The NYT asked me to give policy advice to our President elect. Here is my piece and here is an excerpt from my very simple argument:
Rebuilding confidence might seem a small matter, but it is not. The
truth is this: America is a wonderful and magnanimous nation when it is
a winner, but Americans are not used to losing and Americans are not
used to panic.Often we respond to negative events badly, so we need to be especially careful when we are in a losing or risky position.
Very
bad events can cause a panic among the citizenry or its leaders, which
translates into subsequent bad decisions. For a classic example of a
negative policy dynamic, look at 9/11. The United States lost 3,000
lives and a great deal of wealth and confidence. The government then
took actions, most of all the Iraq war, which led to even greater
losses.We are in danger of getting stuck in another negative
dynamic, but this time in the realm of economics. We might follow up
the financial crisis with some worse responses and policies.It’s
not just the country’s future that is on the line. Despite the
commonality of anti-American rhetoric, the United States sets the tone
for much of the world.
Addendum: Here are related pieces.
Bravo.
And another addendum would be Stiglitz,
http://www.washingtonpost.com/wp-dyn/content/article/2008/11/06/AR2008110602997.html
Another major problem Obama has to tackle is growing inequality in this country. Some of these trends will take decades to reverse, but ensuring that no Americans are denied a college education because they can’t afford it, providing adequate funding for public primary and secondary schools and so forth would be a good beginning .
A good beginning for another bubble. This one in education.
Oh, wait. Already way too many kids go to college who shouldn’t be there, and now we want to fund more of it. Oh heck yes!
The cost to educate K-12 students continues to rise while test scores aren’t rising. We just haven’t poured enough money into education.
For more, see:
- “America’s Most Overrated Product: the Bachelor’s Degree,” by Marty Nemko, The Chronicle of Higher Education, May 2, 2008
- “Are Too Many People Going to College?” By Charles Murray, The American Magazine, September 8, 2008
- “It may not matter all that much where you go to college,” by Paul Graham, September 2007
- “Is AP Good for Everybody? It’s Debatable,” a debate with Jay Mathews and Patrick Welsh, The Washington Post, April 10, 2005
Heck, anyone who relies on Social Security is a “speculator.”
Or, if you are under 65 or 70, a hopeless optimist.
yeah, i don’t see too much policy advice here.
the question is what should Obama DO to rebuild confidence? “tone” isn’t enough.
today China announced a massive stimulus/infrastructure/investment package. i’d like to see the U.S. do something similar as a first step. Then we need to tackle energy, health care, and education.
I am surprised Tyler you did not mention how to restore trust & confidence. Wharton has some great social science on that.
Bill Clinton was successful because he basically avoided government meddling in the economy.
Not exactly. His wife’s bolshevism with healthcare created the turnover of the legislature to the other party and that stopped him from pursuing other “initiatives”.
The one place where he really, really meddled was by allowing his HUD secretary to aggressively use banks as instruments of social policy, coercing them into lending to higher risk individuals, which expanded the use of “creative underwriting,low down payment, no income verification instruments.
If there’s ever a politically indifferent story of the 90′s written, it’ll be about the productivity gained from the diffusion of IT to the employees. I started working at a large insurer in the late 1980′s as an accountant, performing “suspense” account reconciliations. There were 6 of us us engaged in this task, with a supervisor. When I left that company in the late 1990′s there was one individual using a spreadsheet product (Excel/123) with Macros doing the same job – and it was only a part of his duties.
However, I have to tell you I agree with the poster about the advice being personality driven.
I love this advice: Obama should also consider taxing dividends and capital gains at the same rate as ordinary income: It would reduce the deficit, have few short-term adverse effects on an already reeling economy and make the tax code more fair.
Notice the sneaky caveat “few short-term adverse effects”.
Tyler, not your finest hour, dude. Weak, flabby, and blathery.
Plus, you missed the chance to use the forum provided by the New York Times to push the ideas of Luigi Zingales, who would make an extremely important counterweight to the advice (and biases) or Warren Buffett and Larry Summers on the bank bailout/stabilization issue.
Exactly how does a president “restore confidence”, when his every inclination is
going to be to pursue the redistribution, regulation and intervention?
There was a column a whle back (not here, I think) entitled “just don’t just do something, stand there”.
