Republicans were right, based on political considerations, not to vote for the stimulus package. It was predicatble (especially since Rahm Emmanuel called attention to it) that Democrats would use the fiscal stimulus to promote their policy preferences - a crisis should not be wasted. Neither should the Republicans though have wasted the opportunity. No, they wouldn't have gotten anything passed but that's not the point. In the popular imagination the choice is between borrowing an enormous sum of money to stimulate the economy and doing nothing or perhaps cutting taxes. There was that $15,000 tax credit for new homebuyers. Hard to get charged up about something that would have distorted the market for housing just after such distortions led to a bubble in housing that led to the current downturn.
Instead the Republicans should have used the downturn to offer a comprehensive alternative. Having lost nearly all their credibility over the past decade with respect to the promotion of sound fiscal management this was an opportunity to begin to re-establish their identity. In 1994 the Contract with America served to provide clarity just before the mid-term elections that saw huge Republican gains. Some characterize it as having served to nationalize the congressional election. You didn't need to be a policy wonk or political junkie to look and ascertain what the Republicans stood for. The Contract made it easy.
Now Newt is back with 12 American Solutions jobs and prosperity. Of course the mere mention of Newt Gingrich causes many to scoff but there is just no denying that he is a brilliant communicator. You try getting elected in late seventies Georgia with a professorial demeanor and a name like Newt. Then go on to emerge as the leader of a demoralized party and become House Speaker.
And, what of the substance of the 12 American Solutions?
a. Reduce the payroll tax by 50% - That reduces the cost of hiring and puts more money in consumers' hands. Even though most government revenue comes from the income tax, more Americans pay more in payroll taxes then they do in income taxes.
b. More American Energy now - This has a short term component - get more oil and gas from our reserves - and a long term component - investing in alternative energy. That has broad appeal. Energy price spikes - like the one we recently experienced - are de-stabilizing.
c. Protect the right of American workers to have a secret ballot - The presence of unions tend to increase unemployment. We need look no further than the American automakers to see how unions have tended to kill the proverbial goose that lays the golden eggs. Even those who identify with unions tend to admit that having a secret ballot is a fundamental right.
d. Invest in energy and transportation infrastructure - Enhancing our electrical grid and improving our ability to move people and goods increases productivity.
Suppose citizens were faced with these choices in the current downturn, an enormous amount of deficit spending that includes such things as funding for the arts, a $15,000 tax credit for new homebuyers, or a comprehensive effort that includes adjustments to the tax code to stimulate hiring, a move to increase domestic energy production, and infrastructure investments where there is broad agreement with respect to enhancing productivity.
Tuesday, February 10, 2009
Monday, February 9, 2009
Preferred fiscal policy
I would institute an immediate and permanent reduction in the payroll tax, financed by a gradual, permanent, and substantial increase in the gasoline tax... Call it the create-jobs, save-the-environment, reduce-traffic-congestion, budget-neutral tax shift.
That's Greg Mankiw discussing his preferred fiscal policy. Payroll taxes are just like cigarette taxes. If you want more of something subsidize it. If you want less of something tax it. Payroll roll taxes drive a wedge into the labor market, creating a difference between what firms pay for labor and what workers receive.
Here is John Maynard Keynes writing in 1942...
I am converted to your proposal…for varying rates of contributions in good and bad times.
(June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reductionin income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times.
Translation: a lower payroll tax will decrease their cost of labor and stimulate hiring.
James Hamilton on the fiscal stimulus...
I do not accept the proposition that there is a level of government spending-- however large a number you choose to suggest-- that will prevent the unemployment rate from rising above 8%. But I do believe that if the government borrows a sufficiently large amount, we will have to worry in a very concrete way about what will sustain the foreign demand for U.S. assets.
Well rising above 8% is not that big of a deal. We're almost there now. We should expect some stimulus, some positive shock to GDP... if I borrow a couple truckloads of money I can enhance my well-being in the short term. In the longer term we should expect the fiscal stimulus to lower the rate of growth as interest rates rise. Even the CBO has said that. Of course we can print money - the Fed can monetize the debt. That will lead to inflation. If you're a homeowner that's not all bad of course. Inflation, rising prices and wages, reduces the real value of debt.
