Wal Mart is closing stores and has a dim outlook for the future. The primary reason for this is the reduced food stamp benefits to millions of Americans. Competition from other big box stores like Costco and Amazon (where they pay their employees a decent wage) are also causes for bearish view of Wal Mart's future finances.
I wonder if the execs at Wal Mart are going to get the message. If you pay your employees more money, they will spend more money, not simply at Wal Mart, but in the economy at large. This will, in turn, lead to more people being hired at other firms and then...spending more money at Wal Mart. This means that the execs make more money anyway.
Perhaps a review of Adam Smith is in order for them.
Showing posts with label US Economy. Show all posts
Showing posts with label US Economy. Show all posts
Monday, February 10, 2014
Sunday, February 09, 2014
Saturday, February 08, 2014
Economic Growth Retreat
Great editorial in the Wall Street Journal yesterday about just how stupid the Republican Party is these days. After criticizing the president, they had this to say.
Conservatives and the GOP are as responsible for the failure on immigration. The populist wing of the party has talked itself into believing the zero-sum economics that immigrants steal jobs from U.S. citizens and reduce American living standards. Neither claim is true, but Alabama Senator Jeff Sessions and the Heritage Foundation might as well share research staffs with the AFL-CIO.
So great is the House GOP fear of a talk-radio backlash that it won't even pass smaller bills that 75% of Republicans agree on. There will be nothing to codify the legal status of children of illegal immigrants who have lived here for decades. And no expanded green cards for foreign graduates of U.S. colleges, a policy Mitt Romney endorsed. And no cleaning up the work-visa morass that has obliged U.S. farmers to hire illegals to harvest their crops.
The result of doing nothing will be a de facto "amnesty" in which 11 million illegal immigrants will continue to work using fake documents. Mr. Obama will look for ways to grant more of them legal status using executive power, and the GOP will look even more unwelcoming to minorities.
This last bit is all too revealing. Republicans actually do favor amnesty and are granting it every day by doing nothing. Further, they will end up making the president look even better than the fears of an immigration win would by forcing him to do all he can with his executive power.
The GOP has a real shot at taking back the Senate this year but without immigration reform, I don't see it happening. Louisiana, where Mary Landrieu is going to have a very tough race, Latinos make up over 5 percent of the population. The New Orleans metro area has the 3rd largest Honduran American population in the country. Arkansas also has a growing immigrant population and Mark Pryor is very beatable. Both of these states could turn on the Latino and Asian vote. Pass reform this year and you can say goodbye to both of these Democratic senators.
It seems that the fear is too great, though...
Conservatives and the GOP are as responsible for the failure on immigration. The populist wing of the party has talked itself into believing the zero-sum economics that immigrants steal jobs from U.S. citizens and reduce American living standards. Neither claim is true, but Alabama Senator Jeff Sessions and the Heritage Foundation might as well share research staffs with the AFL-CIO.
So great is the House GOP fear of a talk-radio backlash that it won't even pass smaller bills that 75% of Republicans agree on. There will be nothing to codify the legal status of children of illegal immigrants who have lived here for decades. And no expanded green cards for foreign graduates of U.S. colleges, a policy Mitt Romney endorsed. And no cleaning up the work-visa morass that has obliged U.S. farmers to hire illegals to harvest their crops.
The result of doing nothing will be a de facto "amnesty" in which 11 million illegal immigrants will continue to work using fake documents. Mr. Obama will look for ways to grant more of them legal status using executive power, and the GOP will look even more unwelcoming to minorities.
This last bit is all too revealing. Republicans actually do favor amnesty and are granting it every day by doing nothing. Further, they will end up making the president look even better than the fears of an immigration win would by forcing him to do all he can with his executive power.
The GOP has a real shot at taking back the Senate this year but without immigration reform, I don't see it happening. Louisiana, where Mary Landrieu is going to have a very tough race, Latinos make up over 5 percent of the population. The New Orleans metro area has the 3rd largest Honduran American population in the country. Arkansas also has a growing immigrant population and Mark Pryor is very beatable. Both of these states could turn on the Latino and Asian vote. Pass reform this year and you can say goodbye to both of these Democratic senators.
It seems that the fear is too great, though...
Friday, February 07, 2014
Friday, January 31, 2014
Economy Gearing Up
From the Wall Street Journal...
A potent mix of rising exports, consumer spending and business investment helped the U.S. economy end the year on solid footing. Gross domestic product, the broadest measure of goods and services churned out by the economy, grew at a seasonally adjusted annual rate of 3.2% in the fourth quarter, the Commerce Department said. That was less than the third quarter's 4.1% pace, but overall the final six months of the year delivered the strongest second half since 2003, when the economy was thriving.
Many economists see the U.S. economy moving into a higher gear. Federal Reserve officials, in further pulling back on a bond-buying program meant to spur growth, noted this week that the economy has shown "growing underlying strength." Consumer confidence is rising, and manufacturers are getting busier to meet increased demand. A big driver of growth in the fourth quarter was a rise in consumer spending, which grew 3.3%, the fastest pace in three years. Consumer spending accounts for roughly two-thirds of economic activity.
Really great news.
Take a look at this graphical representation of the Obama years. Note the downward trend of government investment (i.e. spending).
Considering this is the Wall Street Journal, will anyone believe the BS being peddled by the Right about how awful the president is for the economy and how he is a big government spender?
A potent mix of rising exports, consumer spending and business investment helped the U.S. economy end the year on solid footing. Gross domestic product, the broadest measure of goods and services churned out by the economy, grew at a seasonally adjusted annual rate of 3.2% in the fourth quarter, the Commerce Department said. That was less than the third quarter's 4.1% pace, but overall the final six months of the year delivered the strongest second half since 2003, when the economy was thriving.
