It must be tough for flat earth believers; people insist on rejecting their views on the shape of the earth based on evidence. Robert Samuelson seems to be in the same situation. He used his column to complain about economists not caring about balanced budgets, just because there is no evidence that they should.
The immediate provocation for this diatribe is Doug Elmendorf, the former head of the Congressional Budget Office. Elmendorf used to be a big advocate of smaller deficits, but he now is arguing that Congress take advantage of near record low interest rates to undertake a major infrastructure initiative.
Samuelson concluded his piece:
“Destroyed is the pre-1960s consensus: a crude allegiance to a balanced budget. Since 1961, the government has run annual deficits in all but five years. Allowing for desirable deficits when the economy is well below capacity or when there’s a national emergency, we need to go back to the future. Before making vast new commitments — a la Elmendorf — we should balance the ones we already have.”
Ah yes, the country is being destroyed by deficits. That is why the government has to pay almost 2.0 percent to borrow long-term. And the interest on our horrible debt costs us almost 0.8 percent of GDP in annual interest payments. Sound pretty awful? Interest cost us more than 3.0 percent of GDP back in the early 1990s.
It is amazing that people like Samuelson, and more importantly our politicians in Washington, continue to try to run the government based on nostrums they learned from their parents rather than the real world. Elmendorf changed his view on economic priorities based on evidence.
There is a clear story of how excessive deficits can hurt the economy. They drive up interest rates if the Fed does not accommodate them and they lead to inflation if the Fed does. The rationale is simple: excess deficits cause us to push the economy too hard. They lead to too much demand given the economy’s ability to produce goods and services.
We clearly are not seeing this constraint. There are still millions of unemployed or underemployed workers who would like full-time jobs. This means that the concern about balanced budgets is needlessly keeping these people unemployed. And the weakness of the labor market is keeping tens of millions of workers from having the bargaining power necessary to get their share of the benefits from economic growth in higher wages.
Perhaps even worse, the obsession with deficits prevents us from doing things we really need to do. The neglected items form a long list, from early childhood education and affordable college to keeping the kids in Flint from being poisoned.
But hey, why look at the real world when we have the words of wisdom on balanced budgets that Robert Samuelson learned from his parents.
It must be tough for flat earth believers; people insist on rejecting their views on the shape of the earth based on evidence. Robert Samuelson seems to be in the same situation. He used his column to complain about economists not caring about balanced budgets, just because there is no evidence that they should.
The immediate provocation for this diatribe is Doug Elmendorf, the former head of the Congressional Budget Office. Elmendorf used to be a big advocate of smaller deficits, but he now is arguing that Congress take advantage of near record low interest rates to undertake a major infrastructure initiative.
Samuelson concluded his piece:
“Destroyed is the pre-1960s consensus: a crude allegiance to a balanced budget. Since 1961, the government has run annual deficits in all but five years. Allowing for desirable deficits when the economy is well below capacity or when there’s a national emergency, we need to go back to the future. Before making vast new commitments — a la Elmendorf — we should balance the ones we already have.”
Ah yes, the country is being destroyed by deficits. That is why the government has to pay almost 2.0 percent to borrow long-term. And the interest on our horrible debt costs us almost 0.8 percent of GDP in annual interest payments. Sound pretty awful? Interest cost us more than 3.0 percent of GDP back in the early 1990s.
It is amazing that people like Samuelson, and more importantly our politicians in Washington, continue to try to run the government based on nostrums they learned from their parents rather than the real world. Elmendorf changed his view on economic priorities based on evidence.
There is a clear story of how excessive deficits can hurt the economy. They drive up interest rates if the Fed does not accommodate them and they lead to inflation if the Fed does. The rationale is simple: excess deficits cause us to push the economy too hard. They lead to too much demand given the economy’s ability to produce goods and services.
We clearly are not seeing this constraint. There are still millions of unemployed or underemployed workers who would like full-time jobs. This means that the concern about balanced budgets is needlessly keeping these people unemployed. And the weakness of the labor market is keeping tens of millions of workers from having the bargaining power necessary to get their share of the benefits from economic growth in higher wages.
