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Posts Tagged ‘Recovery’

Optimism, National Pride, and Karl Rove

February 8, 2012 3 comments

I happened to see Karl Rove on TV last night and was a bit astonished to find out he’s actually slamming the Chrysler/Clint Eastwood Superbowl ad, half time in America.

To me, the ad was pretty cool, and the other people at the party liked it too. But Karl Rove doesn’t like it. Here’s John Cohn saying what needs to be said (via Kevin Drum):

I have no idea whether Rove really believes Chrysler produced that ad in order to do President Obama a political favor. But the fact that he and other Republicans are so worked up could mean that they are scared—not of the advertisement itself, but of the themes it contains.

Those themes are optimism and national pride. As Salon’s Joan Walsh noted on the Ed Show Monday evening, Republicans have basically owned those themes since the 1980s, when Ronald Reagan won an election with them. But lately President Obama has been the one making the case that it’s morning in America or, at least, just before dawn. He did it in the State of the Union and he’s done it in a series of major speeches since.

The message wouldn’t resonate if it had no basis in reality. But the latest economic indicators suggest the economy really is starting to grow, albeit slowly and tentatively. And nowhere is that more obvious than in the Midwest and Michigan, where the auto industry’s rebound has helped reduce unemployment to levels not seen since before Obama took office.

This seems right to me. I’ve done a small amount of marketing in my life, and have been exposed to an industry which is heavily involved in marketing. If I think about Karl Rove as the worlds greatest political marketing person, he’s gotta be terrified by this development.

Marketing in politics is a zero sum game. You own an issue, or get owned by it. And if the dems start making progress on national pride and optimism, well that means the R’s are loosing ground on those same core values.

You can go to my word cloud and see how I do on issues like Optimism and Recovery. Someone pointed out these were prominent issues for me.  🙂  I guess I need to throw a bit more national pride in the mix, because I am proud of the U.S.

Mosler started calling for the Obama boom to begin last year, and unfortunately, it was sucked away by the spike in oil prices. We’re starting to see the benefits of higher spending plus lower oil prices over the last few months.

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Aggressive NGDP Targeting gets us Recession levels of Unemployment!

October 18, 2011 6 comments

This recent note by Jan Hatzuis about NGDP targeting shows just how bad monetary policy is at getting unemployment down.  Scott Sumner is cheering this.   So is Matt Y.

If you just check out the charts, you’ll see that NGDP targeting does reduce unemployment.  The unpleasant part is: Unemployment gets down to 6% after years and years of targeting.

Now 6% seems like good days when we are at 9% unemployment.  But for most of the last 30 years, and most of U.S. history, 6% unemployment was recession level unemployment.   The only times we’ve been over 6% unemployment is when times were tough and we needed to get the economy moving.

I don’t know why people think 6% unemployment is a good target.  It’s a horrible level of unemployment that only looks good from the perspective of the aftermath of a gigantic global crisis.

We need fiscal stimulus, not more bank lending.

[Update:  Here is the paper   http://www.scribd.com/doc/69165529/Goldman-Sachs-Recommends-Fed-Boost-the-Economy

and nothing about how they might do this NGDP targeting.  Perhaps more talk? ]

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How much will this Deficit Reduction Deal Increase the Deficit?

August 24, 2011 Comments off

Somebody else should do this math.  I just don’t have the time right now.

But following the logic of this post, reductions in spending when the multiplier is high can actually raise the deficit!

The logic:

  • Govt. spending directly reduces GDP by the spending * multiplier
  • Taxes are a percentage of GDP.
  • Under some conditions – which we probably meet – taxes collected go down by a larger percentage than the reduction in GDP
We’re probably not going to see that big of a deficit increase, but it’s possible the deficit will actually go up instead of down.
Of course, mainstream econ doesn’t recognize the stimulative power of increased deficits to the extent that MMT does.

Still, I am surprised the Brad Delong has not done the math yet.

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Delong Gets on Board – for Coinz!!

August 4, 2011 18 comments

Guess who is next in getting on the “Why not use the Trillion Dollar Coin anyway” bandwagon?

Brad Delong!  Welcome Prof. Delong!

