Pimm Fox is a Bloomberg Television anchor and Bloomberg Radio host of the in-depth investment program, "Taking Stock with Pimm Fox", which airs weekdays at 5pm ET. Fox also co-hosts Bloomberg Businessweek Radio with Ken Prewitt on Bloomberg Radio. As the host of “Taking Stock,” Fox provides access to the world of professional investors through conversations with top Wall Street analysts, fund managers and CEOs. “Taking Stock” offers insight into company news, long-term strategy, trading tactics, market techniques, stocks, bonds, commodities and currencies. During his career at Bloomberg, Fox has interviewed numerous business chiefs and investment gurus including Berkshire Hathaway Chairman and CEO Warren Buffett.
John Ellwood: 00:55
Jesse Choper: 15:00
Steve Shortell: 30:30
Brad DeLong: 45:50
Ann O'Leary: 55:30
Ann Marie Marciarille: 1:07:33
General Questions: 1:19:40
Whiskey Tasting 101 with Dewar's: Bloomberg: Carol Massar and guests Kenny Polcari and Brad Delong sample Dewar's $199.999 bottle of Whiskey with the brands global ambassador. (Source: Bloomberg) Running Time: 04:08
February 8, 2011 Lecture by J. Bradford DeLong for U.C. Berkeley course IAS 107: Intermediate Macroeconomics. Introduction to Depression Economics. Income-Expenditure Model:
U.S. Economic Issues - C-SPAN Video Library: Bradford DeLong spoke about the economy and unemployment. He argued that original stimulus program was not large enough and another was needed to alleviate unemployment problem. He also responded to telephone calls and electronic communications.
I cannot help but note that the New York Times adds only four words to the party, and those four words are misleading.
Neither of us is saying "don't sweat the debt." Both of us believe that we need to sweat the debt very much--but the debt we need so sweat is the long-term debt, and the way we need to sweat it is by holding Congress's feet to the fire on PAYGO.
Reviving the American Empire: America will still be a leader, perhaps the leader, but no longer the boss,” said Stephen S. Cohen, a Senior Fellow at the Center for American Progress, professor at University of California, Berkeley, and co-author of The End of Influence: When Other Countries Have the Money at a CAP event last Friday on America’s global position. Cohen was joined by co-author J. Bradford DeLong, fellow professor at U.C. Berkeley and Nina Hachigian, Senior Fellow at CAP and co-author of The Next American Century: How the U.S. Can Thrive as Other Powers Rise.
The inevitable “rebalancing of powers in the global economy” has generated conflicting book titles that steer the American public in one of two ways: The End of Influence or The Next American Century, said CAP Executive Vice President Sarah Rosen Wartell, who introduced the event. This polar view on America’s global standing depicts our future as either dire or promising with little room in between. If we want to influence change, Wartell said, we need to ask, “how do we shape that future ourselves?”
The United States emerged as the dominant economic, cultural, and military power in the world after World War II. As other nations began to develop, moving from agriculture to industry, they needed someone to buy their end products. Peasants in developing countries have little purchasing power, so the United States stepped in and bought “stuff” from all over the world, said Cohen. “We got the government out of the economy” and bought half of China’s GDP. “We imported so much more than we exported that now we cannot pay it off.”
The “United States, which had been a capital surplus high-savings country,” has become the world’s biggest borrower, said DeLong and the U.S. government is the world’s second biggest borrower. Seventy percent of our current debt happened since 2000. Rising income inequality created a negative cultural pattern where people “overleveraged” themselves to financially compete with one another, and all of this constrained the economic power of the United States and its government in a way that we hadn’t felt since 1917. DeLong suggests that this will be the “end of market liberalism,” which could turn the United States into a “normal country” without absolute power.
For the “past 10 years we fumbled our ability to move into the real industries of the future,” said DeLong. Finance became our major economic industry instead of electronic or bio-technological innovation. The best and the brightest chose to work for the financial sector instead of medicine, science, and engineering. We outsourced so much opportunity that we are no longer leaders in high tech or other industries we pioneered. This stunted innovation, and only served to increase the income gap.
DeLong suggested that the Obama administration can begin to fix this dilemma by appointing “competent economists” to the Federal Reserve Board to reduce and eliminate global imbalances that trap the United States and China in financial terror.
“Ninety-eight percent of economists think a weaker dollar will help the economy,” but it is a difficult sentiment to express without being seen as treasonous, Cohen explained. The value of the dollar must drop in order for us to save more. Our goods will become cheaper, we will export more, and bring down the trade deficit. But, at the same time, as we stopped importing from growing industrial economies, we might seen to be abandoning them and isolating ourselves.
Such isolation is impossible as the “world is getting smaller” because of globalization and communication, said DeLong. People all over the world will ask, why are the United States’ upper and middle classes so rich while we are so poor? This question coupled with the planet’s resource scarcities is the key political problem of the next 50 years.
The United States can no longer mobilize the resources we once could for the greater global good. Despite this fact and the macabre title of Cohen and DeLong’s book, the “end of American influence is nowhere on the horizon,” according to Hachigian. United States leadership is still “desperately needed” as no other powers are ready to take charge. We are experiencing a decline relative to rising powers such as China and India, but we’re coming off “such a high base” that doomsday is not near. Moreover, the answers to the most pressing problems for Americans are through collaboration with other powers. The United States should be brokering and facilitating consensus building on important issues such as climate change. That global leadership combined with cultural hegemony that declines at a much slower pace than cash “makes us quite influential.”
