Political Roundtable Cosmic String of Cataclysm - Part V

[Zonkerbl]

Weeeeeeelll...

As much as I love Krugman's balls (wait, what?) in coming out and making it absolutely clear that academic economists are not all neocon supply siders, I don't agree that the U.S. government can have much of an effect on employment.

The government's job is to address market failures in order to create an environment where the market can function the way it's supposed to. That's a long term view that includes keeping the debt to a manageable level.

Now. I do agree with Krugman that the 2009 recession was exceptional and did require some intervention. I think the package that they ended up passing had about $300 billion of genuine stimulus in it and the remaining $700 billion or so, including all the tax cuts, was all pork and corporate welfare. Increasing the size of THAT bill to $2 trillion would have been an enormous waste of money. I also think that there was really only about $300 billion of genuine public investment projects that were ready to go at the time, so that was about as big of a stimulus as the government could have realistically provided.

Is it appropriate to propose draconian spending cuts just as the U.S. is pulling itself out of the worst recession in 100 years? Absolutely not. Idiotic. But are there sensible ways to cut the deficit without cratering the economy? Yes. $26/ton tax on carbon emissions, $1000 tax on guns -- that's $4 trillion, legalize marijuana and tax that -- goodness knows how much revenue that would raise. A LOT, probably. At least $10 billion a year, I would imagine, that's $100 billion over ten years -- nothing to sneeze at.

Furthermore, is it true that social security will be bankrupt in fifty years or so and we need to grab any opportunity we can to reform it? Yes, although no one's talking about ss now.

Is it true that health spending is out of control and we need to take whatever opportunity we can to address that? Yes. How much would I pay to reform medicare? Would I be willing to plunge the U.S. into a 3 year recession by including medicare cuts in an insane and irrational $5 trillion package of spending cuts? Well... yeah, I guess I would. But that's my limit. I would NOT accept defaulting on the U.S. debt and sending the world into a global thermonuclear economic meltdown.

[sfam]

Comparing the national debt to a household budget is a common fallacy. The two are not at all alike. Unless you are about 250 years old and expect to live several thousand years (although discounting makes only the next 100 years relevant). And people pay you to borrow their money. And you expect your income to grow by about 2% a year, net of inflation, for several thousand years.

We can carry more debt than other countries because we are at the top of the economic food chain. However, the global economic impact of us having too much debt is much greater than any other country. Look at the problems Greece's debt issues are causing everybody and multiply that by 1000.

Hard to tell how much debt is too much. At what point do you think it's a genuine possibility that we won't be able to pay back our loans? I think it's safe to say 150% of GDP is too much and that I'd feel much more comfortable at 75%. Can we carry 100% of GDP safely? Probably. Should we? I don't think so.

Japan is currently at over 240% of GDP, far more than twice that of Greece. Their interest rates haven't skyrocketed, in fact they've been at near zero forever, and probably will stay that way for the forseable future just as the megalomaniac, Krugman and others suggest. But considering they are more than twice Greece's levels, we should be seeing twice the unrest and raging protests with samurai swords in the streets. Perhaps I'm not very good at the google machine, as all outward appearances suggest they are still a stable and functioning society.

Or perhaps Japan isn't that much like Greece...

[Zonkerbl]

Comparing the national debt to a household budget is a common fallacy. The two are not at all alike. Unless you are about 250 years old and expect to live several thousand years (although discounting makes only the next 100 years relevant). And people pay you to borrow their money. And you expect your income to grow by about 2% a year, net of inflation, for several thousand years.

We can carry more debt than other countries because we are at the top of the economic food chain. However, the global economic impact of us having too much debt is much greater than any other country. Look at the problems Greece's debt issues are causing everybody and multiply that by 1000.

Hard to tell how much debt is too much. At what point do you think it's a genuine possibility that we won't be able to pay back our loans? I think it's safe to say 150% of GDP is too much and that I'd feel much more comfortable at 75%. Can we carry 100% of GDP safely? Probably. Should we? I don't think so.

