Meltdown

[Todd]

when economists warned that we should not permit it

Generally economists say that you don't get back the lost GDP, you just rebuild from the lower base

Which economists are these?  You portray economists as though they hold the same views.  Explain what Robert Lucas or other supporters of Rational Expectations theory say about your assertions. 

Your assertion that you don't get back lost GDP doesn't make any sense since GDP is a measure of total output.  GDP doesn't lead a physical existence.  How, for instance, would one get back forgone services, which, of course, represent a pretty significant proportion of US GDP?   

As to state laws that shouldn't have been permitted, well, how does that work?  The laws exist and must be followed.  I'm not sure what "we shouldn't have permitted them" even means.  What does that mean?  And will the laws change?

You've seen the charts, and it's true, the country as a whole fares better under the Democrats.

What are "the charts"?  I've seen so many charts, graphs, and tables of economic data that I can tell the difference between raw data, and small chunks of data used specifically for political purposes.  Here's a long-term graph chart of real GDP per capita growth from 1871 through 2009.  It basically reinforces what Milton Friedman demonstrated in the 1960s regarding long-term growth.  Contrary to what politicians and their most ardent supporters wish people to believe, real economic growth generally proceeds apace with little regard for which party controls Congress or the White House.  That's not to say that policy doesn't have an important impact, especially during the worst of times, just that it's hard to argue, based on basic national income accounting data, that either party has the magic elixir for the economy. 

Now, if you want to get into fiscal policy specifically, well, there both parties have their glaring weaknesses.  You obviously fail to see that.

By the way, Obama,  or a minion, announced that they will seek to reduce the corporate tax rate from 35% to 28% while closing loopholes. Excellent, cut the rates and make the deadbeats pay! For one, corporate taxes really are too high, and it calls the bluff of all those who said they couldn't repatriate their profits because of the rates. Obama is outflanking the evildoers from the right and left all at once! Yeah, baby!

You may need to cut back on coffee intake.  You are aware this is an election year, right?

[Coopmv]

     By the way, Obama,  or a minion, announced that they will seek to reduce the corporate tax rate from 35% to 28% while closing loopholes. Excellent, cut the rates and make the deadbeats pay! For one, corporate taxes really are too high, and it calls the bluff of all those who said they couldn't repatriate their profits because of the rates. Obama is outflanking the evildoers from the right and left all at once! Yeah, baby!

     And.....I made $9,000 in one day. Happy days are here again......

     Now a word about G. W. Bush. Only a truly extraordinary leader could have created so few jobs while piling up massive deficits. Historians will ask how was it done, so big a giveaway for such a puny result. He didn't build anything, he didn't create jobs, he just pissed it away. Obama at least has a goal for what he does slightly more elevated than rewarding his contributors.

     And as unhappy as I am that the job was not done to my liking, he at least did it. Once again, the Republicans prove they can't be trusted to do anything but run the country down, and it takes a tax-and-spend liberal to put the economic house in order. You've seen the charts, and it's true, the country as a whole fares better under the Democrats. Pragmatism beats theory, again and again and again.

Should I remind you that the great American job outsourcing began under Bill Clinton?  Clinton was also instrumental in approving the repeal of the Glass–Steagall Act in 98, which created the necessary conditions to bring about the financial debacle in 2008. 

The Obama corporate tax cut is a joke.  There are towns in Switzerland that offer corporate tax rate of 15% and have attracted the relocations of American companies.  To be minimally competitive, the US corporate tax rate should be at most 20%.  This is nothing but election year gimmick.

[drogulus]

Your assertion that you don't get back lost GDP doesn't make any sense since GDP is a measure of total output.  GDP doesn't lead a physical existence.  How, for instance, would one get back forgone services, which, of course, represent a pretty significant proportion of US GDP?   

As to state laws that shouldn't have been permitted, well, how does that work?  The laws exist and must be followed.  I'm not sure what "we shouldn't have permitted them" even means.  What does that mean?  And will the laws change?