They’re actually thinking of “allowing” (hmmm) people to trade in their 401k’s to “buy” social security credit. That’ll help (not)
Send him a some Friedman, Hayek, Mises, Schwartz, Shumpeter, Smith and say here, brush up on the important stuff they didn’t teach you in law school….
I like the column although it is indistinct policy-wise. The point is to send clear messages about what is being done, to not make scary pronouncements, and to not take a crisis as a license to fulfill an ideological impulse that isn’t germane to the underlying problem. The comparison to 9/11 is one that occurred to me as well and I think it is apt.
I am encouraged on this front by Obama’s obviously deliberative nature and his seeming pragmatism. I am less encouraged by his rhetoric on the campaign trail, which repeatedly drew an under-argued and seemingly tenuous connection between the crisis and tax cuts for the wealthy.
In other words, it’s the same move as after 9/11 — figuring out how to spin the latest crisis to strengthen the push for whatever policy one had long wanted to push.
“but ensuring that no Americans are denied a college education because they can’t afford it, providing adequate funding for public primary and secondary schools and so forth would be a good beginning” .
“A good beginning for another bubble. This one in education”
I’m sorry but universal collegiate education is lunacy. We may be equal in the eyes of the law, but intellect isn’t equally distributed. IQ is certainly an imperfect measure of aptitude, but there’s a big difference between 110 & 140.
We have spent decades selling the myth that a college education is the be all and end all of life. The bubble is already here. College is oversold. The best example I know is a couple where the wife has a BS in Accounting, and is a CPA, but works as the office manager for her vocational school graduate husband, who has a plumbing business.
What is generally not known is that banks and State Higher Ed Lending Agencies (SHELA’s) have been as busy securitizing student loans as they have mortgages. There’s been no crisis because the bailout package already existed in the form of the federal guarantee and especially the “exceptional performer status”. Generally, when banks make student loans, they are interested in the upfront origination fees (a joke, since there’s no real creditworthiness underwriting). By selling the loans to another party, such as state SHELA-the DOE becomes the Fannie Mae of education lending-they can “unlock” the origination fees which would otherwise have to be recognized over the life of the loan according to FASB 91. In addition, they transfer the risk of default with a loan that has no collateral.
If you are a SHELA, and you obtain U.S. DOE “exception performer” status your defaulted student loans are AUTOMATICALLY assumable by the US DOE. Typical of governmental double-talk, about 90% of all FFELP loans have EP status. EP status was the subject of the below GAO report, and both the GAO & the U.S. DOE agreed it should be eliminated to save money.
http://www.nasfaa.org/publications/2007/lneliminateexceptionalperformer072707.html
http://www.gao.gov/products/GAO-07-1087
When I was involved in one of those EP audits, it was astounding to see the amount of debt kids were assuming without any knowledge of its consequences. There’s a predatory aspect to schools that spend four years inflating egos and instilling the idea that you are a finished product, when you graduate. If you are borrowing $100,000 plus to get a non-technical BS, you are in for a rude awakening. Employers pay for specific value adding skills, not a “liberal education†. Hence the ITT Tech’s are growing.
Education is already heavily subsidized by the government and society. I know why a tenured professor wants the gravy train to keep rolling, but any reasonable disinterested person should be asking if government educational involvement has done nothing more than create a dependent constituency. Yeah, no kidding Universities are dominated by leftists.
Just think of the scope and magnitude of federal and societal financial involvement. There’s the direct grants to the institutions, loans and grants to students, tax-exempt status under Sec 501(c)(3), and the attendant deductability of public donations under Sec 170 of the tax code. In addition there’s unlimited exemption from gift-taxes for payments of another tution. Institutions sit on enormous endowment funds. Many take advantage of federal tax laws ( loopholes?) that allow them to sell Charitable Remainder Trusts. They have a legally protected sports monopoly in the form of the NCAA (or duopoly, if the NAIA still exists and you consider it viable competition). There’s special exemptions (once again, loopholes?) from Unrelated Business Income Tax.