Perhaps even worse, the obsession with deficits prevents us from doing things we really need to do. The neglected items form a long list, from early childhood education and affordable college to keeping the kids in Flint from being poisoned.
But hey, why look at the real world when we have the words of wisdom on balanced budgets that Robert Samuelson learned from his parents.
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Jacob Weisberg wasn’t quite straight with readers when he said that Ronald Reagan supported “Keynesian stimulus” in a NYT column on how the Republican Party has changed since the days of Reagan. The Keynesian stimulus took the form of a large permanent tax cut that was highly skewed toward the wealthy. He also had large increases in military spending.
The current crew of Republican presidential candidates seems to be very much in this same mode, also urging large tax cuts that would primarily benefit the wealthy and spending more on the military. Reagan did agree to roll back some of his tax cut when it appeared that deficits were getting too large in 1982 and 1983. We can’t know whether the Republican candidates would be prepared to raise taxes again if deficits were leading to high interest rates and/or inflation, but in their platforms they are very much following Reagan, contrary to what Weisberg claims.
Jacob Weisberg wasn’t quite straight with readers when he said that Ronald Reagan supported “Keynesian stimulus” in a NYT column on how the Republican Party has changed since the days of Reagan. The Keynesian stimulus took the form of a large permanent tax cut that was highly skewed toward the wealthy. He also had large increases in military spending.
The current crew of Republican presidential candidates seems to be very much in this same mode, also urging large tax cuts that would primarily benefit the wealthy and spending more on the military. Reagan did agree to roll back some of his tax cut when it appeared that deficits were getting too large in 1982 and 1983. We can’t know whether the Republican candidates would be prepared to raise taxes again if deficits were leading to high interest rates and/or inflation, but in their platforms they are very much following Reagan, contrary to what Weisberg claims.
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The NYT had an article this morning on how European tech start-ups were seeing new capital dry up in the same way as Silicon Valley firms. The piece portrayed this as largely a negative event. Undoubtedly, it is bad news for the founders and top employees of these firms, but it’s not clear it is bad news for the economy.
The huge capitalizations of many start-ups has allowed a small number of people to get very rich, however it is not clear that their valuations bore any resemblance to their value to the economy. For example, both Groupon and Dropbox at one point had market capitalizations of more than $10 billion.
While selling coupons over the web and an efficient offsite Internet storage system are both items that will provide benefits to many individuals, so is combining peanut butter and jelly in a single jar. It is not clear that we should expect to see someone becoming a billionaire for coming up with the idea of combining peanut butter and jelly in one jar, nor is obvious that the contributions of many of these start-ups should cause people to become billionaires.
If capital markets are hugely overpricing start-ups relative to their actual value to the economy, as subsequently determined by the market, then they are effectively redistributing wealth from others to the leading actors in these start-ups. Insofar as the money is coming from other wealthy people, this is simply a matter of money going from the old rich to newly created rich. In this case, it need not be matter of concern for the rest of us. However if pension fund assets or money held in mutual funds through individual retirement accounts are going into over-valued start-ups, then this is a redistribution from the rest of us to the new rich.
Insofar as that is the story of the Silicon Valley boom and the parallel boom in Europe, we should applaud the collapse of the price of these companies’ stock. An over-valued stock price has the same impact on the economy as counterfeit money that passes for real. It gives some individuals purchasing power who should not have a claim to it. Catching the counterfeiter and bringing the stock price back in line with the fundamentals is good news. (Of course in an economy that is operating below its capacity like ours, we actually would benefit from the demand that would be generated by a successful counterfeiter, but that is another story.)
The NYT had an article this morning on how European tech start-ups were seeing new capital dry up in the same way as Silicon Valley firms. The piece portrayed this as largely a negative event. Undoubtedly, it is bad news for the founders and top employees of these firms, but it’s not clear it is bad news for the economy.
The huge capitalizations of many start-ups has allowed a small number of people to get very rich, however it is not clear that their valuations bore any resemblance to their value to the economy. For example, both Groupon and Dropbox at one point had market capitalizations of more than $10 billion.
While selling coupons over the web and an efficient offsite Internet storage system are both items that will provide benefits to many individuals, so is combining peanut butter and jelly in a single jar. It is not clear that we should expect to see someone becoming a billionaire for coming up with the idea of combining peanut butter and jelly in one jar, nor is obvious that the contributions of many of these start-ups should cause people to become billionaires.