     No, it wouldn't make sense that you could make up lost GDP, which might be your point of you were agreeing with me, which you would have been wise to do. The point is that it's not a good idea to let assets waste because the markets in their wisdom waste them, to say nothing of the human suffering. Markets, and the people who shape them, are only inconsistently rational and sometimes "rationally" want things like cutting deficits or tightening the money supply on the basis of a theory rather than experience, which as we all know isn't rational, but is comprehensible.

     As for the state laws on balanced budgets, I'll say what I said in earlier posts: that's what the federal government stimulus should have been for (and it was to a degree). You build new infrastructure, aid state and local governments so they don't lay people off, and postpone cuts in the federal workforce until conditions improve. The state and local cuts should not have been permitted. No state laws are changed.

     

Explain what Robert Lucas or other supporters of Rational Expectations theory say about your assertions.

     What assertions? You mean about the stimulus or not cutting jobs or spending during a crisis? Why would I care what they say? They don't have a useful model. Rather than model the world they try to fit the world into their model, and if it doesn't fit it's the worlds fault.  So there aren't supposed to be market failures. If people are unemployed that's just a particular rational outcome, just something to understand, but not to remedy, because there are no market failures. Only people fail, see, so we must protect the markets from them.

[drogulus]

Should I remind you that the great American job outsourcing began under Bill Clinton?  Clinton was also instrumental in approving the repeal of the Glass–Steagall Act in 98, which created the necessary conditions to bring about the financial debacle in 2008. 

     Good points. These were terrible events.

     About outsourcing, I should say that I think we should allow it but not subsidize it. I'm a free trader, or would be if there was such a thing as a free market, which there isn't.

     

The Obama corporate tax cut is a joke.  There are towns in Switzerland that offer corporate tax rate of 15% and have attracted the relocations of American companies.  To be minimally competitive, the US corporate tax rate should be at most 20%.  This is nothing but election year gimmick.

     Who cares? I'd rather pay a 28% joke than a 35% any day, wouldn't you? Anyway, the point is not to get in a downward race with the Cayman Islands but to reduce the incentive effect of the tax difference. For that you don't have to spiral downwards and obviously shouldn't. As for 28%, I'm agnostic. I'll take 25%, and rake them over the coals on loopholes. Deal?

[drogulus]

     Oh, here's the chart on income growth during various political combinations over a 60 year period, broken down by quintiles:

     

     So, when I said "you've seen the charts", I meant the many charts over the years that tell the same story, but of course this one.

     I'm not satisfied with the lack of provenance, so I found this:

     

     I know, what about inflation? My first reaction to the chart was that while the overall point about the superiority of Dems to Repubs was unlikely to be false, I felt and still feel the chart is just a little too good to be entirely credible. If this chart is correct the Repubs are far worse than merely incompetent, they are actively working to further an agenda that subordinates the good of the country to the benefit of a tiny minority. Yes, one can believe that, especially in a "quiet room" with no Dems present, but this isn't a dream, it's really happening! So, I want confirmation.

[drogulus]

     
   
     EXCLUSIVE: The Memo that Larry Summers Didn't Want Obama to See

     Noam Scheiber February 22, 2012
     
For the past three years, Washington journalists and politicos have obsessed over a 57-page memo that Barack Obama's incoming economic team prepared for him in late 2008. The document has achieved such totemic status for good reason: It decisively shaped the Obama administration's initial response to the economic crisis. The memo outlined the president-elect's options for dealing with the teetering banks, the cash-strapped automakers, and the country's tidal wave of foreclosures. Above all, the memo laid out options for a massive stimulus package—the mix of tax cuts and government spending designed to end the recession and boost employment. The economic team presented the contents of the memo to Obama at his transition headquarters on December 16, 2008, at which point they collectively settled on a proposed stimulus of nearly $800 billion.

Last month, my friend and former colleague, Ryan Lizza, wrote a much-discussed piece in The New Yorker based on a copy of this and several other previously-unpublished memos. The piece and the corresponding memo described the stimulus options that Obama's team—including Larry Summers, his top economic adviser, and Christy Romer, soon to be his chief White House economist—ultimately sent him. The options ranged from about $550 billion to just under $900 billion.

