Does Eric Cantor Heart the Economic Consequences of Mr. Churchill?

Josh Marshall says he is a big Winston Churchill fan but doubts that Republican House Whip Eric Cantor knows much about Mr. Churchill’s political career. Josh makes this claim after reading this:

But Rep. Eric Cantor (Va.), the House minority whip who led the fight to deny Obama every GOP vote for the plan, is studying Winston Churchill's role leading the Tories in the late 1930s, a principled minority that was eventually catapulted into power over the Labor Party. He calls the stimulus bill "a stinker."

Should we remind both of them about a piece Lord Keynes wrote in 1925 entitled The Economic Consequences of Mr. Churchill? Churchill as Chancellor of the Exchequer had the British pound return to the gold standard after the First World War at too what turned out to be too high of a value. Keynes correctly predicted adverse economic consequences. British macroeconomic policy during this period also was the kind of macroeconomic mix the U.S. saw in the early Reagan years – tight money combined with tax cuts. The prices of British exports such as coal and textiles became uncompetitive on world markets leading to deflation and unemployment. As Keynes predicted, this strong pound policy also caused a trade deficit. The Reagan macroeconomic mix also created a fall in net exports, which contributed to the 1982 recession.

Churchill later recognized that the 1925 return to the gold standard was a mistake. One would think that U.S. Republicans would recognize that had we chose to repeat Herbert Hoover’s policies, we would be making an even greater economic mistake. But then Eric Cantor hearts Churchill’s leadership during this period. Go figure.

Happy Birthday, Dear Leader!

Yesterday was the 67th birthday of Kim Il Jong, the "Dear Leader" of the Democratic Peoples' Republic of (North) Korea.

In a column in today's Washington Post, the knowledgeable Selig Harrison reports on a trip he took about a month ago to Pyongyang, where met with top leaders and discussed possible options for deals on nuclear weapons. Apparently Kim did have a stroke last August, and while still participating a bit in decisions, is no longer running the government in any detail. The person on top effectivel now is his brother-in-law, Chang Soon Teak. Furthermore, the hardline National Defense Commission is on top, and Harrison was not allowed to meet with any of the "pragmatists" he has met in the past who favor a friendlier deal with the US and the rest of the world. Upshot is that they will not negotiate regarding the plutonium produced during the Bush years that is now "weaponized." They might negotiate on not producing any more, but there is a much harder line now in place there, unfortunately.

China on the Buy American Provisions

AP reports on an editorial from the Xinhua News Agency:

Measures in a $789 billion U.S. stimulus package that favor American goods are a "poison" that will hurt efforts solve the financial crisis, an editorial by China's official news agency said. Provisions in the U.S. stimulus bill approved Friday favoring American steel, iron and manufactured goods for government projects are protectionist measures that could trigger trade disputes, said the editorial issued late Saturday by the Xinhua News Agency. "History and economics have told us, facing a global financial crisis, trade protectionism is not a solution, but a poison to the solution," the editorial said. U.S. labor groups that pushed hard for inclusion of the measures have argued that their main purpose is to ensure that U.S. Treasury dollars are used to the fullest extent to support domestic job creation. China has promised to avoid "Buy China" protectionist measures in its own multibillion-dollar stimulus effort, and appealed to other governments to support free trade.

I suspect that Robert Scott will find this claim that China is an advocate of free trade hard to shallow:

The growth of U.S. trade with China since China entered the World Trade Organization in 2001 has had a devastating effect on U.S. workers and the domestic economy ... A major cause of the rapidly growing U.S. trade deficit with China is currency manipulation. China has tightly pegged its currency to the dollar at a rate that encourages a large bilateral surplus with the United States. Maintaining this peg required the purchase of about $460 billion in U.S. treasury bills and other securities in 2007 alone. This intervention makes the yuan artificially cheap and provides an effective subsidy on Chinese exports. The best estimates place this effective subsidy at roughly 30%, even after recent appreciation in the yuan (Cline and Williamson 2008).

While Greg Mankiw wants to pretend that “China favors free trade, even if U.S. doesn’t”, one has to wonder if he also endorses the Chinese government’s policy of maintaining an undervalued yuan.

