Please, No More Government Spending!... my colleague, Steven Gjerstad [and I] examine[d] the last 14 recessions including the Depression. We have been surprised and dismayed to learn that in 11 of these 14 recessions the percentage decline in new house expenditure preceded and exceeded percentage declines in every other major component of GDP. Hence the sources of the current debacle are hardly new! Moreover, past recoveries in the housing market have been closely associated with recovery from recession. The latest data continue to tell us that the turnaround in housing, consumer durables, and business investment are all anemic.
...Our best shot at increasing employment and output is to reduce business taxes and the cost of creating new start-up companies. Don’t subsidize them; just reduce their taxes even as they become larger; also reduce any unnecessary impediments to their formation. This is strongly indicated by the business dynamics program of the Bureau of Census and the Kauffman Foundation which has tracked new startup firms in the period 1980-2005. The entry of new firms net of departing firms in this period account for a remarkable two-thirds more employment growth (3 percent per year) than the average of all firms in the US (1.8 percent per year). The invigorating turmoil created by new technologies, with accompanying growth in output, productivity, and employment lead to new business formation as old firms inevitably fail. Reducing barriers to that growth encourage a recovery path which does not mortgage future output.
Of course, this common sense counsel defies the ideology of Alinsky and is certain not to be followed. And what comes next should strike fear into every American.
We'll muddle along somehow, until -- suddenly -- we won't
Joe Weisenthal says that the US financial system will have collapsed before Moody's gets around to downgrading its debt.
It probably bears worth repeating that if there were much about about Moody's clout in the sovereign debt arena, it should have be erased today: Moody's has no clout.
A downgrade of Ireland early on barely produced a blip on any market anywhere... That follows a recent spectacularly uneventful downgrade of Portugal.
Every once in a while Moody's lobs a very vague warning about debt and spending in the direction of London and Washington DC, and occasionally the subject of the US losing its AAA rating comes up... But really, Moody's is not going to be ahead of the US downgrade curve.
Writing at The Financial Times, Niall Ferguson clearly states that "the latter-day Keynesians have learnt nothing".
...what we are witnessing today has less to do with the 1930s than with the 1940s: it is world war finance without the war.
...Today’s warlike deficits are being run at a time when the US is heavily reliant on foreign lenders, not least its rising strategic rival China (which holds 11 per cent of US Treasuries in public hands); at a time when economies are open, so American stimulus can end up benefiting Chinese exporters; and at a time when there is much underutilised capacity, so that deflation is a bigger threat than inflation.
Are there precedents for such a combination? Certainly. Long before Keynes was even born, weak governments in countries from Argentina to Venezuela used to experiment with large peacetime deficits to see if there were ways of avoiding hard choices. The experiments invariably ended in one of two ways. Either the foreign lenders got fleeced through default. Or the domestic lenders got fleeced through inflation. When economies were growing sluggishly, that could be slow in coming. But there invariably came a point when money creation by the central bank triggered an upsurge in inflationary expectations.
...economists, like New York Times columnist Paul Krugman, who liken confidence to an imaginary “fairy” have failed to learn from decades of economic research on expectations. They also seem not to have noticed that the big academic winners of this crisis have been the proponents of behavioural finance, in which the ups and downs of human psychology are the key.
The evidence is very clear from surveys on both sides of the Atlantic. People are nervous of world war-sized deficits when there isn’t a war to justify them. According to a recent poll published in the Financial Times, 45 per cent of Americans “think it likely that their government will be unable to meet its financial commitments within 10 years”. Surveys of business and consumer confidence paint a similar picture of mounting anxiety.
The remedy for such fears must be the kind of policy regime change Prof Sargent identified 30 years ago, and which the Margaret Thatcher and Ronald Reagan governments successfully implemented. Then, as today, the choice was not between stimulus and austerity. It was between policies that boost private-sector confidence and those that kill it.
If you don't mobilize everyone you can to vote in November... if you don't help to effect regime change... if you don't get your friends, neighbors, family members, and everyone else you know to vote... and if you don't vote out every Democrat traitor... well, my friends, it could be time to turn out the lights.