The biggest economic bad news is that health care costs keep rising. The total bill charged by insurers for employer and employee averages $12,100 for a family of four--twice the level of seven years ago, and comfortably more than the full-time earnings of a minimum-wage worker. On top of this come the taxes for government health care programs. The American health care bill is over $7,600 per person per year.
This matters for American businesses. Businesses pay for health insurance coverage for 165 million non-elderly Americans, for the high-wage jobs that make use of the educations, skills, and high potential productivity of American workers come with benefits. This creates a direct link between rising health care costs and slower economic growth. When health costs rise, the costs of employing workers in high-wage high-benefit jobs rise as well. Businesses find that they cannot afford to expand employment as rapidly as they would otherwise: higher health care costs make maintaining their old workforce and expanding it via new hires very expensive. They economize. They hire fewer workers. They offer lower wages. Workers resist. The result is slow employment growth and higher unemployment until workers recognize that the scarcity of good jobs and the higher risk of unemployment teaches them they have little bargaining power--a process that takes years. Meanwhile workers who ought to be in high-skill high-wage high-productivity jobs with benefits find themselves in low-skill low-wage low-productivity jobs without benefits instead. This is a waste. Workers who could hold down high-productivity jobs don't, and so don't get the wages that they deserve. Firms who could employ high-skill workers don't, and so don't get the profits that they deserve.
Successful economic growth requires a more efficient, lower cost health care sector. John McCain and Barack Obama propose diametrically-opposed plans for trying to get the health care system to where we all want it to be.
John McCain proposes a root-canal surgery approach. The problem, he and his health-care advisors believe, is that good jobs are linked to health-care benefits. Break that link--remove the expectation that good high-productivity jobs come with benefits--and the health care sector will no longer be a major drag on the American economy as it goes its own way, whatever that way might be. Hence John McCain proposes, relative to the current system, to penalize employers that offer high-value employer-sponsored coverage and subsidize individuals who get health insurance outside the employment relationship.
We see two problems with McCain's approach: the journey and the destination. The journey: The McCain plan works in the long-run by making employer-sponsored coverage more expensive in the short- and the medium-run. It thus attempts a cure by giving American business a worse case of the rapidly-rising health-cost disease from which it currently suffers. Rapidly rising health costs are a drag on high-wage high-profit high-productivity employment now, and they will be a much worse drag on high-wage high-profit high-productivity employment under the McCain plan--at least until we come out the other side and enter a world in which it is no longer expected that high-productivity jobs come with benefits.
The destination: The biggest problem in health care today is that insurers are rewarded not for keeping their customers healthy but for figuring out which customers are likely to get sick first--and then dumping them onto other insurers or onto the government. At present, this problem is restrained by the institution of employer-sponsored insurance: bid for an employer's contract and ERISA requires that you take any of their workers who want to purchase your plan. The destination of McCain's plan is a place where insurers have much more freedom to spend money, administrators' time, and computer power separating the healthy sheep from the costly and sick goats--but the profits to doing this for one insurer are not savings for the system because the sick and uncovered do show up at the emergency room eventually and are more expensive to treat when they get there. We believe that when the McCain plan does move us to a world in which the expectational link between high-productivity jobs and benefits is broken we will then have a system that works even less well than our current one.
Barack Obama, by contrast, offers a much more conservative approach to the problem of health care reform. Instead of using tax penalties and incentives to break the existing system and create a whole new set of untried health care financing institutions, Barack Obama proposes to build on those components of our current system that do work--and to make them work better.
March 07, 2008 Free Trade and Fair Trade: SIEPR 2008 Economic Summit Conference
J. Bradford DeLong
The question of "free" versus "fair" trade, has three baskets: an environmental regulation basket, a labor-standards and freedom basket, and a "wages basket."
The first two can, I think, be disposed of quickly. We don't want those able to bribe governments in other countries to poison people or the globe by turning other countries into pollution havens. We don't want environmental standards to be used to freeze the world distribution of wealth and keep people in other countries hungry, illiterate, and barefoot. The difficulties that remain are those of implementation.
Similarly, we want expanding trade to be a force for opportunity rather than for oppression: we like it when expanded trade gives ordinary people a path to a better life; we don't like it when expanded trade gives rich and powerful people in the cloud city of Stratos an incentive to round others up and put them to work in the xenite mines. As then-Principal Deputy IMF Managing Director Stanley Fischer warned the great and good at the 2000 Federal Reserve Bank of Kansas City's Jackson Hole Conference, there is nothing in the ILO's principles that we cannot and very little that we should not be eager to endorse, all of us. The difficulties that remain are, once again, those of implementation.
The question of trade and wages remains: To what extent are rich countries obligated to open their markets to poor countries when the consequence is falling wages for the poor in the rich--bearing in mind that the poor in the rich are often wealthier and have more opporunity than the rich in the poor? To what extent do rich countries do themselves well--serve their national interest--by opening their markets to poor countries even when the consequence is falling wages for the poor in the rich?
Let me make four remarks on this "trade and wages" basket:
First, between 1950 and 1997 trade and wages weren't an issue: our foreign trading partners raised their own relative wage levels at least as fast as globalization enhanced their influence, and there was no net effect of trade on wages--no link from greater openness to the global economy to greater inequality here at home.
