“If the US government had a dollar every time someone proclaimed to learn the lessons of the Great Depression, we probably wouldn’t have a budget deficit” (Auerback 2010). Indeed, the Great Depression does offer an abundance of applicable information to aid in the understanding of business cycles and the subsequent methods of countering and avoiding them. In particular, the so-called “Roosevelt Recession” was most likely an avoidable second dip in economic growth. After the Great Depression ended in 1933, the United States was experiencing record growth and was well on the way to a full and sustainable recovery. However, premature fiscal austerity measures to balance ballooning deficits helped cause the economy to stumble again. Consequently, President Roosevelt reversed the policies and the economy once again regained traction. Fast forward to the present day United States and the same calls for fiscal austerity and balanced budgets in a slumped economy laden the mainstream media. Though many would disagree that this is the correct action to take, it seems to be a losing battle.By analyzing the alleged lessons of the Great Depression, policy makers of today would have a better understanding of what impacts fiscal austerity in a slump will have on output and unemployment, not mention the deficits.
The recovery from the Great Depression that took place between 1933 and 1937 was substantial but not complete. According to Christina Romer (1993), during this period “monthly industrial production increased by 79 percent” and “real GNP grew at an average rate of nearly 10 percent per year” (p. 34-35). Moreover, unemployment dropped from roughly a quarter of the labor force to about 14.3 percent (Burkett 1994). Though substantial progress was made since the trough of the Great Depression, a full recovery was yet to be experienced.
Unfortunately for the recovery efforts, the economy plunged again in 1937 with lightening speed and mammoth force. The United States experienced a second dip in economic growth in what has been dubbed the Roosevelt Recession. Though this recession was short lived and only lasted until 1938, it was a particularly painful event and a major setback. François R. Velde (2009) notes that “industrial production declined 32 percent…and stock prices declined by over 40 percent” (p. 17). Moreover, unemployment increased from (a still relatively high) 14.3 percent to 19.0 percent(Burkett 1994). Velde, adds that if it were not for this recession, the economy would have made a full recovery from the Great Depression three or four years earlier.
The so-called Roosevelt Recession occurred, at least in part, due to premature contractionary fiscal policy. During the period of recovery after the Great Depression, the New Deal initiatives were financed through debt. As expected, President Roosevelt was met with opposition over this and cries for budgetary restraint rang throughout the political sphere (Goldston 1968). According to Julian Zelizer (2000), Roosevelt was influenced by fiscal conservatives within his Administration, such as Treasury Secretary Henry Morgenthau Jr., to balance the federal budget. Thus, during The Budget and Relief Message of 1937, Roosevelt announced his proactive agenda to balance the budget. In June of 1937, “Roosevelt had slashed spending to the bone. He had cut WPA rolls drastically and slowed PWA projects to a standstill” (Goldston 1968, p. 181).Ultimately, “net government contribution [to income] fell $3.3 billion, from $4.1 billion in [calendar year] 1936 to $.8 billion in 1937” (Roose 1954, p. 70). “In cutting spending Roosevelt had jovially referred to taking off ‘the bandages and throwing away the crutches’ to see if the patient could walk. The patient collapsed” (Goldston 1968, p. 182).
At the same time stimulus spending was being slashed, fiscal austerity also took the form of higher taxes. The Revenue Act that was passed in June 1936 dramatically changed the income tax structure. According to Velde (2009), under this new aggressive tax policy, the top income tax brackets now paid up to 75 percent. As a result, tax revenues increased 66 percent from 1936-37. Velde also notes that the Social Security tax started at the beginning of 1937 and it accounted for “10.5 percent of total federal tax receipts” that year (pp. 19).
Following the economic calamity in 1937, Roosevelt reversed some of the fiscal austerity measures in April 1938 and the economy once again resumed its recovery. The tax rates from the Revenue Act and the new Social Security tax remained the same. However, funding for WPA increased to $1.25 billion, another $1 billion went to other Federal and state public works programs, and an addition $1 billion went to emergency loans (Kindleberger 1973). Shortly thereafter, GNP resumed rising at average of 10 percent a year until the onset of World War II (Romer 1993).
