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Keynes Florida 20 minutes ago

In macroeconomic terms, an increase in taxes followed by an equivalent increase in spending (and that therefore does not increase the deficit) increases the GDP. It is called “the balanced budget multiplier” (you can Google it!), BBM.

Conversely, a reduction in taxes followed by a reduction in spending reduces the GDP, and therefore increases unemployment.

In this particular case (repeal of the ACA), the reduction in taxes benefits higher income people who have a relatively low “marginal propensity to consume” (Google it!), MPC, and negatively affects lower income people, who have a relatively higher MPC. The net effect is that a reduction in taxes and an equal reduction in spending will decrease the GDP by an amount larger than the reduction in taxes. The effect on the unemployment rate will be larger than predicted by the BBM.

Will the repeal of the ACA be the trigger for the next recession/depression?

How long will it take for the country to be plunged into a depression? (a) two years (b) four years (c) eight years.

It will depend on how large are the tax and spending cuts.

GWB managed to do it in eight years, but he started with a stronger economy and made no significant spending cuts.

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Taken from the NYT comments on Paul Krugman’s Op-Ed of Jan. 18, 2013.
Note that she’s just my age. So I thought it would be interesting to give her point of view.

Maggie, Brattleboro, VT

I am an 84 year old retiree, still independent. I am a retired internist who has cared for thousands of people. What can we old people do to help our national economic situation? Increasing numbers will live beyond 65 and depend on Medicare and Social Security. How many die after age 65?
Someone knows.
I have made personal decisions to reduce health care costs for myself and the nation. The last year of life is the most costly for Medicare and other simultaneous insurers.
1. I have eliminated all unnecessary drugs, taken to excess by most seniors.
2. At 84, in the twilight of an interesting life, I do not want to die in an expensive hospital, with “interventions.”
3. If I suddenly become unresponsive or seemingly in distress, I want NO CPR, no paramedics, no hospitalization, no life sustaining measures such as CPR, dialysis, respiratory assist, feeding tubes and the like. My advanced directives say this.
4. While not a religious person, I trust that God would agree with my choices for a great way to go: painless, low cost, and quiet. What a relief to me and the family and the economy. I hope that others respect my wishes.
Jan. 18, 2013 at 8:59 a.m.REPLY You recommended this 25

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Paul Krugman has been berating against austerity hawks for years now to little effect. His latest rant, a good one as usual, is here. He gives excellent arguments, always has, for why austerity doesn’t work in a time of high unemployment and low growth. Maybe there are many of these austerity hawks who know this but as long as they themselves benefit, why change their cash cow?

Oh, and is there anyone out there who can give counter arguments as to why austerity might work? I doubt I’ll get an answer because during the last week this blog received only 15 unique visits. The chance that one of those might be willing, or especially, even interested in taking on Paul Krugman, is pretty slim indeed.

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Most popular reader’s comment on the NYT article, Soaring Poverty Casts Spotlight on Lost Decade:

We are entering an era of class warfare.

The rich and the moneyed corporate interests and the Republicans in their pockets have been quite bold about this: no healthcare for the poor. No education for the poor. And the middle class is weakening and falling away while the ultrarich control more and more.

The truth is, such a society is, overall, a poorer society. What I don’t understand is why some middle class and some poor actually support Republican initiatives that make them poorer and hurt their own health and the education of their children. It is a stunning triumph of propaganda, where some people support policies that hurt them, because of false contrived bogeymen like freeloading illegals and welfare queens. And the entire country is suffering for this propaganda bought and paid for by the rich and the corporations who don’t want to pay for your health and your education. And some of you agree with it! Insanity.

I thought it was “We the people,” not “We the rich people and corporations.” You who are poor and Republican or middle class and Republican: please take note of the war that is being waged against you, and reevaluate your support for policies which only impoverish you, bought and paid for by propaganda mouth pieces that appeal to your irrational fears rather than your sense of reason.

Recommended by 1116 Readers

Thanks BR from Times Square.

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Paul Krugman hits the nail on the head again with his Op-Ed this morning, This Is Not a Recovery. He points out we need 2.5% GDP growth just to keep unemployment from rising, and instead, the latest figure out this morning for the second quarter is 1.6%! Instead of treading water with a 2.5% growth we’re being swept backwards, as though in a Pakistan flood, with a mere 1.6% growth.