That's Greg Mankiw discussing his preferred fiscal policy. Payroll taxes are just like cigarette taxes. If you want more of something subsidize it. If you want less of something tax it. Payroll roll taxes drive a wedge into the labor market, creating a difference between what firms pay for labor and what workers receive.
Here is John Maynard Keynes writing in 1942...
I am converted to your proposal…for varying rates of contributions in good and bad times.
(June 16, 1942). Keynes, Collected Writings, vol. 27, p. 208.…[Y]ou are able to show fluctuations in income of an order of magnitude which is significant in the context… So far as employees are concerned, reductions in contributions are more likely to lead to increased expenditure as compared with saving than a reductionin income tax would, and are free from the objection to a reduction in income tax that the wealthier classes would benefit disproportionately. At the same time, the reduction to employers, operating as a mitigation of the costs of production, will come in particularly helpfully in bad times.
Translation: a lower payroll tax will decrease their cost of labor and stimulate hiring.
James Hamilton on the fiscal stimulus...
I do not accept the proposition that there is a level of government spending-- however large a number you choose to suggest-- that will prevent the unemployment rate from rising above 8%. But I do believe that if the government borrows a sufficiently large amount, we will have to worry in a very concrete way about what will sustain the foreign demand for U.S. assets.
Well rising above 8% is not that big of a deal. We're almost there now. We should expect some stimulus, some positive shock to GDP... if I borrow a couple truckloads of money I can enhance my well-being in the short term. In the longer term we should expect the fiscal stimulus to lower the rate of growth as interest rates rise. Even the CBO has said that. Of course we can print money - the Fed can monetize the debt. That will lead to inflation. If you're a homeowner that's not all bad of course. Inflation, rising prices and wages, reduces the real value of debt.
Friday, February 6, 2009
More questions than answers
Well this caught my eye this morning...
... Although my favorite part was when he mentioned a study where women "politely" asked men for no strings attached sex and they counted how many agreed. (Less than you would think.)
I have to believe there is a difference between the short-run and long-run equilibrium. In other words there is a shock effect that you have to consider in the short run. Men, not even blogging studs, aren't accustomed to being politely asked for no-strings attached sex. In the short-run then it isn't surprising that many men didn't bite. Over time though I think you'd find a different outcome. If men became accustomed to being asked to have no-strings attached sex then I think far more would be accomadating. Another way of putting this is to say that if women were just like men there would be mass copulation in the streets.
Another thing that interests me about this study was how things were handled when a guy did agree to have no strings attached sex. I bet the woman then responded with a, "well this is all just part of a study, thanks for participating. Have a good day." Such a response then would merely confirm men's understanding of how the world works - women don't tend to ask politely to have sex.
Still another thing that interests me is what the outcome would be if women demanded some sex or begged for it. What if they manipulated... in a soft voice... "I just don't feel wanted anymore, I feel so alone, I just wish someone would hold me." What if they began by offering to buy a guy a drink?
... Although my favorite part was when he mentioned a study where women "politely" asked men for no strings attached sex and they counted how many agreed. (Less than you would think.)
I have to believe there is a difference between the short-run and long-run equilibrium. In other words there is a shock effect that you have to consider in the short run. Men, not even blogging studs, aren't accustomed to being politely asked for no-strings attached sex. In the short-run then it isn't surprising that many men didn't bite. Over time though I think you'd find a different outcome. If men became accustomed to being asked to have no-strings attached sex then I think far more would be accomadating. Another way of putting this is to say that if women were just like men there would be mass copulation in the streets.
Another thing that interests me about this study was how things were handled when a guy did agree to have no strings attached sex. I bet the woman then responded with a, "well this is all just part of a study, thanks for participating. Have a good day." Such a response then would merely confirm men's understanding of how the world works - women don't tend to ask politely to have sex.