I graduated from that large eastern state university that blew its shot at the college football national championship last night. When I matriculated in 1980, an entire year’s tuition was $1,416. A couple years ago, I compared tuition with that of a new hire who graduated in 2002 or 2003. We calculated that the geometric mean increase over a 20+ year period as 8%, clearly outpacing inflation. For anybody to propose addition explicit or implicit government funding of education is like proposing that obesity be treated with more food purchasing subsidized by the government.
November 09, 2008
Big Spender?
Was Bush a big spender? Did voters penalize Republicans for lack of fiscal discipline?:
Big Spender, by Kevin Drum: National Review editor Rich Lowry addresses the party faithful today about the reason Republicans got trounced so badly this year:
One temptation will be to say that if only Republicans had stayed truer to the faith, especially on fiscal discipline, none of this would have happened. …
Bush … didn’t run as a strict fiscal conservative when he was elected in 2000, and he wasn’t any more profligate in his second term, when he was roundly rejected by the public, than in his first term, when he was on his way to reelection.
Lowry is right, but it’s actually even worse than that. Bush’s big spending ways have been overdramatized by the right, but it’s true that domestic spending went up during his first three years in office. So did earmarks. And his big Medicare bill was passed in 2003. Did conservatives revolt over this? It sure doesn’t look like it. The next year Bush rode a triumphant conservative coalition to reelection and Republicans picked up four seats in the Senate.
Starting in 2004, in fact, Bush got fairly stingy with his domestic budgets. Result: Republicans took a shellacking in 2006, and two years later took yet another shellacking. This is not exactly great evidence for a nationwide rebellion over profligate spending. In fact, you might even conclude that Americans like profligate spending. Conservatives don’t seem to mind it that much either: their rebellion against Bush mostly started after 2005, three years after the 2003 budget was put in place and lower spending was already the order of the day in the Bush White House. …
Bottom line (so to speak): Reining in spending and cutting back earmarks might be good things to do from a conservative perspective. But was it spending and earmarks that turned the American public against the Republican Party? Not a chance. My guess is that the answer is pretty much the obvious one: a combination of policy incompetence, an unpopular war, economic dogma that didn’t even pretend to take middle class wage stagnation seriously, and an increasingly hard-edged social conservatism that turned off Latinos, seculars, and the young. But big spending? Not so much.
Reminds me of Bogus Bush Bashing and Is Bush a Big Spender?.
I think it’s simple. Conservatives do not have answers for today’s problems. We need government intervention on a variety of fronts, and there is strong public support for government action (though there is disagreement on the details). Conservatives have tried, I think unsuccessfully, to blame government intervention in the past for today’s problems. But beyond blaming government policy in the past, what cures do they have to offer? By Ricardian equivalence, fiscal policy cannot work, so no help there. They believe money is neutral, or at least neutral enough to discount it as an effective policy tool, so that rules out monetary policy. They oppose regulation, so unless you beleive that lifting regulations is the answer to our current problems, there isn’t much to offer there either. I’ve heard conservatives say that now is not the time to adhere to strict ideological principles, or that they were wrong about markets ability to self-regulate, things like that, but that doesn’t seem like much of a selling point for their economic philosophy.
Their answer is, for the most part, for the government and policymakers to get out of the way and let the economy heal itself. If you believe that is the right answer, then you should support conservatives. But I think most people have come to the conclusion that lack of regulation and oversight is the problem, not the solution, that watching economy go into a tailspin without doing anything about it on the belief that trying to help will only make things worse is the wrong approach, and that on those occasions when help is finally offered, to argue that the solution is tax cuts that help those at the top rather than help directed at those who need it most does not find much public support. We have tried that approach, and most people understand that it didn’t work (and it didn’t help to seriously mislead people about the ability of those tax cuts to be self-financing). Since conservatives have so little to offer in response to the current economic crisis – they have little to say if they insist on sticking to their ideas about the harm that comes from government intervention – and since past conservative policies have not lived up to the promises made when they were implemented, I don’t think it’s much of a mystery why conservatives are having so much trouble finding an economic message that resonates with the public.
from MARK THOMA’S BLOG ECONOMIST’S VIEW
Its nice for Mark Thoma to dismiss conservatives as not having answers for today’s problems – except that We have SEVEN DECADES of increasing federal intervention. The empirical evidence is that the left has no answers other than “more intervention”.
As Steven Horwitz said in “An Open Letter to my Friends on the Left“:
Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.
