Now that the Left has achieved its long-sought goal of nearly complete control over the delivery of medical services in the United States, it looks for the nonce like a spent force. Evidence of this comes today from the electronic pen of the Yale economist Robert Shiller. In an op-ed for the New York Times titled The Survival of the Safest, he goes into a tiresome and partly inaccurate discussion of labor markets being inflexible re wages, wanders around with some irrelevant anecdotes, and then demonstrates that he has no real ideas anymore by suddenly saying only at the very end of the piece:
Sometimes the private sector needs help from the government, and this is one of those times. We need to break the cycle of protracted unemployment and sagging morale through big government programs to create millions of jobs.
I read the article looking for insights and facts. When I came to that end, I gave a mental "Huh?". I was disappointed. I want icons such as Shiller to come up with brilliant ideas that challenge my (different) philosophy. That's how societies improve themselves, with the honest exchange of ideas on how to improve matters.
One of FDR's accomplishments was that his team came up with specific projects that benefited the country, whether it be post office (re)construction, electrification projects, and whatever else. There was not a lot of non-welfare payment to people to just sit there, complaints of payments to wasteful leaf-rakers by critics notwithstanding.
Dr. Shiller echoes the Obama "stimulus" lead by vaguely proposing that big(ger) government will help save our economy. But where are the specifics, Dr. Shiller? Do more roads urgently need repaving? Should government put more unemployed auto factor workers back to work making more autos that American buyers are too tapped out to afford? He does not say. If he had some great ideas, such as inventing the Internet or creating an Interstate Highway System, he would say so. He doesn't, and thus we conclude that he is bereft of any ideas other than that the "aggregates" would sure look better if big government got even bigger.
Dr. Shiller co-authored the book Animal Spirits last year with George Akerlof (Janet Yellen's husband), who is a Nobel Prize winner in Economics. I reviewed this popularized collection of Keynesian thinking for Naked Capitalism. Among many other liberal tropes, the book repeats the idea that workers are still in the habit of falling for the "money illusion"- that they are happier with, say, 4% raises (taxable) and 3-4% inflation than no raises and no inflation. Haven't economists realized that we're wise to that game? It only works when people expect prices to revert to normal (flat to down due to productivity gains), as was common under a gold standard. I Emailed Dr. Shiller for the evidence that this money illusion actually is valid; unsurprisingly I have not heard back from him.
In 1994 and for a few years thereafter, Republicans seized the Perot mantle and delivered balanced budgets and welfare reform. They then ran out of ideas, proved that their term limit cause was a sham, and joined with the Clinton-Rubin axis to begin looting the country. The Democrats swept to Congressional power in 2006 in good measure by pointing out Republican corruption. Since coming to power they have also proven themselves feckless. Now they are reduced to stalwarts such as Dr. Shiller fooling no one but the Party faithful by hiding his key policy point till the last sentence of an op-ed in the liberal party's #1 newspaper of record. Somehow I don't think many votes were swayed by this piece.
The current political woes of the Dems are compounded by the publication of "Obama's War" by Bob Woodward. As this blog has been pointing out for many months, the Pak-ghanistan War is going badly for the U. S. Unlike the Viet Nam War to which it has so many parallels, it is being ramped up in difficult economic times with the warring country (us) in a deteriorating fiscal position. The time-honored way to pay for wars even in good economic times such as the 1960s is with inflation; in worse times, it's a no-brainer.
So we look to a have an LBJ-type president, though without either his outsized persona and knowledge of Washington. We have both big social changes and a deteriorating surge in Asia. And now we look to have the other party getting close to being able to demand a bigger piece of the spoils. Both parties want to point to greater employment, and absent another major economic downturn, they want the private sector to accomplish this. Thus both parties want a weaker dollar, and will swallow higher inflation, which they will blame on OPEC, hot Russian summers, the gods, and anyone but themselves and their order-takers at the Fed.