Still another thing that interests me is what the outcome would be if women demanded some sex or begged for it. What if they manipulated... in a soft voice... "I just don't feel wanted anymore, I feel so alone, I just wish someone would hold me." What if they began by offering to buy a guy a drink?
Thursday, February 5, 2009
Don't get it
I don't quite get it now but maybe I'll learn something. I'm talking about the Republican contribution to the stimulus package:
The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan.
Gosh why didn't we think of this before? Well we kind of did. Creative (no or low money down) financing caused the bubble in housing prices. The bubble popped and there is evidence the market is working as it should - housing prices have fallen and pending sales of existing homes increased in December. Aggressive monetary policy has lowered mortgage interest rates. Why should fiscal policy - tax credit to homebuyers - be used to further distort the housing market?
I am not impressed with programs that imply that the macro economy can be managed via surgically precise strikes. Beyond the doubts of efficacy they tend to be inequitable. Why should new homebuyers (homesellers) get subsidized? Nothing is being produced, rather there is merely an exchange of property. Why not subsidize the renter (landlord)? Why not subsidize more comfortable digs for the homeless?
I don't have a doubt that a $15,000 tax credit will stimulate activity in the housing market as long as it is extended. If taxpayers are forced to subsidize cattle production we'll all eat more hamburgers.
The Senate voted Wednesday night to give a tax break of up to $15,000 to homebuyers in hopes of revitalizing the housing industry, a victory for Republicans eager to leave their mark on a mammoth economic stimulus bill at the heart of President Barack Obama's recovery plan.
Gosh why didn't we think of this before? Well we kind of did. Creative (no or low money down) financing caused the bubble in housing prices. The bubble popped and there is evidence the market is working as it should - housing prices have fallen and pending sales of existing homes increased in December. Aggressive monetary policy has lowered mortgage interest rates. Why should fiscal policy - tax credit to homebuyers - be used to further distort the housing market?
I am not impressed with programs that imply that the macro economy can be managed via surgically precise strikes. Beyond the doubts of efficacy they tend to be inequitable. Why should new homebuyers (homesellers) get subsidized? Nothing is being produced, rather there is merely an exchange of property. Why not subsidize the renter (landlord)? Why not subsidize more comfortable digs for the homeless?
I don't have a doubt that a $15,000 tax credit will stimulate activity in the housing market as long as it is extended. If taxpayers are forced to subsidize cattle production we'll all eat more hamburgers.
Wednesday, February 4, 2009
On the recession, stimulus, politics, and adjusting perspective
New car sales are way down. Not a surprise. Sales of durable goods, goods expected to last three or more years are particularly sensitive to consumer confidence. Lost equity in homes and lower retirement accounts have made people poorer and they feel poorer. Interestingly sales of Hyundi and Suburu increased. However, the numbers suggest new car sales for the year to be about 10 million, similar to last year and down about 7 million from two years ago.
Existing home sales, or rather pending sales, jumped. That's what happens eventually when prices fall and the cost of borrowing money - mortgage rates - falls. From Bloomberg, via the City Paper...
Purchases of previously owned homes, which account for about 90 percent of the market, climbed 6.5 percent in December from the prior month as foreclosures helped drive median prices down 15 percent from a year earlier.
I know the Business and Economic Research Center at UT is forecasting an unemployment rate of near 10% in Tennessee by this time next year. Two things: Unemployment is a lagging indicator. In the last two recessions the unemployment rate peaked roughly 18 months after the onset of recovery. Part of that phenomenon is that people get back into the labor market - start looking for work - when firms start to hire. That increases the measured rate of unemployment. Second, macro economic forecasting exists, according to some, to make astrologers look respectable.
On the stimulus: Yes, it can increase GDP and lower unemployment. That doesn't mean, or shouldn't be taken that it is successful. Anytime you have idle resources you can increase GDP via deficit spending. You can pay people, on an hourly basis, to cut their lawns with a pair of scissors. Unemployment isn't the primary problem but rather the drop in income, savings, and investment; poverty and the prospect of poverty are what hurt both at the household level and the macro level. Alice Rivlin, Congressional Budget Office chief under Clinton, said some good things recently that have been promoted by center-right economists.