So why did Roosevelt decide to take it upon himself to make the dramatic shift towards fiscal austerity and balance the budget by slashing the New Dealstimulus spending and raising taxes in 1936-37? Zelizer (2000) attributes it for a number of reasons. As mentioned earlier, Treasury Secretary Henry Morgenthau Jr., long time friend of Roosevelt, helped influence the policy decisions of the Administration. Lewis Douglas, Director of Budget 1933-34, also maintained a campaigned of strict fiscal conservatism during his high position in the Administration. Certainly Morgenthau and Douglas both had their impacts on policy. However, according to Zelizer, there was a much deeper underlying factor at work here. Evidently, Roosevelt did not adhere to a strict ideological position. As such, he could change the direction of policy initiatives at whim. In fact, Zelizer goes as far as saying that Roosevelt “played [his] advisers off each other and followed those who made the most compelling political argument at a given time.” (p. 333). Ultimately, Roosevelt gave into the cries for balanced budgets in tough economic times and experimented with fiscal austerity.
Now, for the sake of completeness, it is also fair to note that there are other theories circulating that concerned additional factors that helped cause the 1937-38 recession. During the period leading up to the recession, monetary policy also tightened up. According to Velde (2009), the Fed significantly raised reserve requirements and the Treasury sterilized gold inflows by not converting it to money. In essence, the contractionary reserve requirements caused banks to hold more reserves than they would have otherwise and the sterilization caused the monetary base to grow more slowly than it would have otherwise. “Friedman and Schwartz (1963, p. 544) see monetary policy (that is, the increase in reserve requirements and, ‘no less important,’ the gold sterilization program) as ‘a factor that significantly intensified the severity of the decline and also probably caused it to occur earlier than otherwise.’”(Velde 2009, p. 22)
Fast forward to present day United States and much of the same dire economic circumstances as in the 1930s can be witnessed. Currently, after years in a slump, output is not at potential, the unemployment rate is remaining persistently high, and the housing market is still a disaster. As the Obama Administration attempts (at least on some level) to battlethe on-going economic slump, cries for fiscal austerity from Republicans, conservative Democrats, and even some prominent economists are echoing throughout the media.Though the American Recovery and Reinvestment act of 2009managed to pass in this harsh political climate, the stimulus has seemingly long since expired. Since then, the Obama Administration seemed to of wiped their hands clean of any expansionary fiscal policy. To make matters worse, the debates in Washington D.C., including from the President, seem to gravitate around contractionary policies in order to reduce the deficits.
Christina Romer (2010), former chairwoman of President Obama’s Council of Economic Advisors and Great Depression scholar, is not convinced that fiscal austerity in the face of our currently slumped economy is the best policy to pursue. Rather, she believes that the government should only focus on deficit reduction after the unemployment is back down to natural levels and once the economy has experienced a greater degree of recovery. In the meantime, Romer advocates that any attempts to reduce the budget will only cause additional unemployment and hinder the recovery effort. She even goes as far as warning that the United States might go into another double-dip recession like the Roosevelt Recession if austerity measures such as tax increases and spending cuts are enacted.
Indeed, the Roosevelt Recession of 1937-38 was most likely an avoidable event. President Roosevelt, for whatever reason, whether it be from influence from within his own Administration or outside, or from experimental policies or from a personal initiative, decided to pursue contractionary fiscal policies. His decision to try to balance the budget in the face of a slumped economy helped contribute to the recession that followed. Perhaps he cannot take all the blame for the recession, surely monetary policy also had its dirty little hand in the mess too. However, in the end, Roosevelt reversed the policies and the economy once again regained traction. Today, the Obama Administration faces a similar challenge. Cries for fiscal austerity during a slump are coming from all angles. As a result, there have not been much, if any, expansionary policies since the 2009 stimulus package. Rather, the debate has been focused on balancing the budgets. Perhaps if President Obama, and his economic advisors, were more versed in the Great Depression and the subsequent Roosevelt Recession, the current state of the economy would be in better shape today.
Works Cited
Auerback , Marshall (2010). "The Real Lesson from the Great Depression: Fiscal Policy Works!” Roosevelt Institute. http://www.rooseveltinstitute.org/new-roosevelt/real-lesson-great-depression-fiscal-policy-works (accessed November 27, 2011).
Burkett, Paul. (1994). "Forgetting the Lessons of the Great Depression." Review Of Social Economy 52, no. 1: 60-91. EconLit, EBSCOhost (accessed November 27, 2011).
