I don't see the connection between "has no market risk" and "throwing money away". What do you mean?

As far as other people's money goes, no publicly traded company is spending "its own" money, right? And actually, in the end, Citigroup's 2006 Christmas parties were paid for by every last one of us fuckers.

As far as other people's money goes, no publicly traded company is spending "its own" money, right?

I disagree with that.

I don't see the connection between "has no market risk" and "throwing money away". What do you mean?

In general terms, the private sector's use of assets is much more determined by the market and all associated risks. There's no market risk for the government to, say, offer to build infrastructure or a million nuclear warheads. We can simply do that because we think it needs to be done. A private entity has no such motivation, partially because of ROI.

There's a longstanding argument about the multiplier effect of govt vs. private spending, but in the end I think the roles of each are way different. I'm comfortable with the distinction, just want more discretion than we've historically given our public spending.

Hm I still don't see how economic risk makes spending inherently more useful. You're right of course that private enterprise has to contend with market risk in a way that public enterprise does not, but it's squally true that public spending entails political risk that private enterprise is largely immune to. If Obama sponsors a bill funding the refurbishment of a historic planetarium he gets mocked on national television. If the US government took on the projects that Bechtel and Halliburton does, it would be pilloried and the legislative movers probably kicked out of office.

The primary goal of private spending, Tracer, is to generate a monetary return. If this return is sufficient to justify the initial expense, then the spending was "useful". If not, then not. This (monetary ROI) is a primary measure of utility in the private sector. In a very general sense, the goal of private sector investments, expenditures and transactions is not to increase the public good or to provide useful things unto mankind, but simply to make more money.

The public sector functions differently. Public sector ROI is not always so clearly measurable or so immediately evident. When a public entity builds schools, for instance, it may expect to improve the quality of life, reduce classroom crowding, replace obsolete facilities, and/or guarantee a better educated and more competitive population at some point in the future, among other potential goals. Some of these are immediately measurable, others are not. Main difference between private spending, though, is that there's no clear, mechanically self-evident way to assess whether or not the return exceeds or matches the expenditure (such as dollars out vs. dollars in).

Further, the public entity is probably not taking a risk in ivesting in this manner -- at least not the same type of risk a private entity takes. Much of the capital involved in private sector expenditures is independently owned and non-renewable, while public entities generally have budgets which they must expend within a given fiscal period and which will be renewed at the end of the period whether or not previous expenditures were "successful".

Therefore, the utility of public expenditures is not measured in their monetary ROI (spend to earn to spend again), but their ability to provide truly useful things: medical care, law enforcement, garbage collection, statistical data, etc.

I mean, ^^ that's all crazy redundant and obv, but it's why no one questions the utility of private sector expenditures (garbage products offered for sale, etc). Being useful in the sense you suggest just isn't the point.

Right. So how is it that private spending - which by definition has only the goal of making more money - is valorized and held up as a kind of pinnacle of legitimate and productive activity, and public spending - which by definition must at least be attempting to produce somthing socially useful - is routinely shitcanned as "pork", "earmarks", "burning money", "waste", etc?? (with the obvious exception of military spending of course)

Cuz private spending stands at least some slim chance of making you, the freely enterprising private individual, richer, while public spending only empoorens (deriving as it does from your Hard Earned Tax Dollars). The voice that shitcans public spending extends from the idea that the government is inept and inefficient, and that while the private sector may not be a bed of roses, it at least has a brutal, manly sort of red-in-tooth-and-claw integrity.

OK. I guess there's also the sort of private spending in which I buy a new flat-screen TV - this sort of private spending is also valorized, cf. Bush's pleadings to the nation after 9/11.

Individual purchases are the way that even you, the not-so-enterprising private individual, can participate in the sytem that makes our country great! I mean, it has to trickle up before it can trickle back down, right?

As far as the earlier discussion goes, Lamp OTM. I have a great deal of faith in Obama's intelligence, integrity, and honorable intentions. (Or, well, at least some faith, more faith than I had in Bushco.) I have faith in his abililty to assemble a competent team and to attack the problem rationally. But I don't have much faith in the political process through which it must channel its efforts, or in the short-term solubility of this mess. It's foolish to pretend too much understanding of or control over these matters. So, without casting aspersions, I am a bit concerned by the seeming inevitability of this explosion of deficit spending. I think you'd be foolish not to be at least a little bit worried about how it will play out and how well it will be managed/overseen.

Some People are indeed that foolish

I have faith in Obama to try to change things but almost none in Congress (i.e. the political process). Ergo, I choose to be very dubious of Reid/Pelosi et al.