Here’s the most popular comment, twice as many votes as the next most popular, on Krugman’s article:

As enlightening as your commentary always is, it assumes that policy makers have the interest of the average American, and in particular the unemployed, at heart.

The name of your blog is quite revealing here: you indeed appear to have a conscience, and as a liberal (and further as one freely admitting to the same) you possess a small healthy dose of naivete about your fellow man, generally believing in good intentions. I’m afraid the same can not be said about the majority of those at the Fed or otherwise controlling the reigns of the broader economy.

As an economist, you really should know better than anyone: whenever an inexplicable behavior arises, the best way to find an explanation is always to simply “follow the money”. So who stands to benefit from high unemployment?

If you look at the last ten years of US economic history, you see repeated rises and falls that all follow a similar pattern: when the economy is growing, the average worker fails to benefit. When the economy falls, the worker always loses the most, in terms of both buying power and job security. The benefit to large business owners, who control the majority of wealth and political power in the US, is substantial. The shakier the labor market, the more workers worry about their job security and the less compensation they are willing to work for. Eventually most workers are simply happy to have a job at all and are forced to settle for less and less.

What other explanation, for example, in the government’s complicity in allowing US jobs to be shipped increasingly overseas?

The political and the wealthy in the US are well enough intertwined to form a well-oiled machine. The working class is increasingly powerless. The federal officials you seem to hope for see things in terms of what is most beneficial for them, and increasingly this is to work in alignment with the very wealthy, who contribute most to their election and who stand to offer most in the private sector when they cycle back out of government.

As long as labor is weak and nervous, with the promise of better times always around the corner, unrest is kept at bay enough to permit the rich to keep getting richer with little or no downside.

As nice as it would be to believe in a government with the interests of the little guy at heart, it’s about as much based on hard evidence as Santa Clause. Let’s grow up and either decide to stop complaining about it or talk about some way to fight back.
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Yes, this is a pretty cynical comment, but unfortunately it may in very large part be true. The question is, How do we fight back?

Thanks to “Klark, New York, NY” for the comment in red.

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Taxes are way too low in this country. They need to be raised, but only on the high income groups, and raised somewhere around where they were during our great post-World War 1 economic boom.

Here’s why:

Bob, while I agree with you, and respect Felix Rohatyn greatly, his being “one of the biggest supporters of the creation of an infrastructure bank” does not answer the question of whether the government (we) can afford it.

I’ve recommended readers subscribe to John Mauldin’s weekly E-Letter before.… While I disagree with Mauldin’s politics (Republican) and almost of his socioeconomic policies and prescriptions (e.g., blasting Obama on national healthcare), to get economic facts he offers a concentrated and readable dose for free. This past Friday’s letter begins: “As of this week, total US debt is $11.3 trillion and rising rapidly. The Obama Administration projects that to rise another $1.85 trillion in 2009 (13% of GDP) and yet another $1.4 trillion in 2010. The Congressional Budget Office projects almost $10 trillion in additional debt from 2010 through 2019. Just last January the 2009 deficit was estimated at ‘only’ $1.2 trillion.” Mauldin goes on to explain why this is an optimistic set of estimates, followed by data on Europe and “The Global Recession Gets Worse” that reminds of Mr. Brooks’ image today of the “disembowelment scene in ‘Braveheart.'”

Mauldin asks where is the money going to come from?
“The world is going to have to fund multiple trillions in debt over the next several years. Pick a number. I think $5 trillion sounds about right. $3 trillion is in the cards for the US alone, if current projections are right.” He then talks about why bond rates are rising in what appears to be a deflationary period and concludes this thought with “I think the bond market is looking a few years down the road and saying that $1-trillion deficits are simply not capable of being financed. And if the debt is monetized, then inflation is going to become a very serious issue.”

As much as I dislike Republicans, sometimes we have to know what the analytical and thoughtful among them are saying. Mauldin is not a Bush, or Cheney, or Limbaugh. The irony is that while his facts appear to be sound, and pale yours today, he never seems to even realize that he’s making an argument for national healthcare, a wealth tax, slashing military spending, and in various ways coming up with enough funds for such as an infrastructure bank.