Update: Just in case someone reminds us that the exchange rate used to be 8.28 yuan per dollar and is now only 6.83 yuan per dollar, our graph shows this but it also shows that after this 17.5 percent exchange rate change, the exchange rate has not appreciably changed since July 2008. Just after the Presidential election, Bloomberg reported:

Barack Obama's calls for changes in China's yuan policy may put the president-elect on a collision course with the U.S.'s second-largest trade partner, which is holding the currency stable to support its export-led economy. Obama said China must stop manipulating the currency in a letter to the National Council of Textile Organizations released on Oct. 24. The People's Bank of China has kept the yuan almost unchanged against the dollar since mid-July as it shifts focus from countering inflation to sustaining growth amid a global credit crisis. The Foreign Ministry said last week the U.S. shouldn't blame its trade deficit on exchange rates.

It would seem that government officials in both nations view the exchange rate as part of the overall trade policy stance.

Reading Hicks (so Brad DeLong won't have to)

by the Sandwichman

In his diatribe against David Harvey, Brad DeLong invoked the authority of John R. Hicks more than once. "He (Harvey) doesn't understand Keynes, probably never read Hicks..."

And most tellingly,

And it is at this point that we draw on neoclassical economics to save us--specifically, John Hicks (1937), "Mr. Keynes and the Classics," the fons et origo of the neoclassical synthesis. Hicks's IS curve gives us a menu of combinations of levels of production and interest rates at which private investment spending and public deficit spending are financed out of the flow of savings.

Presenting the J.R. Hicks of "Mr. Keynes and the Classics" and his IS curve as the ultimate authority on Keynes is disingenuous. In the 1970s, Hicks himself repudiated his earlier formulation. But meanwhile its adoption by the US proponents of the "Keynesian neo-classical synthesis" could best be understood as an effort to inoculate economics against the more radical implications of Keynes's theory. A footnote from an essay by Luigi Pasinetti elaborates:

A simplified didactical tool, a mere device of exposition, had become so widespread as to become misleading -- too restrictive a tool for the purpose of accurately conveying Keynes's complex original message. Hicks kept on re-thinking his theory and slowly moving away from his original IS/LM formulation. In the late 1960s, early 1970s, he courageously took a break-away step. He strongly criticised, and actually, explicitly repudiated his successful little analytical toy. To stress his break-away, he went as far as declaring openly that he had ceased to be a neoclassical economist (in his words: "J.R. Hicks, [is] a 'neoclassical' economist now deceased..."). And in order to underline his change of mind, he even ceased to sign his articles by the name of J.R. Hicks and began to sign them by the name of John Hicks (in his words: "Clearly I need to change my name... John Hicks [is] a non-neoclassic who is quite disrespectful towards his 'uncle' [J.R.].

Of course, the story is more complex than that, even, and for Pasinetti's full take on Hick's Conversion there is no substitute for reading the article, even if for no other reason than to relish Joan Robinson's acerbic remark that:

John Hicks noticed the difference between the future and the past and became dissatisfied with the IS/LM but (presumably to save face for his predecessor, J.R.) he argued that Keynes's analysis was only half in time and half in equilibrium.

So much for "knowing more about Keynesian economics than Joan Robinson". DeLong thus cited as definitive a "little analytical toy" that the toy-maker himself repudiated and cherry picked quotes from a Joan Robinson who elsewhere disparaged the very toy that DeLong upheld as definitive. Sheesh.

I don't want to belabor 'uncle' J.R.'s culpability for "little analytical toys" and "simplifying assumptions" that made the neo-classical economist's work more excitingly elegant, remunerative and less relevant to the real world. But I do want to mention Hicks's assumption about the hours of work that has displaced an important argument from neo-classical economics that, if widely known, would decisively demonstrate the futility of the tautologies contemporary neo-classicals amuse themselves with -- Sydney Chapman's theory of the hours of labor. Think of it as the labor version of the Cambridge Capital Controversy.

