That was what he told Post readers in his column. He talked about President Obama’s deficit commission as “the last hope for gaining control of government spending,” telling readers that:
“The problem is so big as to seem insurmountable: $13 trillion of debt, now equivalent to 60 percent of gross domestic product. In 10 years, that is projected to increase to 90 percent of GDP, at which time we’ll be making $1 trillion a year in interest payments.”
People with more familiarity with numbers would note that the country has had larger debt to GDP ratios in times past. They would also point out that that the $1 trillion in interest payments is less than 5 percent of projected GDP in ten years. The government faced the same interest burden in the early 90s.
Furthermore, unless the Fed acts irresponsibly (a big if, it did allow the $8 trillion housing bubble that wrecked the economy), it will own much of the government’s debt. In this case, the interest will be paid to the Fed, which in turns will rebate it to the Treasury leaving no net interest burden. Currently the Fed is rebating an amount equal to almost 40 percent of the interest paid by the Treasury. Reporters at most newspapers would be expected to understand this relationship.
It is also not clear what Milbank thinks is out of control about government spending (maybe he sees flying saucers also). Government spending has mostly increased to support the economy in response to the worst downturn since the Great Depression. His column suggests that he may be unaware of this downturn.
That was what he told Post readers in his column. He talked about President Obama’s deficit commission as “the last hope for gaining control of government spending,” telling readers that:
“The problem is so big as to seem insurmountable: $13 trillion of debt, now equivalent to 60 percent of gross domestic product. In 10 years, that is projected to increase to 90 percent of GDP, at which time we’ll be making $1 trillion a year in interest payments.”
People with more familiarity with numbers would note that the country has had larger debt to GDP ratios in times past. They would also point out that that the $1 trillion in interest payments is less than 5 percent of projected GDP in ten years. The government faced the same interest burden in the early 90s.
Furthermore, unless the Fed acts irresponsibly (a big if, it did allow the $8 trillion housing bubble that wrecked the economy), it will own much of the government’s debt. In this case, the interest will be paid to the Fed, which in turns will rebate it to the Treasury leaving no net interest burden. Currently the Fed is rebating an amount equal to almost 40 percent of the interest paid by the Treasury. Reporters at most newspapers would be expected to understand this relationship.
It is also not clear what Milbank thinks is out of control about government spending (maybe he sees flying saucers also). Government spending has mostly increased to support the economy in response to the worst downturn since the Great Depression. His column suggests that he may be unaware of this downturn.
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The Post had a good article on how TANF, the main federal welfare program, has not expanded significantly in the wake of the downturn, even as the need has increased enormously. At one point the article tells readers that:
“Despite urging from the Obama administration and welfare directors around the country, lawmakers decided not to extend the emergency welfare money, which gave states more than $4 million, in part to subsidize wages to help people go to work.”
Actually, the law would have provided more than $4 billion, not $4 million. However, it would have been helpful to express these sums relative to the size of the federal budget so that readers would know how large they are. The $4 million figure would be equal to 0.00011 percent of federal spending. The $4 billion number is equal to 0.11 percent of federal spending.
The Post had a good article on how TANF, the main federal welfare program, has not expanded significantly in the wake of the downturn, even as the need has increased enormously. At one point the article tells readers that:
“Despite urging from the Obama administration and welfare directors around the country, lawmakers decided not to extend the emergency welfare money, which gave states more than $4 million, in part to subsidize wages to help people go to work.”
Actually, the law would have provided more than $4 billion, not $4 million. However, it would have been helpful to express these sums relative to the size of the federal budget so that readers would know how large they are. The $4 million figure would be equal to 0.00011 percent of federal spending. The $4 billion number is equal to 0.11 percent of federal spending.
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Since some folks are determined to spread nonsense about the TARP, I suppose it’s necessary for those of us not on Wall Street’s payroll to keep trotting out the truth. The basic points of the TARP backers are:
1) it didn’t cost us anything;
2) it was necessary; and
3) Dodd-Frank ensures that it will never happen again.
Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time. It is true that most of this money was paid back, so the government got back what it lent, but that does not mean there was no cost to the taxpayer.
Without TARP and the other government bailout programs, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and many other large banks would have gone bankrupt. Their top executives would be unemployed today and their shareholders would have lost hundreds of billions of dollars in wealth, as would their creditors.
Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.
Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.
There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario — not the permanent do nothing scenario that TARP proponents have created.
Claim 3 ignores the fact that we have bigger too-big-to-fail banks than we did before the crisis. Most of the largest banks are larger today than they were before the crisis because we allowed a series of major mergers (e.g. J.P. Morgan Chase with Bear Stearns and Bank of America with Merrill Lynch) as a result of the crisis. It is very unlikely that the future regulators will be any more willing to tolerate the collapse of these giants than was the 2008 crew.