If capital markets are hugely overpricing start-ups relative to their actual value to the economy, as subsequently determined by the market, then they are effectively redistributing wealth from others to the leading actors in these start-ups. Insofar as the money is coming from other wealthy people, this is simply a matter of money going from the old rich to newly created rich. In this case, it need not be matter of concern for the rest of us. However if pension fund assets or money held in mutual funds through individual retirement accounts are going into over-valued start-ups, then this is a redistribution from the rest of us to the new rich.
Insofar as that is the story of the Silicon Valley boom and the parallel boom in Europe, we should applaud the collapse of the price of these companies’ stock. An over-valued stock price has the same impact on the economy as counterfeit money that passes for real. It gives some individuals purchasing power who should not have a claim to it. Catching the counterfeiter and bringing the stock price back in line with the fundamentals is good news. (Of course in an economy that is operating below its capacity like ours, we actually would benefit from the demand that would be generated by a successful counterfeiter, but that is another story.)
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Robert Samuelson used his column today to back up Fed Chair Janet Yellen’s claim that expansions do not die of old age. In a column titled “Janet Yellen is wrong. Expansions do die of old age,” Samuelson briefly recounted the history of recoveries and recessions over the last half century.
According to Samuelson’s account, they differed a great deal in length, with the economy experiencing four recessions over the twelve years from 1970 to 1982, as the Fed struggled to slow inflation by raising interest rates and pushing up the unemployment rate. The recessions in 2001 and 2007–2009 came about as a result of collapsed asset bubbles. The former came after an almost decade long expansion.
The obvious take-away from the evidence presented by Samuelson is that expansions don’t just die, they have to be killed. The most common way they get killed is by the Fed’s efforts to curb inflation with higher interest rates. The other leading cause of death is a collapsing asset bubble.
So the question is, does anyone think current rates of inflation warrant sharp interest rate hikes from the Fed? If not, then we need to find an asset bubble whose collapse will sink the economy. If neither of these stories seems plausible, we have good reason to expect this recovery to go on for some time longer, even if the speed may be considerably slower than many of us would like.
Robert Samuelson used his column today to back up Fed Chair Janet Yellen’s claim that expansions do not die of old age. In a column titled “Janet Yellen is wrong. Expansions do die of old age,” Samuelson briefly recounted the history of recoveries and recessions over the last half century.
According to Samuelson’s account, they differed a great deal in length, with the economy experiencing four recessions over the twelve years from 1970 to 1982, as the Fed struggled to slow inflation by raising interest rates and pushing up the unemployment rate. The recessions in 2001 and 2007–2009 came about as a result of collapsed asset bubbles. The former came after an almost decade long expansion.
The obvious take-away from the evidence presented by Samuelson is that expansions don’t just die, they have to be killed. The most common way they get killed is by the Fed’s efforts to curb inflation with higher interest rates. The other leading cause of death is a collapsing asset bubble.
So the question is, does anyone think current rates of inflation warrant sharp interest rate hikes from the Fed? If not, then we need to find an asset bubble whose collapse will sink the economy. If neither of these stories seems plausible, we have good reason to expect this recovery to go on for some time longer, even if the speed may be considerably slower than many of us would like.
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In a Wall Street Journal column earlier this week, John Carney warned readers that the financial transactions tax (FTT) proposed by Senator Bernie Sanders “promises a smaller, slower market offering lower returns to investors.” He also warned that middle class investors will see higher costs in their mutual funds as a result of the tax.
While Carney treats the tax as a bit of a leap into the unknown, we actually have been there very recently. A FTT increases the cost of buying and selling shares of stock or other financial assets. We have had higher costs for buying and selling financial assets in the very recent past. The cost has fallen due to the rapid improvement in computer technology that has allowed for the price of trading to plummet in recent decades.
An FTT would raise the cost back to where it had been in prior decades. If a tax was structured along the lines being considered by European Union countries (0.1 percent on stock trades, 0.01 percent on derivative trades), then it would be raising costs roughly to where they were in the 1990s. These higher costs should then cause returns to investors to be comparable to what investors saw in the 1990s. (Past returns are no guarantee of future performance.) Markets don’t care if costs are higher due to a tax or less efficient technology, the impact is the same.