As Chris Nyland wrote some twenty years ago, Chapman's theory essentially confirmed Marx's regarding the extensive and intensive dimensions of the hours of work. Sadly, with few exceptions, Marxists appear no more eager than neo-classicals to examine this theoretical convergence.

Capturing the Success of Non-traditional Monetary Policy: Are BAA Interest Rates a Good Metric?

While President Obama is about to sign a bill that provides significant fiscal stimulus for the ailing U.S. economy, most economists would likely argue that this is a necessary but not sufficient condition for restoring full employment. Ben Bernanke made the following observations on January 13, 2009:

The abrupt end of the credit boom has had widespread financial and economic ramifications. Financial institutions have seen their capital depleted by losses and writedowns and their balance sheets clogged by complex credit products and other illiquid assets of uncertain value. Rising credit risks and intense risk aversion have pushed credit spreads to unprecedented levels, and markets for securitized assets, except for mortgage securities with government guarantees, have shut down. Heightened systemic risks, falling asset values, and tightening credit have in turn taken a heavy toll on business and consumer confidence and precipitated a sharp slowing in global economic activity. The damage, in terms of lost output, lost jobs, and lost wealth, is already substantial.

We noted that the credit crunch is consistent with being in a liquidity trap as Paul Krugman also noted:

conventional monetary policy has lost effectiveness. Yes, there are other things the Fed could do — and it’s doing them, on an awesome scale. But they’re controversial, precisely because, unlike conventional monetary policy, they involve picking and choosing among potentially risky investments.

Bernanke also noted:

The Federal Reserve has responded aggressively to the crisis since its emergence in the summer of 2007 ... As indications of economic weakness proliferated, the Committee continued to respond, bringing down its target for the federal funds rate by a cumulative 325 basis points by the spring of 2008. In historical comparison, this policy response stands out as exceptionally rapid and proactive … Although the federal funds rate is now close to zero, the Federal Reserve retains a number of policy tools that can be deployed against the crisis ... Other than policies tied to current and expected future values of the overnight interest rate, the Federal Reserve has--and indeed, has been actively using--a range of policy tools to provide direct support to credit markets and thus to the broader economy. As I will elaborate, I find it useful to divide these tools into three groups. Although these sets of tools differ in important respects, they have one aspect in common: They all make use of the asset side of the Federal Reserve's balance sheet. That is, each involves the Fed's authorities to extend credit or purchase securities.

The chairman of the Federal Reserve went on to describing in some detail these non-traditional monetary policy tools. The fact that interest rates on short-term government debt fell from around 5 percent in early 2007 to near zero now – with longer-term rates falling from around 5 percent to around 3 percent at the end of 2008 is testimony that the Federal Reserve did all it could do using conventional monetary policy and yet interest rates on BAA rated corporate debt rose from just over 6 percent as of late 2006 to around 9.5 percent towards the end of October 2008. While the beginning of the recession preceded the enormous spike in interest rates on BAA rated corporate debt, the panic signals over the credit crunch were the result of the unprecedented surge in credit spreads towards the end of 2008.

The title of this post suggests that watching the BAA interest rate may be a decent proxy for the success of non-traditional monetary policy. It is a metric that can be followed on a daily basis and is readily understood. If the proximate problem is high credit spreads and if investment demand is sensitive to the BAA interest rate, then this metric should be closely related to the policy problem and how it gets transmitted to the real economy.

So if one accepts my premises that the BAA interest rate is a good metric for the success of non-traditional monetary policy – how are we doing? I would submit that we have seen some – but not nearly enough – success. After all, an interest rate of 7.9 percent is not as burdensome as an interest rate of 9.5 percent. However, these interest rates are still quite high.

An Important Question (that is never asked)

by the Sandwichman

Brad DeLong wrote: "The question of should Americans be working less, and why aren't we working less already, is an important one. It has nothing to do with whether the Obama stimulus is doomed to fail:"

I disagree. Harvey's argument is not that there is a technical imposibility to a stimulus that worked (the Treasury view) but that there are political obstacles to implementing a stimulus that is large enough and appropriately targeted. My claim is that one of the political obstacles to the appropriate targeting of a stimulus is the systematic exclusion of one of the three "ingredients of a cure" prescribed by Keynes.