On transfers to states (a way to enable states to run deficits via the federal government):
Aiding states will prevent them from taking actions to balance their budgets--cutting spending and raising taxes--that will make the recession worse.
On transfers to people (that are superior to having people employed building something stupid):
Another important element of the anti-recession package should be substantial transfers to lower and middle income people, because they need the money and will spend it quickly.
On the tax cut side:
On the tax side, my favorite vehicle would be a payroll tax holiday, because payroll tax is paid by all workers and is far more significant than the income tax for people in the lower half of the income distribution.
Payroll taxes distort labor markets. That is they suppress employment.
On infrastructure that will enhance productivity:
The anti-recession package should be distinguished from longer-run investments needed to enhance the future growth and productivity of the economy.
In other words, in a rush to pass a stimulus we will sacrifice efficiency, get caught doing too many silly projects in the districts of powerful members of Congress. Pass "anti-recession" spending quickly and take your time on the roads, bridges, and public transport.
The timing of all this can be great for Obama politically. Getting elected president when he did is like getting the head coaching job at Temple University. Win a couple of games and you look great. Remember Ronald Reagan took over during a nasty recession and period of high inflation. God willing and the creek don't rise (longer and deeper recession than expected), what do you think will be the answer when Obama asks during the next cycle, "Are you better off than you were four years ago?"
On GDP generally, we should stop being so obsessed. It is an imperfect measure of one's quality of life. The most worthwhile things in life do not involve market transactions and therefore are not captured in GDP statistics.
Existing home sales, or rather pending sales, jumped. That's what happens eventually when prices fall and the cost of borrowing money - mortgage rates - falls. From Bloomberg, via the City Paper...
Purchases of previously owned homes, which account for about 90 percent of the market, climbed 6.5 percent in December from the prior month as foreclosures helped drive median prices down 15 percent from a year earlier.
I know the Business and Economic Research Center at UT is forecasting an unemployment rate of near 10% in Tennessee by this time next year. Two things: Unemployment is a lagging indicator. In the last two recessions the unemployment rate peaked roughly 18 months after the onset of recovery. Part of that phenomenon is that people get back into the labor market - start looking for work - when firms start to hire. That increases the measured rate of unemployment. Second, macro economic forecasting exists, according to some, to make astrologers look respectable.
On the stimulus: Yes, it can increase GDP and lower unemployment. That doesn't mean, or shouldn't be taken that it is successful. Anytime you have idle resources you can increase GDP via deficit spending. You can pay people, on an hourly basis, to cut their lawns with a pair of scissors. Unemployment isn't the primary problem but rather the drop in income, savings, and investment; poverty and the prospect of poverty are what hurt both at the household level and the macro level. Alice Rivlin, Congressional Budget Office chief under Clinton, said some good things recently that have been promoted by center-right economists.
On transfers to states (a way to enable states to run deficits via the federal government):
Aiding states will prevent them from taking actions to balance their budgets--cutting spending and raising taxes--that will make the recession worse.
On transfers to people (that are superior to having people employed building something stupid):
Another important element of the anti-recession package should be substantial transfers to lower and middle income people, because they need the money and will spend it quickly.
On the tax cut side:
On the tax side, my favorite vehicle would be a payroll tax holiday, because payroll tax is paid by all workers and is far more significant than the income tax for people in the lower half of the income distribution.
Payroll taxes distort labor markets. That is they suppress employment.
On infrastructure that will enhance productivity:
The anti-recession package should be distinguished from longer-run investments needed to enhance the future growth and productivity of the economy.
In other words, in a rush to pass a stimulus we will sacrifice efficiency, get caught doing too many silly projects in the districts of powerful members of Congress. Pass "anti-recession" spending quickly and take your time on the roads, bridges, and public transport.
The timing of all this can be great for Obama politically. Getting elected president when he did is like getting the head coaching job at Temple University. Win a couple of games and you look great. Remember Ronald Reagan took over during a nasty recession and period of high inflation. God willing and the creek don't rise (longer and deeper recession than expected), what do you think will be the answer when Obama asks during the next cycle, "Are you better off than you were four years ago?"