Japan is currently at over 240% of GDP, far more than twice that of Greece. Their interest rates haven't skyrocketed, in fact they've been at near zero forever, and probably will stay that way for the forseable future just as the megalomaniac, Krugman and others suggest. But considering they are more than twice Greece's levels, we should be seeing twice the unrest and raging protests with samurai swords in the streets. Perhaps I'm not very good at the google machine, as all outward appearances suggest they are still a stable and functioning society.

Or perhaps Japan isn't that much like Greece...

I would hate to have Japan's economy, which has been stagnant for a couple decades now, yuck. They have clearly sacrificed future growth by accumulating all that debt. Japan's story is the primary reason why I would rather avoid carrying 150% of GDP or more in debt.

http://upload.wikimedia.org/wikipedia/c ... 008%29.png

[sfam]

Point was trusting a guy who is responsible, in large part, for the situation to begin with (he of service economy/globalization hype to Presidents in the 80s) likely isn't the best idea.

He is a known egomaniac, and fiercely protects his previous predictions in mind-numbing ways. Can't really trust him when he blows off an 18 trillion dollar debt, mostly due to what reads like an aversion to multitasking the financial crisis.

Wow, its all Krugman's fault? Has he been sued for this? I had no idea he was in government making policy. Someone really needs to update his bio and work history on wikipedia. It seems to show him working as an academic and columnist this whole time. Do you regularly blame academics and columnists over policy makers and regulatory enforcers, or are you making an exception here?

And his rationale for changing views seems rather straightforward to me - he was interested in reducing debt when the economy was growing, but now that we've had the greatest downturn since the 30s, he sees different needs for getting us out of the ditch. This is hardly a crazy defense.

[sfam]

I would hate to have Japan's economy, which has been stagnant for a couple decades now, yuck. They have clearly sacrificed future growth by accumulating all that debt. Japan's story is the primary reason why I would rather avoid carrying 150% of GDP or more in debt.

I would hate to have their economy as well. Considering they've largely been trying austerity for the better part of 20 years, perhaps we can learn from that. Austerity leads to flat growth, as Euope is proving right now, or as the sequester is proving in the US now. Cutting off government spending in a significant downturn not surprisingly leads to more unemployment and slower growth, which leads to less taxes paid, which of course leads to more debt. Welcome to the Republican economic plan.

[Zonkerbl]

Now I'm confused, first you cite Japan as a reason why we shouldn't worry about carrying 240% of GDP in debt, then as an austerity-driven basket case.

The lesson I get from Japan is, for God's sake don't let your debt burden get so high that no amount of austerity can get rid of it! That and don't let your old people get too old. Japan is also a good example of what will happen if we don't fix social security. The world won't end, we will just sacrifice all future growth. It will be boring and sad.

[sfam]

Now I'm confused, first you cite Japan as a reason why we shouldn't worry about carrying 240% of GDP in debt, then as an austerity-driven basket case.

The lesson I get from Japan is, for God's sake don't let your debt burden get so high that no amount of austerity can get rid of it! That and don't let your old people get too old. Japan is also a good example of what will happen if we don't fix social security. The world won't end, we will just sacrifice all future growth. It will be boring and sad.

The reason its connected is austerity during a downturn leads to a shrinking economy which leads to more debt. But in either case, Japan isn't ending up like Greece.

[Zonkerbl]

Now I'm confused, first you cite Japan as a reason why we shouldn't worry about carrying 240% of GDP in debt, then as an austerity-driven basket case.

The lesson I get from Japan is, for God's sake don't let your debt burden get so high that no amount of austerity can get rid of it! That and don't let your old people get too old. Japan is also a good example of what will happen if we don't fix social security. The world won't end, we will just sacrifice all future growth. It will be boring and sad.

The reason its connected is austerity during a downturn leads to a shrinking economy which leads to more debt. But in either case, Japan isn't ending up like Greece.

Good, then you agree with me.

[Induveca]

Now I'm confused, first you cite Japan as a reason why we shouldn't worry about carrying 240% of GDP in debt, then as an austerity-driven basket case.

