The Washington Post explained the reluctance of European Central Bank president Jean-Claude Trichet to support a large write down of Greek debt that would force creditors to take large losses by saying:
“Trichet and others worry that a default or even a steep devaluation of Greek bonds would wreck the euro zone’s credibility and make it harder for countries, banks and companies to raise money.”
Actually, the Post doesn’t know what Mr. Trichet and others are worried are actually about, it only knows what they claim to be worried about. It is possible that Mr. Trichet and the unnamed others are actually worried about the euro zone’s credibility, but it also possible that their main concern is to protect European banks from large losses. The Post should just report what people say and do and not try to claim knowledge of their motives.
The Washington Post explained the reluctance of European Central Bank president Jean-Claude Trichet to support a large write down of Greek debt that would force creditors to take large losses by saying:
“Trichet and others worry that a default or even a steep devaluation of Greek bonds would wreck the euro zone’s credibility and make it harder for countries, banks and companies to raise money.”
Actually, the Post doesn’t know what Mr. Trichet and others are worried are actually about, it only knows what they claim to be worried about. It is possible that Mr. Trichet and the unnamed others are actually worried about the euro zone’s credibility, but it also possible that their main concern is to protect European banks from large losses. The Post should just report what people say and do and not try to claim knowledge of their motives.
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That’s right, Representative Barney Frank, the ranking Democrat on the House Financial Services Committee, proposed legislation that would take away the votes that the banking industry has on the Federal Reserve Board’s Open Market Committee (FOMC). As the FOMC is currently structured, 12 of the 19 members are essentially appointed by the banks, with 5 of the 12 voting at any one time.
George Will is outraged that Frank would take away the banks’ direct control over the country’s monetary policy. After all, if we followed Frank’s logic, drug companies wouldn’t be able to appoint commissioners to the Food and Drug Administration, phone companies wouldn’t be able to appoint commissioners to the Federal Communications Commission, and airline companies would not be able to appoint commissioners to the Federal Aviation Authority.
That’s right, Representative Barney Frank, the ranking Democrat on the House Financial Services Committee, proposed legislation that would take away the votes that the banking industry has on the Federal Reserve Board’s Open Market Committee (FOMC). As the FOMC is currently structured, 12 of the 19 members are essentially appointed by the banks, with 5 of the 12 voting at any one time.
George Will is outraged that Frank would take away the banks’ direct control over the country’s monetary policy. After all, if we followed Frank’s logic, drug companies wouldn’t be able to appoint commissioners to the Food and Drug Administration, phone companies wouldn’t be able to appoint commissioners to the Federal Communications Commission, and airline companies would not be able to appoint commissioners to the Federal Aviation Authority.
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Bloomberg News Service really doesn’t like financial speculation taxes (FST). In fact it dislikes them so much that it is prepared to make things up to try to get people to oppose an FST. It told readers that the very low financial speculation taxes (0.05 percent on each side of a stock trade 0.005 percent on each side of a derivative trade) being considered by the European Union would shave 0.5 percentage points off of Europe’s growth rate.
Let’s think about this one for a moment. In the last three decades, the cost of trading shares of stock and derivatives has almost certainly fallen by at least twice this much. If the increase in the cost of trading from this tax would slow growth by 0.5 percentage points, then we should expect that a decline in costs of more than twice this size would raise annual growth by perhaps as much a 1.0 percentage point.
Since growth has been very weak in this last decade of low trading costs, does Bloomberg really want to tell its readers that it would have been 1.0 percentage point lower if there had not been a decline in transactions costs?
What about the UK which already has a tax on stock trades that is 5 times the size of the tax being considered by the EU. (This tax somehow appears as a “small duty” in the Bloomberg piece.) Since the UK tax is 5 times as large as the one that Bloomberg tells us would slow growth by 0.5 percentage points, does Bloomberg want us to believe that the UK’s growth rate might increase by 2.5 percentage points (5*0.5 percentage points), if the UK eliminated its stock transfer tax?
Of course these claims are absurd on their face as is the claim that the tax could possibly have an impact on growth of the order of magnitude claimed by Bloomberg. This is clearly a case of Bloomberg making stuff up to put down a measure it doesn’t like.
And we know that people resort to making phony arguments when they know they don’t have real arguments. So, we should all extend a big thank you to Bloomberg News Service.
