Zero job growth

Economists expected SOME job growth in August, but the numbers came in worse than expected:  ZERO job growth in non-farm occupations.

WebMonk alerted me to this, urged me to post it while the information is hot off the wires, and was helpful enough to link to the actual Department of Labor report.  It’s fascinating, though depressing, to read the details.  A sample, but you can read more with the link below.

Nonfarm payroll employment was unchanged (0) in August, and the unemployment rate held at 9.1 percent, the U.S. Bureau of Labor Statistics reported today.

Employment in most major industries changed little over the month. Healthcare continued to add jobs, and a decline in information employment reflected a strike. Government employment continued to trend down, despite the return of workers from a partial government shutdown in Minnesota.

via Employment Situation Summary.

To relate this to the above topic of conversation, this might be evidence that the economy will be so bad that the public will vote for a new president.  But do you think the vast numbers of the unemployed are more likely to vote for a “limited government” message or for a “spend even more to get the economy moving again” message?

Inflation as a solution

Some economists are suggesting that a cure for our economic woes would be for the government to purposefully create inflation.  Robert Samuelson explains:

The idea now is that the Fed would pump money into the economy until inflation — a rise in most prices, not just erratic gasoline prices — reached a desired level of perhaps 4 percent to 6 percent. Harvard economist Kenneth Rogoff admits the policy is “radical.” He supports it only because he sees the main threat to the U.S. and European recoveries as massive “debt overhangs” of private and governmental debt. “People are retrenching because they realize that high debt makes them vulnerable,” he says.

Inflation is one way to reduce debt burdens. As wages and prices rise, the value of existing debt erodes. Consumers, businesses and governments are liberated to spend more freely.

To be sure, higher inflation represents a wealth transfer to debtors (who repay in cheaper dollars) from creditors (who receive cheaper dollars). That’s unfair, Rogoff says, but it may be less unfair and disruptive than outright defaults by overborrowed debtors.

Faster inflation might boost the economy in other ways, too. If people think prices of cars, appliances or homes will be higher next month or next year, they may buy now instead of waiting. Higher inflation may also allow the Federal Reserve to lower effective interest rates. If interest rates stay below inflation — though that’s hardly assured — the resulting cheaper credit should spur borrowing.

All this explains why higher inflation appeals to economists across ideological lines. While Rogoff is slightly right of center, liberal economist and columnist Paul Krugman also favors it. The trouble is this: Inflation is hard to manipulate in precise and predictable doses. Once people become convinced that government will tolerate or encourage it, they adapt in unforeseen ways. We can’t know what would happen now, but we do know what happened in the 1960s and 1970s.

One adaptation was that companies and workers raised wages and prices much faster than expected. Higher interest rates followed. Rates on 10-year Treasury bonds went from 4 percent in 1962 to 8 percent in 1978. The stock market stagnated for nearly two decades. Consumers reacted to greater uncertainty by increasing their savings rates from 8 percent of disposable income in 1962 to 10 percent by 1971. That’s exactly the opposite of today’s goal — more, not less, consumer spending.

There might be other unpleasant surprises. If retail prices rose faster than wages — a good possibility with unemployment at 9.1 percent — higher inflation could act as a drag on the economy by reducing workers’ “real” purchasing power. If investors decided that the Fed had gone soft on inflation, there might be a panicky flight away from the dollar on financial and foreign exchange markets.

Moreover, the power of higher inflation to erode the real valu eof U.S. government debt is limited, because much of that debt is short-term. About 30 percent matures in less than a year; another 25 percent or so matures in less than three years. All this debt will be refinanced. With higher inflation, it would probably be refinanced at higher interest rates that investors would demand as protection against rising prices.

Inflation is not the answer. Remember: The economy’s basic problem is poor confidence spawned by pervasive uncertainties. The Fed shouldn’t make the problem worse by embracing policies that, whatever their theoretical attractions, will create more uncertainties in the real world.

via Inflation is not the answer – The Washington Post.

This is what Christian presidential candidate William Jennings Bryan called for in the 19th century with his famous “Cross of Gold” speech, since inflation would make it easier for farmers to pay their debts over and against the banking interests.  Do you think higher wages and higher prices for everything would be a good way to get the economy moving again?

