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The Tipping Point
THE TIPPING POINT....Should the stimulus bill have been even bigger? Tyler Cowen lists several reasons to be cautious on this score, including this:
5. Many on the left are boasting that the U.S. government could borrow lots more (look at the current T-Bill rate), forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment, bringing countries from riches to rags virtually overnight. Somehow those old narratives are being forgotten, I wonder why.
We have essentially replaced a risk bubble with a safety bubble. And there are lots of good reasons to think that this bubble, which manifests itself as an almost bottomless demand for U.S. treasuries, will continue for a long time. But a long time isn't forever, and we're planning to sell upwards of $3 trillion in treasuries over the next 30 months. So when will the tipping point come? After $1 trillion? $2 trillion? Never? I hope the answer is never, but if the past couple of years has taught us anything, it's that we don't know — and that never is probably the least likely answer. And when the market does turn on us, it's going to turn ferociously and without notice. I sure hope Geithner and Summers and the rest of the crew are prepared for this, because the odds are that we're going to be paying for the profligacy of the Bush administration for a long time to come.
I think the govt might want
tagged as:- solution
I think the govt might want to consider announcing in advance the parameters of a deficit-reduction plan. Not that any tax increases or spending cuts should be implemented, mind you, any time in the
near future. But simply having legislation in place that will eventually reduce borrowing may prove helpful in keeping interest rates in check.
Not Just Bush
I know how tempting it is to want to lay all the blame at the feet of the Bush Admin, but to be honest you cannot leave out the role our elected representatives played in the repealing of Glass-Steagall during the Clinton Admin. Without their legislative "thanks for all the campaign donations" to the banking industry, we wouldn't be anywhere near this bad off. How many of those squealing in DC right now are the same people who voted "yes" on Gramm-Leach-Bliley Act?
I never tip!
Okay Kevin, I've got a 'handle', my own password and iconic picture. Now, do I logout when I'm done or what?
Also, why do I have to be posting a comment before I can login?
Why not just have 'login' at the top of the page when I first get 'here'?
On Kevin's Main Page
Scroll to the right, in the top right corner. Don't worry about logging out. It will log you out automatically when you close your browser.
Gee!!! I'm beginning to get the hang of this new fangled site. Cool!
Det, no problem
This concern about the ability to sell debt is nonsense, at least for now. There has been no sign of difficulties, our debt/GDP is low. There are plenty of reasons to be concerned about the future, but marketing U.S. debt is not one them.
People keep on thinking of new reasons not to engage in proper fiscal stimulus, it's strange.
I do think that Obama has to get long-range spending under control, and medical reform is key to that.
It's easier to get on an airline flight than post a comment here now. Maybe that's the idea.
As usual
Cowen is full of it.
Many on the left are boasting that the U.S. government could borrow lots more
Of course he doesn't name those boasters. Nor have I seen anyone "boasting" about it, just people arguing that it is true.
A lot of the stimulus will shift people from one job to another, rather than simply employing the current unemployed. We really don't want to take people from producing something useful to producing something wasteful.
That makes no sense. Why would $800B of extra demand mostly shift jobs? If some service or product is "useful" why would extra demand make it uneconomic to produce in a slack labor and commodities market, and when nobody thinks the stimulus plan will come close to taking up the slack? What is uniquely wasteful in the stimulus package as compared to the wasteful things the government has done recently, such as the Iraq War? Heck, what is uniquely wasteful in the stimulus package compared to what the private sector has done lately?
There is another alternative
We simply print money, and inflate our way out of the problem.
Yes, it causes all sorts of disruption, international as well as domestic, but ultimately it works itself out.
Many parts of our economy are now effectively in a recession so severe that it borders on a depression. Are the detrimental effects of material inflation worse for them than the status quo? Are their needs not the greater, especially compared to those who have benefited so greatly from the policies of the last decade?
Tough questions...
Important how we stimulate.
There is a lot of difference depending on what sort of things we spend it on. Not so much in how much stimulus you get per headline dollar. If you give it as a tax break, much will be saved -or used to retire debt. That doesn't mean it won't be spent, but that after the taxpayer feels more secure he will spend more, and paying down debt will make him feel more secure. That means stimulus via tax refunds can have a long lag time, perhaps years.
Otherwise, are we building infrastructure that will keep giving to the economy? If we spend on preventive medicine, we do. If we build alternative energy infrastructure we do. If we spend on energy conservation we do. If we generate future government revenues, or cost savings, these will help pay back the debt.
The big problem here, is that politics doesn't care about these things. It cares about local pork. Or it cares about emotional arguments. Now to go back to the original question, Krugman makes a good case that it is better to overstimulate, than understimulate. There is also a political risk to being too timid. For then you may only reduce the depth of the recession leaving no unmistakable signal that it worked. Future 30second propaganda can claim it did no good, but was just liberal giveaways. Thats what happened with the New deal stuff. They were too timid (partly because the theory had been untested). And we still get the right claiming they had no effect.
Perhaps a little bigger in
Perhaps a little bigger in size, but the REAL meaning of bigger is less taxcuts more spending. Remember the real bill is only about $400 billion. If it were 700$ with 150$ in tax cuts it would probably be a better bill.
The Monster of the Senate
Here's an opportunity to get on my favorite hobby horse again.
The filibuster rears its ugly head. Invariably we honor it without ever questioning why. I'm questioning. Why?
