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I love this man! He speaks to my heart and my heart is on the street again. (Desperately need donations now!)
But they have plenty (PLENTY!) of money (and security), so why shouldn't they? After all, it won't hurt them and theirs.July 20, 2011Welcome to the Recovery
In Washington-speak, coming from both the White House and the Fed, we’re always on the road to recovery, with a few setbacks on the way. But the reality is that we’ve been basically flat on the employment front since late 2009, with nothing suggesting a sustained break back toward better performance:
Maybe someone should talk about doing something? Nah.
Oh, by the way, why are companies stepping up layoffs? It’s because of
fear of the Islamic socialist Kenyan presidentweak demand.July 21, 2011Gangs
If I seem sort of quiet on the debt ceiling stuff, it’s because (a) I have no idea how the political brinkmanship will play out (b) I believe that any deal like the Gang of Six proposal or whatever, even if enacted, offers little guide to what will actually happen starting after next year’s election. If it’s a Republican sweep, they will quickly dissipate any spending cuts with another round of tax cuts. If Democrats hold the White House and possibly even regain the House, they might conceivably turn to a solution that makes sense.
So does this mean that I regard the president’s enthusiasm for a big deal as foolish? Yes.
Green Sky Economics
Jonathan Schwarz at A Tiny Revolution – which I should read more often — notes that both of the friends of Bacchus dining with Paul Ryan the other day were proteges of Chicago’s Eugene Fama.
This reinforces my point that the nonsense Republicans are talking on economics comes not from uneducated ignorance but from highly educated ignorance: they’re getting their fallacies from eminent academics, not the man in the street. And not just fallacies: people like Fama confidently proclaim the truth of facts that, well, aren’t.
Clearly, it’s all mutually reinforcing: the closing of the Chicago mind both reinforces and is reinforced by the patronage of the mega-wealthy. And the end result is a completely hermetic system, into which contrary evidence cannot penetrate.
1937! 1937! 1937!
The Telegraph has a leaked draft of the eurozone rescue plan for Greece. The financial engineering is Rube Goldbergish and unconvincing. But here’s what leaped out at me:
9. All euro area Member States will adhere strictly to the agreed fiscal targets, improve competitiveness and address macro-economic imbalances. Deficits in all countries except those under a programme will be brought below 3% by 2013 at the latest.
OK, so we’re going to demand harsh austerity in the debt-crisis countries; and meanwhile, we’re also going to have austerity in the non-debt-crisis countries.
Plus, the ECB is raising rates.
So demand will be depressed in both crisis and non-crisis economies; this will lead to a vigorous recovery through … what?
The Serious People are determined to destroy all the advanced economies in the name of prudence.
I love this man! You know he deserves some kind of reward for courage in the face of the liars in charge of the rest of the media.Jump Start Possibilities
Brad DeLong and Karl Smith have been arguing that America, after 5 years of housing bust, now has a housing shortfall:
This seems plausible. But housing demand now remains weak, basically because people don’t have jobs, and the lousy job market has inhibited household formation. A lot of relatives are still living in the basement.
What neither Brad nor Karl has pointed out, however, is that this would seem to be precisely the kind of situation in which the much-overused metaphor of a “jump start” for the economy — that is, a temporary stimulus that leads to sustained recovery — might well be accurate.
Suppose that Obama announces that we face a clear and present danger from Ruritania, and that to meet that threat we need immediate investment in roads and rail (to move troops, of course). The economy surges on the emergency spending — and newly employed men and women at last get to move out of their relatives’ basements. Home construction surges.
Then Obama apologizes, says that his advisers have learned that there is no such country as Ruritania, and cancels the program. But we still have the new roads and rail links; plus, the surge in housing demand is now self-sustaining, and the economy remains strong.
Of course, we could do all this without the Ruritanian threat; but we won’t.
Tuesday, July 19, 2011 “Corporate Cash Con” Paul Krugman "Watching the evolution of economic discussion in Washington over the past couple of years has been a disheartening experience. Month by month, the discourse has gotten more primitive; with stunning speed, the lessons of the 2008 financial crisis have been forgotten, and the very ideas that got us into the crisis — regulation is always bad, what’s good for the bankers is good for America, tax cuts are the universal elixir — have regained their hold. And now trickle-down economics — specifically, the idea that anything that increases corporate profits is good for the economy — is making a comeback. On the face of it, this seems bizarre. Over the last two years profits have soared while unemployment has remained disastrously high. Why should anyone believe that handing even more money to corporations, no strings attached, would lead to faster job creation? Nonetheless, trickle-down is clearly on the ascendant — and even some Democrats are buying into it. What am I talking about? Consider first the arguments Republicans are using to defend outrageous tax loopholes. How can people simultaneously demand savage cuts in Medicare and Medicaid and defend special tax breaks favoring hedge fund managers and owners of corporate jets? Well, here’s what a spokesman for Eric Cantor, the House majority leader, told Greg Sargent of The Washington Post: “You can’t help the wage earner by taxing the wage payer offering a job.” He went on to imply, disingenuously, that the tax breaks at issue mainly help small businesses (they’re actually mainly for big corporations). But the basic argument was that anything that leaves more money in the hands of corporations will mean more jobs. That is, it’s pure trickle-down. And then there’s the repatriation issue. U.S. corporations are supposed to pay taxes on the profits of their overseas subsidiaries — but only when those profits are transferred back to the parent company. Now there’s a move afoot — driven, of course, by a major lobbying campaign — to offer an amnesty under which companies could move funds back while paying hardly any taxes. And even some Democrats are supporting this idea, claiming that it would create jobs. As opponents of this plan point out, we’ve already seen this movie: A similar tax holiday was offered in 2004, with a similar sales pitch. And it was a total failure. Companies did indeed take advantage of the amnesty to move a lot of money back to the United States. But they used that money to pay dividends, pay down debt, buy up other companies, buy back their own stock — pretty much everything except increasing investment and creating jobs. Indeed, there’s no