[Non-correction: I did find the EU study to which the Bloomberg editorial referred. It does refer to a reduction in GDP growth of 0.5 percent. However, this section is awkwardly worded and it is very clear that it is actually referring to GDP levels, not growth rates. In response to the comment by editorial board member Paula Dwyer (below), I suggest that it is Bloomberg that needs to make a correction.]
Bloomberg News Service really doesn’t like financial speculation taxes (FST). In fact it dislikes them so much that it is prepared to make things up to try to get people to oppose an FST. It told readers that the very low financial speculation taxes (0.05 percent on each side of a stock trade 0.005 percent on each side of a derivative trade) being considered by the European Union would shave 0.5 percentage points off of Europe’s growth rate.
Let’s think about this one for a moment. In the last three decades, the cost of trading shares of stock and derivatives has almost certainly fallen by at least twice this much. If the increase in the cost of trading from this tax would slow growth by 0.5 percentage points, then we should expect that a decline in costs of more than twice this size would raise annual growth by perhaps as much a 1.0 percentage point.
Since growth has been very weak in this last decade of low trading costs, does Bloomberg really want to tell its readers that it would have been 1.0 percentage point lower if there had not been a decline in transactions costs?
What about the UK which already has a tax on stock trades that is 5 times the size of the tax being considered by the EU. (This tax somehow appears as a “small duty” in the Bloomberg piece.) Since the UK tax is 5 times as large as the one that Bloomberg tells us would slow growth by 0.5 percentage points, does Bloomberg want us to believe that the UK’s growth rate might increase by 2.5 percentage points (5*0.5 percentage points), if the UK eliminated its stock transfer tax?
Of course these claims are absurd on their face as is the claim that the tax could possibly have an impact on growth of the order of magnitude claimed by Bloomberg. This is clearly a case of Bloomberg making stuff up to put down a measure it doesn’t like.
And we know that people resort to making phony arguments when they know they don’t have real arguments. So, we should all extend a big thank you to Bloomberg News Service.
[Non-correction: I did find the EU study to which the Bloomberg editorial referred. It does refer to a reduction in GDP growth of 0.5 percent. However, this section is awkwardly worded and it is very clear that it is actually referring to GDP levels, not growth rates. In response to the comment by editorial board member Paula Dwyer (below), I suggest that it is Bloomberg that needs to make a correction.]
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The NYT had a good piece on the wave of world-wide protests driven by economic policy today. This piece contrasts with a piece last weekend which clearly had the purpose of making the protests against Wall Street look foolish. Reporters would have little problem finding ill-informed inarticulate people at any of the protests mentioned in today’s piece. However, these people would not be representative of the protest and their views would not explain the cause of the actions.
The NYT had a good piece on the wave of world-wide protests driven by economic policy today. This piece contrasts with a piece last weekend which clearly had the purpose of making the protests against Wall Street look foolish. Reporters would have little problem finding ill-informed inarticulate people at any of the protests mentioned in today’s piece. However, these people would not be representative of the protest and their views would not explain the cause of the actions.
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Actually, USA Today didn’t put it in quite these terms, and readers of its piece on raising airport fees probably missed it, but that is the clear implication of one of the statements in the piece. The piece told readers that:
“The security fees that passengers pay now cover about 43% of its costs of providing security in the air.”
If this is accurate, then opponents of raising the fees believe that average taxpayers should subsidize the travel of frequent flyers and especially users of corporate jets, who pay very low fees.
Actually, USA Today didn’t put it in quite these terms, and readers of its piece on raising airport fees probably missed it, but that is the clear implication of one of the statements in the piece. The piece told readers that:
“The security fees that passengers pay now cover about 43% of its costs of providing security in the air.”
If this is accurate, then opponents of raising the fees believe that average taxpayers should subsidize the travel of frequent flyers and especially users of corporate jets, who pay very low fees.
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It’s nice to see Ruth Marcus use some simple common sense in her Post column today. She criticizes the flap over the $16 breakfast muffin (which turns out not to be true). She then points to other big flaps over very little money.
The points are well-taken. Many budget battles are over trivial portions of the budget. (John McCain made a $1 million appropriation [0.00003 percent of federal spending] a centerpiece of his 2008 presidential campaign.) It would be great if the Post would use its news pages to educate the public about where the real spending takes place, for example by routinely expressing spending and tax items as shares of the budget. It would also be useful if it started pointing out the fact that the long-term deficit problem is entirely the result of our broken health care system.
