Once upon a time Douglas Holtz-Eakin was a reasonable professional economist, if of a conservative bent and clearly associated with the Republican Party. He served honorably during the period of GOP control of Congress when Bush, Jr. was president as Director of the Congressional Budget Office. There he resisted the relentless pressure from delusional supply-siding GOPster Congresspeople to declare that tax cuts pay for themselves with the proper "dynamic analysis." DH-E put this canard to sleep once and for all, at least in Congress, if not on Fox News and in the general Tea Party looney bin. Even though I did not support McCain in 08 (and by all accounts he knows little to nothing about economics), DH-E served respectably as one of his top economic advisers in the campaign, along with other such respectables as Ken Rogoff, who has managed to avoid making a fool of himself since then.
However, now Douglas Holtz-Eakin has fallen into lunatic pandering, I can only guess in the hopes of becoming an adviser to Sarah Palin or some other future GOP prez nominee who is equally out to lunch on economic matters. Accounts are given on Mark Thoma at http://economistsview.typepad.com/economistsview/2010/12/words-will-never-hurt-us-or-our-cronies-if-we-dont-allow-them-to-be-used.html a few days ago and today by Paul Krugman at http://www.nytimes.com/2010/12/17/opinion/opinion/17krugman.html?_r=1 .
As one of the four GOP members of the financial crisis commission he has joined with the others in voting to refuse to allow the words/phrases "Wall Street" or "shadow banking" or "interconnection" or "deregulation" to appear in its final report. While Dem commission member Brooksly Born (who had warned of the coming crisis ahead of time) has expressed sadness that some sort of reasonable compromise language to encompass competing viewpoints could not be arrived at, DH-E and company have absconded to issue their own report that blames it all on Fannie Mae and Freddie Mac, along with the 1977 Community Reinvestment Act. As Krugman points out, the F's did not even get into buying subprime mortgages until 2004 and other countries without them or the CRA have had worse housing bubbles than has the US. This is just fantasyland stuff that is only taken seriously by, well, Fox News and the Tea Party crowd. Douglas Holtz-Eakin: shame on you!
12 comments:
Hi. Econ blogger One Salient Oversight here. I have published an article which examines the monetary base and how changes in it when compared to inflation can be used to predict recessions.
http://one-salient-oversight.blogspot.com/2010/12/using-monetary-base-as-recessionary.html
Please feel free to comment there. Thx.
The proper interpretation of these observations is that when the rich people can get richer by simply putting money into interest bearing mattresses (government backed bonds and bills) instead of risking money in real investments then the bonds are the winner. That is a fundamental observation for me having religious overtones. Yet I cannot see how it is wrong.
I think I did this in the 90's:
http://www.greatervoice.org/essays/MoneyForNothing.php Money For Nothing
You're optimistic about how sane Holtz-Eakin was when he was working for McCain, but otherwise spot-on.
I always view "respectability" as a gateway drug that lures addicts down a slippery slope to lunatic pandering. Best to just say "no thanks" to the respectability.
"This is just fantasyland stuff that is only taken seriously by, well, Fox News and the Tea Party crowd."
While you, me and the "choir" might think that true, most of the remaining population live just a mile or two outside of Fantasyland. The public seems to feast on the gruel that they are regularly fed by Fox News and the Republican leadership(and yes, using the word leadership seems oxymoronic in regards to those people). Have we seen even the slightest critique of their position in any of the supposedly more respectable news outlets, the NY Times, WaPo, etc? Not a word. Have we seen any of the MSM describing the total inconsistency of those positions? Not a word. Only reports of differences of opinion, as though there were some level of equivalence to the different positions. It is the old story of "poison tongues and pens" being paid to mislead and confuse the puyblic. It's not the veracity, or lack thereof, of the economics "experts" that is the problem. It is the totally facetious nature of the news media in recent years that pains this country.