I'm therefore looking for stagflation within the setting of a chronic mild depression for the middle class. In other words, back to the 1940s (without WW II) and the 1970s. Not that the markets haven't moved in that direction already. From an interest-rate standpoint, we're in the late 1930s or 1940s; rates are low and have yet to trend upward on a long-term chart.
On this reasoning, I have expanded my weak-dollar-themed investment purchases to include oil. Given that growth is strong in many parts of the world, I purchased two long-favored stocks, Apache (APA) and Helmerich & Payne (HP). These companies' charts are relatively trendless. Time will tell.
The ancien regime in Washington has lots of life left. It controls the press (the media) and more importantly the printing press and the enablers of said press, namely Big Finance. My speculation is that the era of Big Government is peaking for a while, but the era of big spending and big-time money printing will continue until the foreign military adventure(s) cease and the neo-Perot balanced budget movement gains traction, which is quite a big "maybe".
Individual investors who simply want to secure a reasonable financial future have been reduced to speculators by the influence of inflationists such as Dr. Shiller and his Krugmanite cohorts, who appear never to have encountered an economy that does not call for bigger government, with increasing cumulative deficits as far as the eye can see, and far beyond. As Ralph Kramden might have said, Ad astra, Alice; we're leaving the moon behind!
Copyright (C) Long Lake LLC 2010
Showing posts with label Robert Shiller. Show all posts
Showing posts with label Robert Shiller. Show all posts
Sunday, October 3, 2010
Monday, June 14, 2010
Americans Being Kicked in the Fannie Once Again
Bloomberg.com reports on the apologists for fiscal insanity surrounding the Fannie/Freddie bailouts in Fannie-Freddie Fix at $160 Billion With $1 Trillion Worst Case:
“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.
‘Safest Place’
With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.
“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”
To Dr. Holtz-Eakin, my response is that there is a way around it. It's called leadership and avoidance of money-printing. To Dr. Shiller, I would point out that any investor who is not yet aware that Fannie/Freddie obligations are not full faith and credit obligations of the Federal Government deserve losses. No, taxpayers don't have to "stand up" for these badly-run behemoths.
It's all about the inflation game (or, anti-deflation, which eventually amounts to something very similar though probably not identical). Dr. Shiller, who actually praises the money illusion in the book he co-authored titled "Animal Spirits", believes that rising prices and rising wages are good things for psychological reasons. So the U. S. government (with the Fed's assistance) writes off/monetizes the losses, thus eradicating the debt and converting debt-based finance into helicoptering money onto the people.
Until the debt is canceled or monetized, it is not inflationary. By "standing up" for Fannie and Freddie, bad debts all through the chain can be cancelled or written down, but the credit money issued by banks, such as to mortgagees, has been spent, and more is on the way to justify current prices.
It is a cynical game in which Republicrats and Demopublicans work hand in glove with the financial/building interests to put people into houses they cannot afford, that produce no foreign exchange revenue, that cost money to maintain, and that are backed by the misperception that the U. S. is a safe place to invest. No matter that over the past 25 years, the U. S. may have had more bank failures than any country anywhere, that the U. S. is the obvious home of global Ponzi finance, and that the housing scheme is at the root of it all.
What makes the U. S. "safe"? Broad oceans, militarily unaggressive neighbors, and its global military presence. Fundamentally, the Fannie/Freddie/AIG/Lehman month late August to beginning of October 2008 has never had official explanation or serious action at reform.
With Establishment stalwarts such as Drs. Holtz-Eakin and Shiller banging the gong loudly for ongoing Fannie/Freddie bailouts, you can expect more of the same-old same-old going forward.
Copyright (C) Long Lake LLC 2010
“Republicans and Democrats love putting Americans in houses, and there’s no getting around that,” Holtz-Eakin said.
‘Safest Place’
With no solution in sight, the companies may need billions of dollars from the Treasury Department each quarter. The alternative -- cutting the federal lifeline and letting the companies default on their debts -- would produce global economic tremors akin to the U.S. decision to go off the gold standard in the 1930s, said Robert J. Shiller, a professor of economics at Yale University in New Haven, Connecticut, who helped create the S&P/Case-Shiller indexes of property values.