It’s nice to see Ruth Marcus use some simple common sense in her Post column today. She criticizes the flap over the $16 breakfast muffin (which turns out not to be true). She then points to other big flaps over very little money.
The points are well-taken. Many budget battles are over trivial portions of the budget. (John McCain made a $1 million appropriation [0.00003 percent of federal spending] a centerpiece of his 2008 presidential campaign.) It would be great if the Post would use its news pages to educate the public about where the real spending takes place, for example by routinely expressing spending and tax items as shares of the budget. It would also be useful if it started pointing out the fact that the long-term deficit problem is entirely the result of our broken health care system.
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David Brooks is really upset, we may have a lost decade because he is sitting there being right, standing in the middle, and the two extremes who control public debate won’t agree with him. How do we know Brooks is right? Well, he is in the middle between the two extremes he just told you about, how could he not be right?
How do we know that the liberals/progressives are wrong? Brooks tells us:
“Many Democrats are predisposed to want more government spending. So they pick up on the one current they think can be cured with more government spending: low consumer demand. Increase government spending and that will pump up consumer spending.
When President Obama’s stimulus package produced insufficient results, they didn’t concede that maybe there are other factors at play, which mitigated the effects. They just called for more government spending. To a man in love with his hammer, every problem requires a nail.”
Yeah, don’t we just hate these Democrats? They are in love with their hammer (government spending) and therefore make everything look like a nail.
Suppose Brooks ever took 10 minutes to read the Obama administration’s projections for the stimulus. (It’s on the web and can be downloaded for free, so a NYT columnist should have access to it.) The first item in the summary of Romer-Bernstein report would tell Brooks that:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
Let look at that one again:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
Okay, 3-4 million jobs from a “package in the range that the President-Elect has discussed.”
How many jobs did the economy need? By April of 2009, when the first stimulus payments were going out the door, the economy had already lost more than 6.5 million jobs. If we add in normal job growth that we would have seen in a healthy economy, we were already down by more than 8.0 million jobs.
And the economy was still losing jobs at the rate of more than 400,000 jobs a month. By July, we down by almost 10 million jobs from what would have been expected if the economy had sustained a normal pace of job growth from the start of the recession. This is what Brooks would know if ever bothered to look at the numbers.
Now let’s look at that quote one more time:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
President Obama proposed a stimulus package of about $800 billion. He got a package of around $700 billion. (We have to pull out $80 billion for the Alternative Minimum Tax fix. No one, I mean no one, thinks that this fix, which is done every year, had anything to do with stimulus.)
Furthermore, the package was more heavily tilted toward tax cuts than the package that President Obama proposed. Tax cuts have less impact per dollar than spending. David Brooks could find this fact in the Romer-Bernstein paper as well. The appendix tells us that a tax cut equal to 1 percent of GDP will eventually increase GDP by 0.99 percent. By contrast, government spending equal to 1 percent of GDP will increase GDP by 1.57 percent of GDP.
If President Obama got a package that was smaller than what he requested and more tilted towards tax cuts than what he expected, then the impact on growth and jobs would be less than what he expected. He expected that the package he rquested would create 3-4 million jobs, the package he got would be expected to create something less than 3-4 million jobs. And, we know that the economy needed somewhere in the neighborhood of 10 million jobs.
So how is anything about stimulus disproved because a stimulus that could have been expected to create maybe 3 million jobs was not adequate in a downturn where we needed 10 million jobs? There are no tricks here, this is all arithmetic and it is all right there in black and white.
But, Brooks does not want to be bothered by arithmetic. He wants his readers to support his plans for tax reform, for cutting Social Security and Medicare. In other words he wants his readers’ support for doing all the the things that David Brooks always wanted to do, but he now says that we absolutely have to do because of an economic crisis caused by the incompetence of the people who always wanted to do these things.
And the people who insist on sticking to arithmetic — who point out now and said at the time that the stimulus was not large enough — well to a man in love with his hammer, every problem requires a nail. If arithmetic is nails, Brooks has no hammer.
David Brooks is really upset, we may have a lost decade because he is sitting there being right, standing in the middle, and the two extremes who control public debate won’t agree with him. How do we know Brooks is right? Well, he is in the middle between the two extremes he just told you about, how could he not be right?