Second, at times between 1950 and 1997 trade and wages became a political issue as a way of distracting attention from true problems. The voters of Michigan in 1985 did not want to hear that the problems of Michigan's manufacturing industries were home-grown--in the fecklessness of management and in the Reagan administration's budget deficits that pushed up interest rates which pushed up the value of the dollar and made the goods they made uncompetitive on world markets. They wanted, instead, to hear that the Japanese were doing something clever and illegitimate.
Third: since 1997 or so the link between expanded imports and wage inequality has become real, as our imports now embody a much larger amount of factors competing with our own lesser-skilled than they used to. How large? I don't think we know. Paul Krugman is now writing a paper for the Brookings Institution in which he essentially throws up his hands at the question. But there are two points worth noting: (a) the effects of trade on pre-tax wage inequality are much smaller than the effects over the past generation of changes in the tax system on after-tax income inequality; (b) the effects of trade on inequality of opportunity are much less than the effects of educational inequities on inequality of opportunity.
Fourth, to the extent that we in the United States begin thinking of trade restrictions as a way to fight inequality, we are setting ourselves up for extraordinary trouble late in this century--extraordinary damage to our long-run national security.
Think of it this way: Consider a world that contains one country that is a true superpower. It is preeminent--economically, technologically, politically, culturally, and militarily. But it lies at the east edge of a vast ocean. And across the ocean is another country--a country with more resources in the long-run, a country that looks likely to in the end supplant the current superpower. What should the superpower's long-run national security strategy be?
I think the answer is clear: if possible, the current superpower should embrace its possible successor. It should bind it as closely as possible with ties of blood, commerce, and culture--so that should the emerging superpower come to its full strength, it will to as great an extent possible share the world view of and regard itself as part of the same civilization as its predecessor: Romans to their Greeks.
In 1877, the rising superpower to the west across the ocean was the United States. The preeminent superpower was Britain. Today the preeminent superpower is the United States. The rising superpower to the west across the ocean is China. that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China.
Throughout the twentieth century it has been greatly to Britain's economic benefit that America has regarded it as a trading partner--a source of opportunities--rather than a politico-military-industrial competitor to be isolated and squashed. And in 1917 and again in 1941 it was to Britain's immeasurable benefit--its veruy soul was on the line--that America regarded it as a friend and an ally rather than as a competitor and an enemy. A world run by those whom de Gaulle called les Anglo-Saxons is a much more comfortable world for Britain than the other possibility--the world in which Europe were run by Adolf Hitler's Saxon-Saxons.
There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security, nothing more destructive to America's future prosperity, than for Chinese schoolchildren to be taught in 2047 and 2071 and in the years after 2075 that America tried to keep the Chinese as poor as possible for as long as possible.
And let me stop there.
2008 SIEPR Economic Summit: Critical Issue Sessions and Panelists:
March 7: 4:30-5:45pm: Session II: Is Free Trade Fair Trade?
* Moderator: Dixon Doll, SIEPR Board member
* Brad DeLong, Professor of Economics, University of California, Berkeley
* Alan Taylor, Professor of Economics, University of California, Davis
* David Dollar, Country Director, China and Mongolia, World Bank
Frances C. Arrillaga Alumni Center, 326 Galvez St., Stanford Campus
Good morning. I'm Brad DeLong. And this is my morning coffee.
Stage I of a financial crisis involves a financial market that could be in a good equilibrium--with lots of capital committed to sane and sound financial intermediaries, a healthy flow of finance from savers to businesses, relatively high asset prices, and relatively low unemployment--or a bad equilibrium--with financial intermediaries near bankrupt or worse and untrusted, little flow of finance from savers to businesses, relatively low asset pices, and relatively high unemployment. It is the task of a central bank to (a) diminish the chances that we will ever get into a stage I financial crisis by providing incentives that motivate by punishing those who overleverage their businesses and induce moral hazard, and (b) to keep us at the good equilibrium by providing liquidity when a financial crisis strikes even if this goes against the requirement that overleverage and moral hazard be punished, not rewarded, in normal times. As long as we are in Stage I, however, a good central bank will provide liquidity--lend cash--at a penalty rate in order to diminish and punish moral hazard
Stage II of a financial crisis sees a financial market in which the good equilibrium has disappeared--but in which the good equilibrium can be brought back into existence by not just providing but flooding the system with liquidity, pushing safe interest rates way down and so pushing asset prices up. In this case, the idea that a good central bank should only lend cash at a penalty rate goes out the window. The stakes are too high. As Don Kohn said, it is not good to hold the jobs of tens of millions hostage in order to make sure a few feckless financiers get their just deserts.
Stage III of a financial crisis is when a central bank runs out of ammunition--when pushing interest rates too the floor and swapping out all of its assets does not restore the good equilibrium. Then you face a threefold choice: depression, inflation, or public intervention. Depression is to be avoided. Inflation--resolving the financial crisis by printing enough money to boost the price level far enough that all of a sudden everyone's incomes and real asset values are high enough to pay off their nominal debts--is generally best avoided too. As John Maynard Keynes wrote more than eighty years ago: "The Individualistic Capitalism of today, precisely because it entrusts saving to the individual investor and production to the individual employer, presumes a stable measuring-rod of value, and cannot be efficient--perhaps cannot survive--without one."
