Obama's Recession Fix Fits Economists' Models

Discussion in 'Politics' started by sargon20, Jan 31, 2009.

  1. sargon20

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    Well it seems the charlatans at LPSG are just that. Not really surprising really. They've been wrong about everything else.

    [SIZE=+2]Obama's Recession Fix Fits Economists' Models[/SIZE]
    [SIZE=-1]By Jane Bryant Quinn
    Sunday, February 1, 2009; F01[/SIZE]
    [SIZE=-1]
    [/SIZE]In the fight over the stimulus plan, Republicans are demanding more tax cuts as the best way of lifting the economy fast. "We can't borrow and spend our way to prosperity," said House Minority Leader John A. Boehner (R-Ohio).

    Well, maybe we can -- or at least begin. In a crisis, government spending has to be the first responder, with tax cuts coming up behind.


    Allen Sinai, chief global economist and president of Decision Economics, a New York-based research and forecasting firm, recently ran various types of government actions through his respected macroeconomic model of the United States. He discovered some surprising things.

    First, even a very large stimulus doesn't help the economy a lot. The negative forces are too strong -- centered on the credit collapse and the collapse in consumer spending. Government will lean against this stunning downturn but can't make up for the massive loss of private demand.

    Furthermore, the larger the budget deficit, from tax cuts and spending, the bigger the bounce in expected future inflation and long-term interest rates.

    That will take the edge off future growth.

    Sinai forecasts a stimulus-based gain in gross domestic product of perhaps 2 percentage points in the first year and 1 point in the following year compared with where we'd be otherwise. A turn could come as early as summer.

    Without a significant stimulus, he'd expect the recession to last into March 2010.

    More pessimistic economists expect it to last that long anyway. The ugliest months lie directly ahead.

    The best way to boost the economy fast, the model shows, is to increase federal spending on goods and services -- things like cars, office space, military equipment and construction. Unemployment drops quickly and GDP jumps. The second-best GDP driver is direct aid to states and cities, to keep current projects going and start new ones.

    In both cases, though, the impact on economic growth tapers off after a couple of years. To keep the economy rising, the moribund private sector has to ignite.

    For that, Barack Obama's program is counting on individual tax credits.

    Temporary tax credits and rebates affect the economy more slowly than government spending. Consumers don't spend the whole check at once and may use part of it to build up savings. But the money gradually helps revive private-sector demand.

    Permanent tax cuts, for businesses and individuals, take effect even more slowly, Sinai's model shows. On the plus side, they have a longer-lasting, positive impact on GDP and jobs. On the negative side, the long-term deficit grows much larger than it would with temporary cuts. There's a similar result for a permanent increase in transfer payments such as food stamps.

    So President Obama appears to have it about right: Government spending, including state and local, for a quick fix; temporary tax reductions to help households pay down debt and, eventually, spend the money to strengthen the private sector; and no permanent tax cuts that would stick us with even worse deficits than are projected now.

    Sen. John McCain (R-Ariz.), an opponent of the Obama plan, raised the deficit issue last week -- although only in the context of spending, not of tax cuts. "We need to have a commitment that, after a couple of quarters of GDP growth, we will embark on a path to reduce spending to get our budget in balance," he said.

    Shades of 1937. In that year, the economy was improving and Roosevelt -- on the advice of his bankers -- turned conservative. He cut government spending, raised bank reserves and increased interest rates. It was a disaster. The U.S. plunged into a second recession.

    In February 1938, the economist John Maynard Keynes wrote FDR a reproving letter, saying he'd fallen into an "error of optimism." Cleaning up insolvencies and establishing easy money was a precondition for recovery but not recovery itself, Keynes wrote. Government-aided investments, in "housing, public utilities and transport," should have continued, he wrote, until it was clear that private demand had grown strong enough to carry the recovery up.

    Currently, we're enduring the worst recession, for depth and duration, since the 1930s and the broadest global recession since 1948. We don't want to repeat FDR's mistake. By embedding longer-term infrastructure programs in the stimulus package, Obama's plan provides continuing support for GDP and jobs.