Yep... The problem is that there is no counterweight to Fox News in an economic sense. MSNBC is a social counterweight of sorts, but the people of the nation constantly relate government to a business or a family in the financial and economic sense. QE2 provides a starter course into why such analogies are totally inappropriate. In a recent 60 minutes interview with Bernanke, he (Bernanke) said that the FED was not printing money. There was no challenge to this that would have allowed the chairman to explain the difference between T-Bills and FRN's and the fact that BOTH are money in the sense of government obligations.
Why is it so difficult to say and to understand that deficits create money and taxes remove the money? Why is it difficult to understand that velocity is controlled by interest rates and that the total amount of money is controlled by government spending and taxation? When interest rates rise then money is "parked" in interest bearing parking lots instead of circulating.
If I am wrong about this then PLEASE, PLEASE, PLEASE tell me what I am missing. And if I am right then why do the economists let the politicians and the pundits continue to lie?
Trucker:
Government is like business and family in the economic sense.
It is the sum total of all our inputs.
If your outgo exceeds your income, your upkeep becomes your downfall.
It just takes government a bit longer to catch up with bankrupt businesses and families, for I guess we can say the whole is bigger than the sum of its parts.
Otherwise, government is some kind of magical economic entity that isn't subject to what makes up the individual parts.
Don Levit
Don,
That's not quite correct, but given the difficulty experienced previously of having tried to discuss an issue with you it seems not worth the effort to explain to you why your analogy is grossly over simplified.
Hint: Governments have the ability to print money, to virtually create money out of thin air. Granted that has an effect on the value of the already existing money, but it can be done. In fact Treasury issuing so many T-Bills seems little different from the Federal Reserve simply printing a few more Federal Reserve Notes. Those are the mostly green papers we carry around with us and some times put into safe places when we have enough of them that we can't spend them all right away.
Neither you nor I nor any business can create money in that fashion. Nor do we have the unique ability reserved for governments to tell others (like potential tax payers) to send us some of their money (that would be taxes). Of course government can act in an incompetent manner and refuse to ask all of its participants (those are its citizens) to pay for what is provided for them, like a safe and stable economy and social environment that makes wealth creation possible.
Jack:
I agree with you that the taxing power, and ability to create money out of thin air does give the federal government a fiscal advantage, not only over families and businesses, but over state governments, who have the taxing power, but the supposed inability to run deficits.
I understand Vermont has the constitutional authority to run deficits.
Maybe someone in the know could comment on that.
As you seem to agree, there is a limit to this creation power, in that hyperinflation seems to be the result of choice when the full faith and credits of governments lose their luster.
I presented a trust fund presentation on Social Security and Medicare to a Unitarian Universalist discussion group recently.
As you may know, UUs are a very liberal bunch, comprised mostly of agnostics and atheists, almost all who have rejected fundamentalist Christianity.
Their God seems to be the U.S. Government, for they perceive our government as the safest possible investment we could make.
After my presentation, I asked for a show of hands - which had more of your faith - God or the U.S. Government.
It was a tie!
Don Levit
Don,
Well, you are a scary guy, :-).
Regarding state governments, the way it works in most of them is that there is a current account and a capital account. It is the current account that must be balanced. Obviously, this opens the possibility for shenanigans by putting things officially into the capital account that really should be in the current account, and thus running a deficit. I am presuming that this is what California has done, which has been running all these reported massive deficits. In most states, items in the capital account must be approved by bond referenda that list the specific project that goes into the account to be financed by borrowing based on the bonds that get issued if the referendum passes the voters.
Rosserjb:
What is so scary about me?
I don't doubt I do have a "shadow side."
Much of this "full faith and credit" is based on perception.
I believe the only way people can realistically gauge the creditworthiness of government is to look at their own businesses and families, and make some allowance for the big, powerful dollar and U.S. Government.
But ultimately, there is only one God and it isn't the U.S. Government.
Don Levit
It has become almost impossible to tax the rich through conventional means. The tax of inflation coupled with fiscal help on the low end is becoming the clear avenue to some semblance of justice. If interest rates can be held at very low levels while inflation eats away at hoards of money, then there is hope for an anti-monopolistic return to competitiveness. Fiat money is the battle ground. Inflation is an asset tax on the financial crooks.
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