“People all over the world think, ‘Where is the safest place I could possibly put my money?’ and that’s the U.S.,” Shiller said in an interview. “We can’t let Fannie and Freddie go. We have to stand up for them.”
To Dr. Holtz-Eakin, my response is that there is a way around it. It's called leadership and avoidance of money-printing. To Dr. Shiller, I would point out that any investor who is not yet aware that Fannie/Freddie obligations are not full faith and credit obligations of the Federal Government deserve losses. No, taxpayers don't have to "stand up" for these badly-run behemoths.
It's all about the inflation game (or, anti-deflation, which eventually amounts to something very similar though probably not identical). Dr. Shiller, who actually praises the money illusion in the book he co-authored titled "Animal Spirits", believes that rising prices and rising wages are good things for psychological reasons. So the U. S. government (with the Fed's assistance) writes off/monetizes the losses, thus eradicating the debt and converting debt-based finance into helicoptering money onto the people.
Until the debt is canceled or monetized, it is not inflationary. By "standing up" for Fannie and Freddie, bad debts all through the chain can be cancelled or written down, but the credit money issued by banks, such as to mortgagees, has been spent, and more is on the way to justify current prices.
It is a cynical game in which Republicrats and Demopublicans work hand in glove with the financial/building interests to put people into houses they cannot afford, that produce no foreign exchange revenue, that cost money to maintain, and that are backed by the misperception that the U. S. is a safe place to invest. No matter that over the past 25 years, the U. S. may have had more bank failures than any country anywhere, that the U. S. is the obvious home of global Ponzi finance, and that the housing scheme is at the root of it all.
What makes the U. S. "safe"? Broad oceans, militarily unaggressive neighbors, and its global military presence. Fundamentally, the Fannie/Freddie/AIG/Lehman month late August to beginning of October 2008 has never had official explanation or serious action at reform.
With Establishment stalwarts such as Drs. Holtz-Eakin and Shiller banging the gong loudly for ongoing Fannie/Freddie bailouts, you can expect more of the same-old same-old going forward.
Copyright (C) Long Lake LLC 2010
Sunday, May 10, 2009
Yves Smith, "Animal Spirits", and the Big Lie Technique
One of the important moments in the financial blogosphere occurred at the end of a lengthy and impassioned post by Yves Smith at Naked Capitalism, where she opined:
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
The dishonesty of this crowd is just breathtaking. The Bushies were blatantly high handed, while Team Obama prefers the Big Lie and assumes we are all too dumb to see through it.
Unfortunately, the financial and business has become political. Yves is hardly a right-winger; for her to use that terminology for a candidate who she fervently hoped would do the correct things is sad and shocking. (And appropriate!)
In that context, please consider the points made in a supposedly important book by two noted economists: a Nobel Prize winner- George Akerlof- and the even more famous Robert Shiller- in the popular book "Animal Spirits".
The book's subtitle is "How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism". Allegedly this is an Important work (for a popular economic tome). Perhaps within academic economics, it is worth reminding one's colleagues that Adam Smith and other empirical economists such as Keynes, who all theorized in words (not that Keynes did not also reduce his theories to equations) that at the root of economic actions are humans with emotions and non-rational expectations etc. etc. To non-economics such as a physician, however, this "insight" is jejune. of course individuals make non-rational decisions. How could one think otherwise?
The point of this post is how political "Animal Spirits" is, how mainstream it is, and how misguided it is.
Let us get right to the point. The book praises Asian economies for emphasizing saving. It ascribes the amazing long-term growth of the Singaporean economy to forced, massive savings. Yet it discusses the current American economic difficulty with a complete disregard to this philosophy:
The overwhelming threat to the current economy is the credit crunch. It will be difficult and perhaps even impossible to achieve the goal of full employment if credit falls considerably below its normal levels. (P. 86)
DoctoRx here. It's not clear if the authors are referring to the absolute level of credit or the growth level of credit.