The lesson I get from Japan is, for God's sake don't let your debt burden get so high that no amount of austerity can get rid of it! That and don't let your old people get too old. Japan is also a good example of what will happen if we don't fix social security. The world won't end, we will just sacrifice all future growth. It will be boring and sad.

Thanks for saving me from writing the same...

[dobrojim]

what is your response to Krugman's arguments that the indicators
of excessive debt are lacking ie that we should not compare ourselves
to any of the european basketcases?

You say that we CLEARLY fall into the unmanageable debt side of
the equation. What economic indicators drive you to that conclusion?

PS - Griftopia goes a bit beyond your simplistic description.
Matt Taibi knows of what he writes.

through the last page of give and take
my questions remain unanswered

just thought I'd point that out.

Also to zonk, the govt actuarials that have been making the predictions
for SS have consistently made very conservative growth projections leading them
to make more pessimistic projections for when the money runs out. Bottom line there
is that pretty modest adjustments ought to make SS solvent for as long a
period of time as can be reasonably predicted. 2 possible solutions I would favor are or
raising the limit on SS taxes or making something like carried interest
be subject to those taxes.

[popper]

Interesting reading on this site regarding austerity, Krugman, etc. Different perspectives all with some degree of merit. My take for what it's worth;

Is it true that all income derived in our economy has its genesis in business activity and profit? Every federal, state, municipal and private sector employee derives every penny of their income from the private sector. If it weren't for profitable business', govt. could not exist. Therefore shouldn't we all cheer business profit as long as it is earned honestly and with as little harm to the environment as possible?

Shouldn't we extract for govt. purposes as little business profit as possible so it can instead be used to reward worthy employees, shareholders, and be used to expand business operations (thus creating more jobs and more govt. revenue)?

Isn't a big govt., dependent as it is on higher and higher claims on business profit and individual income a drag on the productive capacity of a nation? I could write ten pages of text detailing how govt. discourages business formation? Isn't this the opposite of what we should be aiming for?

When the economy slows or retrenches should we stimulate it by extracting more and more from business and individual income in the false hope that a mindless, faceless bureaucracy, devoid of risk/reward accountability, is better able to allocate finite resources? I shudder to think what will become of us if we believe such nonsense.

[hands11]

I would hate to have Japan's economy, which has been stagnant for a couple decades now, yuck. They have clearly sacrificed future growth by accumulating all that debt. Japan's story is the primary reason why I would rather avoid carrying 150% of GDP or more in debt.

I would hate to have their economy as well. Considering they've largely been trying austerity for the better part of 20 years, perhaps we can learn from that. Austerity leads to flat growth, as Euope is proving right now, or as the sequester is proving in the US now. Cutting off government spending in a significant downturn not surprisingly leads to more unemployment and slower growth, which leads to less taxes paid, which of course leads to more debt. Welcome to the Republican economic plan.

We have been talking about this for a very long time and nothing about the facts has changed.

We have infrastructure to rebuild. We need to rebuild it. And right now it would be cheap to do.

If we are going to spend, wars is not as fruitful as road and bridges, R&D, etc.

We need to invest, not just spend. We need to next internet market to get discovered. That is what will create the growth in revenue.

Sorry, but there isn't a thing about what the current R party wants to do that is right. We are where we are by choice. Things could be way better. If only people wouldn't get in the way of progress.

Not that it is directly and economic issue or not, but were did all this gay hate from them get us. It didn't stop things from changing. Old tired ideas die of with the old tired people that have them. We wasted a boat load on money and a crap load of injustice along the way to getting to the same damn place. And why ? We all know the change was going to happen anyway.

Immigration. Wrong.

Wars. Check. 2-3 Trillion in wasted money and for what.

Environment. They are wrong again.

Supply side economics. Wrong. Gold prices. Wrong.

Taxes for the richest over the masses. Wrong again.

Drug laws ? Check. But boy have the jailed locked up a lot of people. Made a killing doing it.

Voting right ? Nope.

I have faith we will eventually get all these things right. We always do. But who is standing in the way of us getting there faster.

Personally, I still to the ideas, not the parties. I would be a R if they weren't so backward about obvious solutions to obvious issues.