And this leaves public action. If the good equilibrium has vanished because the supply of risky assets is too large for financial intermediaries to want to hold them given their capital, then the central government has to take action: to boost or to make financial intermediaries boost their capital so that they will demand more risky assets at high prices, and to diminish the supply of risky assets offered on the financial markets by guaranteeing some of them or by buying up some of them itself.
It's time to start thinking. If we don't want to wind up in a deep depression or a big inflation, it is time to think what kind of government action we do want to see, and how quickly we can set in in motion.
My name is Brad DeLong. And this is my morning coffee.
Good morning. I am Brad DeLong. And this is my morning coffee--my morning coffee for Holy Thursday.
Yesterday I said that I divided up--that we divide up--Karl Marx into three: Marx the economist, Marx the political activist, and Marx the moralist prophet, and that I might talk about Marx the activist and Marx the prophet some other time. And Holy Thursday appears to be a good time.
Marx the political activist. Marx the political activist had five reasons that he thought it necessary and possible to work to overthrow the current system. First, he believed that because capital is not a complement to but a substitute for labor, and so technological progress and capital accumulation that raise average labor productivity also lower the working-class wage. Hence the market system could not and in the end would be seen to be unable to deliver the good society we all deserve, and so it must and will be overthrown. This seems to me to be simply wrong.
Second, Marx believed that businessmen continually extend the domain of captalism, and competition from poor workers in newly-incorporated peripheral regions puts a lid on the wages of labor. Hence inequality grows in the core, which should and in the end must trigger revolution. This seems to me to be largely wrong as well: it is very possible for the international economy, if properly managed, to balance up and not balance down as far as the level of real wages is concerned.
Third, Marx believed that previous systems of hierarchy and domination maintained control by hypnotizing the poor into believing that the rich in some sense "deserved" their high seats in the temple of civilization. Capitalism, Marx thought, unveils all--replaces masked exploitation by naked exploitation--and without its ideological legitimation, unequal class society cannot survive. This also seems to me to be completely wrong on its own terms--see Antonio Gramsci, passim, also Fox News.
Four, Marx believed that even though the ruling class could appease the working class by sharing the fruits of economic growth, they would not. They were trapped by their own ideological legitimation--they really do believe that it is in some sense "unjust" for a factor of production to earn more than its marginal product. Hence social democracy would inevitably collapse before an ideologically-based right-wing assault, income inequality would rise, and the system would be overthrown. The Wall Street Journal editorial page works day and night 365 days a year to make Marx's prediction come true. But I think they will fail.
Fifth, Marx believed that factory work--lots of people living in cities living alongside each other working alongside each other--would lead people to develop a sense of their common interest and of class solidarity, hence they would be able to organize, and revolt, and establish a free and just society in a way that they could not back in the old days when the peasants of this village were suspicious of the peasants of the next village. Here I think Marx mistook a passing phase for an enduring trend: active working-class consciousness as a primary source of loyalty and political allegiance was never that strong; nation and ethnos seem to trump class much more often than not.
There is very little in Marx the political activist that is worth paying attention to--in fact, I would say that there is less than nothing once you recognize that his own polemical habits and his failure to prophesy what would happen after the Revolution created the cracks that turned Marx's world-religion into one of the greatest evils humans have ever managed to create.
Lindsey: We have headlines coming out of washington by way of california, hank paulson commenting at a press conference in the golden state, saying that u.s. capital markets are under stress right now, clearly the jobs numbers are not welcome. Let' s talk more about this theme, is the u.s. economy in a recession? Where do we go from here? Brad DeLong, a graduate professor of economics from UC-Berkeley, joining us from the economic conference in California, great to have you on the show, thank you for joining us. I know you were expecting to talk about free trade, [but] I have to ask you about the economy. Are we in a recession?
DeLong: Probably. If we are not in a recession we are teetering on the edge. The uestion is: will there be a big recession or a small recession, or only a near-recession that feels like a recession to an awful lot of people. Those thousands of jobs that were not there that we thought would be.
Lindsey: That is an excellent point, when people talk about the weather being 30 degrees but it feels like 10 degrees, is that like what you are talking about? even though we are not technically in a recession -- we cannot even know until we look backwards. even if it -- so, and so facto, we are in one if it feels like one?
DeLong: As far as policy and attitudes are concerned.
Lindsey: When do we know? I know that officially you have to back the date, say it's a technically we are not in one, when will we really -- so you could say technically be are not in one, so when do we know
DeLong: The person to ask is [Jim Poterba] in the next room, but he is not out here. He is President of the National Bureau of Economic Research, [which] will probably wait months or even a year [before announcing] to see if the recession begins.
Lindsey: At the conference, what is the mood? what are you in your colleagues talking about?
DeLong: That we might as well be in a recession and we should treat it as long as far as economic policy is concerned. hank paulson will be here this evening reassuring everybody, larry summers was here this morning scaring everyone.
Lindsey: Larry has been negative for a while, to give him credit it looks like he might be right. so, maybe the economy is under the weather. what is the medicine? is the fed doing enough? is the dosage big enough?