    At the moment, expectations are rising that the aggressive, year-long drop in interest rates, plus the fiscal stimulus, will produce results in 2009 rather than 2010. The weekly leading indicators compiled by the Economic Cycle Research Institute stopped falling in December and rose a bit through early January, although not by enough to call a turn in the economy, says ECRI managing director, Lakshman Achuthan.

    "My fantasy," Achuthan said, "is that the stimulus coincides with the natural forces that will turn the business cycle up." Such a recovery could be strong enough to create the jobs needed to stabilize housing prices. Nothing in the data, however, predicts this yet. When the cycle does turn, Achuthan would favor investments in commodities, Treasury Inflation-Protected Securities and other inflation hedges.

    Sinai expects higher corporate earnings by year-end, based on the size of the write-offs and cuts in labor costs he's seeing now. "People in safe financial positions might think about deploying some money in stocks," he said. "There could be a bear market rally, with some chance of starting the next bull market."

    The next challenge will be the shocking government debt and deficits that are shaping up. But first, the policymakers have to get the economy moving again.

    Jane Bryant Quinn, author of "Smart and Simple Financial Strategies for Busy People," is a Bloomberg News columnist. Alexis Leondis contributed to this column.
     
    #1 sargon20, Jan 31, 2009
    Last edited: Jan 31, 2009
  2. B_Nick4444

    B_Nick4444 New Member

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    not to rain on your parade, but none of the extant programs, when fed with the economic data from just before the 1929 crash have ever been able to forecast that occurrence

    and, I have read other articles and opinions that are not as rosy as the one you quote

    but, the characterization by some of the current recession as being comparable to the great depression had me wondering -- how did we get out of that one?

    FDR's intervention, then World War II's restructuring of the economic factors

    interesting, too, that the 1930's were called the "pink decade" as Americans, cynical about our governmental leaders, and disenchanted with capitalism, flirted with different versions of socialism

    I will have to review that era of our economic history, and extrapolate onto our current structures

    thought-provoking post
     
  3. Elmer Gantry

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    He also makes no mention of the existing inflations future effects on the USD.

    The author of the artice also falls into the trap of ignoring the level of defecit heading into the down turn in both cases and the level of household debt, both of which are far greater this time.
     
  4. Guy-jin

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    Garble garble garble LPSG members clearly know more than professionals who do this for a living garble garble garble.
     
  5. B_starinvestor

    B_starinvestor New Member

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    Interesting you would imply that posters here aren't qualified to discuss certain political issues. Particularly after you have pronounced the foreign policy expertise of President Obama in another thread. Surely, you are somehow qualified to endorse/approve of foreign policy initiatives.

    Garble garble.
     
  6. sargon20

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    Exactly. And they are in complete denial how we got here. Absolute denial. High school economists or even better Faux News economists.
     
  7. ZOS23xy

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    And it seems no one wants to wait for real results or failures. I dunno why, but all the right wingers seem to want to do is trash the current President.
     
  8. B_Nick4444

    B_Nick4444 New Member

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    Bush Hatred and Obama Euphoria Are Two Sides of the Same Coin