The authors then go on to ascribe the current alleged credit crunch- which as I have previously blogged (citing such sources as the New York Fed to prove my point), only exists in relation to the loosest, most irresponsible granting of credit in generations- to a loss of animal spirits:
The segment of the financial system that initiated loans, and then passed them on, was fragile. It fell. In terms of our animal spirits, confidence disappeared. People became suspicious of transactions that they had previously undertaken to the tune of trillions of dollars. (P. 90)
DoctoRx here. The context of this passage makes it clear that government must cure the populace of this decline in animal spirits, of loss of confidence. How? With a hair of the dog strategy:
On pages 90-92, the authors have effusive praise for the Fed/Treasury solution of the Term Asset-Backed Loan Facility (TALF). They say (P. 92):
More generally, TALF shows us that there are two sides to creative finance: It may have gotten us into this crisis. But its genius may also get us out of it. (Emph. added; P. 92)
What is the "genius" of TALF? Basically, banks get to make a great deal of money with minor downside, with the Fed and Treasury taking substantial risk for limited upside. This is "genius"?
Now we get back to the beginning of this post. The entire set of actions of the government, which has really included the formerly-independent Fed ever since the Bear, Stearns/JPMorgan Chase bailout of March 2008, has been based on the combination of "high handed" and "Big Lie" tactics.
Why do I pick on Shiller and Akerlof? Well, consider that Dr. Akerlof is the husband of Fed Governor and Democratic stalwart Janet Yellen, and the authors have a classic 1960's Tobin-type liberal bias:
This had been the vision in prev ious generations of those who established central banks: the role of central banks is to insure the credit conditions that enable full employment. (P. 90)
Having recently finished reading Niall Ferguson's "The Ascent of Money", I would have to call that statement a Big Lie as well. The evolution of the Bank of England into a central bank was most assuredly not to insure full employment for the subjects of the Crown. It was much more to help finance wars, imperialistic expansion, and other matters. Similarly, while the origins of the U. S. Federal Reserve are a bit controversial, full employment in the U. S. was for the most part a given before the Great Depression (though the level of wages was another matter). The country in those days was much to busy growing and much too rural not to use more workers somewhere to do something. From the New York Fed itself on the creation of the Federal Reserve in 1913:
The Federal Reserve Act presented by Congressman Carter Glass and Senator Robert L. Owen incorporated modifications by Woodrow Wilson and allowed for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress approved the Act, and President Wilson signed it into law on December 23, 1913. The Act, "Provided for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes. (Ed: This post from the NY Fed lacks a close to the quote mark; alert readers who noticed the missing "end quote" should complain to the Fed!)
From bogus "stress tests" and overvalued "legacy" securities, extending to the noted academics Robert Shiller and George Akerlof, we are besieged by lies large and small and political agendas everywhere.
The good government types found on the blogosphere, such as Yves Smith and many other such as Mish, Barry Ritholtz, Jesse and Simon Johnson, are powerless voices in the wilderness. Even the President who they by and large supported as a candidate has dissed them, saying that his administration pays no attention to (mere) bloggers.
And so Big Finance continues its primacy, and the culture of Serfing USA, with a government insistent on more and more debt even as the citizenry tries to escape its own personal debt, uses every tool of modern persuasive communications up to and including the Big Lie technique to continue to enrich the Merchants of Debt even as those companies such as auto manufacturers that actually make useful physical products are left to die and ordinary people who believed the Big Lie that house prices never decline and were therefore placed in overpriced homes by the Merchants of Debt are sent to tent cities to rot with no help from the Party of Franklin Delano Roosevelt and while the financiers of this disaster not only keep their estates and fine art purchased with the proceeds of these nefarious transactions but continue to receive all the fruits of this productive nation that Washington, D.C. can provide.
Can all this really be occurring for some paltry campaign contributions?