Keynes was very explicit. He viewed investment as first aid. He viewed work time reduction as the ultimate solution. But political Keynesianism over the past 60 years has applied first aid over and over again and has systematically excluded Keynes's ultimate solution. Now if Brad thinks Keynes was wrong, that's another matter. Show why. But you can't just assert that it has "nothing to do with whether the Obama stimulus is doomed to fail". In medicine, you don't keep applying first aid over and over and never address the fundamental problem. Is it not the same in economics?

David Harvey vs. Brad DeLong Dustup!

In a post that Andrew Jackson, social and economic policy director of the Canadian Labour Congress, calls "absolutely brilliant and compelling," David Harvey argues that the stimulus package is bound to fail. On the one hand, the current package is not big enough and on the other hand, the US can't finance a big enough stimulus package because of its recent debt history. Brad DeLong calls Harvey's argument "intellectual masturbation." To which Harvey responds, lamenting the arrogance of neoclassical economists.

And now, the Sandwichman jumps into the fray with his two cents worth...

A distinction needs to be made between “Keynesianism” (even Harvey’s “strong”, “true” or “full-fledged” Keynesianism) and what Keynes actually thought about economic stimulus and full employment.

Keynes viewed government investment in infrastructure as “only one particular application of an intellectual theorem”. The other two were consumption and reduction of the hours of work. We hear about the first two applications, consumption and investment, incessantly but it was the third strategy, working less, that Keynes pronounced the “ultimate solution” to full employment. See his 1943 Treasury Department memorandum on “The Long Term Problem of Full Employment” and his 1945 letter to the poet, T.S. Eliot.

Keynes was concerned with full employment, not with economic growth. It was his successors who shifted the emphasis from the one to the other. They did so, I would argue, to suit their mathematical models more than anything. Be that as it may, in the 1970s Fred Hirsch showed how economic growth drained resources from both non-market activities and even from final consumption goods. Increased competition for scarce positional goods diverted resources into intermediate goods.

There remains a taboo against talking about work-time reduction as a possible response to the crisis. Dean Baker (he who ‘called’ the housing bubble in 2002) wrote a pair of op-ed pieces a few weeks ago in the Guardian and the New York Daily News calling for tax breaks for work time reduction. I have seen no uptake of Dean’s suggestion from the stable of liberal Keynesian economists — Krugman, et. al.

The Proposition That the GOP Cares About the Burden of the Debt is Bogus

Mark Thoma listened to John McCain so we did not have to:

I saw Senator McCain on CNN talking about how the stimulus package is, essentially, reaching into the pockets of future generations and transferring their wealth to the present generation.

Mark does a nice job of noting why this rhetoric is misplaced. Jeff Frankel has a related and interesting post noting that while the fiscal stimulus may not be enough to get us back to full employment, it may raise danger signals in international financial markets:

The 2009 fiscal-year deficit is already expected to exceed $1.2 trillion, so we are talking about deficits thereafter that could surpass 10 per cent of GDP. This is far above the levels that are considered danger signals when they come from any other country. Until now, the US has not been “any other country;” The rest of the world has been willing to finance American profligacy cheerfully. But there have already been signs in the last few weeks that the prospect of this much Treasury debt coming onto the markets is already beginning to push bond prices down and long-term interest rates up. My feeling is that if the current stimulus package were to break the $1 trillion mark, it might truly alarm international financial investors, who would in that case stop acquiring dollar assets, thus precipitating the hard landing of the dollar that so many of us have feared for so long. In those circumstances, the Fed would lose the ability to keep interest rates low, and we could be in even worse trouble than today. Everything would be different if we had spent the last 8 years preserving the budget surpluses that Bill Clinton bequeathed to George Bush. Then we would have paid down a big share of the national debt by now, instead of doubling it. We would be in a strong enough fiscal position to undertake the expansion today that we really need. In that light it is ironic, to say the least, that the politicians who are warning against the size of the stimulus bill (”generational theft”), particularly the Congressmen who are voting against it, are mostly the same Republicans who supported the original fiscal policies that gave us the doubling of the national debt: the huge long-term tax cuts of 2001 and 2003 and the greatly accelerated rate of government spending. What we need now is a fiscal policy that maximizes short-run demand stimulus relative to long-run damage to the national debt. Lots of bang for the buck. The Republicans supported fiscal policies that did the opposite. Lots of buck for the bang.