    By PETER BERKOWITZ

    Now that George W. Bush has left the harsh glare of the White House and Barack Obama has settled into the highest office in the land, it might be reasonable to suppose that Bush hatred and Obama euphoria will begin to subside. Unfortunately, there is good reason to doubt that the common sources that have nourished these dangerous political passions will soon lose their potency.
    At first glance, Bush hatred and Obama euphoria could not be more different. Hatred of Mr. Bush went well beyond the partisan broadsides typical of democratic politics. For years it disfigured its victims with open, indeed proud, loathing for the very manner in which Mr. Bush walked and talked. It compelled them to denounce the president and his policies as not merely foolish or wrong or contrary to the national interest, but as anathema to everything that made America great.
    In contrast, the euphoria surrounding Mr. Obama's run for president conferred upon the candidate immunity from criticism despite his newness to national politics and lack of executive experience, and regardless of how empty his calls for change. At the same time, it inspired those in its grips, repeatedly bringing them tears of joy throughout the long election season. With Mr. Obama's victory in November and his inauguration last week, it suffused them with a sense that not only had the promise of America at last been redeemed but that the world could now be transfigured.
    In fact, Bush hatred and Obama euphoria -- which tend to reveal more about those who feel them than the men at which they are directed -- are opposite sides of the same coin. Both represent the triumph of passion over reason. Both are intolerant of dissent. Those wallowing in Bush hatred and those reveling in Obama euphoria frequently regard those who do not share their passion as contemptible and beyond the reach of civilized discussion. Bush hatred and Obama euphoria typically coexist in the same soul. And it is disproportionately members of the intellectual and political class in whose souls they flourish.
    To be sure, democratic debate has always been a messy affair in which passion threatens to overwhelm reason. So long as citizens remain free and endowed with a diversity of interests and talents, it will remain so.
    In October 1787, amid economic crisis and widespread fears about the new nation's ability to defend itself, Alexander Hamilton, in the first installment of what was to become the Federalist Papers,surveyed the formidable obstacles to giving the newly crafted Constitution a fair hearing. Some would oppose it, Hamilton observed, out of fear that ratification would diminish their wealth and power. Others would reject it because they hoped to profit from the political disarray that would ensue. The opposition of still others was rooted in "the honest errors of minds led astray by preconceived jealousies and fears."
    Indeed, the best of men, Hamilton acknowledged, were themselves all-too-vulnerable to forming ill-considered political opinions: "So numerous indeed and so powerful are the causes, which serve to give a false bias to the judgment, that we upon many occasions, see wise and good men on the wrong as well as on the right side of questions, of the first magnitude to society."
    In surveying the impediments to bringing reason to bear in politics, it was not Hamilton's aim to encourage despair over democracy's prospects but to refine political expectations. "This circumstance, if duly attended to," he counseled, "would furnish a lesson of moderation to those, who are ever so much persuaded of their being in the right, in any controversy."
    As Hamilton would have supposed, the susceptibility of political judgment to corruption by interest and ambition is as operative in our time as it was in his. What has changed is that those who, by virtue of their education and professional training, would have once been the first to grasp Hamilton's lesson of moderation are today the leading fomenters of immoderation.
    Bush hatred and Obama euphoria are particularly toxic because they thrive in and have been promoted by the news media, whose professional responsibility, it has long been thought, is to gather the facts and analyze their significance, and by the academy, whose scholarly training, it is commonly assumed, reflects an aptitude for and dedication to systematic study and impartial inquiry.
    From the avalanche of vehement and ignorant attacks on Bush v. Gore and the oft-made and oft-refuted allegation that the Bush administration lied about WMD in Iraq, to the remarkable lack of interest in Mr. Obama's career in Illinois politics and the determined indifference to his wrongness about the surge, wide swaths of the media and the academy have concentrated on stoking passions rather than appealing to reason.
    Some will speculate that the outbreak of hatred and euphoria in our politics is the result of the transformation of left-liberalism into a religion, its promulgation as dogma by our universities, and students' absorption of their professors' lesson of immoderation. This is unfair to religion.
    At least it's unfair to those forms of biblical faith that teach that God's ways are hidden and mysterious, that all human beings are both deserving of respect and inherently flawed, and that it is idolatry to invest things of this world -- certainly the goods that can be achieved through politics -- with absolute value. Through these teachings, biblical faith encourages skepticism about grand claims to moral and political authority and an appreciation of the limits of one's knowledge, both of which well serve liberal democracy.
    In contrast, by assembling and maintaining faculties that think alike about politics and think alike that the university curriculum must instill correct political opinions, our universities cultivate intellectual conformity and discourage the exercise of reason in public life. It is not that our universities invest the fundamental principles of liberalism with religious meaning -- after all the Declaration of Independence identifies a religious root of our freedom and equality. Rather, they infuse a certain progressive interpretation of our freedom and equality with sacred significance, zealously requiring not only outward obedience to its policy dictates but inner persuasion of the heart and mind. This transforms dissenters into apostates or heretics, and leaders into redeemers.
    Consequently, though Bush hatred may weaken as the 43rd president minds his business back home in Texas, and while Obama euphoria may fade as the 44th president is compelled to immerse himself in the daunting ambiguities of power, our universities will continue to educate students to believe that hatred and euphoria reflect political wisdom. Urgent though the problem is, not even the efficient and responsible spending of a $1 trillion stimulus package would begin to address it.
    Mr. Berkowitz is a senior fellow at Stanford University's Hoover Institution.
     
