Since the seventh anniversary of the American Recovery and Reinvestment Act – the “stimulus” – was this week, it was a good time to ask, “Who Do You Want In The White House When The Next Recession Comes?”
On Friday, Ed Dolan, writing in Nouriel Roubini’s EconomMonitor, answers: Definitely not Marco Rubio.
Dolan fleshes out the argument that our post made earlier this week about the kind of economic decision-making any rational person would want to have in the White House in the event of an economic downturn. And he concludes that in the case of Rubio (and other Republicans, for Dolan notes Rubio’s views are “widely shared” within the GOP), “the federal government would be legally bound to allow the economy to drift rudderless onto the rocks.”
That’s because Rubio – and for that matter all of the Republican presidential candidates – don’t have a firm grasp of Economics 101.
If you remember your basic college econ course, you’ll know that the first line of defense against a recession is fiscal policy. When the economy goes into a slump, spending rises on unemployment compensation, food stamps, and other benefits. At the same time, tax receipts, which are linked to income, decrease. Because the spending increase plus the tax decrease automatically cushion the slump, economists call them automatic stabilizers.
If you’re a true Keynesian, automatic stabilizers aren’t enough. You add some discretionary fiscal stimulus in the form of road projects and maybe a temporary tax rebate. If the timing is right, that softens the recession even more and speeds the recovery.
But Rubio, as Dolan notes, is a staunch supporter of a balanced budget amendment to the Constitution. (So is Ted Cruz, Jeb Bush, Ben Carson and John Kasich.)
It sounds like a sensible idea, until you think about it. But then, you see that the idea of balancing the federal budget every year is nuts. It would mean that when the economy went into a slump, pulling tax revenues down, Congress would have to enact across the board emergency spending cuts to keep a deficit from emerging. The cuts would quickly hit jobs and household budgets. Consumer spending would fall, firms would cut output to fight ballooning inventories. Without the automatic stabilizers, a mild recession would turn into a tailspin.
But Rubio would not stop there, Dolan goes on to write. Rubio also wants to constrain the ability of the Federal Reserve to stimulate job creation – one half of its dual mandate to keep both unemployment and inflation low.
Here is what [Rubio] said about the Fed in this week’s South Carolina town hall:
That’s not the Fed’s job to stimulate the economy. The Fed is a central bank, it is not some sort of overlord of the economy. They’re not some sort of special Jedi Counsel that can decide the best things for us.
The Fed is a central bank. Their job is provide stable currency and I believe they should operate on a rules based system. They would have a very simple rule that determines when interest rates go up and when interests rates go down.
So just what is this “simple rule” Rubio is talking about? He provides the details elsewhere. His rule would replace the Fed’s dual mandate with a single mandate to prevent inflation. The Fed would be required to raise rates to stop inflation during a boom, but it would be barred from doing anything when unemployment soars during a recession.
That is why it behooves us to ask pointed questions of the presidential candidates about what they would do if the U.S. faced an economic downturn on their watch. Chances are, if they are reading from the same economic playbook that Marco Rubio uses, they would turn the next recession into the next Great Depression.
By: Isaiah J. Poole, Editor of OurFuture.org, Campaign For America’s Future, February 19, 2016
Like this:
Like Loading...
February 22, 2016
Posted by raemd95 |
Balanced Budget Amendment, Economic Policy, GOP Presidential Candidates, Marco Rubio | Automatic Stabilizers, Depression, Economic Recovery, Federal Reserve, Fiscal Discretionary Stimulus, Inflation, Jobs, Recession, Wage Stagnation |
Leave a comment
It is not surprising that House Speaker Paul Ryan is unimpressed with President Obama’s economic record. What is surprising is who Ryan thinks does deserve credit for helping the recovery: the Federal Reserve.
“I think the Federal Reserve has done more,” the speaker told reporters on Tuesday, after being asked if Obama “deserves any credit at all” for the recovery. “What’s happening is people at the high end are doing pretty darn well because of loose money from the Fed,” he said. This will be news to followers of Ryan’s career. He’s long railed against loose money from the Fed, claiming it will debase the dollar and lead to inflation. (It hasn’t.)
