Posted by Michael A. Kamperman on March 29, 2011
A debate has erupted between Paul Krugman and James Galbraith over whether or not deficits matter in the long run. The debate centers on the utility of Modern Monetary Theory, which in a nutshell is the usefulness of the federal government printing money to stimulate demand. While I agree with Galbraith, the specifics and nuances of the debate are not important (they can be found on Paul Krugman’s blog). What is important is that the debate is taking place. On the national level no one is talking about the federal governments ability to print money and end the current depression. All of the talk is about the debt and the deficit and the existential threat they make to the United States. Of course such thinking is hogwash since we can pay all of our debt by pushing a button on a computer, and we control the computer printing press. We still think and operate as though we are on the gold standard and bound by the physical laws of nature. We are no different than ancient people who would sacrfice a community member to apease the gods and try to make it rain during a drought. Basically, we are economically sacrificing so many people; students and teachers, construction workers, the disabled, the poor, and so many more. The reason for the sacrifice is because we are afraid our currency and economy will collapse into bankruptcy and hyperinflation when we reach the point where we are unable to pay back the debt caused by large deficits. It matters not whether the number entered into the computer to print is $1, or $10, or $10 million, or $10 trillion all that is required for the U.S. to pay back its debt is to enter any number and hit print. It’s not like gold, we cannot run out of the stuff. Yet we are willing to close nursing homes and school libraries and let college graduates move back home with Mom and Dad with nothing to do all day but play video games because we are afraid to use something that we have an unlimited supply of, which is dollars. If we would use those unlimited dollars, then whole country could go back to work in weeks.
Hopefully this debate will be joined by others giving it a chance to make it up the chain to the policy maker level, because no one at that level is talking about it. They need to start talking about something besides austerity. Imagine you are a young man with 5 minutes to get to your Valentine’s Day date at a fancy restaurant with a girl you’ve been dying to go out with. You realize you forgot your wallet and you ask me for help. I offer you a choice of my wedding ring made up of $500 worth of gold, or a $500 bill. If you want the date you have to grab the paper, because the ring can’t buy you dinner at the restaurant and the paper can. So why in the world are we worshipping the ring and obeying its rules rather than using the paper and following its different set of rules?
This country desperately needs this debate. For starters, we need QE3 and a big new stimulus plan. Home prices are still going down because it is too difficult to get a mortgage. I know of a young couple who applied for an FHA mortgage and were turned down on their own and needed a co-signor. They both graduated from college and had no debt. They both had full-time jobs in their field of study and they both had a good credit score. But because they had no debt they had very little credit history. Under the new rules you cannot get an FHA mortgage without two years history on three different credit lines. Your rent cannot be used as evidience you will pay your mortgage. What you really need are three credit cards. It is unfathomable that the federal government, which already back-stops 90% of the mortgages in America, would have policies keeping qualified borrowers out of the market over a fear of the taxpayer losing one more dime. Even though the federal government can mint the dimes. We need sanity to return and this debate may return it. As an aside Bob Herbert has left his position as a New York Time columnist. He got the problem. His last words were about how we need new leadership and new ideas. Ditto!
Posted by Michael A. Kamperman on March 8, 2011
The question is why, not when. We know when happened after Barack Obama won the Presidency in November of 2008. Earlier in 2008, McConnell, Boehner, and Cantor joined the vast majority of Republicans and Democrats in voting for the Economic Stimulus Plan of 2008, which was signed by President Bush. This was the fist stimulus of the depression and basically mailed out a few hundred dollars in tax refunds to millions of Americans. It was pure Keynsean Economics, which is have the government stimulate demand when the private sector is unable to. It will never be clear if the revolt in the House was purely freedom from party discipline, or a desire to derail President Obama. Whatever, the recent abandoment of Keysean Economics has opened the flood gates to Libertarianism in the Republican Party. Put simply, the Republican party has moved from the party of less government to the party of almost no government. In moving they have left moderates in their wake. Moderates like me. When it comes to choosing a quality education for our children versus lower taxes, I choose the children.
My thoughts are the Republican leadership has a tiger by the tail and at this point risks being eaten if it lets go. The objective of this blog is economics. But politics has a significant effect on economic outcomes by dictating policy. Because of the rise of the Tea Party the Republican Leadership dares not let go of that tiger’s tail. But let go they must if they want to see economic prosperity in America. Firing Teachers is no way to create jobs in the near term, nor the long term.