[nate33]

Gold prices. Wrong.

I'm confused. What's wrong about gold prices?

[Zonkerbl]

Interesting reading on this site regarding austerity, Krugman, etc. Different perspectives all with some degree of merit. My take for what it's worth;

Is it true that all income derived in our economy has its genesis in business activity and profit? Every federal, state, municipal and private sector employee derives every penny of their income from the private sector. If it weren't for profitable business', govt. could not exist. Therefore shouldn't we all cheer business profit as long as it is earned honestly and with as little harm to the environment as possible?

Shouldn't we extract for govt. purposes as little business profit as possible so it can instead be used to reward worthy employees, shareholders, and be used to expand business operations (thus creating more jobs and more govt. revenue)?

Isn't a big govt., dependent as it is on higher and higher claims on business profit and individual income a drag on the productive capacity of a nation? I could write ten pages of text detailing how govt. discourages business formation? Isn't this the opposite of what we should be aiming for?

When the economy slows or retrenches should we stimulate it by extracting more and more from business and individual income in the false hope that a mindless, faceless bureaucracy, devoid of risk/reward accountability, is better able to allocate finite resources? I shudder to think what will become of us if we believe such nonsense.

Wow, so much to answer to! The answer to this question is basically the entire field of microeconomics.

So this is the neocon philosophy in a nutshell: markets are good, we should always trust them no matter what because what are you, a commie?

It is based on one of the theorems that are only true in extremely restricted circumstances, namely, long run perfect competition. Perfect competition assumes all actors are small, all actors in the economy have instantaneous and costless access to all production technologies, all actions of all actors are instantly observable to all other actors, all transactions are costless, there is no such thing as private knowledge (because everything everyone knows is instantaneously available to everyone else), all property rights are clearly defined and enforcement of property rights is costless, and the consumption of all goods is excludable (you can prevent people from consuming them) and rival (one person's consumption of a good makes less available to others). In the long run, when entry and exit of firms has guaranteed that all firms are operating on the minimum of the average cost curve, then you can say that the resulting allocation of resources is Pareto optimal -- a Socialist central planner cannot reallocate resources in a way that would make anyone better off. In other words, when these conditions hold, you can trust markets.

These conditions NEVER hold. That opens up opportunities for government interventions that can improve on the allocative result of markets. Doesn't, however, necessarily mean that the government has the information necessary to know how to carry out the proper reallocation (that was Hayek's contribution). So the field of microeconomics is largely an exercise in studying what happens when you relax one or more of these assumptions, and whether there's a way for government intervention to improve on the market outcome.

If you relax the assumption of "small actors" you get monopolies.

If you relax the assumption of instantaneous and costless access to all production technologies, you get the lack of unconditional convergence (persistence of the income gap between rich and poor countries) and other things.

If you relax the assumption of costless transactions, you get situations where the original allocation of resources has inertia, which can result in suboptimal outcomes. This is related to the "costless enforcement of property rights" assumption. When it holds, you get the Coase theorem -- no matter what the original pattern of resource endowments, markets will ensure that all welfare improving transactions take place, so you don't have to worry about the original allocation of wealth. When transaction costs are high, or property rights are not well defined or costly to enforce, inheritors of wealth have lower costs of income enhancing investments. Poorly defined property rights are also the root cause of externalities, like pollution and traffic congestion.

If you relax the perfect information assumptions, you get moral hazard and adverse selection, adverse selection being the market failure extant in the health industry.

Goods that are non-exclusive and non-rival are public goods that the private sector has no incentive to produce. The biggest example is national defense. My consumption of national defense does not make national defense less available to you, and there is no way to defend some people but not others.

[Zonkerbl]

Gold prices. Wrong.

I'm confused. What's wrong about gold prices?

THEY'RE JUST WRONG

[popper]

One can deduce from the article below that the Fed is terrified and frantically trying to prop up a dying horse. It's only a matter of time before the horse collapses to crush the rider beneath it. Hopefully in the remnants of ruin we can save Big Bird and NPR and, my friend's cousins in Scranton who faked back injuries five years ago to collect disability for life. Only in America.