It’s not crazy to claim, as Ryan did, that the Fed’s policies amounts to “trickle down economics.” But there is nothing in Paul Ryan’s history to suggest he thinks monetary policy can help the economy at all, even if it’s just at the top. Plus, if that’s his critique, there are some progressive money-printing enthusiasts — and even some conservative ones — who would probably like to schedule a chat with the speaker.
To recap: Paul Ryan thinks loose money helped the economy. But Paul Ryan opposes loose money. He also thinks loose money favors the rich too much. But shows no indication of wanting to make loose money favor the poor.
By: Jeff Spross, The Week, January 13, 2016
Like this:
Like Loading...
January 15, 2016
Posted by raemd95 |
Economic Recovery, Economy, Paul Ryan | Conservatives, Federal Reserve, Inflation, Monetary Policy, Trickle Down Economics |
2 Comments
When economic crisis struck in 2008, policy makers by and large did the right thing. The Federal Reserve and other central banks realized that supporting the financial system took priority over conventional notions of monetary prudence. The Obama administration and its counterparts realized that in a slumping economy budget deficits were helpful, not harmful. And the money-printing and borrowing worked: A repeat of the Great Depression, which seemed all too possible at the time, was avoided.
Then it all went wrong. And the consequences of the wrong turn we took look worse now than the harshest critics of conventional wisdom ever imagined.
For those who don’t remember (it’s hard to believe how long this has gone on): In 2010, more or less suddenly, the policy elite on both sides of the Atlantic decided to stop worrying about unemployment and start worrying about budget deficits instead.
Some of us tried in vain to point out that deficit fetishism was both wrongheaded and destructive, that there was no good evidence that government debt was a problem for major economies, while there was plenty of evidence that cutting spending in a depressed economy would deepen the depression.
And we were vindicated by events. More than four and a half years have passed since Alan Simpson and Erskine Bowles warned of a fiscal crisis within two years; U.S. borrowing costs remain at historic lows. Meanwhile, the austerity policies that were put into place in 2010 and after had exactly the depressing effects textbook economics predicted; the confidence fairy never did put in an appearance.
Yet there’s growing evidence that we critics actually underestimated just how destructive the turn to austerity would be. Specifically, it now looks as if austerity policies didn’t just impose short-term losses of jobs and output, but they also crippled long-run growth.
The idea that policies that depress the economy in the short run also inflict lasting damage is generally referred to as “hysteresis.” It’s an idea with an impressive pedigree: The case for hysteresis was made in a well-known 1986 paper by Olivier Blanchard, who later became the chief economist at the International Monetary Fund, and Lawrence Summers, who served as a top official in both the Clinton and the Obama administrations. But I think everyone was hesitant to apply the idea to the Great Recession, for fear of seeming excessively alarmist.
At this point, however, the evidence practically screams hysteresis. Even countries that seem to have largely recovered from the crisis, like the United States, are far poorer than precrisis projections suggested they would be at this point. And a new paper by Mr. Summers and Antonio Fatás, in addition to supporting other economists’ conclusion that the crisis seems to have done enormous long-run damage, shows that the downgrading of nations’ long-run prospects is strongly correlated with the amount of austerity they imposed.
What this suggests is that the turn to austerity had truly catastrophic effects, going far beyond the jobs and income lost in the first few years. In fact, the long-run damage suggested by the Fatás-Summers estimates is easily big enough to make austerity a self-defeating policy even in purely fiscal terms: Governments that slashed spending in the face of depression hurt their economies, and hence their future tax receipts, so much that even their debt will end up higher than it would have been without the cuts.
And the bitter irony of the story is that this catastrophic policy was undertaken in the name of long-run responsibility, that those who protested against the wrong turn were dismissed as feckless.
There are a few obvious lessons from this debacle. “All the important people say so” is not, it turns out, a good way to decide on policy; groupthink is no substitute for clear analysis. Also, calling for sacrifice (by other people, of course) doesn’t mean you’re tough-minded.
But will these lessons sink in? Past economic troubles, like the stagflation of the 1970s, led to widespread reconsideration of economic orthodoxy. But one striking aspect of the past few years has been how few people are willing to admit having been wrong about anything. It seems all too possible that the Very Serious People who cheered on disastrous policies will learn nothing from the experience. And that is, in its own way, as scary as the economic outlook.