The amount of costs borne by middle class investors will depend on the extent to which their trading responds to higher costs. Most research indicates that trading will decline roughly in proportion to any increase in costs, meaning that most middle class investors would pay the same amount in trading costs after the tax as they did before the tax. (The recent study by the Tax Policy Center assumed that trading volume actually declined more than any increase in costs associated with the tax.)
The column also cited a study by the European Commission that purportedly showed a tax reducing GDP by 1.76 to 2.05 percent. Those numbers are from a preliminary study. A revised study found that the impact on growth would be less than 0.2 percent of GDP and that if the revenue was invested in the economy, it would be a positive 0.2 percent of GDP. That probably would not sound too scary to WSJ readers.
In a Wall Street Journal column earlier this week, John Carney warned readers that the financial transactions tax (FTT) proposed by Senator Bernie Sanders “promises a smaller, slower market offering lower returns to investors.” He also warned that middle class investors will see higher costs in their mutual funds as a result of the tax.
While Carney treats the tax as a bit of a leap into the unknown, we actually have been there very recently. A FTT increases the cost of buying and selling shares of stock or other financial assets. We have had higher costs for buying and selling financial assets in the very recent past. The cost has fallen due to the rapid improvement in computer technology that has allowed for the price of trading to plummet in recent decades.
An FTT would raise the cost back to where it had been in prior decades. If a tax was structured along the lines being considered by European Union countries (0.1 percent on stock trades, 0.01 percent on derivative trades), then it would be raising costs roughly to where they were in the 1990s. These higher costs should then cause returns to investors to be comparable to what investors saw in the 1990s. (Past returns are no guarantee of future performance.) Markets don’t care if costs are higher due to a tax or less efficient technology, the impact is the same.
The amount of costs borne by middle class investors will depend on the extent to which their trading responds to higher costs. Most research indicates that trading will decline roughly in proportion to any increase in costs, meaning that most middle class investors would pay the same amount in trading costs after the tax as they did before the tax. (The recent study by the Tax Policy Center assumed that trading volume actually declined more than any increase in costs associated with the tax.)
The column also cited a study by the European Commission that purportedly showed a tax reducing GDP by 1.76 to 2.05 percent. Those numbers are from a preliminary study. A revised study found that the impact on growth would be less than 0.2 percent of GDP and that if the revenue was invested in the economy, it would be a positive 0.2 percent of GDP. That probably would not sound too scary to WSJ readers.
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A NYT piece headlined “left-leaning economists question cost of Bernie Sanders’ plans” may have misled readers about the extent of skepticism among economists who consider themselves left-leaning. I can say this as a card-carrying left-leaning economist who often talks to other card-carrying left-leaning economists.
While there are undoubtedly many left of center economists who have serious objections to the proposals Sanders has put forward, there are also many who have publicly indicated support for them. Remarkably, none of those economists were referenced in this article. In fact, to make its case on left of center economists’ views, the NYT even presented the comments of Ezra Klein, who is neither an economist nor a liberal, by his own identification.
It also misrepresented the comments of Jared Bernstein (a personal friend), implying that they were criticisms of Sanders’ program. In fact his comments were addressed to the analysis of Sanders’ proposals by Gerald Friedman, an economist at the University of Massachusetts who is not affiliated with the Sanders campaign.
It also presented the comments of Brookings economist Henry Aaron about the views expressed by “other economists in a ‘lefty chat group’ he joins online.” This would seem to violate the NYT’s usual policy on anonymous sources.
Sanders has a very ambitious agenda covering everything from universal Medicare, reforming the financial sector, paid sick days and vacation, free college, and universal childcare. If an economist, left-leaning or otherwise, can’t find some grounds for skepticism on any of these proposals they should probably be in a different line of work.
