A Cuppla Tings

["Mad" Miles]

Dear Waccies:

https://www.dissidentvoice.org/2009/02/the-economic-outlook-2012-and-beyond/

https://www.huffingtonpost.com/george-lakoff/the-obama-code_b_169580.html

Aproveche!

"Mad" Miles

[Zeno Swijtink]

Jeffrey Sachs is director of The Earth Institute at Columbia University.

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The Economic Need for Stable Policies, Not a Stimulus [Scientific American Magazine - February 24, 2009)
An exaggerated swing toward economic stimulus will only delay the return of sustainable prosperity
By Jeffrey D. Sachs

The U.S. political-economic system gives evidence of a phenomenon known as “instrument instability.” Policy makers at the Federal Reserve and the White House are attempting to use highly imperfect monetary and fiscal policies to stabilize the national economy. The result, however, has been ever-more desperate swings in economic policies in the attempt to prevent recessions that cannot be fully eliminated.

President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years. Our recovery will be faster if short-term policies are put within a medium-term framework in which the budget credibly comes back to balance and interest rates come back to moderate sustainable levels.

Looking back to the late 1990s, there is little doubt that unduly large swings in macroeconomic policies have been a major contributor to our current crisis. The lessons of the high inflation of the 1970s had supposedly chastened policy makers against trying to fine-tune the economy. The quest for never-ending full employment had contributed to high inflation in that decade, which required years of economic pain to wring out of the system. Monetary policies thereafter were supposed to be “steady as she goes,” not trying to smooth out every fluctuation and business cycle in the economy.

During the decade from 1995 to 2005, then-Federal Reserve chairman Alan Greenspan over-reacted to several shocks to the economy. When financial turbulence hit in 1997 and 1998—the Asian crisis, the Russian ruble collapse and the failure of Long-Term Capital Management—the Fed increased liquidity and accidentally helped to set off the dot-com bubble. The Fed eased further in 1999 in anticipation of the Y2K computer threat, which of course proved to be a false alarm. When the Fed subsequently tightened credit in 2000 and the dot-com bubble burst, the Fed quickly turned around and lowered interest rates again. The liquidity expansion was greatly amplified following 9/11, when the Fed put interest rates down to 1 percent and thereby helped to set off the housing bubble, which has now collapsed.

We need to avoid reckless short-term swings in policy. Massive deficits and zero interest rates might temporarily perk up spending but at the risk of a collapsing currency, loss of confidence in the government and growing anxieties about the government’s ability to pay its debts. That outcome could frustrate rather than speed the recovery of private consumption and investment. Deficit spending in a recession makes sense, but the deficits should remain limited (less than 5 percent of GNP) and our interest rates should be kept far enough above zero to avoid wild future swings.

We should also avoid further gutting the government’s revenues with more rounds of tax cuts. Tax revenues are already too low to cover the government’s bills, especially when we take into account the unmet and growing needs for outlays on health, education, state and local government, clean energy and infrastructure. We will in fact need a trajectory of rising tax revenues to balance the budget within a few years.

Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared! Panics end badly, even panics of policy; more moderate policies will be safer in the medium term.

There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort. Moreover, the Gold Standard of the 1930s, which we long ago abandoned, acted like a kind of straightjacket on monetary policies.

In short, although the sharp downturn will unavoidably last another year or even two, we will not need zero interest rates and mega-deficits to avoid a depression or even to bring about a recovery. In fact, the long-term, sustainable recovery will be accelerated by a policy framework in which the budget credibly returns to balance over several years, the government meets its critical responsibilities in social services, infrastructure and regulation, and the Fed avoids dangerous swings in interest rates that actually contribute to the booms and busts we seek to avoid.

Editor's Note: This story was originally published with the title "The Need for Stable Policies"

[PeriodThree]

With respect, I _think_ that Sachs makes a number of good points, but he also makes several assertions which I think are untrue and which I don't want to leave unchallenged.



-"An exaggerated swing toward economic stimulus will only delay the return of sustainable prosperity"

We have _no_ monetary policy tools. If the government is to respond to this economic situation the _only_ tool we have is fiscal policy, ie, 'economic stimulus.'

-Policy makers at the Federal Reserve and the White House are attempting to use highly imperfect monetary and fiscal policies to stabilize the national economy.

This is, to me, a misstatement of the situation. The Fed long ago (in relative terms :-) lost all monetary policy tools. Fed interest rates are so close to 0 as to be irrelevant. The goal now is not to 'stabilize' but to keep the national economy from falling totally into the toilet.

I believe that in using the word 'stabilize' Sachs is _deeply_ understating the problems which we are in.

-The result, however, has been ever-more desperate swings in economic policies in the attempt to prevent recessions that cannot be fully eliminated.

I assert that this is a flat out mistatement of history. Which economic policies have been 'ever more desperate?'

-President Barack Obama’s economic team is now calling for an unprecedented stimulus of large budget deficits and zero interest rates to counteract the recession. These policies may work in the short term but they threaten to produce still greater crises within a few years. Our recovery will be faster if short-term policies are put within a medium-term framework in which the budget credibly comes back to balance and interest rates come back to moderate sustainable levels.

This statement has near to zero meaning. Seriously, read it. Reread it. He is making (if you have a passing understanding of _any_ economic theory) specifically contradictory claims.



-The Fed eased further in 1999 in anticipation of the Y2K computer threat, which of course proved to be a false alarm.

Sachs is almost certainly smarter than me, but with respect, and speaking as someone who spent a fair amount of time actually looking at code and finding Y2K vulnerabilities, in this case Sachs is simpy wrong.

Y2K did not 'of course' prove to be a false alarm. Y2K was a very real threat which, like most of our very real threats, was dealt with by clever people working hard and the infusion of capital to support the efforts of clever people. The Fed easing in 1999 helped in providing the infusion of capital which clever people used being, well, clever.

-We will in fact need a trajectory of rising tax revenues to balance the budget within a few years.

Okay, I am offically 'not amused' with Sachs. We _don't need to balance the budget_ 'within a few years.' To attempt to balance the budget at this point would put us into a global depression.

I am deeply confused by Sach's writing. He alternates between economic schools and theories in contradictory ways - 'let's spend money' (Keynsian fiscal policy), but then, balance the budget 'within a few years' (during an extreme recession).




-We should understand that the Great Depression itself resulted from a horrendous run on the U.S. banking system in an era without deposit insurance, and when the Fed and Congress did not understand the critical role of a lender of last resort.

I don't agree with his view of the causes of the Great Depression.

In short, although the sharp downturn will unavoidably last another year or even two, we will not need zero interest rates and mega-deficits to avoid a depression or even to bring about a recovery.

-In fact, the long-term, sustainable recovery will be accelerated by a policy framework in which the budget credibly returns to balance over several years, the government meets its critical responsibilities in social services, infrastructure and regulation, and the Fed avoids dangerous swings in interest rates that actually contribute to the booms and busts we seek to avoid.

Huh? What dangerous swings in interest rates is he talking about? What world is he living in where it is even conceivable that we could return to a balanced budget 'over several years?' Obama fantasizes he can cut the deficit _in half_ in four years.