By: Paul Krugman, Op-Ed Columist, The New York Times, November 6, 2015
Like this:
Like Loading...
November 9, 2015
Posted by raemd95 |
Austerity, Economic Recovery, Financial Crisis | Deficits, Economy, Federal Reserve, Great Recession, Jobs, Lawrence Summers, Olivier Blanchard, Simpson-Bowles, Spending Cuts, Unemployment |
3 Comments
Greece is a faraway country with an economy roughly the size of greater Miami, so America has very little direct stake in its ongoing disaster. To the extent that Greece matters to us, it’s mainly about geopolitics: By poisoning relations among Europe’s democracies, the Greek crisis risks depriving the United States of crucial allies.
But Greece has nonetheless played an outsized role in U.S. political debate, as a symbol of the terrible things that will supposedly happen — any day now — unless we stop helping the less fortunate and printing money to fight unemployment. And Greece does indeed offer important lessons to the rest of us. But they’re not the lessons you think, and the people most likely to deliver a Greek-style economic disaster here in America are the very people who love to use Greece as a boogeyman.
To understand the real lessons of Greece, you need to be aware of two crucial points.
The first is that the “We’re Greece!” crowd has a truly remarkable track record when it comes to economic forecasting: They’ve been wrong about everything, year after year, but refuse to learn from their mistakes. The people now saying that Greece offers an object lesson in the dangers of government debt, and that America is headed down the same road, are the same people who predicted soaring interest rates and runaway inflation in 2010; then, when it didn’t happen, they predicted soaring rates and runaway inflation in 2011; then, well, you get the picture.
The second is that the story you’ve heard about Greece — that it borrowed too much, and its excessive debt led to the current crisis — is seriously incomplete. Greece did indeed run up too much debt (with a lot of help from irresponsible lenders). But its debt, while high, wasn’t that high by historical standards. What turned Greek debt troubles into catastrophe was Greece’s inability, thanks to the euro, to do what countries with large debts usually do: impose fiscal austerity, yes, but offset it with easy money.
Consider Greece’s situation at the end of 2009, when its debt crisis burst into the open. At that point Greek government debt was near 130 percent of gross domestic product, which is definitely a big number. But it’s by no means unprecedented. As it happens, Greece’s debt ratio in 2009 was about the same as America’s in 1946, just after the war. And Britain’s debt ratio in 1946 was twice as high.
Today, however, Greek debt is over 170 percent of G.D.P. and still rising. Is that because Greece just kept on borrowing? Actually, no — Greek debt is up only 6 percent since 2009, although that’s partly because it received some debt relief in 2012. The main point, however, is that the ratio of debt to G.D.P. is up because G.D.P. is down by more than 20 percent. And why is GDP down? Largely because of the austerity measures Greece’s creditors forced it to impose.
Does this mean that austerity is always self-defeating? No, there are cases — for example, Canada in the 1990s — of countries that slashed their debt while maintaining growth and reducing unemployment. But if you look at how they managed this, it involved combining fiscal austerity with easy money: Canada in the ’90s drastically reduced interest rates, encouraging private spending, while allowing its currency to depreciate, encouraging exports.
Greece, unfortunately, no longer had its own currency when it was forced into drastic fiscal retrenchment. The result was an economic implosion that ended up making the debt problem even worse. Greece’s formula for disaster, in other words, didn’t just involve austerity; it involved the toxic combination of austerity with hard money.
So who wants to impose that kind of toxic policy mix on America? The answer is, most of the Republican Party.
On one side, just about everyone in the G.O.P. demands that we reduce government spending, especially aid to lower-income families. (They also, of course, want to reduce taxes on the rich — but that wouldn’t do much to boost demand for U.S. products.)
On the other side, leading Republicans like Representative Paul Ryan incessantly attack the Federal Reserve for its efforts to boost the economy, delivering solemn lectures on the evils of “debasing” the dollar — when the main difference between the effects of austerity in Canada and in Greece was precisely that Canada could “debase” its currency, while Greece couldn’t. Oh, and many Republicans hanker for a return to the gold standard, which would effectively put us into a euro-like straitjacket.