Way down deep — perhaps not all that deep — guys like Mauldin and the superrich (he’s more their advisor than one of them, as best I can tell) are worried that when the music stops they will no longer have a chair. And they’re correct, I think. We simply cannot have a nation in Great Recession I and almost in depression — sure to come if we don’t act — that does not take some drastic steps. Since there is no surplus at the bottom, and consumer-spending our way out of the crisis cannot be done, there remains only the top to pay for getting us out. Given that they got us into this mess, why not require them to bail us out? Yes, I know, the American consumer went a little crazy. Perhaps really nutty crazy. But who aided and abetted them? And who gained from consumer madness? We all know who, including our politicians in bed with these irresponsible and greedy Masters of the Universe. Bring ’em down, before we all go down.

— Butler Crittenden, San Francisco, CA

My man, Butler Crittenden is at it again. See my earlier post, Response to Krugman.

The “Bob” who Butler is replying to is Bob Herbert who has a great Op-Ed, Our Crumbling Foundation, in the NYT today.

Butler agrees with Bob that it would be great to have a national infrastructure development bank to turn this economy around, but asks how are we going to pay for it? So why not increase taxes on the super rich who got us into this mess, and who are way under taxed compared with those in most industrialized countries?

And I agree with him! In fact I think it’s time for a mass revolt in this country!

Here’s another sobering response to Bob’s article:

How many times have we heard these concerns voiced before? Add them to the lengthy list of things we know we need to do in the U.S. that go unaddressed while we save the skins of corporate bankers with trillions in taxes on current and future generations. It is interesting how what now look like insiginificant tens of billions were unthinkable sums to spend on education, health, transportation and infrastructure, while all it took was one weekend’s thought to cough up hundreds of billions, trillions, when it came time to save the banks.

One of the lessons the right wing took from the rebellions of the 1960s is that a populace that is well paid, educated and free is a danger to their wealth and position. They will bring the whole house down on our collective heads rather than risk masses of Americans who are free from fear and ready to ask that the resources that they produce be put to good use rather than merely fill the coffers of the wealthy.

— Vincent Amato, New York City

Right on, Vincent!

But in reality what will we do? Sit back and do nothing.

Boy am I pissed. Is anybody else?

Let’s rise up, masses, and fire calls and letters at our senators and reps, form community groups of like minded people, send barrages of letters to our newspapers (newspapers?), hit the incredibly stupid right wing talk shows. Blast Limbaugh, Cheney, and all the other idiots on the right. Blast the mainstream media as well. As we know, they just go along with their corporate sponsors!

Boy, am I pissed. Is anybody else?

OK, I’ll let CJGC have the last word:

The question is whether good sense and an acknowledgment of our obligation to address our social and physical structural problems to prevent even more dire problems in the future is going to prevail over the small-minded bean counters who can’t see beyond the ends of their noses and those politicians who want nothing more than for Obama to fail.

It’s touch and go. A perfect example is serious reform of health care financing by offering a single payer option. It’s the only way to cover everyone and bring costs under control. So far only the health care industry and the health insurance industry have been invited to participate and Senator Baucus assures us that single payer will never pass.

“Yes we can and change we can believe in” have morphed into “No we can’t. The comfortable hold the reins of power so the rest of you just sit down and shut up.” Of course the comfortable are also going to fall into the holes they think they are just digging under our feet.
Are there special bridges for the defenders of the status quo so they won’t fall in the river too?

Yes, it should be a no-brainer. Sadly, many sitting in comfortable chairs don’t themselves have enough brains to notice. Too smug.

— CJGC, Cambridge, MA

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Nobel prize winner in economics, Paul Krugman, has another good Op-Ed in the NYT this morning. I’ve been reading the comments to his article and found one I think is spot on and one-ups Paul. Here it is:

Dr. Krugman, without digging through dozens of books and articles, and hundreds of email newsletters and posts, I can’t say exactly how many I’ve read predicting both the current American disaster and explicating the stupid and selfish policies of the I.M.F., World Bank, and our Fed and financial system. America was drunk on power and self-satisfaction. Mr. Bush and his “team” — if that’s what we could call an emaciated shell of neocons and the likes of Greenspan and Paulson — were not borrowing from Peter to pay Paul but robbing both to support their bogus wars and pie-in-the-sky budgets. They deliberately pumped up the price of real-estate and allowed a reverse salami-tactic to add small slices of greed until finally the whole cancerous mess exploded in our and the world’s face.