Friedman, Milton, and Anna J. Schwartz, (1963), “A Monetary History of the United States, 1867–1960.” Princeton, NJ: Princeton University Press.
Goldston, Robert C. (1968)..The Great Depression; the United States in the thirties,. [1st ed. Indianapolis: Bobbs-Merrill, 1968.
Kindleberger, Charles Poor.(1986). The World in Depression, 1929-1939. Rev. and enl. ed. Berkeley: University of California Press, 1986.
Romer, Christina D. (1993)."The Nation in Depression."Journal Of Economic Perspectives 7, no. 2: 19-39. EconLit, EBSCOhost (accessed November 27, 2011).
Romer, Christina D. (2010). "Now Isn't the Time To Cut the Deficit." New York Times, October 24. 5. Academic Search Premier, EBSCOhost (accessed December 3, 2011).
Roose, Kenneth D. (1954). The economics of recession and revival; an interpretation of 1937-1938.. New Haven: Yale University Press, 1954.
Velde, Francois R. (2009). "The Recession of 1937--A Cautionary Tale."Federal Reserve Bank Of Chicago Economic Perspectives 33, no. 4: 16-37. EconLit, EBSCOhost (accessed November 27, 2011).
Zelizer, Julian E. (2000). "The Forgotten Legacy of the New Deal: Fiscal Conservatism and the Roosevelt Administration, 1933-1938." Presidential Studies Quarterly 30, no. 2: 331. America: History & Life, EBSCOhost (accessed November 26, 2011).
Sunday, January 29, 2012
Why I Hate Ron Paul
In a recent debate, the candidates were asked what they would be doing that night if they weren’t running for president. Rick Perry said he’d be at the shooting range. Gingrich was confused about whether there was a basketball or football game on that night, but he was sure that he’d be watching it. Santorum and Romney followed suit. And curiously enough, Ron Paul said that he’d be at home reading an economics textbook. Now, to me, it doesn’t seem like he’s ever read an economics text book. Or if he has, he’s managed to take all the completely wrong lessons from it. Now let me tell you why.
First of all, I think that Ron Paul should pick up an economic history book and learn about all the inherent problems the United States has suffered through because of the gold standard and the hard money policies he's currently advocating. Let’s begin the discussion with the Coinage Act of 1792. During the colonial period, Alexander Hamilton tried experimenting with bimetallism (gold and silver coins in circulation). The results were less than satisfactory. The fixed rates of gold and silver tended to deviate from the global market rates. As a result, at any given time, silver or gold could be undervalued or overvalued. If it happens to be gold that is undervalued, as what happened as a result of the Coinage Act, arbitrage occurs. People start exporting the gold out of the country and exchanging it in foreign countries. Then the process is repeated. Also, depending on the degree, relative prices in other countries could substantially be lower. As a result, the coinage would then be used to purchase those goods instead of their domestic counterparts. In accordance with Gresham’s Law, when these things begin to occur, only gold or silver would remain in national circulation at any given time.
To complicate matters further, the supply of precious metals, in general, also tends to be less than optimal for an array of reasons. Essentially, a nation’s precious metal supply isn’t a variable that remains relatively constant. Many factors, on a global scale, impact the quantity of precious metals. New gold or silver mines could drastically impact quantity in circulation. For instance, the 1849 gold rush effectively flooded the market with gold and drove down its value. Also, other markets besides the currency market demand gold as well. Jewelry makers for instance require gold and silver as a production input. As such, this will drive the precious metals out of the currency market and into the bullion market. And with today’s globally integrated banking system, this could happen with a click of a mouse button in the blink of an eye.
In general, monetary policy is more effective when the money supply and interest rates can be controlled. This is achieved, to a higher degree, with the ability to print money and conduct open market transactions. Furthermore, I’m not sure how the supply of gold or silver could keep up with increases in population over the long run. I would also think that with all the world markets impacting the supply and demand of precious metals that deflation would be the biggest threat. I imagine a scarcity of money would occur, which in many senses is worse than inflation. If inflation is expected to increase at a constant rate, the markets adjust accordingly. Deflation, on the other hand, causes markets to slow because consumers keep expecting prices to drop. As a result, they stop purchasing goods and services because they’ll be cheaper in the future. It’s a vicious cycle, and it’s one that the Federal Reserve has done a phenomenal job of controlling over the past 30 years (see Great Moderation).