The point is that if you really worry that the U.S. might turn into Greece, you should focus your concern on America’s right. Because if the right gets its way on economic policy — slashing spending while blocking any offsetting monetary easing — it will, in effect, bring the policies behind the Greek disaster to America.
By: Paul Krugman, Op-Ed Columnist, The New York Times, July 10, 2015
Like this:
Like Loading...
July 11, 2015
Posted by raemd95 |
Austerity, Greece, Republicans | Economy, Euro, Federal Reserve, GDP, Inflation, Interest rates, Paul Ryan, Spending Cuts, Tax cuts, Unemployment |
Leave a comment
After President Obama released his 2016 budget on Monday, House Speaker John Boehner published a list of ten things that are “newer than Obama’s ideas.” Instagram, Angry Birds, Frozen, and the selfie stick all made the cut. Boehner’s office even created a clunky hashtag for the list—#NewerThanObamasIdeas. The irony is rich: Republican ideas have hardly changed since the 1970s.
It’s true that many proposals in Obama’s budget, like increased infrastructure spending, comprehensive immigration reform, and universal pre-kindergarten, were in his previous budget too. But there were many new ideas, as well. He proposed a new, 19 percent minimum tax on foreign corporate profits—a big move towards the GOP’s preferred territorial tax system. He also wants to expand a tax credit for child care while increasing the capital gains tax rate from 23.8 percent to 28 percent. He put forward a major overhaul of the unemployment insurance system.
None of these represent radical departures from Obama’s previous agendas. But Obama is a Democrat, not a Republican. He wasn’t suddenly going to abolish the Internal Revenue Service and repeal the Affordable Care Act, just as Republicans won’t suddenly wake up and support a single-payer system and higher taxes on the rich.
And Republican ideas on the economy have aged even worse than the Democrats’ stale agenda. Take monetary policy. Throughout Obama’s presidency, GOP lawmakers have frequently criticized the Federal Reserve for low interest rates and its recently-ended bond-buying program. Those policies, they have argued, would send inflation shooting upwards. That, of course, has not happened. Inflation has remained below the Fed’s 2 percent target for years. The greater risk is actually deflation—falling prices.
Of course, in the 1970s, inflation was a very real concern. Then-Fed chair Paul Volcker raised interest rates, causing a recession, but stamping out inflation. Republicans, fearing pre-Volcker inflation, are trying to apply those lessons during a very different time, when the far greater risk to the economy has been a weak labor market. If the Fed had implemented them, it would have led to a disastrous economic contraction.
Or consider taxes. Most of the Republican Party has a laser-like focus at lowering the top marginal tax rates. But some reform-minded conservatives also want to finance a huge expansion of the Child Tax Credit (CTC)—a tax credit available to parents. They believe that the Reagan tax cuts in the 1980s that lowered the top marginal tax rate from 70 percent to 50 percent was a smart move. But they see far fewer benefits in lowering marginal tax rates now. “Let’s say we cut the 15 percent federal income-tax rate faced by much of the middle class to 10 percent,” Robert Stein writes in the reformicon’s new conservative agenda, titled “Room to Grow.” “Instead of keeping 85 cents for a dollar of extra effort, a worker would get 90 cents—an improvement of only 5.9 percent.… For these workers, cutting the 15 percent rate to 10 percent would make absolutely no difference in work incentives.” A CTC expansion would put money directly into the pockets of parents who need it. While a few prominent members in the Republican Party have adopted Stein’s tax proposal, most notably Senator Marco Rubio, the vast majority of the party would rather lower marginal rates further instead of expanding the CTC. In other words, Republican tax ideas are still stuck in the 1970s as well.
At the end of Boehner’s listicle, his office writes, “The simple truth is this: The federal budget shouldn’t be cobwebbed by the policies of the past. It should be focused on the future—a future where our kids and grandkids can grow up free from the fear of never-ending debt and a bloated Washington bureaucracy.” His party should listen to that advice.
By: Danny Vinik, The New Republic, February 6, 2015
Like this:
Like Loading...
February 7, 2015
Posted by raemd95 |
Federal Budget, John Boehner, Republicans | Affordable Care Act, Conservatives, Corporate Welfare, Economy, Federal Reserve, IRS, Middle Class, Tax Reform, Unemployment insurance |
Leave a comment
mykeystrokes.com 