Of course every word you write tonight makes sense, but I didn’t see the worst miscreants even mentioned. Yes, Rubin, Greenspan, and Summers were there about two-thirds of the way through the build-up of the house of cards, which began during Reagan’s first year in office. And, yes, they were blind to the disaster they were pushing further down the path. Mr. Clinton, who was so compromised after the CIA/Contra operation in Arkansas, was further weakened by scandal and Newt Gingrich, such that he stopped being a Democrat and rolled over to be an Eisenhower Republican (lite). Then along came liar George Bush, 9/11 (which somehow happened despite numerous warnings), the use of 9/11 as a pretext for what Mr. Bush had in mind all along, and the American people fat-dumb-and-happy from all the prosperity of the exploding housing market, which turned perhaps half the homes in the country into giant ATMs.

It is no wonder that Europeans don’t respect us, that U.S. G-20 efforts will be met with resistance. The one thing you say tonight with which I disagree is: “even when — as in this case — the Americans are right.” Perhaps from a purely economic perspective we’re more right than the Europeans, which is to say that they should make stronger stimulus efforts. Certainly you’re correct in saying that the whole world needs to pull together, especially the G-20 nations. But if we are deranged enough to think we can continue to wage war (or peace, or whatever today’s euphemism is) in Iraq and Afghanistan, maintain some 800 military bases around the world, be the de facto world cop, and march relentlessly ahead with our military budget, why would Europeans and others respect us? If we can’t simply pass a few laws about automobile mileage and emission standards and then enforce them, why would Europeans think we could lead the world economy? If we can’t figure out a way to shift to an economy based more on production and less on consumption — especially of foreign-made goods, again we can see why others are cynical about the U.S.’s ability to lead.

The ultimately ugly truth is that we are too hypocritical as a nation to be taken seriously by others. If a child’s parents are on drugs, they’d best not lecture the child about not using drugs.
— Butler Crittenden, San Francisco, CA

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Just finished Robert Reich’s great piece on AIG. He sums it up: AIG, being “too big to fail”, is accountable to no one. The “accountable to no one” is the really scary part. This sure is an example of capitalism run amok. We have a competition between the government and the big corporation. All these anti-government people take note. Who would you prefer run the country?

We just had a lovely corn beef dinner over at daughter Kate’s prepared by Don. Absolutely scrumptious!

Looks like the weather is finally moderating. Can spring soon be on the way?

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Predicting Crisis: Dr. Doom & the Black Swan!

Ya gotta watch this! Here we have a bunch CNBC talking heads — need I say, clowns? — firing stock-tip questions at two heavyweight economists who are trying to explain to the talking heads the nature of reality! Reality: the world is on the threshold of a total financial collapse, and you ask for stock tips? Sheeesh!

Nouriel Roubini, Dr. Doom: The recession is in danger of becoming L-shaped, rather than U-shaped, meaning it stays a recession for a loong time. Even if we do everything right, i.e., monetary easing, fiscal stimulus, fixing banks, we could still end up with the L-shape. Stock tips? Cash is king!

Nassim Taleb, The Black Swan: People who got us into this mess are still around; they should be thrown out and replaced by people like Nouriel who saw the crisis coming. Stock tips? 100% to 200% in cash!

Go HERE to watch this amazing video.

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Populist Rage

Frank Rich hits a nerve today with his Op-Ed Slumdogs Unite! His 2nd paragraph:

The tsunami of populist rage coursing through America is bigger than Daschle’s overdue tax bill, bigger than John Thain’s trash can, bigger than any bailed-out C.E.O.’s bonus. It’s even bigger than the Obama phenomenon itself. It could maim the president’s best-laid plans and what remains of our economy if he doesn’t get in front of the mounting public anger.

And here’s his next to last paragraph:

This is why “Slumdog Millionaire,” which pits a hard-working young man in Mumbai against a corrupt nexus of money and privilege, has become America’s movie of the year. As Robert Reich, the former Clinton labor secretary, wrote after Daschle’s fall, Americans “resent people who appear to be living high off a system dominated by insiders with the right connections.”

Frank concludes with this:

The neo-Hoover Republicans in Congress, who think government can put Americans back to work with corporate tax cuts but without any “spending,” are tone deaf to this rage. Obama is not. It’s a good thing he’s getting out of Washington this week to barnstorm the country about the crisis at hand. Once back home, he’s got to make certain that the insiders in his own White House know who’s the boss.

For a good discussion of the Frank Rich piece see Frank Rich: The Surging Populist Rage. I fear there’s a defining moment in the Obama presidency coming up and we’re less than three weeks into it.

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