While Jeff is correct about the hypocrisy of the modern Republican Party, I think he could have gone further. Not only did these Republicans support the Bush43 increase in the debt to GDP ratio, they still praise the fiscal policies of the Reagan-Bush41 era, a period when the debt to GDP ratio doubled.

I would also beg to differ that a transitional period where the debt to GDP ratio rose as a result of a short-term fiscal stimulus that was necessary to avoid a major recession will lead to fiscal ruin. We have seen much larger increases in the debt to GDP ratio before without fiscal ruin but as Robert Barro noted in his On the Determination of the Public Debt (Journal of Political Economy, 1979), U.S. policymakers before the advent of the modern Republican Party was committed to retiring public debt over time.

In 1993, the Clinton Administration passed a deficit reduction package that included tax increases. Unfortunately – he got even less support from Senate and Congressional Republicans than President Obama received for the legislation he is about to sign. David Waldman reminds of the incredibly petty and stupid things said by Republican Congressional leaders in 1993. These leaders did not care about fiscal responsibility back then and their newly found devotion to fiscal austerity today sounds insincere. But as Barro’s 1979 paper suggests – we eventually need to get back to the pre-Reagan fiscal stance of using fiscal stimulus only during times of recessions or other national emergencies. We will not get there unless the Republican Party changes its ways or disappears as a force in American politics.

Nassim Nicholas Taleb and I Make Peace

I finally received an email reply from Nassim Nicholas Taleb. He wrote, "you are off the hook" I checked, and the innaccurate (and insulting) material that he had on his website about me has been removed. I thank him for reconsidering the matter and correcting the situation. While I have been critical of him on several counts, I am largely in agreement with his analysis of the current situation and the broader problem of "black swans," or to use the more conventional terminology of Keynes and Knight, fundamental uncertainty. I also repeat that his books contain much interesting information and are fun to read.

Regarding barbell investment strategies, there is no single one that necessarily will do well all the time, and Taleb has stated that. He has indeed more fundamentally made the point that we all must keep this profound degree of uncertainty in mind. I also remind that there are many different forms that barbell strategies can take, and that one might be doing well even as others might not be doing well. In any case, I welcome an end to this feud that probably should never have occurred in the first place.

Sandwichbam

by the Sandwichman


S'man's cookie fortune from Friday night: "The world will soon be ready to receive your talents."

Minute Dream

By the Sandwichman

I woke up this morning and glanced over at the clock. It was 7:08. Then I dozed off again and started to dream. I dreamed I turned on a light and the light bulb burned out. I woke up and looked at the clock. It was 7:09.

Claiming the Fiscal Stimulus Bill Failed

Let’s start with a sensible account from David Espo:

In a major victory for President Barack Obama, Democrats muscled a huge, $787 billion stimulus bill through Congress late Friday night in hopes of combating the worst economic crisis since the Great Depression. Republican opposition was nearly unanimous. The Senate approved the measure 60-38 with three GOP moderates providing crucial support. Hours earlier, the House vote was 246-183, with all Republicans opposed to the package of tax cuts and federal spending that Obama has made the centerpiece of his plan for economic recovery. The president could sign the bill as early as next week, less than a month after taking office. Supporters said the legislation would save or create 3.5 million jobs ... Vigorously disagreeing, House Republican leader John Boehner of Ohio dumped a copy of the 1,071-page bill to the floor in a gesture of contempt. "The bill that was about jobs, jobs, jobs has turned into a bill that's about spending, spending, spending," he said ... Republicans complained they had been locked out of the early decisions, and Democrats countered that Boehner had tried to rally opposition even before the president met privately with the GOP rank and file.

