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August 6, 2010

Latest Posts from Economist's View

Latest Posts from Economist's View

Paul Krugman: The Flimflam Man

Posted: 06 Aug 2010 12:42 AM PDT

Paul Ryan's budget plan won't do much, if anything, to help with the deficit, but it does redistribute money upward and it will require "sharp cuts" in social insurance. It also relies upon ideas that have been proposed -- and rejected -- in the past. Why is this considered innovative thinking?:
The Flimflam Man, by Paul Krugman, Commentary, NY Times: One depressing aspect of American politics is the susceptibility of the political and media establishment to charlatans. You might have thought, given past experience, that D.C. insiders would be on their guard against conservatives with grandiose plans. But no: as long as someone on the right claims to have bold new proposals, he's hailed as an innovative thinker. And nobody checks his arithmetic.
Which brings me to the innovative thinker du jour: Representative Paul Ryan of Wisconsin ... has become the Republican Party's poster child for new ideas thanks to his "Roadmap for America's Future," a plan for a major overhaul of federal spending and taxes. News media coverage has been overwhelmingly favorable... But it's the audacity of dopes.
Mr. Ryan's plan calls for steep cuts in both spending and taxes. He'd have you believe that the combined effect would be much lower budget deficits, and, according to [the] Washington Post..., his plan would ... sharply reduce the flow of red ink... But the ... nonpartisan Tax Policy Center ... indicate[s] that the Ryan plan would ...[produce a] deficit in 2020 [of] roughly $1.3 trillion.
And that's about the same as the ... estimate of the 2020 deficit under the Obama administration's plans. That is,... even if you believe that his proposed spending cuts are feasible — which you shouldn't — the Roadmap wouldn't reduce the deficit. All it would do is cut benefits for the middle class while slashing taxes on the rich.
And I do mean slash. The ... Ryan plan would cut taxes on the richest 1 percent ... in half, giving them 117 percent of the plan's total tax cuts. That's not a misprint. Even as it slashed taxes at the top, the plan would raise taxes for 95 percent of the population.
Finally, let's talk about those spending cuts. In its first decade, most of the alleged savings ... come from assuming zero dollar growth in domestic discretionary spending, which includes everything from energy policy to education to the court system. This would amount to a 25 percent cut once you adjust for inflation and population growth. How would such a severe cut be achieved? What specific programs would be slashed? Mr. Ryan doesn't say.
After 2020, the main alleged saving would come from sharp cuts in Medicare, achieved by dismantling Medicare as we know it, and instead giving seniors vouchers ... It's the same plan Newt Gingrich tried to sell in 1995.
And we already know, from experience with the Medicare Advantage program, that a voucher system would have higher, not lower, costs... The only way the Ryan plan could save money would be by making those vouchers too small to pay for adequate coverage. ... In practice, that probably wouldn't happen: older Americans would be outraged — and they vote. But this means that the supposed budget savings from the Ryan plan are a sham.
So why have so many in Washington, especially in the news media, been taken in by this flimflam? It's not just inability to do the math, although that's part of it. There's also the unwillingness of self-styled centrists to face up to the realities of the modern Republican Party; they want to pretend, in the teeth of overwhelming evidence, that there are still people in the G.O.P. making sense. And last but not least, there's deference to power — the G.O.P. is a resurgent political force, so one mustn't point out that its intellectual heroes have no clothes.
But they don't. The Ryan plan is a fraud that makes no useful contribution to the debate over America's fiscal future.

Stiglitz: The Crisis Down Under

Posted: 06 Aug 2010 12:33 AM PDT

What lessons can be learned from Australia's response to the global financial crisis?