Tax breaks as ‘Tax expenditures’

A major proposal to address the deficit is to eliminate various tax deductions–such as for home mortgages and charitable (such as church) giving.  Those tax breaks are being interpreted as the same as government spending.  Eliminating them would increase government revenue by billions of dollars, or even, according to some estimates, a trillion.  Glenn Kessler, the Washington Post “Fact Checker,” takes a look at these claims and finds that things are not so simple.  Actually, he shows, cutting out the tax breaks may not raise so much money after all.

His evidence and reasoning resists simple summary, so I urge you to read what he has to say:   Warning to budget mavens: ‘Tax expenditures’ may yield less than expected – The Fact Checker – The Washington Post.

He also mentions a simpler variation that might have a better chance of passage:

One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. Their research suggests that such a cap would raise $278 billion in 2011, and it would encourage 35 million Americans to shift from itemized deductions to the standard deduction, thus simplifying their taxes. It might also be easier to implement than trying to eliminate or scale back some of these popular provisions.

We conservatives hate tax increases, and the notion that the government deigning to let us keep our money is the same as a government expenditure–as if everything we have rightly belongs to the government–is noxious on multiple levels.

And yet, addressing the deficit in a bipartisan plan will almost certainly call for increasing revenues.   Setting aside the question of whether that should be the case, what means of increasing government revenue would you find most, if only minimally, acceptable?  What tradeoffs would you be OK with?

For example, I would want to preserve the housing deduction (since to do otherwise would damage the housing market even more, which is where our economic woes hurt lots of ordinary Americans, as well as contributing to high unemployment).  I would also want to preserve deductions for charitable giving (since churches and other non-profit organizations depend on those).  But to preserve those, I might grudgingly accept a cap on deductions or an increase in other taxes.

HT:  FWS

Libertarian micro-nations

Some libertarian venture-capitalists are planning to build new nations on ocean platforms–they are calling it “seasteading” (get it–from homesteading?)–as libertarian mini-utopias:

[Patri] Friedman [grandson of free market economist Milton Friedman] wants to establish new sovereign nations built on oil-rig-type platforms anchored in international waters—free from the regulation, laws, and moral suasion of any landlocked country. They’d be small city-states at first, although the aim is to have tens of millions of seasteading residents by 2050. Architectural plans for a prototype involve a movable, diesel-powered, 12,000-ton structure with room for 270 residents, with the idea that dozens—perhaps even hundreds—of these could be linked together. Friedman hopes to launch a flotilla of offices off the San Francisco coast next year; full-time settlement, he predicts, will follow in about seven years; and full diplomatic recognition by the United Nations, well, that’ll take some lawyers and time.

“The ultimate goal,” Friedman says, “is to open a frontier for experimenting with new ideas for government.” This translates into the founding of ideologically oriented micro-states on the high seas, a kind of floating petri dish for implementing policies that libertarians, stymied by indifference at the voting booths, have been unable to advance: no welfare, looser building codes, no minimum wage, and few restrictions on weapons.

It’s a vivid, wild-eyed dream—think Burning Man as reimagined by Ayn Rand’s John Galt and steered out to sea by Captain Nemo—but Friedman and [Facebook funder Peter] Thiel, aware of the long and tragicomic history of failed libertarian utopias, believe that entrepreneurial zeal sets this scheme apart. One potential model is something Friedman calls Appletopia: A corporation, such as Apple, “starts a country as a business. The more desirable the country, the more valuable the real estate,” Friedman says. When I ask if this wouldn’t amount to a shareholder dictatorship, he doesn’t flinch. “The way most dictatorships work now, they’re enforced on people who aren’t allowed to leave.” Appletopia, or any seasteading colony, would entail a more benevolent variety of dictatorship, similar to your cell-phone contract: You don’t like it, you leave. Citizenship as free agency, you might say. Or as Ken Howery, one of Thiel’s partners at the Founders Fund, puts it, “It’s almost like there’s a cartel of governments, and this is a way to force governments to compete in a free-market way.”

via The Billionaire King of Techtopia: Critical Eye : Details.

Do you think this would work?  Can a nation really be run like a business to this extent?  Since an oil platform without the oil would have no natural resources, Appletopia would presumably rely on “intellectual” resources for its economy.   Wouldn’t all of the other countries you would depend on for your commodities and your  trade  have laws and regulations that would prevent you from having a completely free economy? And what if a ground-based country decided to send a ship to conquer you?  What would be some other problems with this kind of nation-state?

Would you be willing to emigrate to–or colonize–a country like this?