  9. B_Nick4444

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    FDR's policies prolonged Depression by 7 years, UCLA economists calculate

    By Meg Sullivan
    | 8/10/2004 12:23:12 PM

    Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.
    After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.
    "Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."
    In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.
    "President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."
    Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.
    In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.
    Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.
    "High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."
    The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.
    Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.
    Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.
    "This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"
    NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.
    "Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."
    Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.
    The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.
    NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.
    Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.
    "The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."
    -UCLA-
     
  10. B_VinylBoy

    B_VinylBoy New Member

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    EXACTLY!!!
    Already complaining about failures only a few weeks into his presidency. At least the man is actually getting his hands dirty early. Unlike Bush II, Bush I or even Reagan. There's no way to predict how any of these new policies & ideas will impact our country in 6 months, 1 year or even 4 years from now.

    The fact that most right wingers on this board are still using the same cracked, crystal balls that predicted Palin would be a plus to the Republican Party back during the Election isn't helping.

    Let the man do his job. Jeez!!!
     
  11. sargon20

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    Just so EVERYONE knows the Hoover Institute is a neo-con Think Tank where very little thinking goes on and very much lets get the poor to vote rich thinking goes on. A number of Hoover Institution fellows had connections to or held positions in the Bush administration and other Republican administrations. So in other words they and their kind are responsible for HOW we got here in the first place and all their opinions are highly suspect if not completely debunked.
     
  12. mindseye

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    Sargon's taken issue with the Berkowitz article. For the time being, I'd like to dissect the Meg Sullivan article. Here's a link to the original article.

    The revealing tell is buried about half-way down the article (emphasis is mine):
    Let's recap: FDR promised businesses immunity (the 'carrot' in this case, from antitrust prosecution), and the carrot was so enticing that within a year so many companies had signed on board that 80% of the non-agricultural workforce was affected. This single piece of legislation accounted for 60 percent of the weak recovery, they say, and prolonged the Depression by seven years.

    The complete text of the NIRA is available here. In 1935, less than two years after the law was signed, the Supreme Court struck down Section 3 (the 'stick').

    75 years since NIRA, it's now more often the Republican party seeking to grant immunity to businesses (2008 case: Bush administration sought and received immunity for telecommunications companies in exchange for their assistance in illegal wiretapping. In one of Barack Obama's most shameful moments as a US Senator, he voted for this immunity after having previously promised to fight it.)

    Furthermore, the provisions of NIRA having been found unconstitutional, there are no similar provisions in the current economic stimulus package, and therefore the findings in the article can't be directly applied to current economic recovery plans.
     
  13. Guy-jin

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    Who said anything about endorsing/approving?

    The people in this thread were directly saying that the author of the article didn't know as much as them.

    That's nothing like anything I've ever said.

    But please, find a quote that shows me saying that. Go ahead, I'll wait.

    Can I start calling you "Conservabot" and telling you to march to the "right" now? Because that seems to be the language you speak.
     
  14. ZOS23xy

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    I kind of like the word "Conservatardabot".
     
  15. sargon20

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    The silence is deafening from the pro-business crowd that believes everything business wants is good for America. How what is good for CEO's and shareholders is defacto good for society is indefensible. The goals are at times complementary but often times not and in farely big ways.
     
  16. 3664shaken

    3664shaken New Member

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    This doesn't even make sense, since it was the Bush administration who and the Republicans that were warning of the impending doom.

    The Genesis of this problem lies at the footsteps of the Clinton administration, Franks and Dodd.

    PS I didn't vote for Bush, but let's not mix political ideology with hard core facts.
     
  17. Guy-jin

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    I think you meant Reagan administration.

    Talk about revisionist history. The Reaganites are the worst.
     
  18. mindseye

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    Franks? What did he have to do with it?

    You can't talk about "hard core facts" until you've learned them first.
     
  19. 3664shaken

    3664shaken New Member

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    Not at all Reagan had nothing to do with current mess.

    It appears that you are a strong ideolgue, unless you can drop your dogmas then there can be no debate.
     
  20. 3664shaken

    3664shaken New Member

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    LOL

    Try Braney Frank - DUH :eek:
     
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