DeLong: I would say that after this morning's numbers the fed thinks they did not do enough last month. If you want to think about it, something like 1/1 hundredth of the great depression arrived on our doorstep this morning. What the federal reserve is doing is cutting interest rates, but their problem is they are starting to run out of room. The short-term treasury bill rates are down [to] 1.5% and they cannot be cut below zero. They only have 1.5% worth of cutting to do -- less if they want to maintain the treasury bill market as we know it. That means it is getting to be time for a fiscal policy, for the government to stop worrying about balancing its budget for a while and start spending more money, and also for regulatory policy--trying to reassure and stabilize financial markets.
Lindsey: I have to leave you there, Brad. Thank you very much for joining us...
I just voted for Barack Obama in the California primary.
It has, this year, been an embarrassment of riches on the Democratic side--a half-dozen or so candidates any one of whom would have a reasonable shot of being in the top 20% of American presidents if elected, compared to zero on the Republican side. Now we are down to two: Barack Obama and Hilary Rodham Clinton.
The arguments against Barack Obama are:
He has no administrative experience running a large organization.
He is too liberal.
He is Black, and thus vulnerable to the politics of personal destruction, and will not get elected.
The arguments against Hilary Rodham Clinton are:
Her performance running Clinton-era health care reform in 1993 and 1994 gives no confidence in her ability to run the large organization that is the U.S. government.
She is too centrist.
She is female and a Clinton, and thus vulnerable to the politics of personal destruction, and will not get elected.
The response to (1) for both sides is by this point very convincing: both have now demonstrated an ability to run an excellent political campaign. Running a successful presidential political campaign is not the same thing as governing a country, but both have demonstrated substantial administrative competence over the past two years--and neither has betrayed the moral failure of telling big lies or making themselves hostage to special interests in the way that, say, George H.W. Bush did and thus crippled their presidency in advance. A Barack Obama who was just a pretty face who could give a nice speech could not have run the campaign he has run over the past two years. And the Hilary Rodham Clinton who made such an administrative mess of health reform in 1993-1994 could not have run the campaign she has run over the past two years. Thus I am now confident that either has a reasonable shot of being in the top 20% of American presidents.
The response to (2) is that the policy differences are incredibly minor, and are being amplified by both campaigns as they play a negative-sum game for the party and for the country as a whole. Barack Obama is a more liberal senator than Hilary Rodham Clinton,[1] and yet the big policy difference is that he is to the right of Clinton on health care? Our experience with auto insurance mandates tells us that HRC's individual mandate to purchase health insurance would get us close to universal coverage only if it were administered through the tax system--and maybe not even then. Barack Obama's "pay or play" requirement that employers either offer health insurance or kick in money to the system is very close to being an employer mandate if the "pay" component is set at a serious level. Either plan could produce effectively universal coverage. Either could fall short--with the devil being in the details.
What is going on is that, as Matthew Yglesias wrote somewhere I cannot find right now, both campaigns are magnifying their policy differences on health care and Iraq in order to have something to talk about. But what policy differences there are are insufficient to push anybody toward one rather than the other.
And as for (3), it is also not a consideration. The Republican Party is very good at the politics of personal destruction, and the press eats it up--no matter who the Democratic candidate. When draft-dodger Dick Cheney can impugn the patriotism of WWII bomber pilot George McGovern without any journalistic pushback--well, we already knew that America's Washington village journalists are completely without honor. And we already knew that the only Republicans with honor are those who are openly and publicly committed to the radical transformation and reform of their party. We do live in Romuli faece, and not in Platonis πολτειαι. We have to deal with it.
So none of the arguments against either candidate seems to me to weigh one way or another. So why did I vote for Barack Obama rather than HRC? Because he gives a really nice speech.
[1]Barack Obama is not, however, the most liberal senator. The National Journal, which claims he is, has for some reason gone into the tank on this one, and is now downgraded from "reliable" to "must be verified."
On the phone just now, Larry Summers just moved me appreciably toward enthusiastic support of the stimulus package by arguing, roughly:
The big arguments against the stimulus package are two:
It will become a destructive lobbyist Christmas tree
It will increase the deficit and yet fail to stimulate the economy
We appear to have dodged the bullet on the first argument
The second argument is incoherent because:
The U.S. government is not going to go bankrupt
Hence the reason to fear increasing the deficit is the fear that increasing the deficit will reduce national saving
But if the stimulus package fails to boost spending, it will be because people save their tax rebate checks, in which case the stimulus will have no effect on national saving. Hence you can believe:
Either that the stimulus package will be ineffective as a stimulus but will not reduce national saving--in which case it is a zero.
Or that it will be effective as a stimulus--in which case it will be both good for employment and probably good for national saving as well, because few things are worse for national saving than a recession.
But the argument that the stimulus package is bad because it will be ineffective at boosting demand and will reduce national savings is not coherent
Roger Runningen and Brian Faler of Bloomberg report on the Bushies' proposed budget for fiscal 2009:
Bloomberg.com.S.: President George W. Bush sent Congress a $3.1 trillion federal budget that trims Medicare and health care programs, boosts military spending and projects the deficit this year and next will hit near-record levels. The spending blueprint for fiscal 2009... would slow the rate of growth in spending for entitlement programs such as Medicare for savings of $208 billion over five years. Pentagon spending would rise 7.5 percent to $515 billion, the 11th consecutive year of increases....