Resolution authority may give the regulators more flexibility in a crisis in the future than they had in the 2008 crisis, but the big problem was that they wanted the creditors paid off, not that they didn’t. For example, the Treasury Department/Fed made good on 100 percent of AIG’s debts, instead of trying to impose haircuts on its creditors. There is no reason to expect regulators to act any differently in future crises.
In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.
Since some folks are determined to spread nonsense about the TARP, I suppose it’s necessary for those of us not on Wall Street’s payroll to keep trotting out the truth. The basic points of the TARP backers are:
1) it didn’t cost us anything;
2) it was necessary; and
3) Dodd-Frank ensures that it will never happen again.
Claim 1 is just absolute nonsense. We gave the banks trillions of dollars worth of loans and loan guarantees through the TARP, the Fed and the FDIC at way below market rates at the time. It is true that most of this money was paid back, so the government got back what it lent, but that does not mean there was no cost to the taxpayer.
Without TARP and the other government bailout programs, Goldman Sachs, Morgan Stanley, Citigroup, Bank of America, and many other large banks would have gone bankrupt. Their top executives would be unemployed today and their shareholders would have lost hundreds of billions of dollars in wealth, as would their creditors.
Thanks to their access to below market credit in their time of need, courtesy of the taxpayer bailouts, the Wall Street executives are still pocketing tens of millions a year and the banks are again making record profits. Had the market been allowed to work its magic, this wealth and income would have been available for the rest of society. The financial sector will continue to be a drain on the rest of the economy because the government saved it from the consequences of its own recklessness.
Claim 2 implies that the economy would have collapsed absent the TARP. It assumes an absurd counter-factual: that the government and the Fed would have allowed the banks to collapse and then done nothing in response to boost the economy. Of course that would have been a catastrophe, but it is simply a lie to claim that our options were either doing TARP or never doing anything.
There is no reason that we could not have let the banks go down in the cesspool of junk loans that they had fostered and then flooded the system with liquidity after the fact to boost the economy. This is the serious alternative scenario — not the permanent do nothing scenario that TARP proponents have created.
Claim 3 ignores the fact that we have bigger too-big-to-fail banks than we did before the crisis. Most of the largest banks are larger today than they were before the crisis because we allowed a series of major mergers (e.g. J.P. Morgan Chase with Bear Stearns and Bank of America with Merrill Lynch) as a result of the crisis. It is very unlikely that the future regulators will be any more willing to tolerate the collapse of these giants than was the 2008 crew.
Resolution authority may give the regulators more flexibility in a crisis in the future than they had in the 2008 crisis, but the big problem was that they wanted the creditors paid off, not that they didn’t. For example, the Treasury Department/Fed made good on 100 percent of AIG’s debts, instead of trying to impose haircuts on its creditors. There is no reason to expect regulators to act any differently in future crises.
In short, the TARP opponents are absolutely right. TARP was an unnecessary giveaway to the Wall Street crew that was responsible for the financial crisis.
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The Washington Post is a huge fan of protectionism. That is what readers can conclude from the fact that it conceals the protectionist aspects of trade deals like the trade agreement between the United States and South Korea. Provisions increasing protection for U.S. patents and copyrights are an important part of this trade agreement. However, the Post has devoted almost no space to mentioning these provisions, which will raise costs for Korean consumers and slow growth there.
Instead, the Post constantly mischaracterizes the deal as a “free-trade” agreement (as opposed to a “trade agreement”) thereby wasting space and spreading inaccurate information.
The Washington Post is a huge fan of protectionism. That is what readers can conclude from the fact that it conceals the protectionist aspects of trade deals like the trade agreement between the United States and South Korea. Provisions increasing protection for U.S. patents and copyrights are an important part of this trade agreement. However, the Post has devoted almost no space to mentioning these provisions, which will raise costs for Korean consumers and slow growth there.
Instead, the Post constantly mischaracterizes the deal as a “free-trade” agreement (as opposed to a “trade agreement”) thereby wasting space and spreading inaccurate information.
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The Washington Post headlined an article on the release of data August consumer spending: “with consumers skittish, hopes muted for holiday sales.” The article goes on to describe weak consumer sales, which are explained by pessimistic attitudes about the economy.
In fact, consumer sales are actually quite strong given the level of income. As the article notes, the saving rate for August was 5.8 percent. This is considerably below the average for the 50s, 60s, 70s, and 80s. In each of these decades the savings rate was considerably above 8.0 percent.
The saving rate began to drop toward the end of the 80s and into the 90s as a result of the wealth effect generated by the stock market bubble. It fell to zero as a result of the wealth effect from the housing bubble. Now that most of this bubble wealth has disappeared, it would be expected that the savings rate would return to its normal level or possibly even rise above it, as households attempt to make up for lost wealth. This is especially likely given that the huge cohort of baby boomers is approaching retirement with virtually no wealth and there is widespread talk of cutting their Social Security benefits.