The point is the abandonment of Keynes is not based on intellectual rigor, it is based on pure politics. Those playing these politics don’t understand the obstacles they are placing in front of economic recovery and job creation. Shockingly, the Obama Administration has decided to play anti-Keynsean lite rather than confront head-on the return to Hoover style early 1930′s economic policies. Texas, my home state, desperately needs the federal government to pass another stimulus plan. The state is slated to cut $15 billion over the next two years because stimulus funds will soon run out rather than increase the budget by the $13 billion needed to maintain current services based on population growth. Texas already is run lean, so they will be cutting into bone, not fat. Republicans used to believe government needed to be run efficiently and effectively. Now they not only preach government is not the solution, they preach government needs to be all but eliminated. I’m sorry, my niece and nephew need a quality education and my family needs the highest moral authority charged to any state…national security. Republicans danced with the devil when they abandoned Keynes, now many of them rue the day they did.
Posted by Michael A. Kamperman on March 6, 2011
The old saying is believe nothing of what you hear and half of what you see. The collapse of the American economy continues to unfold right before our eyes even as the spin doctors try to convinve us otherwise. For instance, take the recent 8.9% unemployment rate. The four numbers you need to know are 4, 5, 6, and 7. We have 4 million fewer people counted as wanting a job badly enough versus 4 years ago. Currently, 5% of the U.S. adult population has been dropped from the labor force versus 4 years ago. There are 6 million people (of those still officially counted) who have been out of work 6 months or longer. And sadly, 7 million fewer people have a job in America today than did 4 years ago. That’s any job, part-time or full-time, low-skill or low-wage. A hidden truth behind the numbers is we have lost more than 7 million good paying jobs with benefits and we have replaced some of those jobs with part-time, low-wage, low-skill jobs. Not exactly Morning in America. This despite the Fed printing money (though not enough) and the Stimulus funds still flowing out of Washington (though not enough). One long time measure of the health of the economy is Industrial Utilization. A measurement above 80% usage of exisiting facitlites is a sign of needed expansion of additional facilities. The economy has only recovered to a 76% utilization rate, which means we still have a ways to go before we need to add new net plant and equipment. Another measure of economic vitality is the health of the housing market. Sadly, this sick patient is on the verge of falling into a coma. The mortgage industry and the federal government have totally botched a decades old system of success. The White House response is to remove the federal government from 90% of a market it now controls and turn 90% of it over to the private sector. Has anyone in Washington figured out that in most instances the taxpayer and the home-owner are one and the same?
We are on the cusp of the second leg down of the New Great Depression. The stimulus that has propped up state and local governments ends this summer. We have already seen 330,000 state and local government workers lose their jobs with stimulus funds. The real cuts are coming this summer to a school district near you. The President should be ashamed to talk about how educating our kids is a bi-partisan shared priority. Shared by whom? The Republicans who want to cut $100 billion a year from federal spending for things like education, or the Democrats who are willing to meet them “half-way.” How about the President standing up and saying they will only cut one dime from education over his veto? If Ben Bernanke loses his back-bone and is unwilling to push QE3 in the face of two or more no votes on the Fed and screams from the Congressional Austerity Crowd, then the downdraft will be swift. If he stands tall in the saddle then it will be drip, drip, drip. At least in Wisconsin both sides have found a back-bone and hopefully wisdom will prevail and they will find common ground.
Where is the person in Washington who is willing to say we don’t have a spending problem, we have an unemployment problem. If we put the 7 million Americans back to work who have beend discarded, and we find jobs for the 4 million Americans who have graduated and shown up for work but found no room at the inn, then we flip from a country with 44 million people standing in bread lines called SNAP (food stamps) to a country with 11 million more tax-payers not needing federal help for food and a roof. America used to see itself as a beacon of light to the world. We used to see ourselves as the Greatest Nation on Earth. We viewed ourselves as a can-do people. Now, our leaders only talk about what we can’t do. They talk about our limits, not about our aspirations. We used to beleive the secret to success was growth and now we are being sold a bill of goods that says the secret to success is cuts. Where is our yearning for excellence? Where is our confidence that the next generation will be better off than we are? There are multiple ways to move our country forward and none of them include the concept of retreat preached by the Austerity Crowd.