Intriguingly, Lizza also noted that Romer "was frustrated that she wasn't allowed to present an even larger option," suggesting that while the memo he obtained may have been the end of the story, it was far from the whole story.

Now, based on reporting I've done for my forthcoming book on the Obama administration, I can fill in a major gap in the narrative—an earlier version of the same memo that includes Romer's larger option. (A source provided the memo on the condition that he not be named.) In this version of the memo, Romer calculated that it would take an eye-popping $1.7-to-$1.8 trillion to fill the entire hole in the economy—the "output gap," in economist-speak. "An ambitious goal would be to eliminate the output gap by 2011–Q1 [the first quarter of 2011], returning the economy to full employment by that date," she wrote. "To achieve that magnitude of effective stimulus using a feasible combination of spending, taxes and transfers to states and localities would require package costing about $1.8 trillion over two years." Alas, these words never made it into the memo the president saw.

     The rest is here

     

[Todd]

The point is that it's not a good idea to let assets waste because the markets in their wisdom waste them

This doesn't make sense, particularly in the context of service related output, which was my point.  But beyond that, one of the outcomes of a recession (and depression) is an accelerated reallocation of capital to more productive uses.  This is a good thing.  And a necessary thing.  Just because an "asset" exists (which is what, precisely, in your definition?) doesn't mean it is socially or economically useful.  It can be a very good idea to let assets waste away. 

They don't have a useful model. Rather than model the world they try to fit the world into their model, and if it doesn't fit it's the worlds fault.

It's clear that you don't know what alternative models are, as you only offer caricature in response.  You haven't read Keynes by your own admission.  Somehow I don't think you've read Lucas. 

You may also want to be a little more cautious about clinging so tightly to Keynesian policies.  Keynesian economics was dealt a severe blow by stagflation.  That was not supposed to be able to happen.  It did.  Keynesian academics and policy makers have adjusted prior theories and models, and established new ones, but the problem is that even those models do not really address the policies being used today - the vast expansion of credit combined with sustained deficit spending resulting in an ever higher proportion of debt held by the public, including foreign governments and corporations.  This really is a novel macroeconomic experiment, and far more expansionary than you give it credit for being.  And the long-term consequences are unknown. 

Yes, Romer wanted a bigger stimulus.  So did others.  That's old news.  At the time the stimulus was passed there was plenty of discussion about the size of the stimulus.   Even many Democrats would never have gone along with a near multi-trillion dollar expenditure.  Politics trumps economics in such cases.  Especially when there are in fact real theoretical and practical questions about the outcomes of policies.

So, I want confirmation.

When you get that confirmation, please publish the data.  The charts you have provided deal with two related set of outcomes - ie, income growth and the inferred change in income distribution.  There are others concerns.

[eyeresist]

Probably more appropriate here than in the 2012 US Presidential Race thread:

This article from the Guardian:
What happens if Greece exits Europe's single currency

Three experts give their views, focusing on Greece rather than Europe (or the global economy). My synthesis of their arguments is that Greece would suffer a short sharp shock, but provided govt kept control and provided buffers would go on to benefit from devalued currency - though losing whatever advantages adhere to being in the Euro, e.g. subsidies and policy influence, plus would no longer be compelled to rationalise its system, thus deferring advancement.

[drogulus]

This doesn't make sense, particularly in the context of service related output, which was my point.  But beyond that, one of the outcomes of a recession (and depression) is an accelerated reallocation of capital to more productive uses.  This is a good thing.  And a necessary thing.  Just because an "asset" exists (which is what, precisely, in your definition?) doesn't mean it is socially or economically useful.  It can be a very good idea to let assets waste away. 

     That's the market fundamentalism I object to. It ignores the possibility that markets do not just decide correctly for us. In what sense is the waste of years of unemployment at high levels the proper reallocation of assets? What gain in production is worth the destruction we've seen? No such gain is worth waiting for while our future prospects are savagely reduced now. But what gets me is that such a view only works within the context of the fundamentalist assumption that what markets decide is right, no matter what "they" or "it" decides.

