I have a genuine appreciation for all open-minded people - regardless of politics, orientation, religion, etc. - who have a sense of humor and form considered views on matters that are important to them.
Narrow-minded, unfunny people are fine too, although I do kind of feel sorry for them.
Now I both like and respect Robert Reich. He’s a learned man, with an impressive resume and lots of interesting things to say. Also, unlike many people with his experience and credentials, he doesn’t come off as being totally full of himself. So I’m pretty much always prepared to hear him out - and I find that by doing so I frequently come away with some new information or maybe just a perspective on things that I hadn’t previously considered.
In addition, unlike certain other “progressive” or Keynesian economists, he doesn’t try to ignore or sidestep the fact that one way or another the government needs to get the money that it intends to spend. As Peter Schiff is fond of saying, the government doesn’t have any money - and Reich seems to recognize that.
In this case, though, he more or less offers his standard diagnosis and prescription: Since consumers aren’t spending, the only way to get the economy moving is for the government - the “spender of last resort” - to spend more money.
In our current circumstances, however, I am just not convinced that he’s got it right. I know, I know, who the heck am I to say that - but here’s my thinking:
In his excellent commentary in today’s edition of Barron’s, Randall W. Forsyth makes the following points:
As notes long-time Fed watcher Lacy Hunt of Hoisington Investment Management in Austin, Texas, the unintended consequences of [the Fed’s] policies have all but superseded their professed aims. For instance, QE2 - the Fed’s purchase of $600 billion of Treasury securities completed in June - caused the current slowdown instead of giving the economy a boost, he writes in Hoisington’s Quarterly Review and Outlook. Real disposable income was lower in August than in December, in part because of the jump in commodity costs. ‘While rising equity values [aka the stock market] have helped a few consumers, inflation in necessities, such as food and fuel, decimated real incomes for the average family. Thus the emergent cyclical weakness that lies ahead can be directly related to the unintended consequences of quantitative easing,’ Hunt says.
It does seem fairly clear that the Fed’s mandarins, together with people in the Treasury Department and the politically-minded operators within the Presidential administration, have a strong - if not always overtly acknowledged - incentive to pursue short-term policies that goose the stock market, even if they’re harmful to the broader economy.
As Bernanke has pointed out, the market will respond favorably, and almost instantly, to easy money policies or even credible rumors of them. With such a nifty tool for manufacturing a readily measurable and seemingly objective vote of confidence in their favor, it comes as no surprise that politicians (and especially the President, who would seem to be the chief beneficiary) would be pressuring the Fed to use it whenever possible.
Please note, by the way, that my reproduction of the quoted excerpt from Barron’s is intended to be fair use, and not in substitution for the entirety of the article, which I recommend that you read in full. You can find Barron’s online here.
Money-printing, which the Federal Reserve has indulged in with gusto ever since the Great Recession, is what Paul [Brodsky of QB Asset Management] calls “a terribly regressive tax on the working and middle classes.”
Folks with higher incomes and access to credit, he points out, are able to maintain their customary standard of living and continue to shoulder their debts without much discomfort. But lower-wage earners and those with less access to credit, along with the 14 million or 15 million unfortunates who have lost their jobs, are really hurting.
Part of the reason that the Fed (encouraged, aided, abetted, and probably even commanded by the federal government) gets away with devaluing our money is that the process takes effect slowly. From one day to the next, you don’t really notice the difference, but over a period of years (or even months) you begin to realize that you’re paying more for gas, food and heat.
What gives, you ask - we’re told that inflation is at rock-bottom levels? (Although actually, we’re not necessarily being told that anymore - the latest CPI figures definitely show that it’s on the rise.)
The state of the US today reminds me, in some respects, of conversations I had when I was working in Russia shortly after the collapse of the Soviet Union. The one thing I heard time and again from Russians is that certain aspects of the Soviet collapse seemed to happen in very slow motion - it was the sort of thing that you only see clearly when you look at it in retrospect.
These people said that when they were living through it the decline was generally so gradual that for the most part it went largely unnoticed by the average citizen - until at some point you began to find that your money was all but worthless, and that many of the institutions and other features of daily life that you had taken for granted no longer seemed to function.
If people here in the US somehow think that this couldn’t happen to us, I would only say that in my humble opinion I believe them to be mistaken.
Ordinarily, I’d say that this is a healthy development, but my concern is that we’re cutting value-added positions from the public sector (teachers, cops, air traffic controllers, and such like) while maintaining and even expanding a vast array of largely useless bureaucracies.
How many of the people who work in the federal Department of Education actually go into a classroom and teach children every day? How many David Plouffe types are there floating around in the administration, essentially functioning as political campaign managers at the taxpayers’ expense?
Although we should always be questioning the manner in which our elected officials choose to allocate government’s finite resources, it’s during the tough times that their poor and wasteful decisions tend to become most apparent.
I need to watch this again every now and then, just to keep my world-view centered (and to marvel at the grayscale muskrat that so patiently serves as Phil Donahue’s headgear).
I don’t for a moment think that unfettered capitalism is a panacea.