Bush's spending plan stands little chance of being adopted. Criticism came today from Republicans as well as Democrats. "There's a lot of games, smoke, mirrors, incomplete numbers, basically there's not much realism" in the budget, Senator Judd Gregg, the top Republican on the Budget Committee, said in an interview. "They're playing the usual games."... The budget deficit is projected to reach $410 billion this year. That is up from $162 billion in 2007, reflecting a slower economy generating fewer corporate tax receipts, the cost of a $146 billion economic stimulus measure and spending on the wars in Iraq and Afghanistan. The deficit is forecast at $407 billion in 2009... 2.9 percent of the $13.2 trillion U.S. economy....
Bush, after meeting with his Cabinet this morning at the White House, called it a "good, solid budget" that puts a priority on national security and keeps spending in check. "Congress needs to pass it," he said. Lawmakers took a different view. House Budget Committee Chairman John Spratt, a South Carolina Democrat, said it "bears all the hallmarks of the Bush legacy -- it leads to more deficits, more debt, more tax cuts, more cutbacks in critical services"...
Their reference to "near-record levels" of the deficit doesn't give a full and fair account of the magnitude of what can only be called a clown show. The headline deficit number ought to be $738 billion--we have a $331 billion Social Security surplus for 2009, and an honest and honorable administration would be using that surplus to pay down the government debt in order to get ready for the challenges that our aging population will pose for the federal budget over the next two generations. The headline number shouldn't be 2.7% of GDP; it should be 4.8% of GDP. That is how far Bush fiscal policy is from what a prudent and responsible fiscal policy should be.
Now that we have an actual Bush administration proposal in print--one that Republican senator Judd Gregg doesn't think much of--it is time for an accountability moment. The Bush administration and its flacks and flunkies have long promised that the administration was going to "cut the deficit in half" by the time in left office in fisal 2009. The press by and large reported this straight--not pointing out that the "cut in half" was from a highballed projected peak deficit number that was artificially inflated in order to set the bar artificially low, not pointing out that such a deficit still left fiscal policy far from where it ought to be, and not pointing out that the Bushies' policies would produce such a reduction only if everything broke right and we had four uninterrupted years of macroeconomic good news. Republican economists who cared more about pleasing White House communications than in informing their audience chimed in--why, I get 100 hits on Google for Greg Mankiw saying both when he was under and since he came out from under message discipline that George W. Bush's proposals were projected to reduce the deficit by half by 2009 http://www.google.com/search?num=100&hl=en&client=safari&rls=en-us&q=mankiw+%22the+deficit+in+half%22&btnG=Search. Not under any projection that I would recognize as straight.
Among Republican economists Andrew Samwick has sounded the alarm about Bush administration fiscal policy. Bruce Bartlett has sounded the alarm. Damned few others. Among center and center-right commentators Stan Collender has told the story straight, and in context. Damn few others. Those three deserve to have their reputations and authority substantially boosted--because they have shown that they are more in the information than in the pleasing-White-House-communications business.
We want to run a budget that is in surplus during boom, in deficit during recession, that borrows in order to fund investments that benefit the future, and that runs surpluses and pays down debt in order to fund future expenditures that benefit today's taxpayers. The Bushies have not done that.
Good morning. I'm Brad DeLong, and this is my morning coffee.
Seasonally adjusted, only 46000 more people were at work in the fourth than in the third quarter of 2007. 17000 fewer people were working in January than in December. This morning's Employment Situation Summary is not good. Wage gains were low. The work week fell.
There are all the standard reasons to be very cautious in interpreting these data. Seasonal adjustment factors are always dicey. And this time the seasonal adjustment factors appear to be even more dicey than usual. But my tentative belief that the Federal Reserve perhaps went too far on Wednesday when it cut the Federal Funds rate to three-point-zero--that's now out the window. And I find myself shifting from the view that a short-run fiscal stimulus package will probably not be worth it--that we won't like what emerges from the Bush White House when the legislative process is concluded--to a view that a short-term fiscal stimulus is probably worth doing. The Senate, needless to say, appears to have its head much more screwed-on right than does the Republican and Blue Dog-dominated House, or the Bushies.
As Andrew Samwick says this morning, employment growth has averaged 66,000 over the last 4 months--and that is very weak growth in anybody's book. As Paul Krugman says, a better guide than focusing on this month's number is to look at the past several months and note that employment growth is well short of what is necessary to keep up with population growth. The unemployment rate is four-tenths of a percentage point higher than it was in the first half of last year.
Are we in a recession? I'm not confident one way or another, but Michael Carliner sees a personal income peak in September 2007, an industrial production peak in July, and a sales peak in October--he sees a duck.
Jan de Vries ran our first Econ 210a class yesterday--"Introduction to Economnic History" for the first-year Ph.D. students in economics. He spent more time than I had in the past on what he called "apologetics"--outlining why we were requiring first-year Ph.D. students in economics to take an economic history course--and he gave a historian's answer to that question: a narrative, a particular individual story, a talk about the formation of the social sciences and the rise and fall of positivism and the subsequent vicissitudes of economic history as a subdiscipline within economics.
It struck me after the class that I should have taken up a bit of time to give the economist's answer to the question of why we make first-year Ph.D. students take economic history. I think it goes roughly as follows:
Economics is the hyper-positivist of social science disciplines: believing that everything of interest can be reduced to law-like theoretical and empirical propositions modeled after classical mechanics; that what cannot be reliably, repeatedly, quantitatively, and empirically demonstrated does not really exist as knowledge; that the only good social science is a deductive, analytical, model-based, general, experimental science.