Well, can we conclude Mark Thoma is speaking as an ideologue with an Econ degree?
Its simple?
As we sit here debating the credit crisis, its been scarcely noticed that this is the 75th anniversary of the Securities Act of 1933, one of FDR’s crown jewels and we’ve had plenty of subsequent laws. We’re still muddling through Sarbox (remember how that was going to assure the integrity of capital markets)-we know there’s been MASSIVE federal intervention in the securities and housing industries, as well as healthcare and education. All seem to be screwed up to some degree and the left always wants more, more subsidization or regulation. Ideologues like Thoma provide intellectual cover for the megalomaniacs that run for office.
Its nice for Mark Thoma to dismiss conservatives as not having answers for today’s problems – except that We have SEVEN DECADES of increasing federal intervention. The empirical evidence is that the left has no answers other than “more intervention”.
Mark Thoma needs to start searching the Oregon woods for the elusive Sasquatch. He’ll find that before he finds these magic bullets.
Posted by: Phil at Nov 9, 2008 6:44:34 PM
Its nice for Mark Thoma to dismiss conservatives as not having answers for today’s problems – except that We have SEVEN DECADES of increasing federal intervention. The empirical evidence is that the left has no answers other than “more intervention”.
As Steven Horwitz said in “An Open Letter to my Friends on the Left”:
Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.
Posted by: at Nov 9, 2008 6:51:44 PM
WHERE WERE THESE TWO IDIOTS DURING THE DEREGULATION ERA OF THE REAGON ADMIN? OR WHEN GLASS STEAGALL WAS REPEALED. NOT NECESSARILY SAYING THAT DEREG WAS A CAUSE OF THE CURRENT CRISIS, BUT GET YOUR FACTS STRAIGHT. THE LAST TWENTY SOMETHING YEARS WE’VE SEEN CONSERVATIVE ECONOMIC POLICY TRUMP ALL OTHERS, THE LAST EIGHT YEARS SAW A CONSERVATIVE/REPULICAN GOV’T IN CHARGE OF EXECUTIVE, JUDICIAL, LEGISLATIVE BRANCHES, AND THESE TWO ASSWIPES ARE SAYING THAT WE’VE SEEN DECADES OF INCREASING REG? I’M NOT ALL TOO SURE, BUT MY OPINION IS THAT AS LIFE GETS MORE COMPLEX, GLOBALIZED, AND TIME PASSES REG HAS TO INCREASE FOR ANY GIVEN COUNTRY. AND THAT’S WHAT THESE IDIOTS MIGHT BE OBSERVING: A KIND OF NATURAL RATE OF GOV’T REG. BUT THAT’S NO REASON TO EMPHASIZE THAT WE’VE SEEN DECADES OF REG INCREASES AND BLAMING FREE MARKET FAILURE ON THOSE REGS OR EVEN IMPLYING THAT REG IS INEFFECTIVE.
Sammy wrote: (all caps-the internets version of writing in crayon)
“WHERE WERE THESE TWO IDIOTS DURING THE DEREGULATION ERA OF THE REAGON
ADMIN? OR WHEN GLASS STEAGALL WAS REPEALED. NOT NECESSARILY SAYING THAT
DEREG WAS A CAUSE OF THE CURRENT CRISIS, BUT GET YOUR FACTS STRAIGHT.
THE LAST TWENTY SOMETHING YEARS WE’VE SEEN CONSERVATIVE ECONOMIC POLICY
TRUMP ALL OTHERS, THE LAST EIGHT YEARS SAW A CONSERVATIVE/REPULICAN
GOV’T IN CHARGE OF EXECUTIVE, JUDICIAL, LEGISLATIVE BRANCHES, AND
THESE TWO ASSWIPES ARE SAYING THAT WE’VE SEEN DECADES OF INCREASING
REG? I’M NOT ALL TOO SURE, BUT MY OPINION IS THAT AS LIFE GETS MORE
COMPLEX, GLOBALIZED, AND TIME PASSES REG HAS TO INCREASE FOR ANY
GIVEN COUNTRY. AND THAT’S WHAT THESE IDIOTS MIGHT BE OBSERVING:
A KIND OF NATURAL RATE OF GOV’T REG. BUT THAT’S NO REASON TO EMPHASIZE
THAT WE’VE SEEN DECADES OF REG INCREASES AND BLAMING FREE MARKET
FAILURE ON THOSE REGS OR EVEN IMPLYING THAT REG IS INEFFECTIVE.”