Moreover, Ron Paul’s blatant disregard for economic history and monetary policy is also contrary to the famed intellectual conservative Milton Friedman. Friedman strongly advocated the use of fiat money because he knew fundamentally that it was easier to control. In his book, A Monetary History of the United States, Friedman also asserted that if the U.S. would have been off the gold standard, the Great Depression could have largely been averted.
With all this said, I won’t even bother regurgitating Ron Paul’s fiscal policy nightmares (I may save that for another day). A person who actually reads economic textbooks couldn’t possibly reach the conclusion that removing environmental regulations will produce efficient results. If he asked for proof, I’d tell him to study the American Industrial Revolution. If he wanted a current event, I’d tell him to study China’s contemporary manufacturing revolution…
Maybe I’ll write more on Ron Paul later. We’ll see.
First of all, I think that Ron Paul should pick up an economic history book and learn about all the inherent problems the United States has suffered through because of the gold standard and the hard money policies he's currently advocating. Let’s begin the discussion with the Coinage Act of 1792. During the colonial period, Alexander Hamilton tried experimenting with bimetallism (gold and silver coins in circulation). The results were less than satisfactory. The fixed rates of gold and silver tended to deviate from the global market rates. As a result, at any given time, silver or gold could be undervalued or overvalued. If it happens to be gold that is undervalued, as what happened as a result of the Coinage Act, arbitrage occurs. People start exporting the gold out of the country and exchanging it in foreign countries. Then the process is repeated. Also, depending on the degree, relative prices in other countries could substantially be lower. As a result, the coinage would then be used to purchase those goods instead of their domestic counterparts. In accordance with Gresham’s Law, when these things begin to occur, only gold or silver would remain in national circulation at any given time.
To complicate matters further, the supply of precious metals, in general, also tends to be less than optimal for an array of reasons. Essentially, a nation’s precious metal supply isn’t a variable that remains relatively constant. Many factors, on a global scale, impact the quantity of precious metals. New gold or silver mines could drastically impact quantity in circulation. For instance, the 1849 gold rush effectively flooded the market with gold and drove down its value. Also, other markets besides the currency market demand gold as well. Jewelry makers for instance require gold and silver as a production input. As such, this will drive the precious metals out of the currency market and into the bullion market. And with today’s globally integrated banking system, this could happen with a click of a mouse button in the blink of an eye.
In general, monetary policy is more effective when the money supply and interest rates can be controlled. This is achieved, to a higher degree, with the ability to print money and conduct open market transactions. Furthermore, I’m not sure how the supply of gold or silver could keep up with increases in population over the long run. I would also think that with all the world markets impacting the supply and demand of precious metals that deflation would be the biggest threat. I imagine a scarcity of money would occur, which in many senses is worse than inflation. If inflation is expected to increase at a constant rate, the markets adjust accordingly. Deflation, on the other hand, causes markets to slow because consumers keep expecting prices to drop. As a result, they stop purchasing goods and services because they’ll be cheaper in the future. It’s a vicious cycle, and it’s one that the Federal Reserve has done a phenomenal job of controlling over the past 30 years (see Great Moderation).
Moreover, Ron Paul’s blatant disregard for economic history and monetary policy is also contrary to the famed intellectual conservative Milton Friedman. Friedman strongly advocated the use of fiat money because he knew fundamentally that it was easier to control. In his book, A Monetary History of the United States, Friedman also asserted that if the U.S. would have been off the gold standard, the Great Depression could have largely been averted.
With all this said, I won’t even bother regurgitating Ron Paul’s fiscal policy nightmares (I may save that for another day). A person who actually reads economic textbooks couldn’t possibly reach the conclusion that removing environmental regulations will produce efficient results. If he asked for proof, I’d tell him to study the American Industrial Revolution. If he wanted a current event, I’d tell him to study China’s contemporary manufacturing revolution…
Maybe I’ll write more on Ron Paul later. We’ll see.