These are all big ideas, each of which will face enormous political opposition even if Bernie Sanders were in the White House. Sanders has not given a fully worked out proposal in any of these areas, nor is it reasonable to expect a fully worked out proposal from a candidate for the presidency. His campaign platform outlines general approaches. In the event Sanders got to the White House, it would be necessary to draft fully worked out legislative language which would almost certainly amount to hundreds of pages, and quite possibly thousands of pages, in each area. In addition, whatever he initially put on the table would have to be haggled over with Congress, even assuming that he had a much more sympathetic group than the current crew.
While it is nice that the NYT is subjecting Sanders’ views to serious scrutiny, it would be good if it also subjected the views of other candidates to the same scrutiny. For example, Secretary Clinton has indicated a desire to give more opportunity to African Americans and Hispanics, yet she has not commented on the decision by the Federal Reserve Board to raise interest rates at the end of last year. This rate hike was intended to be the first of a sequence of rate hikes.
The purpose of raising interest rates is to slow the economy and the rate of job creation, ostensibly to prevent inflation. The people who will be disproportionately hurt by slower job growth and high unemployment are African American and Hispanic. NYT readers would likely be interested in knowing how Secretary Clinton can reconcile her commitment to helping African Americans and Hispanics with her apparent lack of concern over the Fed’s decision to raise interest rates and deny them jobs.
Whatever standard of scrutiny the NYT chooses to apply to presidential candidates it should apply them equally. It is not good reporting to apply one standard to Senator Sanders, and even inventing credentials to press its points, and then apply lesser standards to the other candidates.
A NYT piece headlined “left-leaning economists question cost of Bernie Sanders’ plans” may have misled readers about the extent of skepticism among economists who consider themselves left-leaning. I can say this as a card-carrying left-leaning economist who often talks to other card-carrying left-leaning economists.
While there are undoubtedly many left of center economists who have serious objections to the proposals Sanders has put forward, there are also many who have publicly indicated support for them. Remarkably, none of those economists were referenced in this article. In fact, to make its case on left of center economists’ views, the NYT even presented the comments of Ezra Klein, who is neither an economist nor a liberal, by his own identification.
It also misrepresented the comments of Jared Bernstein (a personal friend), implying that they were criticisms of Sanders’ program. In fact his comments were addressed to the analysis of Sanders’ proposals by Gerald Friedman, an economist at the University of Massachusetts who is not affiliated with the Sanders campaign.
It also presented the comments of Brookings economist Henry Aaron about the views expressed by “other economists in a ‘lefty chat group’ he joins online.” This would seem to violate the NYT’s usual policy on anonymous sources.
Sanders has a very ambitious agenda covering everything from universal Medicare, reforming the financial sector, paid sick days and vacation, free college, and universal childcare. If an economist, left-leaning or otherwise, can’t find some grounds for skepticism on any of these proposals they should probably be in a different line of work.
These are all big ideas, each of which will face enormous political opposition even if Bernie Sanders were in the White House. Sanders has not given a fully worked out proposal in any of these areas, nor is it reasonable to expect a fully worked out proposal from a candidate for the presidency. His campaign platform outlines general approaches. In the event Sanders got to the White House, it would be necessary to draft fully worked out legislative language which would almost certainly amount to hundreds of pages, and quite possibly thousands of pages, in each area. In addition, whatever he initially put on the table would have to be haggled over with Congress, even assuming that he had a much more sympathetic group than the current crew.
While it is nice that the NYT is subjecting Sanders’ views to serious scrutiny, it would be good if it also subjected the views of other candidates to the same scrutiny. For example, Secretary Clinton has indicated a desire to give more opportunity to African Americans and Hispanics, yet she has not commented on the decision by the Federal Reserve Board to raise interest rates at the end of last year. This rate hike was intended to be the first of a sequence of rate hikes.
The purpose of raising interest rates is to slow the economy and the rate of job creation, ostensibly to prevent inflation. The people who will be disproportionately hurt by slower job growth and high unemployment are African American and Hispanic. NYT readers would likely be interested in knowing how Secretary Clinton can reconcile her commitment to helping African Americans and Hispanics with her apparent lack of concern over the Fed’s decision to raise interest rates and deny them jobs.
Whatever standard of scrutiny the NYT chooses to apply to presidential candidates it should apply them equally. It is not good reporting to apply one standard to Senator Sanders, and even inventing credentials to press its points, and then apply lesser standards to the other candidates.
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