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February 4, 2013

Latest Posts from Economist's View

Latest Posts from Economist's View

Posted: 18 Jan 2013 12:33 AM PST
The budget deficit is not our biggest problem:
The Dwindling Deficit, by Paul Krugman, Commentary, NY Times: It's hard to turn on your TV or read an editorial page these days without encountering someone declaring, with an air of great seriousness, that excessive spending and the resulting budget deficit is our biggest problem. Such declarations are rarely accompanied by any argument...; it's supposed to be part of what everyone knows.
This is, however, a case in which what everyone knows just ain't so. ...
It's true that right now we have a large federal budget deficit. But that deficit is mainly the result of a depressed economy — and you're actually supposed to run deficits in a depressed economy to help support overall demand. The deficit will come down as the economy recovers... Indeed, that's already happening. ...
Still, will economic recovery be enough to stabilize the fiscal outlook? The answer is, pretty much..., the budget outlook for the next 10 years doesn't look at all alarming.
Now, projections that run further into the future do suggest trouble, as an aging population and rising health care costs continue to push federal spending higher. But here's a question you almost never see seriously addressed: Why, exactly, should we believe that it's necessary, or even possible, to decide right now how we will eventually address the budget issues of the 2030s?
Consider, for example, the case of Social Security. ... At this point, "reform" proposals are all about ... moves that would gradually reduce benefits... So the plan is to avoid cuts in future benefits by committing right now to ... cuts in future benefits. Huh? ...
And much the same logic applies to Medicare. So there's a reasonable argument for leaving the question of how to deal with future problems up to future politicians. ...
So, no big problem in the medium term, no strong case for worrying now about long-run budget issues.
The deficit scolds dominating policy debate will, of course, fiercely resist any attempt to downgrade their favorite issue. They love living in an atmosphere of fiscal crisis: It lets them stroke their chins and sound serious, and it also provides an excuse for slashing social programs, which often seems to be their real objective.
But neither the current deficit nor projected future spending deserve to be anywhere near the top of our political agenda. It's time to focus on other stuff — like the still-depressed state of the economy and the still-terrible problem of long-term unemployment.
Posted: 18 Jan 2013 12:06 AM PST
Posted: 17 Jan 2013 02:29 PM PST
Underbelly Buce does some digging:
The Holland Principle: Who first said that the US government is "an insurance company with an army." Paul Krugman often gets the credit, but he says it is  not original with him: "this isn't original" he wrote, invoking the principle on April 27, 2011. Ezra Klein also gets credit; he presented it alongside a lovely pie chart  on Feb. 14, 2011, but I find a (second-hand) reference back in 2007 crediting Krugman, so Krugman at least trumps Klein. A polisci textbook (Jan. 1, 2010) credits it to "a Bush administration staff member."  
And here's a ref dated April 5, 2004 crediting it to "OSTP's Mike Holland" as from Science in for 4/11/2003. I haven't taken the time to track it all the way to JSTOR. OSTP=Office of Science and Technology Policy? "Mike Holland" would appear to be this guy, whose Linkedin profile shows that he was at OSTP at the relevant point in time.
Recognizing that no quote is original, and that we can probably count on finding an earlier avatar on a clay pot in Sumer, I'd say that for a moment we ought to call it "The Holland Principle." Yo Mike, okay with you?
Update: Paul Krugman emails:
Someone should have asked me. Peter Fisher, undersecretary of the Treasury, in 2002.
Posted: 17 Jan 2013 11:15 AM PST
 Barry Ritholtz takes on:
...this bit of AEI silliness:
"And here I thought it was the borrower's job to determine if he has the means to repay a loan."
It used to be. Homebuyers would look at their income, assets, monthly cash flow, job security, debt outstanding and things like that to determine if the family could afford to own a home. The lender's job was to perform adequate due diligence and protect against loss by requiring a down payment.
No. That is Wrong. It so wrong on so many many levels that I have to stop what I was going to be doing this morning and respond to this silliness instead:
1. Banks — not borrowers — are the ones who actually make the loan decision.
2. Banks have access to capital. Depositors give banks money (FDIC helps that) and banks also can tap the Fed for even more capital. The banks have obligation to all of these entities to adhere to good lending standards.
3. It is the banks job to determine credit worthiness. THAT IS WHAT THEY DO. If they do not care to be bother to make this determination, then perhaps they should consider something other than the money lending business as a vocation.
Left to themselves, most humans would borrow much more money than they can reasonably handle. This is not a political statement, it is an observation about Human Nature.
Banks and other credit sources know this — that is why they review income and FICO scores and past payment history and debt load and employment record and tax returns. It is to verify the credit worthiness of the applicant.
No, this isn't an exercise in due diligence — "Hey, figure out what you can afford, and we will check your work for you." That is not what maintaining Lending Standards means.
This is why the no doc, no credit check, liar loans were destined to fail. ...
He is discussing a column by Caroline Baum:
Further..., Ms. Baum could not help herself to bring up the usual bugaboos: "Without re-litigating the cause of the housing bubble — greedy bankers or government housing policy" — that's because that debate is over, and the Peter Wallisons and Ed Pintos of the world overwhelmingly lost it.
The only reason to go back to that debate — as was done repeatedly in the column — is because the outcome of that disagrees with your ideology. The statement "Government housing policies caused the crisis" is enormously useful, however, as it signifies cognitive dissonance on the part of its proponent.
No matter how much evidence piles up against it, and there is presently a significant amount, they can't let go of the idea that the housing crisis was caused by the government trying to help poor people. That's not what happened, but the facts are a large blow to their ideology and they aren't about to admit that what they've been claiming is wrong.
Posted: 17 Jan 2013 10:04 AM PST
This was in today's links, but in case you missed it this is from Michael Froomkin:
US Incarceration Rates Are Out of Control, by  Michael Froomkin: I knew it was bad, but not this bad:
(Spotted via Ian Welsh, Justice is not Law, Law is Not Justice.)
There is an important qualification:
I admit the graph is a tiny bit misleading — it uses absolute numbers rather than percentages of population, which would be better.
But even making that correction doesn't change much: US population grew from 226.5 million in 1980 to 308.7 million in 2010, a 73% increase. Meanwhile, however, the number of persons incarcerated almost quadrupled.
Our incarceration rate is by far the highest in the world. ...

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