HT: Joe Carter

A plague on both your houses

Allan Sloan, an editor of Fortune, blames BOTH tea party conservatives AND the Obama administration for bungling our economic crisis:

What the hell is going on? We thought the worst was behind us, but it wasn’t, thanks largely to fallout from the Standard & Poor’s downgrade of U.S. credit brought on us by the incompetence of our alleged national leaders.

Only three short years ago, the world financial system was on the brink of disaster after Lehman Brothers went broke in September 2008. Those scary times seemed to have disappeared in the spring of 2009. But now, things are even scarier.

After the worst sell-off since the financial crisis, traders and passersby react to grim news about the stock markets and the global economy.

Our current mess is different from the Lehman-related horror because it stems primarily from politics, not economics. The previous fear-fest came about because Lehman’s bankruptcy disrupted financial markets in unanticipated ways. Today’s crisis was completely avoidable. You can blame it directly on the fools who brought our country to the brink of defaulting on its debts in the name of saving us from . . . I’m not sure what.

Yes, the tea party types bear primary responsibility — but they couldn’t have done it without the cowardice and incompetence of the Obama administration, which let things get way out of hand. This whole fiasco just enrages me. And it ought to enrage anyone who wants the United States to act like a real country rather than some third-rate failed state run by fanatical factions that hate one another. . . .[He goes on to detail why both sides are at fault.]

Now that I’ve finished venting, let me make one more attempt to be reasonable — and show how relatively easy it would be to solve our problems while allowing both the tea party and the left wing to claim victory and go home. This requires (1) that we survive the 2012 election cycle (boy, that’s going to be a blast) and (2) that the winners recognize that our current federal income tax rules and rates, Social Security benefit formula and Medicare provisions are historical and political accidents rather than holy writ handed down to Moses by the Lord on Mount Sinai.

We need more jobs, more growth and more tax revenue. Note that I said more revenue, not higher rates. There are lots of proposals kicking around that would cut rates, eliminate the alternative minimum tax and broaden the tax base by drastically reducing itemized deductions.

Only about a third of taxpayers, primarily higher-income types, itemize deductions, so only they would be affected. Do this right, and you end up with more tax revenue from high-income people (which allows the “tax the rich” types to be happy) but lower rates (which lets the tea party folks claim victory).

On the entitlement front, we modify Social Security and Medicare formulas, imposing higher costs on higher-end retirees (which would include me, should I ever retire). What’s in it for the right-wing fanatics? Those programs’ projected costs drop. For liberal wing nuts? They can claim victory because people are living longer than when these programs were introduced and will collect more benefits over their lifetime than originally intended.

Yes, rationality is out of style, and fanaticism is the new normal. But do we really want a national life like the one we’ve had the past few years? All shrieking and no thinking?

via This time, the economic crisis is no one’s fault but the government’s – The Washington Post.

What do you think about his solutions?  Tax reform that increases revenue, while lowering rates (pleasing liberals). Entitlement reform (pleasing conservatives).  Is there any way politically to adopt that kind of centrist something-for-both-sides program?

Obama’s new stimulus plan

President Obama will soon propose a new economic stimulus plan, one that will combine tax cuts, lots of new spending, AND deficit reduction:

President Obama has decided to press Congress for a new round of stimulus spending and tax cuts as he seeks to address the great domestic policy quandary of his tenure: how to spur job growth in an age of austerity.

Obama will lay out a series of ideas in a major address right after Labor Day, when he and  a largely antagonistic Congress will return from vacation, the White House said Wednesday.

The president is thinking about proposing tax cuts for companies that hire workers, new spending for roads and construction, and other measures that would target the long-term unemployed, according to administration officials and other people familiar with the matter. Some ideas, such as providing mortgage relief for struggling homeowners, could come through executive action.

Obama also plans to announce a major push for new deficit reduction, urging the special congressional committee formed in the debt-ceiling deal this month to identify even more savings than the $1.5 trillion it has been tasked with finding.

In packaging the two, he will make the case that short-term spending can lead to long-term savings.

“We can’t afford to just do one or the other. We’ve got to do both,” Obama said Wednesday in this farming town in northwestern Illinois, population 671, the last stop of his three-day bus tour through the rural Midwest.

via Obama to issue new proposals on job creation, debt reduction – The Washington Post.

Notice how even Democrats see that tax breaks are necessary to improve the economy.  But consider the main approach:  Both more spending AND more cutting.  That should work.


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