It is remarkable that the Washington Post could not find any economists familiar with the wealth effect on consumption. It is one of the most basic relationships in economics.
The Washington Post headlined an article on the release of data August consumer spending: “with consumers skittish, hopes muted for holiday sales.” The article goes on to describe weak consumer sales, which are explained by pessimistic attitudes about the economy.
In fact, consumer sales are actually quite strong given the level of income. As the article notes, the saving rate for August was 5.8 percent. This is considerably below the average for the 50s, 60s, 70s, and 80s. In each of these decades the savings rate was considerably above 8.0 percent.
The saving rate began to drop toward the end of the 80s and into the 90s as a result of the wealth effect generated by the stock market bubble. It fell to zero as a result of the wealth effect from the housing bubble. Now that most of this bubble wealth has disappeared, it would be expected that the savings rate would return to its normal level or possibly even rise above it, as households attempt to make up for lost wealth. This is especially likely given that the huge cohort of baby boomers is approaching retirement with virtually no wealth and there is widespread talk of cutting their Social Security benefits.
It is remarkable that the Washington Post could not find any economists familiar with the wealth effect on consumption. It is one of the most basic relationships in economics.
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It is really simple to use purchasing power parity measures of GDP. This makes it hard to understand why the NYT and other papers use exchange rate measures. The exchange rate measures are essentially meaningless, whereas the purchasing power parity provide some basis for assessing living standards.
The NYT told readers that per capita income in Malaysia is about $7,000. According to the CIA Factbook Malaysia’s per capita income is $14,900.
It is really simple to use purchasing power parity measures of GDP. This makes it hard to understand why the NYT and other papers use exchange rate measures. The exchange rate measures are essentially meaningless, whereas the purchasing power parity provide some basis for assessing living standards.
The NYT told readers that per capita income in Malaysia is about $7,000. According to the CIA Factbook Malaysia’s per capita income is $14,900.
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This is striking, since most of the country falls into the critics category. Apparently, the NYT doesn’t know any TARP critics.
If they did, and they talked to them for their article on the end of the TARP, the critics likely would have told the NYT that the TARP preserved Wall Street as we know it. Had the market been allowed to do its magic, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, and many other fine institutions would have been bankrupt. This would have redistributed more than a trillion dollars of wealth from the shareowners, the creditors, and the top executives to the rest of the country.
By providing them with loans at below market interest rates, the TARP and the much larger Fed and FDIC bailouts, allowed the banks to survive the crisis created by their own recklessness. This was like giving away food during a famine. The banks have repaid the food with interest now that the harvest has come in, but to pretend that we did not do them an enormous favor at enormous cost to taxpayers (we could have rescued others with these loans) is absurd.
The claim that we averted a second Great Depression with the TARP is a great children’s story, but no one has any clue how the decision to not do the TARP would have necessitated a second Great Depression. The first Great Depression was the result of a decade of bad policy, not just an initial policy failure at its onset.
This is striking, since most of the country falls into the critics category. Apparently, the NYT doesn’t know any TARP critics.
If they did, and they talked to them for their article on the end of the TARP, the critics likely would have told the NYT that the TARP preserved Wall Street as we know it. Had the market been allowed to do its magic, Citigroup, Goldman Sachs, Morgan Stanley, Bank of America, and many other fine institutions would have been bankrupt. This would have redistributed more than a trillion dollars of wealth from the shareowners, the creditors, and the top executives to the rest of the country.
By providing them with loans at below market interest rates, the TARP and the much larger Fed and FDIC bailouts, allowed the banks to survive the crisis created by their own recklessness. This was like giving away food during a famine. The banks have repaid the food with interest now that the harvest has come in, but to pretend that we did not do them an enormous favor at enormous cost to taxpayers (we could have rescued others with these loans) is absurd.
The claim that we averted a second Great Depression with the TARP is a great children’s story, but no one has any clue how the decision to not do the TARP would have necessitated a second Great Depression. The first Great Depression was the result of a decade of bad policy, not just an initial policy failure at its onset.
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It might be the case that you don’t need a weatherman to know which way the wind blows, but the NYT is telling us that we need a philosopher to guide our tax policy. An article on the debate over extending the Bush tax cuts told readers:
“As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.”
Umm, really? Is the rate at which people are taxed, as opposed to the amount they pay in taxes, really such an important political issue? Do most people even know the rate at which they are taxed? Following the 1986 tax reform, tens of millions of middle income workers paid the same 28 percent tax rate as the very richest people in the country. There was not a big philosophical debate over this issue at that time. (We were lowering rates for the wealthy back then, not raising them.)