Thanks to contenderizer for being less cynical (and thus, less antagonistic) than I.

http://baselinescenario.com/2009/01/07/overweight-fiscal-the-obama-economic-plan/

his point 3 is the same as my point 1 but I really disagree with the idea that trying to encourage further inflation would help
which prices are going to be drop/plateau? gallon of milk or iphone? house? FUCK a house, that shit already left.

This, from the linked WSJ article:

Third, none of these problems are limited to the United States. In fact, it is hard to find any country where people are not trying to increase their savings and strengthen their balance sheets, or where the banks truly have enough capital. Most of the world was running a major credit boom, although it took different forms in various places. The difficulties of dealing with the end of this boom are particularly acute in the euro zone, where some governments have become overindebted (including Greece and Italy) and in emerging markets, where firms and households overborrowed in foreign currency (including Russia and most of East Central Europe). Most of the signs point to Europe, broadly defined, as being the epicenter of a second wave of crisis in 2009 — potentially more serious than what we saw in 2008.

Expanded version of the forced inflation argument, also from the WSJ article:

First and most important, there should be substantial further easing of monetary policy. The Federal Reserve is already heading in this direction but it needs to pick up the pace, and the president needs to get on board. The Fed should announce that it will create inflation in 2009, i.e., it will do whatever it takes to make sure that wages and prices rise, rather than fall, in the next 12 months. And it should back that up with more aggressive monetary expansion, buying even more government and private securities. We cannot wait for a deflationary death spiral to take hold; this was a key mistake in 1990s Japan. At that point, it would be far too late. Nothing in the Fed policy or the Obama Plan has yet turned the corner on this issue. In fact, expectations implicit in inflation swaps indicate prices are expected to fall over the next several years.

And so on, for several paragraphs.

linked from within the post DDW linked, I mean

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Reid/Pelosi are not likely to be the main problem, so much as committee chairpersons.

I have seen it written by a longtime congressional insider (I can't recall who) that congressional reps and senators tend to fall into a few categories, in terms of how they get things done. Most of them tend to be the go along to get along types who network extensively and trade favors. A few become master parlimentarians and milk the rules like a farmer milks a cow.

But a signifigant number of reps choose to be utter bastards to everyone, essentially throwing tantrums, backstabbing at every turn, and demanding favors as the price of not being a pure pain in the ass. A disproportionate number of these bastards become committee chairs.

But YES! to TBot, if only in this sense: a certain amount of the inflation that resulted from high gas prices over the past couple years does need to taper back off, and probably will no matter what. So maybe the best any pro-inflation scheme could hope for over the next couple years is a flat line.

Yes, Arnold Kling is a conservative but this is an interesting look at numbers/multipliers
http://econlog.econlib.org/archives/2009/01/lectures_on_mac_10.html

obligatronic ritholtz repost on why pro-tip suckas missed this shit

http://www.ritholtz.com/blog/2009/01/why-economists-suck/

So maybe the best any pro-inflation scheme could hope for over the next couple years is a flat line.

the only place where inflation needs to happen in america is in wages imo. that can be a combination of increasing employment along with increasing compensation overall, or it can just be the latter with unemployment decreasing only a slight amount while productivity goes up, but at some point the real buying power of the middle class has got to be restored.

so another thing we should have learned over the past twenty years, write this on your hands: CREDIT DOESN'T COUNT

http://politicalticker.blogs.cnn.com/2009/01/07/porn-industry-seeks-federal-bailout/

http://www.bloomberg.com/apps/news?pid=20601110&sid=aE7U91bSVSew

"Americans are more concerned about making state governments account for taxpayer dollars to be spent on infrastructure than they are about creating new jobs, according to a poll to be released today by a coalition of state and local officials"

Sixty-one percent of registered voters want every project to be measured to guarantee the money is spent wisely, the survey found. That was almost double the number of those who say creating jobs should be the highest priority. The survey was obtained by Bloomberg News."

Oh, those zany blue dogs with their monopoly on the news. They've brainwashed 61% of those surveyed!

I'm pretty sure more than 61% of the population doesn't know shit about the economy.

http://online.wsj.com/article/SB123137373330762769.html?mod=todays_us_page_one

Do agree with DD Weins. Super-tight, anal-retentive accountability in government expenditures vs. measurable returns should be A#1 priority for at least the next decade.

Because it's impossible for Congress or the EOP to hijack the shit out of their own numbers. Just look at that BLS data for the past eight years. Accurate like a stormtrooper.

Apply those same standards to the private sector, esp. wrt tax havens and hedge funds and money market bullshit and we may have a deal

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