Friday, January 27, 2012
State of the Union 2012
I recently read a 1953 Time article that was more or less discussing the definition of a recession. It was an interesting read because it pointed out different views on the definition more eloquently than I have done so in the past. If you ask an economist what a recession is, you’ll be told that it is negative GDP growth for a couple consecutive quarters. When somebody on Wall Street is asked, he or she would answer with something pertaining to a reduction in stock market prices. Ask a labor union leader and you’ll hear references to unemployment rates. Retailers will tell you that a recession is a drop in sales. And the reality is: all of these answers are correct in their own way.
In our own current economic climate, we are witnessing jobless economic recovery. GDP and stock market indices have been on the rise; however, unemployment has remained disastrously high. Nationally, the unemployment rate is 8.5 percent but some states, like Nevada, are as high as 12.6 percent.
So what has the Obama Administration been doing to combat the unemployment rate? The short answer is: nothing. The long answer is a bit more complex. Recently, the administration has been advocating the American Jobs Act. The cost of the legislation when originally purposed was about $447B and was roughly 50 percent tax cuts and 50 percent spending on infrastructure and projects designed to offer job security to teachers, police officers, and firefighters. Naturally, this bill did not make it through Congress and has since been split up into smaller bills that are still trying to make their way through the legislative process. To make matters worse, even if the American Jobs Act would have managed to pass, I believe it would have been a waste of money. The results would have been less than satisfactory as the gaping hole in our economy is too large. Let’s dive into a little math here:
Econ 101 textbooks offer a rule called Okun’s Law. This rule states the relationship between the unemployment rate and GDP growth. The gist is simple: for every 1% of unemployment (above the 3% natural rate) GDP suffers a 2-3% (this is the Okun coefficient) reduction in output. Currently, GDP is $14.58T and the unemployment rate is 8.5%. That means the unemployment rate beyond the natural rate is 5.5%. Using Okun’s coefficient, we can calculate that GDP is currently suffering between 11-16.5%. In turn, we can then calculate this in dollars: there is roughly a $1.6 - 2.4T hole in the economy. Or in other words, it would take upwards of $2.4T in stimulus spending to bring unemployment down to the natural rate of 3%. As you can see, the $447B American Jobs Act wouldn’t have done much. This, of course, brings me back to my point that the Obama Administration hasn’t been doing anything about jobs.
In my simple calculation of Okun’s Law, I held a number of things constant and made a few assumptions. I didn’t account for underemployment or discouraged workers who left the labor market. I also didn’t forecast or adjust for stimulus spending multipliers like gov’t purchases vs. tax cuts. I could have also given a range for the natural rate of unemployment between 3-5%. Therefore, my figures may be somewhat debatable depending on who you ask. But at least it is a starting point. And it was a starting point that Obama chose to ignore 3 years ago when deciding on the first stimulus package.
Keeping this all in mind, even if Congress actually acted in our best interest and granted us the desperately needed stimulus money, this would only be a short term solution. A temporary patch for employment does nothing to promote long term economic growth. Sure, in the short run, a huge stimulus package will boost the economy, GDP will rise, the unemployment rate will go down, and the federal deficit will shrink because of all the people going back to work. It’d be a great political victory. However, America will eventually have to return to the realization that the manufacturing jobs that once defined the middle class are gone and will never return. Read this NY Times article on Apple manufacturing for case and point.
Ultimately, we’ll lose our place as a world leader because of the systematic defunding of higher education (we need more mathematicians, engineers, scientists –see Romer Growth Model), poor infrastructure, disastrous inequality and consolidation of wealth, a financial industry refusing to engage in anything less than cowboy capitalism, reluctance to subsidize and incentivize renewable energy, a still decimated housing industry, and more. Without addressing these issues, America will never return to previous heights.
The government is burning the candle at both ends by marginalizing the middle and lower classes while mainly promoting policies designed to benefit the wealthy and multinational corporations. The current path is unsustainable. Our GDP is comprised overwhelmingly (70%) of personal consumption expenditures. Consuming goods (e.g. cars, groceries, homes, etc) is the main driver of our economy, plain and simple. It’s a consumption bubble that bursts every time unemployment increases. It’s not like the old days when our country had a huge trade surplus and the economy could still thrive when domestic demand dwindled. Therefore, we must keep in mind that it’s the middle and lower classes, and SMALL businesses (i.e. less than 500 employees) that push the economy. It’s not the top 1% that accounts for the majority of personal consumption expenditures. It’s not the huge multinational corporations who create the vast majority of jobs (in America). We have a serious Say’s Law problem in the U.S.: supply doesn’t create its own demand. And that’s the problem with this Reaganesque trickle-down ideology that still plagues our political system.