The Crisis Down Under, by Joseph E. Stiglitz, Commentary, Project Syndicate: The Great Recession of 2008 reached the farthest corners of the earth. Here in Australia, they refer to it as the GFC – the global financial crisis.
Kevin Rudd, who was prime minister when the crisis struck, put in place one of the best-designed Keynesian stimulus packages of any country in the world. He realized that it was important to act early, with money that would be spent quickly, but that there was a risk that the crisis would not be over soon. So the first part of the stimulus was cash grants, followed by investments, which would take longer to put into place.
Rudd's stimulus worked: Australia had the shortest and shallowest of recessions of the advanced industrial countries. But, ironically, attention has focused on the fact that some of the investment money was not spent as well as it might have been, and on the fiscal deficit that the downturn and the government's response created.
Of course, we should strive to ensure that money is spent as productively as possible, but humans, and human institutions, are fallible, and there are costs to ensuring that money is well spent..., it is wasteful to spend too much money preventing waste.
While the focus for the moment is on public-sector waste, that waste pales in comparison to the waste of resources resulting from a malfunctioning private financial sector, which in America already amounts to trillions of dollars. Likewise, the waste from not fully utilizing society's resources – the inevitable consequence of not having had such a quick and strong stimulus – exceeds that of the public sector by an order of magnitude.
For an American, there is a certain amusement in Australian worries about the deficit and debt: their deficit as a percentage of GDP is less than half that of the US; their gross national debt is less than a third.
Deficit fetishism never makes sense – the national debt is only one side of a country's balance sheet. Cutting back on high-return investments (like education, infrastructure, and technology) just to reduce the deficit is truly foolish... Indeed, if one is concerned with a country's long-run debt, as one should be, such deficit fetishism is particularly silly, since the higher growth resulting from these public investments will generate more tax revenues. ...
Citizens should consider the legacy they leave to their children... It is two-faced to claim to care about the future and then fail to ... leave our children without adequate infrastructure and the other public investments needed to be competitive in the twenty-first century.
Every country faces these issues. Sometimes, one can see them with greater clarity by observing how others are confronting them. ...

links for 2010-08-05

Posted: 05 Aug 2010 11:02 PM PDT

Romer Leaves as Head of CEA

Posted: 05 Aug 2010 06:51 PM PDT

Some news:

Romer Leaves as Head of Council of Economic Advisers, by Gerry Mullant, NY Times: Christina D. Romer, the chairwoman of the White House Council of Economic Advisers, will step down from the post next month, the White House announced Thursday night.

Her resignation comes as the Obama administration continues grappling with a choppy economy as it heads into the midterm elections. ... There was no word on Ms. Romer's successor.

Update: More news:

Senate rejects Fed nominee Diamond before voting, Reuters: The Senate on Thursday scrapped the nomination of Peter Diamond to the Federal Reserve Board, dealing a blow to President Barack Obama's push to fill long-standing vacancies at the central bank.
The Senate returned the nomination to the White House, effectively killing it, according to aides to Senate majority leader Harry Reid. ...
Diamond, an MIT professor and expert on taxes and Social Security, faced opposition from Republicans in the Senate Banking Committee... Richard Shelby, the committee's top Republican, said Diamond did not have the right sort of experience for the job.
"I do not believe the current environment of uncertainty would benefit from monetary policy decisions made by board members who are learning on the job," Shelby said before the committee's vote.

The full Senate had been expected to consider Diamond's nomination, along with those of Janet Yellen and Sarah Raskin, when it returned from its summer recess. It was unclear whether Obama would resubmit Diamond's nomination or nominate someone else to fill the post. ...

Update: Here's a bit more clarity on what is happening with the Diamond nomination:

The Senate sent the nomination of Peter Diamond, one of President Barack Obama's three nominees for the Federal Reserve Board, back to the White House because of objections from at least one lawmaker.

The office of the executive clerk of the Senate said the procedural move occurred as part of actions taken on nominees without debate before the chamber left for a summer break. Don Stewart, a spokesman for Senate Republican Leader Mitch McConnell, said the White House may resubmit the nomination. ...

Under Senate rules, all nominations that aren't completed before a lengthy recess go back to the White House and have to be resubmitted unless the Senate unanimously agrees to hold onto them and act later, Stewart said. Routinely, the Senate does agree to retain the nominations. If a single senator objects, the name goes back to the president's office. In Diamond's case, at least one senator did that. ...

Update: On Romer's resignation, Tyler Cowen links to:

one commentary, which I cannot vouch for; it concerns a potential clash with Summers.

There's also this and others along similar lines. I didn't link to these accounts for the same reason, I had no way of knowing if it they were accurate. So I can't offer any help on how much weight should be given to the claim that the resignation is due, at least in part, to a clash with Summers.

Is the Unemployment Problem Cyclical or Structural?

Posted: 05 Aug 2010 11:07 AM PDT

I have a new post at MoneyWatch:

Is the Unemployment Problem Cyclical or Structural?

If it's mainly cyclical, does that mean the government is powerless to help?

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