But this misses a lot. Because we are people like those whom we study, we have psychological access to our subjects' internal decision-making processes and motivations at a level that we cannot obtain from market price-quantity data. There is lots of interest that happens once and only once. Natural experiments are rare, and so if we restrict ourselves to positivist tools alone much is underidentified. The individuals' preferences--the "tastes" part of "tastes and technologies" are not primitive but are themselves the result of long and complex historical, sociological, psychological, and--yes--economic processes. You need thickly-described case studies and anecdotes looking out from people's insides before you can tell if your statistical results mean what you assert they mean.
Most important, every piece of economic theory is ultimately a piece of crystalized history. And you have a much deeper and more sophisticated knowledge if you know the history that led people to think that elaborating these particular theories was worth doing. If you just do the crystalized stuff--well, there is a sense in which your thought processes are then on crack, unable to properly process and reflect on the systems of analysis you are using.
Of course, there is a parallel answer to the question of why historians should be forced to take economic history courses. It has, I think, two parts. First, certainly since 1800 and perhaps since 1500, what is most extraordinary and salient about our global society is primarily economic and scientific, so you cannot do post-1500 history without knowing economics anymore than you can do early Byzantine history without knowing theology.
Second, just as every piece of theory is ultimately crystalized history, so every individual historical narrative or judgment is based on a web of implicit social science theories. And your knowledge of the past is inadequate if you do not understand your implicit social science theories critically enough to be expert users of them.
I'm Brad DeLong, and this is my morning coffee, drunk this morning out of my Revelation of Saint John the Divine mug, it happens.
Paul Krugman praises John Edwards's and Hillary Rodham Clinton's proposed stimulus packages, and criticizes Barack Obama's. I think Paul has got this one wrong.
Bear in mind that I don't yet believe that the case for a fiscal stimulus is strong--although I may well change my mind in a month or two. Congress and the president have a role to play in stimulus only if monetary policy has shot its bolt--which it has not--or if unemployment is rising rapidly and it is important to get cash quickly into the hands of people who will spend it and so keep the rise in unemployment from being as large. We are not there yet--at least I don't think so--but we may be there in three months.
And from this perspective the Barack Obama plan looks pretty good to me: it cuts a lot of identical $250 checks to people many of whom would spend it, and so boost employment. The checks could be in people's hands by April.
By contrast, the John Edwards and Hillary Rodham Clinton plans--well, a $30 billion housing crisis fund... anti-urban blight programs... helping local housing authorities... mortgage moratoriums... heating assistance... $5 billion in energy credits to encourage purchases of low emission vehicles and efficient appliances... funds to train and put to work people making public buildings more energy efficient...
These are all worthy. But this is not a bill that can be passed quickly--the housing provisions, at least, are one of those things where the devil is in the details of the drafting and where quick, clean passage and implementation is almost impossible. The proposal is not Obama's: we are going to stimulate demand by cutting a lot of identical checks via a refundable tax credit--a thing that the government can do well and quickly. And this, I think, matters a lot. A stimulus bill is likely to become a lobbyist-pleasing Christmas tree, ineffective and destructive. Obama's plan seems to me to have the best chance of avoiding that fate--if he could sign Pelosi and Reid up to move a clean, focused bill.
John Edwards and Hillary Rodham Clinton might respond that these stimulus packages are political rather than policy documents--acts of campaigning rather than acts of governance--and they are right, up to a point.
Courtesy of Eric Rauchway and the U.C. Davis History Department:
Historical Scholarship and the New Media: A History Colloquium event sponsored by the UC Davis Department of History, the Institute of Governmental Affairs, and the Center for History, Society and Culture, with Brad DeLong, Scott Eric Kaufman, Tedra Osell, and Ari Kelman, held May 23, 2007, at 12:10 in the Andrews Room of the Social Sciences and Humanities Building.
The ongoing industrial revolutions in China and India are the most extraordinary, hopeful, and exciting things happening in the world economy today. Moreover, the future for both countries looks relatively bright: odds are economic success will continue.
Income inequality in America has taken an enormous leap upwards since the mid-1980s, leaving us today with a society that is as unequal as America was in the pre-Great Depression Gilded Age.
Did the Federal Reserve fall down on the job and fail to do what it could to stem the Great Depression? Yes. Would things have been better if had there been no Federal Reserve at all? Definitely not.
Morning Coffee Videocast:Cuba--The Dictatorship of the Castro Brothers: MANY praise Cuba for having such a high level of social development for a country whose economy is in such sad shape. But back in 1957 Cuba was a developed, not an underdeveloped country--it ought today to look like Italy, Spain, Portugal, or Puerto Rico, and it doesn't. Thanks to the dictatorship of the Castro brothers.
Morning Coffee Videocast:My Allergic Reaction to Noam Chomsky: HERE at Berkeley, I'm often asked why I have such an allergic reaction to Noam Chomsky. Here's one of many reasons, but I think it alone is sufficient...
I can think of seven wedges between the national net savings-investment rate as estimated by the National Income and Product Accounts and statistical estimates of the change in total measured household net worth:
There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
All of us free-ride on technological research and development, reaping where we do not sow, gathering where we do not scatter, and profiting where we do not save and invest.