Didn’t Rush Limbaugh say early on in the next Administration that he wanted our new President to fail? Boehner marshaled the House Republicans to follow Limbaugh’s lead even if it meant endorsing Herbert Hoover economics. And of course Jonah Goldberg had to follow suit:

The stimulus bill has failed. Barack Obama has failed. The Trojan Horse of Hope and Change crashed into the guardrail of reality, revealing an army of ideologues and activists inside. Now, before I continue, let me say that Barack Obama will still be popular, he will still get things done, and he will declare victory after signing a stimulus bill. But Obama’s moment is gone, and politics is about nothing if not moments. The stimulus bill was a bridge too far, an overplayed hand, ten pounds of manure in a five-pound bag. The legislation’s primary duty was never to stimulate the economy, but to stimulate the growth of government, the scope of the state. By spending hundreds of billions on things that have absolutely nothing to do with providing an immediate stimulus for the economy, Democrats hoped to make a down payment on their dream government.

The only manure I smell is the nonsense emanating from rightwing hacks such as Boehner and Goldberg. The main problem with the U.S. economy is a lack of aggregate demand - but these economic know nothings cannot understand that increasing aggregate demand via more government spending is indeed stimulus that will create more jobs. Brad DeLong makes this point:

Had John McCain won the presidential election last November, a similarly-sized fiscal boost bill--more tax cuts, fewer spending increases, tilted toward the rich rather than toward the poor and middle class--would now be moving through the congress with genuine bipartisan support. But Barack Obama won the presidency. And so the Republicans decide to try to make America a poorer nation with higher unemployment: 246-183-1 in the House, with not a single Republican representative voting yes

When Bill Clinton first became President, certain Republicans such as Bob Barr were hoping to impeach him on just about anything, which eventually became known as the Monica Lewinsky scandal – all gift wrapped by Jonah Goldberg’s mother. It seems that these hacks are still putting partisan politics ahead of the nation’s interest even as we desperately something to reverse this recession.

Update: Rush Limbaugh wants the stimulus bill to fail – so do certain GP Congressman. It follows that these rightwing hacks actually want this recession to continue. Those of you who are suffering from being unemployed – guess this in mind.

Looting Social Security with the Old Bait & Switch Fraud

William Greider is a saint:

These players are promoting a tricky way to whack Social Security benefits, but to do it behind closed doors so the public cannot see what's happening or figure out which politicians to blame. The essential transaction would amount to misappropriating the trillions in Social Security taxes that workers have paid to finance their retirement benefits. This swindle is portrayed as "fiscal reform." In fact, it's the political equivalent of bait-and-switch fraud ... Will Obama take the bait? Surely not. The new president has been clear and consistent about Social Security, as a candidate and since his election. The program's financing is basically sound, he has explained, and can be assured far into the future by making only modest adjustments. But Obama is also playing footsie with the conservative advocates of "entitlement reform" (their euphemism for cutting benefits). The president wants the corporate establishment's support on many other important matters, and he recently promised to hold a "fiscal responsibility summit" to examine the long-term costs of entitlements. That forum could set the trap for a "bipartisan compromise" that may become difficult for Obama to resist, given the burgeoning deficit ... The Social Security fight could become a defining test for "new politics" in the Obama era. Will Americans at large step up and make themselves heard, not to attack Obama but to protect his presidency from the political forces aligned with Wall Street interests? This fight can be won if people everywhere raise a mighty din--hands off our Social Security money!--and do it now, before the deal gains momentum.

Yes, let’s insist that the President echo the call to keep those grubby hands off of our Social Security Trust Fund reserves. Greider reminds us of the 1983 payroll tax increases and the double role they have played in American politics ever since:

To understand the mechanics of this attempted swindle, you have to roll back twenty-five years, to the time the game of bait and switch began, under Ronald Reagan. The Gipper's great legislative victory in 1981--enacting massive tax cuts for corporations and upper-income ranks--launched the era of swollen federal budget deficits. But their economic impact was offset by the huge tax increase that Congress imposed on working people in 1983: the payroll tax rate supporting Social Security--the weekly FICA deduction--was raised substantially, supposedly to create a nest egg for when the baby boom generation reached retirement age. A blue-ribbon commission chaired by Alan Greenspan worked out the terms, then both parties signed on. Since there was no partisan fight, the press portrayed the massive tax increase as a noncontroversial "good government" reform. Ever since, working Americans have paid higher taxes on their labor wages--12.4 percent, split between employees and employers. As a result, the Social Security system has accumulated a vast surplus--now around $2.5 trillion and growing. This is the money pot the establishment wants to grab, claiming the government can no longer afford to keep the promise it made to workers twenty-five years ago. Actually, the government has already spent their money. Every year the Treasury has borrowed the surplus revenue collected by Social Security and spent the money on other purposes--whatever presidents and Congress decide, including more tax cuts for monied interests. The Social Security surplus thus makes the federal deficits seem smaller than they are--around $200 billion a year smaller. Each time the government dipped into the Social Security trust fund this way, it issued a legal obligation to pay back the money with interest whenever Social Security needed it to pay benefits.

Ah – the old fight about whether to talk about the “unified” deficit versus the “general fund” deficit. Just call me a general fund deficit type who thinks that this run-up in the total Federal debt to GDP ratio should later be reduced on tax increases on very high income groups and not backdoor employment tax increases disguised as reductions in Social Security benefits that exceed any promised reductions in payroll taxes in present value terms. Didn’t we already go through this nonsense four years ago?

Australia’s catastrophic Summer - Update

See previous story describing the background to the massive fire outbreaks in Southern Australia.

World media have focused a lot of attention on the enormity of the tragedy but have failed to mention that all levels of government in Australia have imposed the widescale spread of industrial tree plantations in the very areas most affected by these fires. The fires in Victoria actually began in a pine and eucalyptus monocultures near the township of Churchill.

Tasmania, however, is the state with the highest concentration of these massive fire liabilities. The issue of fire risk has been highlighted in Federal Senate inquiries and many other forums for well over a decade. Without success.

I am personally affected by this neoliberal industry and the related culpability of our so-called regulatory authorities. See 'Twelve years of pain'

There will be no resolution to, nor prevention of these tragedies until Australian governance is fixed at all levels.

Karl Rove Misrepresents CBO Estimate of the Fiscal Stimulus

Can’t the WSJ find someone other than Karl Rove to write op-eds on economics?

They also asked the Congressional Budget Office if the Democratic Senate bill was actually stimulative. The nonpartisan CBO found it would have a "negligible" impact on jobs by 2011 and hurt economic growth and prosperity over the next decade.

My most estimates, the bill that will finally be hammered out will be less stimulative than the original Senate bill. Brad DeLong has a nice summary of the short-term impacts as estimated by the CBO. Without the stimulus, CBO estimates that the GDP gap in 2011 will be 4.1% and the unemployment rate will be 7.5%. With this somewhat less stimulative bill, the estimated gap will be between 2.9% and 3.7% and the unemployment rate will be between 6.5% and 7.2% - all depending on whether one uses the low estimate of the effect of the plan versus the high estimate. That is not a negligible short-term impact.

Steve Benen has more on the political nonsense being peddled by Mr. Rove. As far as the long-run impact of the current fiscal stimulus - Tim Fernholz is on the right track especially as he notes that the rightwing pundits have been misrepresenting what the CBO is saying but didn’t we cover this one already?

Even the most ardent Keynesian would concede that long-term fiscal stimulus leads to long-term crowding-out. Only those pseudo-economists who were apologists for the Bush43 fiscal stimulus would try to deny this. In my view, the ideal fiscal stance would be short-term stimulus followed by long-term fiscal restraint once the economy approached full employment. This was the policy of the Clinton Administration as I understand it – it is what is being recommended to President Obama by his economic advisors.

Update: Ed Rollins joins in the criticism of this fiscal stimulus by suggesting that the President has not been exactly truthful. Why? Because Rollins thinks that the Federal government is too much in debt to be going for fiscal stimulus. Somehow – the stupidity of certain rightwingers have given them license to call the President a liar?