Copyright (C) Long Lake LLC 2009
Wednesday, April 15, 2009
"That Option No Longer Exists" versus a "Culture of Stability"
As mentioned here before, statism is on the march. A drumbeat of commentary from the ascendant Left keeps pushing for more and more government/deficit spending: we can afford it, is the call. Nouriel Roubini, who says that he found his interest in economists from a prior interest in left-wing politics, has recently called for "command and control" of the economy by the Federal Government. Yale Professor Robert Shiller today has an opinion piece published in Bloomberg.com: Depression Lurks Unless There's More Stimulus that basically imagines all sorts of goals and that a big-spending government will restore confidence. Here's a sample:
In our analysis of the current economic crisis, we conclude that the government should have two targets. One would be a joint fiscal-monetary policy target. The same kind of expansionary policies embodied in the government expenditure stimulus and tax cuts that are already being tried have to be done on a big enough scale and for a long enough time in the future.
Gauging Success
Following this target, aggregate demand should be sufficiently high that firms producing good products at a price the public would want to pay will be able to sell them. And if this target is met, skilled labor willing to work at a wage that makes it profitable to sell such products will be able to get a job.
(Ed.: Who determines what a good product is and what the right price is? This is lunacy.)
The government should also have a credit target. Once again, we are calling for more of the same kinds of existing policies, but there should be an explicit measure of their success, and until that is reached, the scale and time frame of such policies need to be extended.
The Federal Reserve has to be the lender of last resort and to provide credit in circumstances like we have today. Businesses and consumers, who in normal times would be good credit risks with legitimate needs, should find credit available at reasonable terms. Achieving this requires new approaches, like those announced by the Bernanke Fed and the Obama administration, but on a continuing and even larger scale.
(Ed.: More lunacy. The Debt Machine working overtime. Why should favored businesses and people find credit available on terms Dr. Shiller or some policy-maker deems "reasonable"? Doesn't the co-inventor of the Case-Shiller index of house prices fear more and more credit creation rather than true wealth creation?)
However, there are alternative points of view that EBR believes make more sense. For example, please read a historical review/opinion piece from February 2009 from a Der Spiegel columnist, titled: What Obama Could Learn from Germany.
The columnist, Gabor Steingart, points to the German economic "miracle" recovery after WW II as a result of savings and hard work and argues against large deficit spending:
It's a shame, though, that Obama hasn't shopped around a bit more. He could have looked to Germany for ideas -- its competing plan for rescuing the economy is certainly worth a look. It's cheaper and has a longer shelf life than a lot of the other products currently available on the intellectual market. It originated in the 1950s and is referred to as a "culture of stability."
It was the handiwork of former German Economics Minister Ludwig Erhard, better known as the father of the country's post-war Wirtschaftswunder ("economic miracle"). Erhard's model not only functions differently from FDR's, it also smells different -- namely of sweat.
His plan shuns excessive debt. His argument was that people would first make an effort when money became tight and, thus, more valuable. You get the best results, he found, if, in the tried and true manner of our forefathers, you work hard and don't forget to save. "The state can't afford anything that doesn't come from the strength of its own people," was the message. He also could have said: No pain, no gain.
The Roosevelt model is more generous in this respect -- one could also say more careless. The same rules apply which were standard until the beginning of the American real estate crisis: we'll give you the keys today, no down-payment necessary, we'll send you the bill later. Of course you can pay in installments.
Steingart goes on to quote FDR's Treasury Secretary Morgenthau as follows:
In court and in his own diary, Morgenthau told the truth. Toward the end of the 1930s, the treasury secretary reached the following gloomy conclusion in his personal records: "We are spending more than we have ever spent before, and it does not work ... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."
Please also consider the words of Baron Callaghan of Cardiff, better known as James Callaghan, a prominent Labour Party British politician. From Wikiquote, here is Baron Callaghan as a 30-something year old:
Never let me hear anyone say again that a Socialist State cannot provide outlets for those with initiative. The rewards given to ability in the U.S.S.R. at all levels are far greater than those given to the employed in capitalist Britain. I have seen it and it works.