On GDP generally, we should stop being so obsessed. It is an imperfect measure of one's quality of life. The most worthwhile things in life do not involve market transactions and therefore are not captured in GDP statistics.
Tuesday, February 3, 2009
That doesn't inspire hope
Karl Lang who was principal at Hillwood High until last year was just named principal at McGavock. The state removed/demoted him last year. The state also inserted a new principal at McGavock last year. WSMV-TV is reporting that violence at McGavock prompted new school's director Jesse Register to turn to Karl Lang to tighten up that ship. Lang's reputation is that he was responsible for getting things squared away at Hillwood.
I don't have direct experience to say definitively that getting Karl Lang back to running a school is a move in the right direction, but my sense is that he is a capable leader, competent to maintain order. Without a sense of order nothing much positive is going to happen at a school. So it is not the re-emergence of Karl Lang that doesn't inspire confidence but rather the situation that gave us this sort of musical chairs at Metro high schools. The state was making decisions (it would be nice to know who precisely got rid of Lang at Hillwood). That, expanded state authority, happened of course because Metro schools failed to achieve adequate yearly progress. The problem is that authority to make decisions moved in the wrong direction. The state got more authority and parents got less. A large part of the struggle to correct such perverted processes is that so many in positions of influence do not, or have not, send their kids to public schools. They, including many public school teachers and administrators, maintain control over their own education consumption decisions by virtue of their relative affluence. They, like many, opt out of the public system. They tend to lack confidence that those with lower incomes are as competent to make such decisions for themselves. And, even if they believe that parents are the best suited to make such decisions they lack the intensity required to push dramatic reform; inferior school environments don't have a direct impact on them. Yes, of course the teachers' lobby stands in the way of expanding parental choice but that is just the proximate cause of reform failures. Leaders who don't have kids in the public schools have no stomach for a fight against an entrenched and powerful lobby.
I don't have direct experience to say definitively that getting Karl Lang back to running a school is a move in the right direction, but my sense is that he is a capable leader, competent to maintain order. Without a sense of order nothing much positive is going to happen at a school. So it is not the re-emergence of Karl Lang that doesn't inspire confidence but rather the situation that gave us this sort of musical chairs at Metro high schools. The state was making decisions (it would be nice to know who precisely got rid of Lang at Hillwood). That, expanded state authority, happened of course because Metro schools failed to achieve adequate yearly progress. The problem is that authority to make decisions moved in the wrong direction. The state got more authority and parents got less. A large part of the struggle to correct such perverted processes is that so many in positions of influence do not, or have not, send their kids to public schools. They, including many public school teachers and administrators, maintain control over their own education consumption decisions by virtue of their relative affluence. They, like many, opt out of the public system. They tend to lack confidence that those with lower incomes are as competent to make such decisions for themselves. And, even if they believe that parents are the best suited to make such decisions they lack the intensity required to push dramatic reform; inferior school environments don't have a direct impact on them. Yes, of course the teachers' lobby stands in the way of expanding parental choice but that is just the proximate cause of reform failures. Leaders who don't have kids in the public schools have no stomach for a fight against an entrenched and powerful lobby.
Monday, February 2, 2009
Rep. Jim Cooper impresses
Studying models
Temple Gandin, who is on the autistic spectrum and has been a consultant for animal handling systems, has some interesting things to say in her book, Animals Make Us Human: Creating the Best Life for Animals, including this:
Animal research is getting more and more what I call "abstractified." Instead of people studying the real animals in their natural habitats, researchers use fancy statistical software to construct statistical models, and then they study the models.
Economist Tyler Cowen suggests that financial economists might be able to take away something positive from considering such an observation.
Who is this?
Having run unsuccessfully for the Senate in 1994, he returned to the House in 2002. A mordant Cassandra ("If members of Congress were paid on commission to cut spending, we'd see fabulous results"), he is no longer astonished by Congress's bipartisan avoidance of the predictable crisis coming to the big three entitlement programs — Social Security, Medicare and Medicaid.