evidence that the 2004 tax holiday did anything at all to stimulate the economy. What the tax holiday did do, however, was give big corporations a chance to avoid paying taxes, because they would eventually have repatriated, and paid taxes on, much of the money they brought in under the amnesty. And it also gave these companies an incentive to move even more jobs overseas, since they now know that there’s a good chance that they’ll be able to bring overseas profits home nearly tax-free under future amnesties. Yet as I said, there’s a push for a repeat of this disastrous performance. And this time around the circumstances are even worse. Think about it: How can anyone imagine that lack of corporate cash is what’s holding back recovery in America right now? After all, it’s widely understood that corporations are already sitting on large amounts of cash that they aren’t investing in their own businesses. In fact, that idle cash has become a major conservative talking point, with right-wingers claiming that businesses are failing to invest because of political uncertainty. That’s almost surely false: the evidence strongly says that the real reason businesses are sitting on cash is lack of consumer demand. In any case, if corporations already have plenty of cash they’re not using, why would giving them a tax break that adds to this pile of cash do anything to accelerate recovery? It wouldn’t, of course; claims that a corporate tax holiday would create jobs, or that ending the tax break for corporate jets would destroy jobs, are nonsense. So here’s what you should answer to anyone defending big giveaways to corporations: Lack of corporate cash is not the problem facing America. Big business already has the money it needs to expand; what it lacks is a reason to expand with consumers still on the ropes and the government slashing spending. What our economy needs is direct job creation by the government and mortgage-debt relief for stressed consumers. What it very much does not need is a transfer of billions of dollars to corporations that have no intention of hiring anyone except more lobbyists.” July 17, 2011 Letting Bankers Walk Paul KrugmanAnyone else think they simply don't want us to know why they are doing the nonsensical things they are doing? And what that must mean? ________________________Ever since the current economic crisis began, it has seemed that five words sum up the central principle of United States financial policy: go easy on the bankers.
This principle was on display during the final months of the Bush administration, when a huge lifeline for the banks was made available with few strings attached. It was equally on display in the early months of the Obama administration, when President Obama reneged on his campaign pledge to “change our bankruptcy laws to make it easier for families to stay in their homes.” And the principle is still operating right now, as federal officials press state attorneys general to accept a very modest settlement from banks that engaged in abusive mortgage practices.
Why the kid-gloves treatment? Money and influence no doubt play their part; Wall Street is a huge source of campaign donations, and agencies that are supposed to regulate banks often end up serving them instead. But officials have also argued at each point of the process that letting banks off the hook serves the interests of the economy as a whole.
It doesn’t. The failure to seek real mortgage relief early in the Obama administration is one reason we still have 9 percent unemployment. And right now, the arguments that officials are reportedly making for a quick, bank-friendly settlement of the mortgage-abuse scandal don’t make sense.
Before I get to that, a word about the current state of the mortgage mess.
Last fall, we learned that many mortgage lenders were engaging in illegal foreclosures. Most conspicuously, “robo-signers” were attesting that banks had the required documentation to seize homes without checking to see whether they actually had the right to do so — and in many cases they didn’t.
How widespread and serious were the abuses? The answer is that we don’t know. Nine months have passed since the robo-signing scandal broke, yet there still hasn’t been a serious investigation of its reach. That’s because states, suffering from severe budget troubles, lack the resources for a full investigation — and federal officials, who do have the resources, have chosen not to use them.
Instead, these officials are pushing for a settlement with mortgage companies that, reports Shahien Nasiripour of The Huffington Post, “would broadly absolve the firms of wrongdoing in exchange for penalties reaching $30 billion and assurances that the firms will adhere to better practices.”
Why the rush to settle? As far as I can tell, there are two principal arguments being made for letting the banks off easy. The first is the claim that resolving the mortgage mess quickly is the key to getting the housing market back on its feet. The second, less explicitly stated, is the claim that getting tough with the banks would undermine broader prospects for recovery.
Neither of these arguments makes much sense.
The claim that removing the legal cloud over foreclosure would help the housing market — in particular, that it would help support housing prices — leaves me scratching my head. It would just accelerate foreclosures, and if more families were evicted from their homes, that would mean more homes offered for sale — an increase in supply. An increase in the supply of a good usually pushes that good’s price down, not up. Why should the effect on housing go the opposite way?
You might point to the mortgage relief that would supposedly be extracted as part of the settlement. But if mortgage relief is that crucial, why isn’t the administration making a major push to reinvigorate its own Home Affordable Modification Program, which has spent only a small fraction of its money? Or if making that program actually work is hard, why should we believe that any program instituted as part of a mortgage-abuse settlement would work any better?
Sorry, but the case that letting banks off the hook would help the housing market just doesn’t hold together.
What about the argument that getting tough with the banks would threaten the overall economy? Here the question is: What’s holding the economy back?
It’s not the state of the banks. It’s true that fears about bank solvency disrupted financial markets in late 2008 and early 2009. But those markets have long since returned to normal, in large part because everyone now knows that banks will be bailed out if they get in trouble.
The big drag on the economy now is the overhang of household debt, largely created by the $5.6 trillion in mortgage debt that households took on during the bubble years. Serious mortgage relief could make a dent in that problem; a $30 billion settlement from the banks, even if it proved more effective than the government’s modification program, would not.
So when officials tell you that we must rush to settle with the banks for the sake of the economy, don’t believe them. We should do this right, and hold bankers accountable for their actions.
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