Reynolds News (17 March, 1946).
And as a 40-something year old:
I have not the slightest doubt that the economic measures and the Socialist measures which one will find in the countries of Eastern Europe, will become increasingly powerful against the unco-ordinated, planless society in which the West is living at present.
Hansard, House of Commons, 5th series, vol. 632, col. 679.
Speech in the House of Commons, 15 December 1960.
Now, here is a more-experienced James Callaghan, as a 60-something year old Prime Minister, following years of implementation of the policies he championed as described above:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
Labour Party Annual Conference Report 1976, page 188.
Speech at the Labour Party Conference, 28 September 1976. This part of his speech was written by his son-in-law, future BBC Economics correspondent Peter Jay.
DoctoRx here. What is going on in America is a move toward Callaghan-omics of his younger years. Unfortunately, this mistake is being compounded with corporatism of the worst type, crony capitalism propping up Big Finance leaving in place the same overpaid bunglers who helped create the current mess. Working against this toxic mix is the common sense of the American people, who when faced with hard times are cutting their borrowing and spending. Many of them have their confidence in the future diminished by the Government that is following the Shiller prescription in direction if not in absolute quantity.
Left-of-center economists such as Robert Shiller and Nouriel Roubini know that production or employment for its own sake is not the goal of Government. That goal gets one to the broken windows or digging-filling ditches reductio ad absurdum examples. All these "liberals" either want to print money or borrow endlessly against the future in order to achieve short-term gains. But as Baron Callaghan admitted near the end of the line, with Britain, which not long before owned the reserve currency of the world, suddenly falling under the control of the International Monetary Fund that it helped to create and fund, tax cuts and government spending, which are exactly the current "solutions" to the banana economy, are hair-of-the-dog strategies of a government that cannot change its addiction to debt in the service of the Merchants of Debt and that we therefore cannot believe in.
Barack Obama has it wrong. Borrowing money from China or Arabia, or printing it to transfer to Big Finance so that it can leverage it at a profit to itself and its employees so that Americans and American businesses can borrow 8-10 times the initial amount the banks receive from this borrowed or printed money ultimately makes no sense. That option should no longer exist. It points the way to a culture of continued instability.
Copyright (C) Long Lake LLC 2009
In our analysis of the current economic crisis, we conclude that the government should have two targets. One would be a joint fiscal-monetary policy target. The same kind of expansionary policies embodied in the government expenditure stimulus and tax cuts that are already being tried have to be done on a big enough scale and for a long enough time in the future.
Gauging Success
Following this target, aggregate demand should be sufficiently high that firms producing good products at a price the public would want to pay will be able to sell them. And if this target is met, skilled labor willing to work at a wage that makes it profitable to sell such products will be able to get a job.
(Ed.: Who determines what a good product is and what the right price is? This is lunacy.)
The government should also have a credit target. Once again, we are calling for more of the same kinds of existing policies, but there should be an explicit measure of their success, and until that is reached, the scale and time frame of such policies need to be extended.
The Federal Reserve has to be the lender of last resort and to provide credit in circumstances like we have today. Businesses and consumers, who in normal times would be good credit risks with legitimate needs, should find credit available at reasonable terms. Achieving this requires new approaches, like those announced by the Bernanke Fed and the Obama administration, but on a continuing and even larger scale.
(Ed.: More lunacy. The Debt Machine working overtime. Why should favored businesses and people find credit available on terms Dr. Shiller or some policy-maker deems "reasonable"? Doesn't the co-inventor of the Case-Shiller index of house prices fear more and more credit creation rather than true wealth creation?)
However, there are alternative points of view that EBR believes make more sense. For example, please read a historical review/opinion piece from February 2009 from a Der Spiegel columnist, titled: What Obama Could Learn from Germany.
The columnist, Gabor Steingart, points to the German economic "miracle" recovery after WW II as a result of savings and hard work and argues against large deficit spending:
It's a shame, though, that Obama hasn't shopped around a bit more. He could have looked to Germany for ideas -- its competing plan for rescuing the economy is certainly worth a look. It's cheaper and has a longer shelf life than a lot of the other products currently available on the intellectual market. It originated in the 1950s and is referred to as a "culture of stability."