Shifts in the distribution of income away from labor and toward capital increase measured household net worth--which includes the increased expected future profits from capital--but not true household net worth--which also includes the decreased expected future wages of labor.
Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today--which is measured in today's dollars--without any outward shift in the true consumption-possibilities frontier.
Government deficits that raise the debt lower national savings but not measured household net worth.
Good news about the future produces windfall gains and bad news windfall losses which alter this year's household net worth without telling us much about over-all long-run accumulation trends.
I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end--Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation. Larry Kudlow, in the middle of the panel, aggressively launched into a rant--about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day's employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.
What is one to do? You watch a guy--Bob Solow--one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy--Kudlow--who really isn't in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.
On paper, in print, on the screen, one can point out that the employment report was anemic--it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession. On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading because they do not reflect any true increase in appropriately-defined wealth, that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns, that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow's worry about the savings-investment rate's decline, and thus that only reason (3)--the effects of the now decade-long computer-and-communications real investment boom on our total wealth--provides a reason to even begin to think about whether Bob Solow's worries about declining savings as measured by the NIPA are at all overblown.
But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.
It's an un-discourse situation: Kudlow doesn't acknowledge--may not know--the flaws in his chosen statistic. And I can't help wonder what Kudlow would be saying if a Democrat were president.
Morning Coffee Videocast: The Five Factions of the Republican Party: AND why no honest policy can keep all five of them on board and win elections in America today...
Morning Coffee Videocast:Nickel and Dimed: USUALLY I am a great fan of Barbara Ehrenreich. But I did not like her book "Nickel and Dimed." I did not like it because of its politics--or, rather, because of its anti-politics, because of its political passivity...
Morning Coffee Videocast:How Rich Is Fitzwilliam Darcy?: AT the end of Jane Austen's early-nineteenth century novel, "Pride and Prejudice," the hero Fitzwilliam Darcy proposes to the heroine Elizabeth Bennet, and Elizabeth's mother goes berserk...
The New School Weekly Observer: SCHWARTZ PANEL: IS THE SKY FALLING? CHALLENGING CONVENTIONAL ECONOMIC WISDOM: Conventional wisdom suggests that the deficits are too high, personal savings rates are too low, federal government spending is out of control, and too much of our debt is held by foreign governments. But do we know with any confidence when these imbalances become unsustainable? The New School and the Schwartz Center for Economic Policy Analysis present a panel discussion on Friday, March 9, 8:30 a.m.–12:00 p.m., at the Theresa Lang Community and Student Center, 55 West 13th Street, 2nd floor. Admission is free, but reservations are required by calling 212.229.5901 x4911 or emailing cepa@newschool.edu.
The panel will be moderated by Bob Kerrey and includes: Brad DeLong,
UC Berkeley; Robert Hormats, Goldman Sachs; Julie Kosterlitz, National
Journal; Larry Kudlow, host of CNBC's "Kudlow & Company" ; Bernard
Schwartz, BLS Investments;Dr. Robert J. Shapiro, Sonecon; Robert Solow,
MIT, and; Felix Rohatyn, Rohatyn Associates.
9:00-9:30 a.m. Welcome and opening comments by Bob Kerrey
9:30-11:00 a.m Roundtable discussion moderated by Bob Kerrey.
11:00-11:30 a.m. Moderated Audience Q & A (Bob Kerrey)
My view: are current global imbalances "sustainable". Probably not. Will they be unwound without catastrophe? Probably. Can we tell with certainty when global imbalances become unsustainable? No. As Damon Runyon liked to put it, nothing in the real world is better than 3-to-1.
Morning Coffee Videocast:Forecasting Recessions Is a Fool's Game: ECONOMISTS should never forecast changes in long-term interest rates, the next move in the stock market, or whether there is about to be a recession. We have very good theories to explain why all three are more-or-less completely unforecastable.
IF they had any shame, they would have long since fled from their high seats in the temple of our civilization and taken up lives of anonymous service to others.
SAMBA IGOR TELEVISION USHER AJAX TELEVISION IGOR OMEGA NOOGIES NOOGIES OMEGA RABBIT MARXMAS ALLAWI LINGUINI AGGRAVATE LOUIE LOUIE FREDERICK USHER CHARLIE KRAFTWERK EDUARDO DAGON USHER PENGUIN department:
madbodger: I bought a HD TiVo and wanted to hook it: Side rant on automated attendants. If I key in my phone number, I'm annoyed when I have to key it in again, and then say it to whoever answers. Worse, some attendants won't LET me key in information. I have to SAY it. Since they're only available during business hours, I have to call from at work. Since I work at the customer's site, I have no privacy. And these automated attendants get more and more creative about the stuff they want you to say out loud in a crowded room.
I imagine some nut like baronmind works for them, coming up with progressively more bizarre things you have to say out loud to get anything. Reading a credit card number is bad enough. Saying things like "YES ...... YES ...... CUSTOMER SERVICE ....... CUSTOMER SERVICE!..... FIVE SEVEN BAKER THREE ALPHA OMEGA ZERO ZERO ....... YES ...... NO ....... CABLE ....... NEW SERVICE ...... YES........ SEVEN FOUR ZERO DESTRUCT ZERO ..... PAPA INDIA MLENDY GRACKLE BORGWARD ONE ...." tends to garner some interesting stares. What's next?