Why it is Dem. U.S. Rep. Jim Cooper featured in the latest George Will column. The column makes for some discouraging reading but Cooper is impressed with Obama's leadership. It struck me as well that Obama has mentioned the importance entitlement (Social Security, Medicare, Medicaid) reform. Now mentioning is not addressing and the president is otherwise engaged but mentioning is a first step.
This really impressed me from Cooper who was one of a handful of Democrats to vote against the stimulus package. He favors cutting the Social Security tax from 12.4% to 8%. Payroll taxes, as Cooper points out, suppress job creation. That is stimulus that has a direct impact on employment.
How markets work
Katie Porterfield has a very good piece in today's City Paper on how those in the real estate business are responding to the housing downturn. The private sector responds relatively quickly to changes in economic conditions. The median price of a home sold in the middle Tennessee area fell, from about $188,000 to $164,000, in 2008. Realtors are adjusting strategy, positioning themselves for a recovery, and some are leaving the business.
War is not good
Washington Post (via the Tennessean): In the United States, a move to greatly expand Buy American provisions as part of the $819 billion fiscal stimulus package has generated shock waves overseas, with Canadian and European officials in particular rising up in protest.
For all the points of disagreement, economists agree that at the onset of the Great Depression there were three policies that made things worse - cutting the money supply which raised interest rates, tax increases, and the Smoot-Hawley bill that increased tariffs and launched a global trade war. We've learned. The Fed has lowered interest rates and has signaled that they will stay low. We're not talking about raising taxes. Can Obama resist the protectionist tendencies that emerged in the House?
Temple Gandin, who is on the autistic spectrum and has been a consultant for animal handling systems, has some interesting things to say in her book, Animals Make Us Human: Creating the Best Life for Animals, including this:
Animal research is getting more and more what I call "abstractified." Instead of people studying the real animals in their natural habitats, researchers use fancy statistical software to construct statistical models, and then they study the models.
Economist Tyler Cowen suggests that financial economists might be able to take away something positive from considering such an observation.
Who is this?
Having run unsuccessfully for the Senate in 1994, he returned to the House in 2002. A mordant Cassandra ("If members of Congress were paid on commission to cut spending, we'd see fabulous results"), he is no longer astonished by Congress's bipartisan avoidance of the predictable crisis coming to the big three entitlement programs — Social Security, Medicare and Medicaid.
Why it is Dem. U.S. Rep. Jim Cooper featured in the latest George Will column. The column makes for some discouraging reading but Cooper is impressed with Obama's leadership. It struck me as well that Obama has mentioned the importance entitlement (Social Security, Medicare, Medicaid) reform. Now mentioning is not addressing and the president is otherwise engaged but mentioning is a first step.
This really impressed me from Cooper who was one of a handful of Democrats to vote against the stimulus package. He favors cutting the Social Security tax from 12.4% to 8%. Payroll taxes, as Cooper points out, suppress job creation. That is stimulus that has a direct impact on employment.
How markets work
Katie Porterfield has a very good piece in today's City Paper on how those in the real estate business are responding to the housing downturn. The private sector responds relatively quickly to changes in economic conditions. The median price of a home sold in the middle Tennessee area fell, from about $188,000 to $164,000, in 2008. Realtors are adjusting strategy, positioning themselves for a recovery, and some are leaving the business.
War is not good
Washington Post (via the Tennessean): In the United States, a move to greatly expand Buy American provisions as part of the $819 billion fiscal stimulus package has generated shock waves overseas, with Canadian and European officials in particular rising up in protest.
For all the points of disagreement, economists agree that at the onset of the Great Depression there were three policies that made things worse - cutting the money supply which raised interest rates, tax increases, and the Smoot-Hawley bill that increased tariffs and launched a global trade war. We've learned. The Fed has lowered interest rates and has signaled that they will stay low. We're not talking about raising taxes. Can Obama resist the protectionist tendencies that emerged in the House?
Subscribe to:
Posts (Atom)