Sunday, September 5, 2010

A couple of interesting posts about the economy ...

Two interesting posts about the economy in recent days.
First this, from the Atlantic via Yahoo: ["5 Doomsday Scenarios for the U.S. Economy"].
If the pessimists are right, things are going to get pretty crazy. I still don't understand why the government can't just take the houses over from the banks put people in them. Stop selling stuff to rich people at bottom dollar and start putting people in homes.
Then, there is this:
You, the American consumer, are reloading savings after a debt-fueled decade. But as any general will tell you, when an entire squad reloads at once, it leaves everybody vulnerable. It's the same with the economy.
Well, that's true. But that would make the case for lower taxes - not higher ones - so that whatever consumer spending there is out there doesn't become depressed. If anything, government should become less expensive, so it is less expensive to pay for, so taxes can be lowered so more people can spend money, etc. Expensive government doesn't do anything but take the money out of the private sector economy or create more debt.
Then, there is the European debt bomb:
In a flight to quality debt, the dollar appreciates. This hurts our exports even more. As the trade deficit gapes open and manufacturing's good run dead ends, the stock market plummets, taking household wealth down with it. Families looking to restore balance sheets cut back on spending, and the American producer loses the American consumer and the European buyer. Growth turns negative.
Ahhh, but not if there are American producers producing goods for American consumers. Exports hurting is not a problem if imports are hurting. That is the key. For decades, it has been "exports hurting, imports booming," and that's a good chunk of the reason we are in this mess. And, if you don't have anything in the stock market, you don't really have to worry about "household wealth" plummeting. Most folks, hello?, don't have any wealth. But, are we able to buy a little extra at the store each week for food, clothing, school supplies, etc.?

Another good post about the economy is this one, specifically targeting Paul Krugman and how he is wrong on so many levels: ["New Job Opportunity - Spitting at the Moon"].
Regular readers know I'm not the biggest fan of Krugman's (or Keysnesian economics either). Anyone who says, 'Yeah, undocumented workers depress American worker wages but that's OK,' paraphrasing, is a complete idiot. I don't completely agree with Mike either, but I like some of the things in this post, especially when it comes to debt and stimulus spending. Spit at the Moon, indeed.
Mike's key points to propping up the economy? Creating "genuine demand":
What will get the economy humming is better tax policy, scrapping Davis-Bacon, dumping public union workers wherever possible, slashing defense spending, and letting home prices bottom.
Real demand for housing will step up as soon as there are bargains. Instead we have policies to prop up home prices.
Almost exactly correct. Better tax policy is badly needed. Millionaires are getting away with murder while regular folks get creamed. That's always been the case. Better tax policy doesn't mean tweaking what we have, arguing over divisive tax cuts expiring or not, it means just that: Better tax policy. Period. Let's actually have a discussion about scrapping the existing code, simplifying it, and replacing it.
Dumping public union workers wherever possible and the Davis-Bacon Act. Well, I don't completely agree with that but I do agree with some of it. First, let's deal with the pension debt explosion. Scrap the current system and put all government employees on Social Security like the rest of us. Figure out how much SSI money is owed to the system for these employees and pay into that system while slowly refunding pension money back to the employees, so they can get their money back. Second, some tasks and jobs municipal and state government performs should not be paid the prevailing wage (hence Davis-Bacon). Cops should not be making $40 an hour, with a four hour minimum, to drink coffee and stare into holes when flaggers can do that for $10 an hour. Earnings for government workers should reflect a community's ability to pay. That means that in a town where people make $30,000 on average, neither the town manager nor the school superintendent should be making five or six times that (obviously, more affluent towns can decide if they want to pay more or not). Education expenses are a huge problem, noted by the recent federal jobs grant program which was approved to save teaching jobs while not asking the question, Should kindergarten teachers really be making $94,000 a year? There is also the issue of contracts and whether or not teacher pay should be based on the education level a teacher attains or performance of the individual teacher and the results of student achievement (which sometimes has nothing to do with the teacher's actions at all). All very complicated and not easy to fix but right-sizing municipal employee costs needs to happen (especially when considering what property taxes are these days).
The big one on this list though is defense spending. It just doesn't need to be cut, it needs to be slashed down to 20 or 30 percent of what it is now. Stop going into all these foreign countries and killing people for no reason while creating enemies for a thousand years. Enough already, we have debt to pay down and people to feed with that money.
On the home price front, again, correct. Similar to letting the banks collapse after the financial crisis, like any other business, the government should not be propping up home prices in the hopes of creating another boom and creating more construction jobs. Again, retail sales are 70 percent of the economy. The housing sector is a tiny one. And yet, everything is being shoveled at the housing sector. If we want people in homes, the prices of homes and property taxes, needs to drop (like I said before, about right-sizing property taxes). Yes, it's cheaper to buy than to rent sometimes, until you add on the $400, $500, $1,000 per month property tax bill.
There is an article in TIME Magazine this week called "The case against home ownership" which is very interesting. I'm only halfway through it and even if the evidence is overwhelming, I will never agree with what they are saying. But the data is pretty shocking and it should make us all think about jobs and the economy and whether we come together as a nation to try and fix things or continue to yell at each other because we are registered Republicans or registered Democrats or because of our preconceived notions of what should be done.

2 comments: said...

Tony, no one seems to address a simple fact about the US economy - for the past 20 years corporate america has done everything it could to not just ship our jobs overseas, but the capital (i.e., industrial tools and machinery) with which to do those jobs. Consumption is not going to increase because there are no jobs. We sent them all overseas. I've been asking for years who is going to buy all that crap they make in China when no one has a job, and people just laughed or looked blankly at me. The Corporate press and its lapdogs are very quick to blame the problems on the public unions but they aren't making public policy. I don't think there is a solution, but I don't think we've seen the bottom of the so-called "new normal" yet.

Jeremy said...

Why do we still believe that the federal government can plan our economy (you know, central economic planning like the socialist, fascist, and communist countries)? Not only is it not capable, but it's not part of the job description. Maybe we can create more jobs with more regulation and taxes. When are we going to realize that freemarket capitalism hasn't failed, but government planned economics have. This country hasn't had a real free market in 100 years, since the progressive movement brought us the federal income tax and prohibition. Businesses can't plan anything, they don't know what the next regulation, tax policy, health care mandate they will be hit with next. We need to put down the Marx and Keynes and pick up and read Hayek and Von Mises and just possibly the Constitution.