The senate is already incredibly undemocratic. Cows in Wyoming have more power in the senate than humans in New York. Add the filibuster and the entire idea of representative democracy is out the window. And yet we lamely accept. Why? Because it is there.
I said when the filibuster was challenged the last time, (the “nuclear option” remember?) that the Dems should let it go. We would have gotten some conservative judges, to be sure, but the next time the Dems gained power they would be so glad they did. But they fought to keep that holy piece of crap and here we are.
What would the founders think of it? They’d be aghast that such an obnoxious tradition (and tradition is all it is) could so impede the working of the will of the people. Whatever it takes, we should shoot the damn thing in the heart!
There Is An Even More Important "Tipping Point" For Concern
Well said Kevin, especially focusing on the fact that “we're going to be paying for the profligacy of the Bush administration for a long time to come.” Actually for generations to come thanks to the Bush Autocracy that was as close to a dictatorship sabotaging America has yet come because the republicans really like it that way and the democrats made it too easy for Bush-Cheney-GOP to get away with it.
But I’m sure you realize that there is a “Tipping Point” that is much worse than the current GOP sabotage of the American economy for future generations to be concerned about. University of Georgia evolutionary biologist Mike Arnold documented:
We’re in the middle of an enormous mass extinction right now, one that could produce opportunities for new life --- But there is a caveat. This mass extinction is human-mediated. It’s largely caused by things like destruction of habitat, which may result in irreversible harm in terms of evolutionary diversification. ---
Environments are being modified, but maybe not in any way that life can adapt to evolve in. There’s not a lot of opportunity for diversification in a world of concrete.
Certainly some kind of life will persist, adapt, evolve. That’s what life has done for billions of years and what it will likely do for billions more. It just might not be the kinds of life we value.
IT JUST MIGHT NOT BE US!
Tipping Point article, 2-13-09
tagged as:- solution
I have worried for some time about the danger to our economy when China stops buying our bonds - likelier now that their economy too is suffering and its population is very unhappy about factory closings. That's why I think the Treasury should get Americans to voluntarily pay for the stimulus by issuing Recovery bonds, with perhaps a 3% or 4% interest rate. The thing is, lots of us whose investments took a big hit are looking for a safe place to invest what's left that also offers a comparatively decent rate of return. We'd be happy to buy recovery bonds with a government guarantee.
The Clinton Effect
Here is where Obama collects the payoff from Bill Clinton's budget policies. Bush instantly squandered Clinton's surplus, but the market remembers, and regards Democrats as responsible borrowers.
I hope the answer is never,
I hope the answer is never, but if the past couple of years has taught us anything, it's that we don't know — and that never is probably the least likely answer. And when the market does turn on us, it's going to turn ferociously and without notice.
The only substantial crunch we get from a currency crash is from oil. (That is, if the rest of the world pulls out from US debt, then the value of the dollar relative to other currencies heads to zero. Our imports shrink to nothing and our exports balloon. We, meanwhile, have a problem of having a depression (uncapitalized). So the goal here should be to spend to get our industrial economy in good enough shape to withstand the slings and arrows of outrageous fortune. If we don't spend, we don't get out of our depression and the currency goes kaboom anyways, because we've been going in the hole for 20 years.
Or we can do the stupid thing, not spend, the currency gets trashed and we never get off the floor. (Recall all those little countries that installed an austerity regime to please people like Tyler Cowen: they never ever got a break from investors. In fact, installing an austerity regime usually meant multiple years of suffering and nothing to show for it.)
max
['Gather ye rosebuds while ye may.']
p.s. That was really exciting with that captcha thing. YUCK.
Always expect the
Always expect the unexpected.
Paying for the stimulus with
Paying for the stimulus with borrowed public monies is a mistake and will lead to greater crisis. The stimulus and greater public service spending, ie universal health care, should come from fines, fees and surtaxes on the top 20% of wealth holders. There is not enough money in the world to satisfy the greed of the Wall St. schemers, but that will not stop them from trying to accumulate all of it.
"Many on the left
tagged as:- solution
"Many on the left ...forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators"
This is why I have a real problem with Tyler. Sure he sounds reasonable, like when he talks about world music and you think he seems like a sane human being, but then he delights in making these sorts of deliberately obtuse or misleading statements.
The left, Tyler, have not forgotten ANYTHING about noise trading. The left are the people, you moron, who want to install a Tobin tax (and similar within border transaction taxes) to CUT DOWN on noise trading. I have never in my life seen a valid argument for why noise trading adds value to society, but I'm sure Tyler and his merry friends at Chicago and George Mason can unearth a few lies on the subject.
All of the economic
All of the economic doomsayers at the leftist counterpunch and some at Asia Times have been warning about this problem, Paul Craig Roberts especially. After $2T, demand for Treasuries will end because there will be little equity left in the world, as almost every other developed country also has a voracious appetite for borrowing to stimulate their economies, and the government will then begin printing money.
There is plenty of wealth in the US to stimulate the economy, but it is in the assets of the top twenty percent. A fifteen percent tax on all wealth in excess of $5-10M would do more to stimulate the economy and improve the US' balance sheets than all of the borrowing and bailouts will.
forgetting they used to warn
tagged as:- solution
forgetting they used to warn us that international capital flows, as amplified through noise traders and speculators, mean that crises can arrive in a single, whiplash moment,
If we had a good trading sales tax or similar, these movements couldn't build momentum and would be greatly reduced. We need to push for such taxes, which would also pull in revenue and from the less productive (or even destructive) activities in the economy.
tyrannogenius