Well what about monetary policy? Why haven’t they come to the rescue? In summary, the Fed still has its hands tied. Monetary policy isn’t able to do much and won’t be able to for awhile. There was a recent announcement that the federal funds rate will remain near 0% for the next two years. This, of course, is pretty much all the Fed can hope to do right now. They need provide liquidity to the banks and remain the lender of last resort (one of the lessons from the Great Depression). They also announced to target inflation at around 2%. However, I won’t bother making the case for higher inflation and economic growth right now. I’ll save that for another day.
And this has been my State of the Union address for 2012.
In our own current economic climate, we are witnessing jobless economic recovery. GDP and stock market indices have been on the rise; however, unemployment has remained disastrously high. Nationally, the unemployment rate is 8.5 percent but some states, like Nevada, are as high as 12.6 percent.
So what has the Obama Administration been doing to combat the unemployment rate? The short answer is: nothing. The long answer is a bit more complex. Recently, the administration has been advocating the American Jobs Act. The cost of the legislation when originally purposed was about $447B and was roughly 50 percent tax cuts and 50 percent spending on infrastructure and projects designed to offer job security to teachers, police officers, and firefighters. Naturally, this bill did not make it through Congress and has since been split up into smaller bills that are still trying to make their way through the legislative process. To make matters worse, even if the American Jobs Act would have managed to pass, I believe it would have been a waste of money. The results would have been less than satisfactory as the gaping hole in our economy is too large. Let’s dive into a little math here:
Econ 101 textbooks offer a rule called Okun’s Law. This rule states the relationship between the unemployment rate and GDP growth. The gist is simple: for every 1% of unemployment (above the 3% natural rate) GDP suffers a 2-3% (this is the Okun coefficient) reduction in output. Currently, GDP is $14.58T and the unemployment rate is 8.5%. That means the unemployment rate beyond the natural rate is 5.5%. Using Okun’s coefficient, we can calculate that GDP is currently suffering between 11-16.5%. In turn, we can then calculate this in dollars: there is roughly a $1.6 - 2.4T hole in the economy. Or in other words, it would take upwards of $2.4T in stimulus spending to bring unemployment down to the natural rate of 3%. As you can see, the $447B American Jobs Act wouldn’t have done much. This, of course, brings me back to my point that the Obama Administration hasn’t been doing anything about jobs.
In my simple calculation of Okun’s Law, I held a number of things constant and made a few assumptions. I didn’t account for underemployment or discouraged workers who left the labor market. I also didn’t forecast or adjust for stimulus spending multipliers like gov’t purchases vs. tax cuts. I could have also given a range for the natural rate of unemployment between 3-5%. Therefore, my figures may be somewhat debatable depending on who you ask. But at least it is a starting point. And it was a starting point that Obama chose to ignore 3 years ago when deciding on the first stimulus package.
Keeping this all in mind, even if Congress actually acted in our best interest and granted us the desperately needed stimulus money, this would only be a short term solution. A temporary patch for employment does nothing to promote long term economic growth. Sure, in the short run, a huge stimulus package will boost the economy, GDP will rise, the unemployment rate will go down, and the federal deficit will shrink because of all the people going back to work. It’d be a great political victory. However, America will eventually have to return to the realization that the manufacturing jobs that once defined the middle class are gone and will never return. Read this NY Times article on Apple manufacturing for case and point.
Ultimately, we’ll lose our place as a world leader because of the systematic defunding of higher education (we need more mathematicians, engineers, scientists –see Romer Growth Model), poor infrastructure, disastrous inequality and consolidation of wealth, a financial industry refusing to engage in anything less than cowboy capitalism, reluctance to subsidize and incentivize renewable energy, a still decimated housing industry, and more. Without addressing these issues, America will never return to previous heights.