Fed: Fiscal Policy is Restraining Growth

...... The Federal Reserve held fast to its ultra-accommodative monetary policy Wednesday, solidified by what board members described as an economy weakened by fiscal policy.

Interest rates will remain at historically low levels while the U.S. central bank will not alter its $85 billion a month asset purchasing program, the Fed's Open Markets Committee decided at this week's meeting.

While recent meetings have been remarkable for signs of dissent over the long-standing Fed policy, the sentiment this month turned towards concerns about "downside risks" to growth, though the FOMC made no mention of the recent set of weak economic data.

http://www.cnbc.com/id/100695681

[popper]

Typical - Pass a law that will never work - when it's obvious the policy will fail - ask for more money.

Reid: More funding needed to prevent ObamaCare from becoming 'train wreck'
By Alexander Bolton - 05/01/13 05:45 PM ET

Senate Majority Leader Harry Reid (D-Nev.) says he shares colleagues’ concerns that the Affordable Care Act could become a “train wreck” if it’s not implemented properly.

Reid warned that people will not be able to choose health insurance plans on government health exchanges if federal authorities lack the resources to set them up and educate the public.


Read more: http://thehill.com/homenews/senate/2973 ... z2S6HAHUAU

[DCZards]

Typical - Pass a law that will never work - when it's obvious the policy will fail - ask for more money.

Reid: More funding needed to prevent ObamaCare from becoming 'train wreck'
By Alexander Bolton - 05/01/13 05:45 PM ET

Senate Majority Leader Harry Reid (D-Nev.) says he shares colleagues’ concerns that the Affordable Care Act could become a “train wreck” if it’s not implemented properly.

Reid warned that people will not be able to choose health insurance plans on government health exchanges if federal authorities lack the resources to set them up and educate the public.

What this article says is that resources are needed to both implement the health care law and educate people about It. That shouldn't come as a surprise. It also says that the Repubs are doing everything they can to stop the law from being implemented, including blocking the funding needed to educate Americans about the law. That also does not come as a surprise.

Here's the most important paragraph in the article, IMO:
"I believe that a country of our size, the only superpower left in the world — it’s not right that we have 50-60 million people … with no health insurance,” Reid said. “We have to have a program where health insurance shouldn’t go to people who are rich, people who are upper-middle class. I believe the middle class and people below the middle class deserve to go to the hospital when they’re sick.”

[popper]

Typical - Pass a law that will never work - when it's obvious the policy will fail - ask for more money.

Reid: More funding needed to prevent ObamaCare from becoming 'train wreck'
By Alexander Bolton - 05/01/13 05:45 PM ET

Senate Majority Leader Harry Reid (D-Nev.) says he shares colleagues’ concerns that the Affordable Care Act could become a “train wreck” if it’s not implemented properly.

Reid warned that people will not be able to choose health insurance plans on government health exchanges if federal authorities lack the resources to set them up and educate the public.

What this article says is that resources are needed to both implement the health care law and educate people about It. That shouldn't come as a surprise. It also says that the Repubs are doing everything they can to stop the law from being implemented, including blocking the funding needed to educate Americans about the law. That also does not come as a surprise.

Here's the most important paragraph in the article, IMO:
"I believe that a country of our size, the only superpower left in the world — it’s not right that we have 50-60 million people … with no health insurance,” Reid said. “We have to have a program where health insurance shouldn’t go to people who are rich, people who are upper-middle class. I believe the middle class and people below the middle class deserve to go to the hospital when they’re sick.”

I don't argue that the country needs to reform the healthcare system and that many people, unable to afford healthcare, can and should be helped by those of us more fortunate. My frustration is that I know the current fix will not work. It is far too complicated...... it is a drag on employment....... and it will drive doctors out of the system (to name just a few of its shortcomings). I wish a bipartisan group would band together and propose a substitute bill that is better tailored to achieve national objectives.

[Zonkerbl]

Start that discussion with a public option...

IT'S SO CRAZY IT JUST MIGHT WORK