Wednesday, January 28, 2009

If only we had kept the extremist right in power...

...we might eventually have achieved our goal of becoming a third world country.

From the New York Times today:

Frederick Hess, an education policy analyst at the American Enterprise Institute, criticized the bill as failing to include mechanisms to encourage districts to bring school budgets in line with property tax revenues, which have plunged with the bursting of the real estate bubble.

"It's like an alcoholic at the end of the night when the bars close, and the solution is to open the bar for another hour," Mr. Hess said.

Yes, spending on education is like spending on alcohol. If only we weren't so addicted to education we might be a dirt poor third world country today.

Saturday, January 17, 2009

The latest disinformation from Mankiw

Greg Mankiw continues his disinformation campaign for the Republican Party with this: "among academics over the last 30 years, the idea of fiscal stimulus has been discredited". If this is true then why do the vast majority of academics appear to support it including some of the fields most respected, like Nobel Prize winners Paul Krugman, Joseph Stiglitz, Robert Solow, Lawrence Klein, and 7 other Nobel Prize winning economists, along with 450 others including many of the top in the field who signed a letter against the 2003 Bush tax cuts stating, "To be effective, a stimulus plan should rely on immediate but temporary spending and tax measures to expand demand, and it should also rely on immediate but temporary incentives for investment."

I don't see how fiscal stimulus can be discredited and supported by most of the fields top economists at the same time.

Saturday, January 10, 2009

There's no excuse for underspending on great high NPV investments

University of Wisconsin Economist Menzie Chinn has an excellent post, "Is the Implementation Lag for Infrastructure Investment a Problem?" He writes:

There's been a lot of discussion about how the lack of "shovel-ready" infrastructure projects puts a constraint on government investment spending as a mode for delivering stimulus, since most infrastructure projects take a long time to plan and build. But what if the negative output gap is going to be deep and long-lived? Is this concern so pertinent? I don't think so...
GDP and CBO's Estimate of Potential GDP, 2000 to 2019. Source: CBO.

Output does not revert to potential until 2014! This suggests to me that concerns about the time lags involved with investment projects are perhaps not as relevant as in the usual business cycle downturn.
Even Martin Feldstein said the shortage of "shovel ready" projects should not be a deterrent in a recession that is likely to last long enough to plan and execute new projects.

So let's stimulate the economy with things that will make us far wealthier over the long run like investment in infrastructure, alternative energy, education, advanced broadband, and basic scientific and medical research, rather than doing it the Republican way of tax cuts predominantly for the wealthy, and then encouraging people to spend frivolously on short term consumption of little or no lasting investment value.

It's far better to stimulate the economy by spending on infrastructure, alternative energy, and education than on new fashions, yachts, and vacations. Spending on those things make us far poorer over the long run than spending on high-return investments of the kind the pure free market will grossly underprovide due to well established in economics pure free market problems like externalities, inability to patent, asymmetric information, free rider problems, etc., etc.

The Republicans talk about not wanting the government spending to be wasteful, but it's hard to find any spending on infrastructure, alternative energy, education, and basic scientific and medical research that's more wasteful than giving tax cuts to be spent on yachts, mansions, $5,000 suits, or other frivolous consumption with little or no investment or lasting value. For more on this see here.

Let's hope Barack Obama cares more about doing great good than looking like Mr. New Age, post-partisan, compromiser. And he should not be too concerned with the political cost of going against this New Age persona he cultivated. Come next election, with how serious things are, people will care far more about how much great good he ended up doing than whether he stubbornly stuck with the la la New Age persona of his campaign. He has the political capital and the majorities in congress to do great good like FDR, who fought rather than excessively compromised with extremist Republicans. Let's hope he uses it.

Monday, January 5, 2009

Again, the importance of what they will actually do

Mark Thoma writes today:

Obama Plan Includes $300 Billion in Tax Cuts "to win over Congressional skeptics worried that he was too focused on government spending." Guess who the skeptics are? "Republicans have begun voicing criticism of what they describe as an open-checkbook approach to spending. By focusing more attention on the tax cuts in the plan, Obama aides hope to frame it as a balanced, pragmatic approach." The centrist urge to compromise may give too much away.

Yeah! We may pay a big price for again putting too much weight on style, the superficial, and personal characteristics, rather than what a politician would actually do. Obama all throughout the campaign showed that he was very concerned with sounding "new-age" and compromising, at the expense of doing far more good. If you greatly compromise with dangerous extremists you end up with something not very good, or very bad -- the half way point between good and extremely bad is very bad (or even worse than that). Hillary showed every indication that, like FDR, she would have fought for something very good, and she would probably have succeeded, like FDR, with such strong public support for something very good and such strong majorities in congress.

When will we ever learn to vote for how much good they are likely to actually do, and not all of these other less important, or vastly less important things. I warned about this early in the campaign, for example here, here, and here.

It's also crucial to note that Obama's compromising is not a good strategy politically. By not greatly compromising with extremist Republicans and instead fighting to get the New Deal, FDR did so much good for the vast majority of Americans, in a way that was so clear and obvious once it was enacted, that it generated massive gratitude and confidence in the Democrats. This allowed them to dominate for 30 years, and forced the Republicans to move far to the left during that period.

The best thing that Obama can do is fight for something truly good, and not largely compromise with extremists who have done such immense harm, unless it's really unavoidable, especially since, with such public support and large Democratic majorities in congress, he clearly can win. For more on this please see here.

As Nobel Prize winning economist Paul Krugman said today:

Look, Republicans are not going to come on board. Make 40% of the package tax cuts, they’ll demand 100%. Then they’ll start the thing about how you can’t cut taxes on people who don’t pay taxes (with only income taxes counting, of course) and demand that the plan focus on the affluent. Then they’ll demand cuts in corporate taxes. And Mitch McConnell is already saying that state and local governments should get loans, not aid — which would undermine that part of the plan, too.

And as Rep. Barney Frank (D-MA) said:

I think he overestimates his ability to take people — particularly our colleagues on the Right — and sort of charm them into being nice. I know he talks about being post-partisan. But I’ve worked frankly with Newt Gingrich, Tom Delay, and the current Republican leadership. …When he talks about being post partisan, having seen these people and knowing what they would do in that situation, I suffer from post partisan depression.

Of course, it's still early; Obama hasn't even taken office yet. Let's hope he fights for the great good that he can achieve, as best as he realistically can. Opportunities like this are all too rare.