The government is burning the candle at both ends by marginalizing the middle and lower classes while mainly promoting policies designed to benefit the wealthy and multinational corporations. The current path is unsustainable. Our GDP is comprised overwhelmingly (70%) of personal consumption expenditures. Consuming goods (e.g. cars, groceries, homes, etc) is the main driver of our economy, plain and simple. It’s a consumption bubble that bursts every time unemployment increases. It’s not like the old days when our country had a huge trade surplus and the economy could still thrive when domestic demand dwindled. Therefore, we must keep in mind that it’s the middle and lower classes, and SMALL businesses (i.e. less than 500 employees) that push the economy. It’s not the top 1% that accounts for the majority of personal consumption expenditures. It’s not the huge multinational corporations who create the vast majority of jobs (in America). We have a serious Say’s Law problem in the U.S.: supply doesn’t create its own demand. And that’s the problem with this Reaganesque trickle-down ideology that still plagues our political system.
Well what about monetary policy? Why haven’t they come to the rescue? In summary, the Fed still has its hands tied. Monetary policy isn’t able to do much and won’t be able to for awhile. There was a recent announcement that the federal funds rate will remain near 0% for the next two years. This, of course, is pretty much all the Fed can hope to do right now. They need provide liquidity to the banks and remain the lender of last resort (one of the lessons from the Great Depression). They also announced to target inflation at around 2%. However, I won’t bother making the case for higher inflation and economic growth right now. I’ll save that for another day.
And this has been my State of the Union address for 2012.
Thursday, January 26, 2012
The Crossroads
I have currently reached a crossroad. A deeply devout conservative friend of mine, also an avid Ron Paul supporter, told me that moderate Republicans should vote for Obama. Naturally, I was shocked and curious as to why he would say such a thing. When questioned, his response was more or less listing every concession that Obama has given congressional Republicans: agreeing to cuts in Medicare and Social Security, further tax cuts and extending the Bush tax cuts, increasing military spending, continuing the Patriot Act, etc. His main problem with Obama was his healthcare plan (Obamacare), which he agreed was also conservative policy in nature. After hearing this, I had absolutely nothing to say in response. These are typically arguments made by an angered progressive base that has been marginalized for the duration of his presidency. I never thought somebody on the far right would actually acknowledge, much less admit in public, that Obama is more like a moderate Republican than a socialist liberal dog.
In light of this new occurrence, I may have to vote for Romney. The sheer fact that so many Republicans seem to detest him only leaves me wondering whether or not there might actually be something there.
In light of this new occurrence, I may have to vote for Romney. The sheer fact that so many Republicans seem to detest him only leaves me wondering whether or not there might actually be something there.
The Romney Income Calculator
I don’t usually comment on these sorts of things, however I found this hilarious (in a sad and ironic way). Dan Check, with Slate Magazine, created a calculator that calculates how long it took Mitt Romney in 2010 to earn a particular annual salary. For instance, the median salary in 2010 was roughly $40,000. And according to the calculator, it took Romney 16 hours 10 minutes and 34 seconds to earn that much. Moreover, at that median salary, it would take 541 years 6 months 12 days 6 hours 20 minutes and 9 seconds to make what Romney made in 2010.
It just goes to show the level of disconnect. Whatever happened to the Populist Party?
http://www.slate.com/articles/business/moneybox/2012/01/romney_income_calculator_how_much_does_mitt_make_how_long_would_it_take_him_to_earn_your_salary_.html
It just goes to show the level of disconnect. Whatever happened to the Populist Party?
http://www.slate.com/articles/business/moneybox/2012/01/romney_income_calculator_how_much_does_mitt_make_how_long_would_it_take_him_to_earn_your_salary_.html
Saturday, April 30, 2011
Are the Tea Party's Days Numbered?
Well, let's certainly hope so. It is getting harder and harder to stomach the absurdly incongruous rants spewed by these skid marks. Eh, on second thought, perhaps I’m being too rough on them. After all, they do make for great comedy:
I happened to catch a Gallup poll today that shows a declining favorable opinion in regards to the Tea Party. I’m not surprised though. It’s difficult to take somebody wearing a powdered wig and knickers seriously.
I happened to catch a Gallup poll today that shows a declining favorable opinion in regards to the Tea Party. I’m not surprised though. It’s difficult to take somebody wearing a powdered wig and knickers seriously.