How do we know that the liberals/progressives are wrong? Brooks tells us:
“Many Democrats are predisposed to want more government spending. So they pick up on the one current they think can be cured with more government spending: low consumer demand. Increase government spending and that will pump up consumer spending.
When President Obama’s stimulus package produced insufficient results, they didn’t concede that maybe there are other factors at play, which mitigated the effects. They just called for more government spending. To a man in love with his hammer, every problem requires a nail.”
Yeah, don’t we just hate these Democrats? They are in love with their hammer (government spending) and therefore make everything look like a nail.
Suppose Brooks ever took 10 minutes to read the Obama administration’s projections for the stimulus. (It’s on the web and can be downloaded for free, so a NYT columnist should have access to it.) The first item in the summary of Romer-Bernstein report would tell Brooks that:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
Let look at that one again:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
Okay, 3-4 million jobs from a “package in the range that the President-Elect has discussed.”
How many jobs did the economy need? By April of 2009, when the first stimulus payments were going out the door, the economy had already lost more than 6.5 million jobs. If we add in normal job growth that we would have seen in a healthy economy, we were already down by more than 8.0 million jobs.
And the economy was still losing jobs at the rate of more than 400,000 jobs a month. By July, we down by almost 10 million jobs from what would have been expected if the economy had sustained a normal pace of job growth from the start of the recession. This is what Brooks would know if ever bothered to look at the numbers.
Now let’s look at that quote one more time:
“A package in the range that the President-Elect has discussed would create between 3-4 million jobs by the end of 2010.”
President Obama proposed a stimulus package of about $800 billion. He got a package of around $700 billion. (We have to pull out $80 billion for the Alternative Minimum Tax fix. No one, I mean no one, thinks that this fix, which is done every year, had anything to do with stimulus.)
Furthermore, the package was more heavily tilted toward tax cuts than the package that President Obama proposed. Tax cuts have less impact per dollar than spending. David Brooks could find this fact in the Romer-Bernstein paper as well. The appendix tells us that a tax cut equal to 1 percent of GDP will eventually increase GDP by 0.99 percent. By contrast, government spending equal to 1 percent of GDP will increase GDP by 1.57 percent of GDP.
If President Obama got a package that was smaller than what he requested and more tilted towards tax cuts than what he expected, then the impact on growth and jobs would be less than what he expected. He expected that the package he rquested would create 3-4 million jobs, the package he got would be expected to create something less than 3-4 million jobs. And, we know that the economy needed somewhere in the neighborhood of 10 million jobs.
So how is anything about stimulus disproved because a stimulus that could have been expected to create maybe 3 million jobs was not adequate in a downturn where we needed 10 million jobs? There are no tricks here, this is all arithmetic and it is all right there in black and white.
But, Brooks does not want to be bothered by arithmetic. He wants his readers to support his plans for tax reform, for cutting Social Security and Medicare. In other words he wants his readers’ support for doing all the the things that David Brooks always wanted to do, but he now says that we absolutely have to do because of an economic crisis caused by the incompetence of the people who always wanted to do these things.
And the people who insist on sticking to arithmetic — who point out now and said at the time that the stimulus was not large enough — well to a man in love with his hammer, every problem requires a nail. If arithmetic is nails, Brooks has no hammer.
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Jonah Gelbach takes me to task for not reading David Brooks column carefully enough. Had I done so, I would have noted this part about President Obama’s latest jobs plan:
“Look at the recent Obama stimulus proposal. You may like it or not, but it’s trivial. It’s simply not significant enough to make a difference, given the size of the global mess.”
After telling us that stimulus does not work, Brooks is now telling us that Obama’s plan is too small to make a difference. [The latest jobs bill actually would provide more stimulus in 2012 than the original stimulus did for either 2009 or 2010.]
Jonah Gelbach takes me to task for not reading David Brooks column carefully enough. Had I done so, I would have noted this part about President Obama’s latest jobs plan:
“Look at the recent Obama stimulus proposal. You may like it or not, but it’s trivial. It’s simply not significant enough to make a difference, given the size of the global mess.”
After telling us that stimulus does not work, Brooks is now telling us that Obama’s plan is too small to make a difference. [The latest jobs bill actually would provide more stimulus in 2012 than the original stimulus did for either 2009 or 2010.]