Its amazing how much you can betray your own credibility by using
a word like “asswipe† and showing that your intellectual formation
never developed beyond “Beavis and Butthead† .
Hey but yes, lets bring back Glass-Steagall, and its
attendant inefficient ridiculous rules like Reg. Q, which allowed
the government restrict the amount of interest paid on deposits-so
when conditions required, banks offered “gifts† like toasters,
gift certificates, which are economically inefficient. Brilliant!
Oh and then there was that little stupid provision about not being
allowed to pay interest on demand deposit accounts (aka checking),
which would be utterly futile in an age of electronic banking,
even if it hadn’t been rendered ineffective by the invention of
“Negotiable Orders of Withdrawal† NOW accounts .
Yes, lets have rules that inane geographic restrictions on banks, which
would disallow the orderly disposal of insolvent institutions, through
assumption by other organizations
You think the judiciary is conservative? Are you on drugs?
Finally, Yes we have seen seven decades of increasing regulation-these
are just 20 of the big signature laws that apply directly or indirectly
to Securities and Banking-not the reams of regulations issued by the
SEC, OCC, FDIC, Federal Reserve, Dept of Labor etc†¦
(I gathered this five minutes, wonder else I’d have thought of in a hour)
1. The Securities Act of 1933
2. The Securities Exchange Act of 1934
3. The Public Utility Holding Company Act of 1935
4. The Trust Indenture Act of 1939
5. The Investment Company Act of 1940
6. The Investment Advisers Act of 1940
7. The Securities Investor Protection Act of 1970
8. Fair Credit Reporting Act (FCRA) 1970
9. Currency and Foreign Transactions Reporting Act 1970
10. Employee Retirement Income Security Act (ERISA) 1974
11. Home Mortgage Disclosure Act (HMDA) of 1975
12. Community Reinvestment Act (CRA) 1977
13. Foreign Corrupt Practices Act of 1977
14. Depository Institutions Deregulation and Monetary Control Act 1980
(despite the name, it increased Federal Control over Banks)
15. Expedited Funds Availability Act (EFA or EFAA) 1987
16. Federal Deposit Insurance Corporation Improvement Act (FDICIA) 1991
17. Truth in Savings Act 1991
18. National Securities Markets Improvement Act 1996
19. Regulation FD 2000
20. The Sarbanes-Oxley Act 2002
Hey but you keep the faith, “asswipe†. Keep clicking your heels
together and repeating “there’s no solution but more government†.
You’re entitled to your opinion, but people who actually think are
entitled to the opinion that your opinion is negligently uninformed
Oh by the way, here’s the SEC’s press release on its record-breaking
enforcement activity for 2008.
http://www.sec.gov/news/press/2008/2008-254.htm
Yeah, we’re really underlegislated and regulated.
Superheater, thanks for the list.
But please, don’t feed the trolls.
Citigroup working with homeowners to forestall foreclosures, even for mortgages they service but don’t own.
http://news.yahoo.com/s/ap/20081111/ap_on_bi_ge/citigroup_homeowner_assistance
Sammy, they don’t pretend to be dispassionate, they strive to be. Shill and Krugman apparently pretend but don’t try. That’s the difference.
If Shiller spent 5 minutes of objective reasoning, he’d see that his idea that Obama and democrats have a mandate for wealth redistribution is rubbish. Democrats have a mandate for competent, limited government, nothing more, nothing less. Good luck.
>The government then took actions…
…which gave us seven years without another terrorist attack. Not good enough for you, eh?
You’ll deny this now, but in September 2001, you never dreamed this was possible.
It’s wonderful that you feel wise enough to dictate which actions were the ones that mattered, and which ones did not. And also that you feel righteous enough to label the ineffective ones essentially evil and/or stupid.
One does not normally see such confidence in anyone other than high-school sophomores.
Welcome to our company which sells all kinds of ro zeny.
Is it realistic?
Very grateful to a bunch of much better skills. I look forward to reading more of the future of the subject. Keep the good work.thanks.
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