“100,000 of them, worth $10 million each. Billionaires will want to hold some to be cool. Multi-millionaires will want to hold some so that people think that they are billionaires. Use the proceeds to buy back a lot of long-term debt: that’s $1 trillion of quantitative easing by the Treasury right there. And if the Fed sterilizes the duration component, that is a massive money stock increase.

Easy to undertake. Intus vires. Gets headlines. Effective. On a large enough scale to matter…”

Glad I posted that comment on his blog a few days ago.

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Monetary Policy Sucks, Part IV: What do you do during a real estate crash?

August 3, 2011 8 comments

"Buy this house", say monetary policy advocates

Scott Sumner isn’t a bad guy.  He’s a good guy.  He’s smart.  He’s creative.  He’s forceful.  His ideas about NGDP aren’t all wrong.

But someone needs to tell him that monetary policy sucks even during the good times.  It sucks because it uses real estate as the primary vehicle for economic stimulation, which causes all sorts of bad outcomes for our economy.

And someone needs to tell him that right now, monetary policy is particularly bad.  While it sucks even in the good times, right now monetary policy is nearly impotent.

The U.S. real estate market is in the middle what will be a legendary bust.  Real estate prices are going down more than in the great depression.  Nobody wants to borrow money to buy real estate.

But that’s the channel that monetary policy uses.  That’s the part of the economy that monetary policy stimulates.

What monetary policy does is stimulate the economy by inducing people to borrow or not borrow money for real estate deals.  That’s why it works well at all.

So how cheap would money need to be to induce people to buy real estate that’s going down 5% per year?

We can talk about monetary vs. fiscal policy all we want, but until at least one person who is advocating monetary policy identifies the exact group of people who are going to start borrowing enough money to stimulate the economy, why should we bother to respond?

Corporations don’t need to borrow – they are sitting on a record horde of cash (they have more today).   So the only channel left for monetary policy to work is through real estate.

Tell me, advocates of monetary policy, how is this supposed to work?

And why would you want it to work?  There is a good chance real estate will drop another 20% or more in price.  Do you want to saddle more people with houses they cannot sell, and mortgages that are too big?

Update: Parts I, Part II, Part III on why MP sucks.  Note that most of these are too kind to monetary policy in that they assume it actually works!

Business owners say they need more demand

July 26, 2011 Comments off

The Wall Street Journal notices the reason why there is no hiring – there is no demand for more product.

“The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists in a new Wall Street Journal survey.

“There is no demand,” said Paul Ashworth of Capital Economics. “Businesses aren’t confident enough, and the longer this goes on the harder it is to convince them that they should be.”

Holy smokes!  We need more demand.  There has actually been a slew of articles about this exact thing.  I guess the meme is catching on:

Businesses hire when they are swamped with demand, not when they have high profits.

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Credit Card Swipe fee reductions to add significantly to U.S. economy

July 12, 2011 2 comments

If you haven’t heard the news, credit card swipe fees are about to be reduced by the government.  I think these fees are close to being criminal, so any reduction in these fees is good news.

The amounts that will be added back into the economy by this reduction in fees will be rather large.   It will end up being noticable in GDP over the next 20 years.  In fact, we’ll get close to an extra year of growth in the next 20 years just by reducing these fees.

It’s a bold, but provable claim.

The current rate is about $.44 per transaction or $16bn a year in revenue.  Just using simple math, we can figure out how much more money will be injected into the economy by the reduction in fees.

The proposed fees are $.20 from the fed, but they might go down too. The debate isn’t over.  $.12 has also been floated.

At the top is a quick table.  It’s remarkable just how large this boost will be.

My first thought is the impact will be even greater due to where the savings will accrue.  It’s going to go to lower income consumers, and small retail business owners.

Lower income consumers do much of their shopping at Walmart and small retail establishments.

Walmart won’t have as much savings as most business, but their fees will be reduced. Walmart agressivly negotiates all of its contracts, and swipe fees will be part of this.  They are rather cutthroat about passing savings onto consumers, so there will be very slight, but meaningful in aggregate, reductions in costs for Walmart customers.

I don’t expect prices to go down much in smaller retail establishments.  But the owners of these small business just got a decent boost to their profits.  The owners of small retail establishments are not rich – they will increase their spending.  I’d say it’s reasonable to expect mulitpliers on the order of a payroll tax cut for these fees.

If the multiplier is 1.3, we’re going to see close to a .1% increase in GDP due to lower swipe fees.

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