The West and the Tyranny of Public Debt –

The West and the Tyranny of Public Debt –The history of public debt is the very history of national power: how it has been won and how it has been lost. Dreams and impatience have always driven men in power to draw on the resources of others—be it slaves, the inhabitants of occupied lands, or their own children yet to be born—in order to carry out their schemes, to consolidate power, to grow their own fortunes. But never, outside periods of total war, has the debt of the world’s most powerful states grown so immense. Never has it so heavily threatened their political systems and standards of living. Public debt cannot keep growing without unleashing terrible catastrophes. Anyone saying this today is accused of pessimism. The first signs of economic recovery, harbingers of a supposedly falling debt, are held up to contradict him. Yet we wouldn’t be the first to think ourselves uniquely able to escape the fate of other states felled by their debt, such as the Republic of Venice, Renaissance Genoa, or the Empire of Spain.

 Gary Burtless on the stimulus – So far, the overwhelming share of that stimulus has been devoted to three items: Tax cuts for households; direct benefits to people adversely affected by the severe recession, mostly the unemployed or poor; and fiscal relief to state and local governments. Vermont did not need any "Czar" to receive or administer funds under these programs. The money for them quickly left the U.S. Treasury without any effort on the part of the Czar who penned this highly misleading op-ed piece. People in Vermont *directly* received benefits from the stimulus as: (1) lower federal tax withholding from their paychecks; (2) extended unemployment benefits; (3) premium subsidies so they could maintain their health insurance after they were laid off from a job in which they received health protection; (4) miscellaneous benefits (e.g., for college costs) under one provision or another; and (5) aid from the Treasury that permitted Vermont and its localities to finance their Medicaid and K-12 education programs without hiking taxes or lowering other public spending. The kinds of infrastructure spending for which the WSJ’s "Czar" had some responsibility constituted a small percentage of the stimulus the Congress authorized for 2009 and 2010.

Getting Corruption Right – –Transparency International and occasionally the World Bank like to rank countries by their degree of corruption, with the media then ceaselessly citing where each country stands. But cultural differences between countries undermine the legitimacy of such rankings – which are, after all, based on surveys of the public. What Obama was doing was a common enough practice in the United States; it was not so in India, where such a technique is, indeed, regarded as reprehensible. A similar bias arises from the occasional tendency to view political patronage elsewhere as being more corrupt than the same practices at home. For example, when the East Asian financial crisis broke out, there followed a systematic attempt to pin the blame on the affected countries: “crony capitalism” allegedly had somehow crippled their economies! In other words, the acquaintances and benefactors of the East Asian leaders were “cronies,” whereas those of US leaders were “friends”? In fact, it was clear that the culprits were the International Monetary Fund and the US Treasury, which had encouraged a shift to capital-account convertibility without understanding that the case for free capital flows was not symmetrical with the case for free trade.

Who Benefits from Long-Term Unemployment? – The share of the labor force that has been out of work for at least six months remains near an all-time high. Long-term unemployment is clearly terrible for the millions of people who find themselves in that situation. But it does have a flip side for the rest of the labor force: unemployment in this downturn has been concentrated among a surprisingly small number of people. The most recent data, shown above, goes through only 2009, but other data suggests the pattern has continued in 2010: A significantly smaller share of workers experienced any spell of unemployment in the last few years than in the other deep recessions of the past 50 years. That’s why the peaks above are higher for the mid-1970s recession and the early-1980s recession than for our recent recession. In essence, a relatively small number of people have borne a disproportionate share of the brunt of the Great Recession.

Facts or Fallacies? Part II: In which Paul Krugman takes his lumps and eats them too while Jamie Galbraith runs afoul of the notorious lump-of-labor fallacy-fallacy – In comments at Angry Bear in response Part I, it was suggested that Paul Krugman has also made the lump-of-labor fallacy claim and that perhaps I should be talking about his arguments (or those of Paul Samuelson) instead of those of conservative think-tankers. Both of those liberal Keynesian economists have indeed advanced the fallacy claim. I would love to discuss the matter with Professor Krugman and sent him an invitation. Meanwhile, indulge me while I rehearse my debating points on some archival material. I’d also like to bring in a few big names on my side: James K. Galbraith, Dean Baker and… Paul Krugman! Just to even things out, the pre-recession Krugman gets Bruce Bartlett and Larry Summers on his tag team.