It was the handiwork of former German Economics Minister Ludwig Erhard, better known as the father of the country's post-war Wirtschaftswunder ("economic miracle"). Erhard's model not only functions differently from FDR's, it also smells different -- namely of sweat.
His plan shuns excessive debt. His argument was that people would first make an effort when money became tight and, thus, more valuable. You get the best results, he found, if, in the tried and true manner of our forefathers, you work hard and don't forget to save. "The state can't afford anything that doesn't come from the strength of its own people," was the message. He also could have said: No pain, no gain.
The Roosevelt model is more generous in this respect -- one could also say more careless. The same rules apply which were standard until the beginning of the American real estate crisis: we'll give you the keys today, no down-payment necessary, we'll send you the bill later. Of course you can pay in installments.
Steingart goes on to quote FDR's Treasury Secretary Morgenthau as follows:
In court and in his own diary, Morgenthau told the truth. Toward the end of the 1930s, the treasury secretary reached the following gloomy conclusion in his personal records: "We are spending more than we have ever spent before, and it does not work ... I say after eight years of this administration, we have just as much unemployment as when we started -- and an enormous debt to boot."
Please also consider the words of Baron Callaghan of Cardiff, better known as James Callaghan, a prominent Labour Party British politician. From Wikiquote, here is Baron Callaghan as a 30-something year old:
Never let me hear anyone say again that a Socialist State cannot provide outlets for those with initiative. The rewards given to ability in the U.S.S.R. at all levels are far greater than those given to the employed in capitalist Britain. I have seen it and it works.
Reynolds News (17 March, 1946).
And as a 40-something year old:
I have not the slightest doubt that the economic measures and the Socialist measures which one will find in the countries of Eastern Europe, will become increasingly powerful against the unco-ordinated, planless society in which the West is living at present.
Hansard, House of Commons, 5th series, vol. 632, col. 679.
Speech in the House of Commons, 15 December 1960.
Now, here is a more-experienced James Callaghan, as a 60-something year old Prime Minister, following years of implementation of the policies he championed as described above:
We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.
Labour Party Annual Conference Report 1976, page 188.
Speech at the Labour Party Conference, 28 September 1976. This part of his speech was written by his son-in-law, future BBC Economics correspondent Peter Jay.
DoctoRx here. What is going on in America is a move toward Callaghan-omics of his younger years. Unfortunately, this mistake is being compounded with corporatism of the worst type, crony capitalism propping up Big Finance leaving in place the same overpaid bunglers who helped create the current mess. Working against this toxic mix is the common sense of the American people, who when faced with hard times are cutting their borrowing and spending. Many of them have their confidence in the future diminished by the Government that is following the Shiller prescription in direction if not in absolute quantity.
Left-of-center economists such as Robert Shiller and Nouriel Roubini know that production or employment for its own sake is not the goal of Government. That goal gets one to the broken windows or digging-filling ditches reductio ad absurdum examples. All these "liberals" either want to print money or borrow endlessly against the future in order to achieve short-term gains. But as Baron Callaghan admitted near the end of the line, with Britain, which not long before owned the reserve currency of the world, suddenly falling under the control of the International Monetary Fund that it helped to create and fund, tax cuts and government spending, which are exactly the current "solutions" to the banana economy, are hair-of-the-dog strategies of a government that cannot change its addiction to debt in the service of the Merchants of Debt and that we therefore cannot believe in.
Barack Obama has it wrong. Borrowing money from China or Arabia, or printing it to transfer to Big Finance so that it can leverage it at a profit to itself and its employees so that Americans and American businesses can borrow 8-10 times the initial amount the banks receive from this borrowed or printed money ultimately makes no sense. That option should no longer exist. It points the way to a culture of continued instability.
Copyright (C) Long Lake LLC 2009
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