      The personification of markets as capable of being right is gratuitous and weird. Markets are as incapable of being right or wrong as your car is incapable of "correctly" smashing into a tree when you drive into one. You're the driver, the car doesn't drive you! Markets are molded by a complex of decisions at many levels, and rationality would indeed play a big part if the one actor capable of being rational at a high level chose to do so. That would be the government, of course, which even market fanatics count on to act rationally. Part of that rationality would be to recognize the set of conditions in which markets enter into paradoxical freezups, such as the simultaneous de-leveraging of all parties.

      Everyone stops spending or cuts back, all for perfectly good "rational" reasons, the result being utterly irrational: the necessarily rational spending to break the logjam can't be done by any party, because they're all being rational and tightening their belts, which is what a market fundamentalist tells you to do. But it's wrong. Not because markets are wrong, but because policy makers get to decide, and what's "right" can only be determined by the outcome of policy decisions made. There is no right or wrong from the market point of view, because markets don't have points of view, and even if it did have one it wouldn't count for anything next to the fate of people whose views and suffering we're obligated to respect.

[Karl Henning]

A "terrible, egregious mistake."

JPMorgan Chase acknowledges $2 billion trading loss and 'many errors'

[Todd]

That's the market fundamentalism I object to.

It's not market fundamentalism so much as an historical observation.  It's really rather obvious that times of economic distress result in the creation of new companies and new, more efficient cost structures.  You can look to the 1890s and 1930s and see the birth of a disproportionate number of large, succesful companies, many still around.  (These are the most notable examples, but the same holds true for the 70s and early 90s.)  There's absolutely no reason to believe that this time is different.  Of course there will be firms that fail and waste capital, and markets will fail to various degrees, but that happens with government involvement, too, just with taxpayers' money directly thrown in. 

Contrary to what you write, not everyone tightens belts; risk-taking firms are always looking for the next thing to pump money into.  But of course, in these days of acute, what, suffering, things like vulture capital firms are just plain evil.  I mean, they swoop into and pay as little as possible for productive assets, and then redeploy them.  Yes, that will result in some layoffs, and some companies being entirely liquidated.  Companies, though, are not people; they can and do and should be allowed to die (Fortune 500 companies have an average "life-span" less than a real person's) so that new widgets and services can be provided from more efficiently deployed capital.  I have no problem with government spending money, but it should be on public works type projects (how about another $200 billion+ in infrastructure spending) and targeted changes to the tax system, mostly geared toward the lower income end of the spectrum.  Government should more or less keep out of picking and choosing corporate winners and losers.

[snyprrr]

A "terrible, egregious mistake."

JPMorgan Chase acknowledges $2 billion trading loss and 'many errors'

I sent Dimon flowers,... poor poor guy, sniff...

[Todd]

I sent Dimon flowers,... poor poor guy, sniff...

This is outdated now.




Dimon's possible dream of being Treasury Secretary is now dashed, too.  No way Obama would appoint him now.

[Karl Henning]

Fortune rota volvitur . . . .

[Todd]

Fortune rota volvitur . . . .

I just hope the hundreds of millions he has can soften the blow.  And in this economy, one needs a cushion if one loses a job.  Will it be enough?  I lose sleep thinking about the fate of the bank CEOs.

[Karl Henning]

John Thain set the benchmark for Golden Parachutes . . . .

[Todd]

John Thain set the benchmark for Golden Parachutes . . . .

Fancy credenzas don't buy themselves.

[snyprrr]

Dimon's possible dream of being Treasury Secretary is now dashed, too.  No way Obama would appoint him now.

Really? I thought this was the interview!! Don't we always reward incompetence with a promotion? I say he's a shoe-in.

[Coopmv]

This is outdated now.




Dimon's possible dream of being Treasury Secretary is now dashed, too.  No way Obama would appoint him now.

But does he really care to be the next treasury secretary?  He has to take a severe pay cut to take that job ...

[Todd]

But does he really care to be the next treasury secretary?  He has to take a severe pay cut to take that job ...

He reputedly did.  The thinking was that he would leave JP Morgan as a hero, almost as legendary as Pierpont himself, and then go into public service to do good things.  You know, he'd be the next Robert Rubin or Hank Paulson.