Models Used for Policy Should Reflect Recent Experience, But Do They? – Data from the Department of Commerce show that short-term stimulus funds did not go to increase federal purchases, or state and local purchases, or even consumption purchases by much over the past few years. Thus the packages did not materially stimulate GDP or employment. In a recent Commentary piece “Where Did the Stimulus Go?" John Cogan and I review and explain our empirical research using these data. Unfortunately, most Keynesian models have been not adjusted to incorporate these facts, so they keep making the same predictions. To cite one example, the multipliers in Mark Zandi’s model as of July 2008 are found here (page 52 of the full document, 5 of the paper) while the multipliers as of December 2010 are found here. They are virtually the same. The model assumes a multiplier from a temporary tax rebate or refund which is greater than one, even though the actual data show it was much less than one in the case of the 2008 and 2009 stimulus packages. Note that the model also assumes a multiplier from a permanent tax cut which is only about 1/3. The relative sizes of permanent and temporary effects are exactly the opposite of what basic economics implies.
Top Marginal Income Tax Rates & Real Economic Growth, a Bar Chart – The chart below shows tax rates on one axis and the growth rates in real GDP that accompanied those tax rates on the other: I broke the tax ranges into 5 percentage point increments centered around intuitive numbers (30%, 35%, etc.). Growth rates are the median observed for each range. For ranges which did not occur in the real world, growth rates are left blank. Top marginal tax rates come from the IRS’ Statistics of Income Historical Table 23, and are available going back to 1913. Real GDP can be obtained from the BEA’s National Income and Product Accounts Table 1.1.6, and dates back to 1929. Thus, the graph uses data starting in 1929.

We haven’t posted a good green vs. green spat in a while – Today, American Bird Conservancy announced that three iconic American bird species face especially severe threats from wind energy development.  "Golden Eagles, Whooping Cranes, and Greater Sage-Grouse are likely to be among the birds most affected by poorly planned and sited wind projects,” said Kelly Fuller, Wind Program Coordinator for American Bird Conservancy, the nation’s leading bird conservation organization. “Unless the government acts now to require that the wind industry respect basic wildlife safeguards, these three species will be at ever greater risk.” The U.S. Fish and Wildlife Service (FWS) currently estimates that more than 400,000 birds are already being killed each year after being struck by the fast-moving blades of wind turbines. This figure is expected to rise significantly, and will likely eventually pass the million mark as wind power becomes increasingly ubiquitous under a Department of Energy plan to supply 20% of America’s power through wind by 2030. Golden Eagles have already been one of the major victims of the largest wind farm in the United States at Altamont Pass in California. The Altamont wind farm was sited in an area that eagles and other raptors use to hunt ground squirrels and other small mammals. Using the now-outdated towers as perches, thousands of raptors have been killed as they launch out through the spinning turbines towards their prey.

The Housing Market’s Double Dip – The LA Times greets my return to blogging with some grim news this morning: Prices of previously owned single-family homes fell 0.8% in October from the same time last year, according to the Standard & Poor’s/Case-Shiller index of 20 metropolitan areas. The closely watched index fell 1.3% from September to October as six metro areas hit fresh lows. "It is grim, baby. We don’t see any basis for sustained price increases in 2011,"  "Prices are going to be in the doldrums all year, and usually you look for housing to lead the overall recovery, but that seems doubtful." We’re now starting to see housing data that fully reflects the end of the end of the housing tax credit earlier this year, and sure enough, prices have started to fall again. Ezra Klein points us to Gary Shilling for more, and I find Shilling partly persuasive and partly not. However, the bulk of his argument is sound, especially his observation that housing inventory is still abnormally high:

 What’s So Good about America’s Tax Package? – The official budget arithmetic will treat the agreement on personal-income tax rates as a $450 billion increase in the deficit, making it seem like a big fiscal stimulus. But the agreement only maintains the existing tax rates, so taxpayers do not see it as a tax cut. It would be a fiscal stimulus only if taxpayers had previously expected that Congress and the administration would allow the tax rates to rise – an unlikely prospect, given the highly adverse effects that doing so would have had on the currently weak economy.Even for those taxpayers who had feared a tax increase in 2011 and 2012, it is not clear how much the lower tax payments will actually boost consumer spending. The previous temporary tax cuts in 2008 and 2009 appear to have gone largely into saving and debt reduction rather than increased spending. It is surprising, therefore, that forecasters raised their GDP growth forecasts for 2011 significantly on the basis of the tax agreement. A typical reaction was to raise the forecast for 2011 from 2.5% to 3.5%. While an increase of this magnitude would be plausible if a forecaster had previously expected tax rates to increase in 2011, it would not have been reasonable to forecast 2.5% growth in the first place with that assumption in mind. So, either the initial 2.5% forecast was too high or the increase of one percentage point is too large. What is true of the agreement is also true of the decision, as part of that agreement, to maintain unemployment insurance benefits for the long-term unemployed. This, too, is essentially just a continuation of the status quo. No new benefit has been created.

Dodd-Frank Regulatory Reform Rules – FRB St. Louis -Track the progress of more than 200 proposals and rules that will be written by various federal agencies as part of the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. How to Use This Site:

  • Latest Updates:  This homepage feature shows the most recent rule activity regardless of status, and is generated by the site’s RSS feed. Older rule activity can be found by status via the navigation tabs.
  • Open for Comment:  In this section, view all the proposed rules that are open for comment and published in the Federal Register, and also find out how and when to submit comments to the respective agency(ies).
  • Proposed:  This section lists all rules that are proposed and are waiting for final approval.
  • Final:  This section lists all final rules, and includes critical effective or mandatory compliance dates.
  • Resources:  Links to all 11 agencies involved in the Dodd-Frank Act rulemaking process, as well as a quick tutorial on how a rule is made.
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