Friday, April 29, 2011
Maybe Things Aren’t So Bad…
While it’s no secret that Bush left the country with historical rates of unemployment and exploding deficits, there is some good news to report. And no, Obama hasn’t magically cured our fiscal woes...
Today I decided to gauge the direction the economy is heading by looking at a few economic indicators. What I saw were signs that things are starting to slowly pick back up.
First we have the Consumer Sentiment Index. Basically, this is a measure of consumer confidence as reported through survey data. Though, it has been on rise since 2009, it’ll be awhile until we see the confidence levels from the pre-Bush era.
Next we have expected inflation. This figure is currently floating around fewer than 3% and is much lower than Fox News would have us believe. So yea, we don’t need to worry about hyperinflation. There are, however, certain negative implications associated with low rates of inflation.
Our current economic climate is often compared to that of Japan’s during the 1990s. In this case, some economists worry that the US might actually be heading towards the same deflation Japan suffered from. And deflation isn’t good. Among other things, deflation offsets borrowing and spending because the dollars of tomorrow are worth more than the dollars of today. There are other reasons, but I won’t get into them now. My point here is that hyperinflation isn’t an issue.
Thirdly, the Financial Stress Index is indicating that the financial markets are recovering nicely (surprise surprise). For more information on what this index is, check out:
http://research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf
Lastly, I would like to mention the home vacancy rate. This indicator is often a good measure of the direction of economy, especially after a recession. And it’s crucial to the recession we’re recovering from now because of its housing origins. According to the graph, we’ve seemed to have hit the peak of the vacancy rate and are starting to slide back down. This is good and it’s implying that the number of foreclosures, property seizures, and homes waiting to be sold in the market are starting to come back down. This is phenomenal news and I want to continue seeing this rate drop.
So, in the end, maybe things aren’t so bad. Though the right wing media keeps their Campaign of Fear alive, the state of the economy really isn’t as bad as it seems. However, that is not to understate the implications of the vast unemployment and slow job creation. And for some reason, these seem to be the topics that don’t get much attention in Washington these days. In fact, there isn’t much talk of the economy going on at all. Our leaders, for some reason, are more worried about short term solutions to the federal budget woes than about jobs for the true drivers of the economy. It just goes to show the level of disconnect.
Today I decided to gauge the direction the economy is heading by looking at a few economic indicators. What I saw were signs that things are starting to slowly pick back up.
First we have the Consumer Sentiment Index. Basically, this is a measure of consumer confidence as reported through survey data. Though, it has been on rise since 2009, it’ll be awhile until we see the confidence levels from the pre-Bush era.
Next we have expected inflation. This figure is currently floating around fewer than 3% and is much lower than Fox News would have us believe. So yea, we don’t need to worry about hyperinflation. There are, however, certain negative implications associated with low rates of inflation.
Our current economic climate is often compared to that of Japan’s during the 1990s. In this case, some economists worry that the US might actually be heading towards the same deflation Japan suffered from. And deflation isn’t good. Among other things, deflation offsets borrowing and spending because the dollars of tomorrow are worth more than the dollars of today. There are other reasons, but I won’t get into them now. My point here is that hyperinflation isn’t an issue.
Thirdly, the Financial Stress Index is indicating that the financial markets are recovering nicely (surprise surprise). For more information on what this index is, check out:
http://research.stlouisfed.org/publications/net/NETJan2010Appendix.pdf
Lastly, I would like to mention the home vacancy rate. This indicator is often a good measure of the direction of economy, especially after a recession. And it’s crucial to the recession we’re recovering from now because of its housing origins. According to the graph, we’ve seemed to have hit the peak of the vacancy rate and are starting to slide back down. This is good and it’s implying that the number of foreclosures, property seizures, and homes waiting to be sold in the market are starting to come back down. This is phenomenal news and I want to continue seeing this rate drop.
So, in the end, maybe things aren’t so bad. Though the right wing media keeps their Campaign of Fear alive, the state of the economy really isn’t as bad as it seems. However, that is not to understate the implications of the vast unemployment and slow job creation. And for some reason, these seem to be the topics that don’t get much attention in Washington these days. In fact, there isn’t much talk of the economy going on at all. Our leaders, for some reason, are more worried about short term solutions to the federal budget woes than about jobs for the true drivers of the economy. It just goes to show the level of disconnect.
Subscribe to:
Posts (Atom)