The more obvious issue is how much tax people will be paying. The answer for the questionably rich people who are the focus of this article (people with incomes between $250,000 and $500,000) is not very much. The Joint Tax Committee in Congress calculated that the average tax hit for taxpayers with income in this range would be $400 a year. That sort of tax hit would not seem to require very much philosophy.
It might be the case that you don’t need a weatherman to know which way the wind blows, but the NYT is telling us that we need a philosopher to guide our tax policy. An article on the debate over extending the Bush tax cuts told readers:
“As the political battle drags on, however, it has also veered into a more basic matter of fairness, whether a person who earns more than $200,000 a year should be taxed at rates similar to those who make $5 million.”
Umm, really? Is the rate at which people are taxed, as opposed to the amount they pay in taxes, really such an important political issue? Do most people even know the rate at which they are taxed? Following the 1986 tax reform, tens of millions of middle income workers paid the same 28 percent tax rate as the very richest people in the country. There was not a big philosophical debate over this issue at that time. (We were lowering rates for the wealthy back then, not raising them.)
The more obvious issue is how much tax people will be paying. The answer for the questionably rich people who are the focus of this article (people with incomes between $250,000 and $500,000) is not very much. The Joint Tax Committee in Congress calculated that the average tax hit for taxpayers with income in this range would be $400 a year. That sort of tax hit would not seem to require very much philosophy.
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USA Today has an interesting article about how Grand Rapids, Michigan has gotten a boost to its economy from a modest arts prize awarded each year by a private donor. This raises the issue of whether some communities may use similar methods to more systematically provide economic development. A local government could adopt something like an artistic freedom voucher system to encourage creative workers (e.g. musicians, writers, artists, etc) to live in their city. Since these people would want to get support from the local population through the voucher system, they would have a strong incentive to perform frequently. This could turn a city into an arts mecca.
USA Today has an interesting article about how Grand Rapids, Michigan has gotten a boost to its economy from a modest arts prize awarded each year by a private donor. This raises the issue of whether some communities may use similar methods to more systematically provide economic development. A local government could adopt something like an artistic freedom voucher system to encourage creative workers (e.g. musicians, writers, artists, etc) to live in their city. Since these people would want to get support from the local population through the voucher system, they would have a strong incentive to perform frequently. This could turn a city into an arts mecca.
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The New York Times assigned former Washington Post reporter Sebastian Mallaby to review Robert Reich’s new book, Aftershock: The Next Economy and America’s Future. It is unfortunate that they couldn’t find someone familiar who knew some economics for this task.
Near the beginning of the review, Mallaby tells readers:
“Reich insists instead that American consumers, and particularly the middle class, have been buying too little. For years, the United States has consumed more than it has produced; the excess demand has sucked in products from abroad, which is why the nation has run a trade deficit. The idea that the economy has suffered from a lack of demand is, shall we say, eccentric.”
Actually, there are few economists who would say that the United States had excess demand throughout most of the last decade, so Robert Reich is exactly right on this point and Sebastian Mallaby is completely wrong. The trade deficit was the result of an over-valued dollar.
This is actually very basic economics. The value of the dollar determines the relative price of foreign and domestic goods. If the dollar is sufficiently over-valued then the United States could be running a trade deficit even when demand is grossly inadequate — as is the case at present. The high dollar makes imports very cheap for people in the United States, which causes us to consume large amounts of imports. It also makes U.S. exports expensive to people living in other countries, which means that we will have weak exports. It is remarkably that Mallaby is apparently unfamiliar with this basic logic and that his mistake was apparently not caught by the editor.
The New York Times assigned former Washington Post reporter Sebastian Mallaby to review Robert Reich’s new book, Aftershock: The Next Economy and America’s Future. It is unfortunate that they couldn’t find someone familiar who knew some economics for this task.
Near the beginning of the review, Mallaby tells readers:
“Reich insists instead that American consumers, and particularly the middle class, have been buying too little. For years, the United States has consumed more than it has produced; the excess demand has sucked in products from abroad, which is why the nation has run a trade deficit. The idea that the economy has suffered from a lack of demand is, shall we say, eccentric.”
Actually, there are few economists who would say that the United States had excess demand throughout most of the last decade, so Robert Reich is exactly right on this point and Sebastian Mallaby is completely wrong. The trade deficit was the result of an over-valued dollar.
This is actually very basic economics. The value of the dollar determines the relative price of foreign and domestic goods. If the dollar is sufficiently over-valued then the United States could be running a trade deficit even when demand is grossly inadequate — as is the case at present. The high dollar makes imports very cheap for people in the United States, which causes us to consume large amounts of imports. It also makes U.S. exports expensive to people living in other countries, which means that we will have weak exports. It is remarkably that Mallaby is apparently unfamiliar with this basic logic and that his mistake was apparently not caught by the editor.
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