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Robert Samuelson has a piece today arguing that China’s intervention is necessary to save the world economy. He of course is right in arguing that China has enough economic strength to save the euro and prevent a downward spiral that would throw the world economy back into recession, as some of us have argued.
However, the fact that China may have to play this role is due to the failings of the political leadership in both Europe and the United States. It is essential to remember that this is a crisis of a lack of demand, not supply. For this reason, it is ungodly stupid that so many people are being made to suffer from unemployment and declining living standards.
We know how to get out of this mess, we have known how for 70 years. We just need the government to generate demand. That means spending money. Ideally it would spend money on useful things like education, health care, and infrastructure, but even if it spent money in wasteful ways it would still create jobs and put people to work.
In the 30s we got much of the way back to full employment with the Works Progress Administration and other programs. Much of what was done was useful — look around, you won’t have to go far to find infrastructure built by depression-era programs. However, it took the massive spending associated with World War II to get the economy back to full employment. There is no magic associated with war that makes military spending more effective in creating jobs. The only difference was that the threat to the nation from the Axis powers removed the political obstacles to the necessary spending.
The same situation applies today. We just need to spend money. That applies to both the United States and the euro zone countries. The problem is that we have more people in political leadership positions who want to be morality cops and lecture about balancing budgets rather than focus on policies that will restore economic growth. This includes the top officials at the European Central Bank, many of the voting members of the Federal Reserve Board’s Open Market Committee and much of the political leadership in the euro zone countries, the United Kingdom and of course here.
The reason why the world might need China to come to the rescue is that our economic policy is being designed by people who prefer to impose their warped sense of morality rather than pursue serious economic policy. The real humiliation of turning to China is not that we actually need China, it’s that our political leaders are prevented us from saving ourselves.
Robert Samuelson has a piece today arguing that China’s intervention is necessary to save the world economy. He of course is right in arguing that China has enough economic strength to save the euro and prevent a downward spiral that would throw the world economy back into recession, as some of us have argued.
However, the fact that China may have to play this role is due to the failings of the political leadership in both Europe and the United States. It is essential to remember that this is a crisis of a lack of demand, not supply. For this reason, it is ungodly stupid that so many people are being made to suffer from unemployment and declining living standards.
We know how to get out of this mess, we have known how for 70 years. We just need the government to generate demand. That means spending money. Ideally it would spend money on useful things like education, health care, and infrastructure, but even if it spent money in wasteful ways it would still create jobs and put people to work.
In the 30s we got much of the way back to full employment with the Works Progress Administration and other programs. Much of what was done was useful — look around, you won’t have to go far to find infrastructure built by depression-era programs. However, it took the massive spending associated with World War II to get the economy back to full employment. There is no magic associated with war that makes military spending more effective in creating jobs. The only difference was that the threat to the nation from the Axis powers removed the political obstacles to the necessary spending.
The same situation applies today. We just need to spend money. That applies to both the United States and the euro zone countries. The problem is that we have more people in political leadership positions who want to be morality cops and lecture about balancing budgets rather than focus on policies that will restore economic growth. This includes the top officials at the European Central Bank, many of the voting members of the Federal Reserve Board’s Open Market Committee and much of the political leadership in the euro zone countries, the United Kingdom and of course here.
The reason why the world might need China to come to the rescue is that our economic policy is being designed by people who prefer to impose their warped sense of morality rather than pursue serious economic policy. The real humiliation of turning to China is not that we actually need China, it’s that our political leaders are prevented us from saving ourselves.
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Cokie Roberts told listeners that the political deadlock between President Obama and Congress is slowing the economy [sorry, no link yet]. It is far from clear that this is the case. Consumption as a share of disposable income is actually higher than its post-war average. Investment in equipment and software is nearly back to its pre-recession share of output, which is striking given the large amount of excess capacity in most sectors of the economy. It is not clear what component of GDP that Roberts thinks would be higher without the deadlock.
Cokie Roberts told listeners that the political deadlock between President Obama and Congress is slowing the economy [sorry, no link yet]. It is far from clear that this is the case. Consumption as a share of disposable income is actually higher than its post-war average. Investment in equipment and software is nearly back to its pre-recession share of output, which is striking given the large amount of excess capacity in most sectors of the economy. It is not clear what component of GDP that Roberts thinks would be higher without the deadlock.
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