But when we manage to strike the right balance of freedom and regulation it sure beats the heck out of the more nefarious form of social contract where people swap most of their freedom (often involuntarily) for the tenuous economic security offered by a centrally-planned system (which seems, invariably, to involve corrupt and oppressive autocrats - in many cases sporting headgear that’s even sillier than Phil Donahue’s).
A good piece from Bloomberg on the Fed’s move to lengthen the average maturity in its Treasury portfolio, and on the Fed’s increasingly downbeat outlook:
The Fed’s move, known as “Operation Twist” after a similar action in 1961, drew three dissents for the second meeting in a row, as Chairman Ben S. Bernanke struggled to find consensus to help an economy beset by 9.1 percent unemployment and prices that are 3.8 percent higher than a year ago, as measured by the Consumer Price Index.
Frankly, that 3.8% CPI figure comes as just a little bit of a surprise to me. To be sure, I’ve been aware - based on my own experience - that inflation’s been creeping up, but that’s a pretty stark figure.
Oh, and don’t let this one slip past:
The central bank also announced a measure “to help support conditions in the mortgage market” by reinvesting maturing housing debt into mortgage-backed securities instead of Treasuries.
Yep, instead of letting the housing market clear in the natural course, we’ll just keep dicking around trying to manipulate it. We promise a soft landing for everyone, and a chicken in every pot.
The cost of living in the U.S. rose more than forecast in August as consumers paid more for food, energy and housing.
The full story includes details as to August’s increase in CPI and the new numbers on last week’s unexpected increase in applications for unemployment benefits.
Where’s the good news? I really don’t know.
Maybe we console ourselves with the notion that things could always be worse. (Oh, and the European Central Bank is making some new liquidity facilities available for banks, which seems to have cheered up the markets today. Rejoice.)
A majority of Americans don’t believe President Barack Obama’s $447 billion jobs plan will help lower the unemployment rate …
Although I think some elements of the plan could have a small effect at the margin, I think I’m probably with the majority on this one.
My guess is that most people see through Obama’s tactics. He knows perfectly well that Congress is not going to accept his plan lock, stock and barrel. Instead, he’s opted for the cynical approach - using the plan as something to campaign on (at the taxpayer’s expense).
It’s all just David Plouffe ad-man / marketing / “positioning” crap, and as I’ve said many times only the most naive and gullible will take it seriously. Fortunately, for the most part, people are just not that stupid.
But here’s an interesting thought experiment - if you had to come up with a plan, and you had $447 billion to spend, what would you propose?
Bill Gross (the bond fund manager / guru) recently wrote an interesting piece in the Financial Times and appeared on Bloomberg explaining how lower interest rates across the full range of Treasury maturities is not necessarily stimulative.
He says that the Fed’s conditional freeze on rates for at least the next two years leaves the front end of the yield curve inert - and flat. Thus, he explains, banks can no longer fund with short-term debt and lend two years longer at a profit.
Gross says that this not only dampens commercial lending activity by banks, but also affects the way bond funds operate, since many of them have limits on the extent to which they are able to hold longer-dated securities.
In effect, he says, the Fed is lowering the cost of capital but destroying leverage and credit creation in the process.
It’s best to read the whole FT article, since he explains it all rather well. I wanted to post a link to the article and provide a short excerpt, but the FT’s somewhat strict policies on linking and fair use have scared me off (you’re to use their linking tools only, and they don’t appear to have a tool for Tumblr). If you Google “Bill Gross Financial Times” though, you should find it at the top of the results.
Obama’s attempt to run two parallel administrations, pretending he can pursue separate jobs and social agendas as if they were unrelated.
An endlessly bickering, gridlocked Congress.
I think he’s right about this, and I would argue that it’s been clear for a long time that the situation is crying out for genuine leadership. A President with a clear focus (on the economy and jobs, first and foremost) who knows how to work with political opponents and build consensus would be able to manage these circumstances.
It’s true that no one has a silver bullet, but such a person would at least be able to engender some degree of confidence that the federal government is unequivocally committed to economic improvement (which, in my opinion, would be by offering some limited stimulants and incentives but mostly by staying out of the way).
Lots of people seem to suggest that Obama is the first President ever to face strong political opposition in Congress. I don’t agree. Virtually all Presidents have had to contend with it, and most have been better equipped (by experience and just plain old political nous) to build coalitions, foster working relationships that cut across party lines, and generally just get on with all the tedious and boring crap that’s part of governing.
The linked article (Who would win …) is from an independent source and provides at least some basic information about how Obama’s plan might affect various groups. The other links, however, go to propaganda pages sponsored by the Democratic National Committee and Obama’s campaign.
I would suggest that instead of adding your name to some Plouffe / Axelrod list of useful idiots, you educate yourself as to the details of the plan, and if you like or dislike some of it (or even all of it) you write a short note to your representatives in Congress explaining that you’ve actually looked into the matter, that you support or oppose such-and-such aspects of the plan, and saying why you’ve come to that conclusion.
If you get stupid or unsatisfactory responses from your Congressional representatives, then write about them in your blog - post your correspondence and embarrass the shit out of these people.
But my advice (for what it’s worth) is that signing petitions such as these just tells the David Plouffes of the world that you’re a lazy-minded zombie and a peon who can be easily manipulated. Whatever your point of view, be bigger than that. Use your reason and your voice!