Certainly not what you want when they hinder business activity. Rules and regulations are not necessarily bad as some would point out. After all the breakdown of rules and regulation created a boom which is now followed by a hurtful debacle.
Intervention is exactly what you want when innovation and spending in the right places are needed.
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The author’s “new way of thinking” isn’t new. It’s called network analysis, and it’s been developed for some time.
And as for the FDR circle jerk, seriously, most of FDR’s policies were abysmall failures. The one thing FDR’s government did that really got the economy screaming along was taking the dollar off the gold standard and then debasing the shit out of the currency.
Read The Lords of Finance; excellent book. Very well written and thought out.
The article is dead wrong. There is ample research out there showing that the reason why the recovery is slow or non-existent is due entirely to Big Gov’t of the Obama admin. You can’t fix a spending problem with more spending and you can’t fix a debt crisis with more debt, no matter how good it sounds.
this isn’t a political statement, and believe me when I say that my lil old midwestern self ain’t too librull, and this isn’t an argument for more biz regs or anything. And I have a righteous hangover and I am no master of the blog able to make a point most compelling…
but the simple reality is that our governments debt cannot be viewed as debt in the way that an individual can have debt. it is materially different, and it would probably be more realistic to simply view it as the money supply. our government cannot have a debt problem, cannot become insolvent. It could have a political problem… but it cannot become insolvent. And it has no need to borrow money before it spends it, and in fact it does not operate in that order (borrow, then spend). The issuance of “debt” is not required at all.
and the sum of private savings, gov’t spending, and foreign account balances is zero. as we have a trade deficit, that means if our government does not run a deficit larger than that trade deficit, the private sector cannot save money.
http://pragcap.com/wp-content/uploads/2010/11/sb1.gif
and as Richard Koo has said, I beleive he coined the term, we have a balance sheet related economic slump. interest rate policies for all practical purposes can’t help, because they can only encourage the private sector to take on debt, and if the private sector has too much debt… they don’t borrow more.
for the private sector to save money (reduce this debt) we literally must have government deficits in excess of the trade deficit.
so it is actually more spending that can get us out of the spending related muck in which we find ourselves.
if someone walked in and made me a monetary lord for the moment, I would raise interest rates and I would double the deficit.
Checklist, I agree that it is not unhealthy for gov’ts to run deficits.
You mention that were you monetary lord, you would double the deficit. The fact is that the deficit has tripled over the last couple of years. http://www.thegatewaypundit.com/wp-content/uploads/2011/02/obama-deficit-2011.jpg
Seriously, the gov’t has shoveled money at this problem…they have taken a hard-core Keynesian approach, and it has not resulted in growth or in any lasting improvement. The problem is that the gov’t is simply unable to efficiently allocate resources. A centrally planned economy will always fail because the people in charge are never smart enough, and will never be smart enough to solve an extremely complex problem with hundreds of inputs and thousands of variables.
Increased spending will continue to reward special interests and will pick winners and make losers, and there will be increased regulation to reassure the public that the money is being spent wisely and to ensure that the money is being spent wisely by the recipients.
All of this gov’t spending is a drag on the economy, and the increasing regulation ensures that the drag will exist for years to come.
“(Reuters) – The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.
The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year.
“The president’s economic experts say a 1 percent increase in GDP can create almost 1 million jobs, and that 1 percent is what experts think we are losing because of the debt’s massive drag on our economy,” said Republican Representative Dave Camp, who publicized the report.
He was referring to recent testimony by University of Maryland Professor Carmen Reinhart to the bipartisan fiscal commission, which was created by President Barack Obama to recommend ways to reduce the deficit, which said debt topping 90 percent of GDP could slow economic growth.”
Checklist, understand that when the ratio of debt to GDP is 102%, that we are screwed. There is no way to grow GDP fast enough to keep up with debt service. Borrowing more only increases the debt, and because gov’t is awful at allocating capital, there will be no multiplier effect from more borrowing.
I don’t think they’re looking at the scope of the problem in a global context. For example they repeat the idea “if there is deflation, cut rates, if there is inflation hike rates”. I’m not convinced that works in reality.
While lower rates may stimulate localized borrowing, it also causes an outflow of capital in that particular country.
As rates go up, although it might restrict localized inflation, and limit borrowing, it not only neglects human nature to borrow more and buy more as prices get higher even if interest rates are higher as the expectations for growth increase, but it also neglects the capital inflows that result of people seeking higher interest rates…
further more, interest rates being hiked are exactly as checklist says, it would increase the interest payment due and would force the government to keep spending. Rate hikes are INFLATIONARY in general. It’s just a question of whether the inflation comes in the form of government spending which ultimately will lead the way into businesses hands eventually, or instead based on HOPE that the companies will borrow more because rates are low and THEN actually lend, which isn’t happening as long as Glass Steagle act is in play.
Stocks have always had a tendency to go up as rates went higher along with other speculative markets. Speculation peaks roughly around the time rates peak. you have to consider human psychology. Humans don’t buy low and sell high in regards to the economy. They do not follow what people think is “logical” that spend time writing a book on economics based entirely on theory. Generally, markets trend because people have a herd mentality as is their survivalist nature. People run banks and hedge funds too!
When rates go up, capital comes into the country, and as such banks and government have to keep money going. The banks have a liability on their hand unless they can get higher interest by putting that money to the work (usually via lending it out, however with the “too big to fail” mentality and the repeal of glass steagal act, whether it actually happens is anyone’s guess). The government always spends what it has so if there are more investors in bonds it will exhaust the money it has until it’s all gone, even if the country is such that it is net negative cashflow….
ultimately increasing government spending and taxation while capital is flowing out of the country and real GDP is negative (as shown by shadowstats) only increases the flow from rich americans to the rich foreigners and scares businesses off (the mantra don’t bite the hand that feeds you comes to mind) . Cutting spending doesn’t really help either, so spending needs to be concentrated only on the things which actually will improve REAL GDP in some way. That means to stop thinking war makes economies stronger because that is a myth. I do think spending can increase IF rates are hiked because it is more likely to attract foreign capital. however as of now increasing the debt ceiling will make things worse (how is it a ceiling if it goes up? isn’t it an elevator with a limited amount of floors?).
Most importantly, the big problem is the inconsistancy of policy that drives business away and keeps wealth flowing out of the US…
Derr, I enjoyed reading that. Multiplier effect from WWII spending is estimated to be .80 meaning even war spending does not actually provide growth.
and I can’t fix my gambling problem with more gambling.
You could win more…
Pathetic.