Many economists see the U.S. economy moving into a higher gear. Federal Reserve officials, in further pulling back on a bond-buying program meant to spur growth, noted this week that the economy has shown "growing underlying strength." Consumer confidence is rising, and manufacturers are getting busier to meet increased demand. A big driver of growth in the fourth quarter was a rise in consumer spending, which grew 3.3%, the fastest pace in three years. Consumer spending accounts for roughly two-thirds of economic activity.
Really great news.
Take a look at this graphical representation of the Obama years. Note the downward trend of government investment (i.e. spending).
Considering this is the Wall Street Journal, will anyone believe the BS being peddled by the Right about how awful the president is for the economy and how he is a big government spender?
Wednesday, January 22, 2014
Left Wing Fantasies (Or Why I Am A Moderate)
Jesse Myerson's piece in Rolling Stone on the five economic reforms millennials should be fighting for starts out just fine but then descends into the usual fantasy we hear far too often from the far left. The first point makes sense. There are a lot of things that need to be done in this country so there should be no shortage of work. There are also plenty of people that need jobs and want to work so let's get going.
The second point is where he starts to lose it and it just gets worse from there on out. Social Security is fine for those people that spend their lives working and paying in to the system but not for people who don't. Some people simply won't "get a life" and the labor force would be greatly diminished. The third point is simply socialism and a complete load of shit. The fourth point is communism and the fifth point is ridiculous.
Like the libertarian land where unicorns fart out gold, this vision of America is pure fantasy. It's a great example of why I am a moderate. My takeaway from this piece is that is in such a small minority that there shouldn't be any real concern. Unlike the Tea Party who is substantial wing in the GOP, there is no socialist wing of the Democratic party. There's just Bernie Sanders and even he isn't this bad.
The second point is where he starts to lose it and it just gets worse from there on out. Social Security is fine for those people that spend their lives working and paying in to the system but not for people who don't. Some people simply won't "get a life" and the labor force would be greatly diminished. The third point is simply socialism and a complete load of shit. The fourth point is communism and the fifth point is ridiculous.
Like the libertarian land where unicorns fart out gold, this vision of America is pure fantasy. It's a great example of why I am a moderate. My takeaway from this piece is that is in such a small minority that there shouldn't be any real concern. Unlike the Tea Party who is substantial wing in the GOP, there is no socialist wing of the Democratic party. There's just Bernie Sanders and even he isn't this bad.
Tuesday, January 21, 2014
Unsustainable
OXFAM International just released a staggering report on inequality in the world. Here are the highlights.
• Almost half of the world’s wealth is now owned by just one percent of the population.
• The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.
• The bottom half of the world’s population owns the same as the richest 85 people in the world.
• Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
• The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
• In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.
The world economy simply cannot be sustained with this level of inequality. Demand is not where it should be and this is exactly why. If this gap continues to widen, demand will fall and more people will have less money as smaller businesses collapse.
Check out this video clip below from "Morning Joe" which illustrates how this is no longer a left-right divide.
Joe sounds quite a bit like Ronald Reagan in that 1986 speech I cite often. Note that they discuss how it isn't simply one issue like the tax code or the minimum wage but many issues that have coalesced into a fundamental systemic failure.
Barack Obama came to Washington to change it and this could be just the issue to do it. My colleagues on the Right and in the Tea Party assure me that they loathe the political and aristocratic class and its rent seeking as much as I do. So, what are we going to do about it?
• Almost half of the world’s wealth is now owned by just one percent of the population.
• The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.
• The bottom half of the world’s population owns the same as the richest 85 people in the world.
• Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
• The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
• In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.
The world economy simply cannot be sustained with this level of inequality. Demand is not where it should be and this is exactly why. If this gap continues to widen, demand will fall and more people will have less money as smaller businesses collapse.
Check out this video clip below from "Morning Joe" which illustrates how this is no longer a left-right divide.
Joe sounds quite a bit like Ronald Reagan in that 1986 speech I cite often. Note that they discuss how it isn't simply one issue like the tax code or the minimum wage but many issues that have coalesced into a fundamental systemic failure.
Barack Obama came to Washington to change it and this could be just the issue to do it. My colleagues on the Right and in the Tea Party assure me that they loathe the political and aristocratic class and its rent seeking as much as I do. So, what are we going to do about it?
Friday, December 20, 2013
Wow!
US Economy Expands at 4.1 Percent Rate
So much for the apocalypse. How much longer will the bubble hold?
So much for the apocalypse. How much longer will the bubble hold?
Tuesday, December 10, 2013
Citizens of the World
The recent cover story in the Christian Science Monitor illustrates just how much the world is changing. Retirees in this country are leaving the Unite States for Latin America in their golden years. Why? Their money lasts longer there with cheaper goods and more affordable health care.
The exodus south is being driven by a confluence of factors. The baby boom generation – the largest in history – is reaching retirement age, and millions are looking for places to spend the next phase of their lives. As the most educated, well-traveled, and adventurous generation in history, many of these boomers are deciding to retire outside the country – including in Latin America. They're also looking for places that will allow them to stretch their 401(k)s after they lost a lot of money in the last stock market collapse. With the US economy remaining so tentative, and health-care costs so aggressive, retirees want to live where they can afford greens fees and where a trip to the emergency room won't bankrupt them.
It really helps to live in countries where the opposition party isn't trying to actively sabotage your health care system.
The bigger view of all of this, though, is how people are moving to consider themselves citizens of the world and not citizens of a particular country. I was particularly stuck by the story of James Cummiskey, the 20 year marine veteran who now owns his own coffee exporting business in Columbia. In the age of globalization, business can be conducted virtually anywhere so it makes sense to live in a country where you can make your dollars last longer.
As the article indicates, it isn't just Latin America. American retirees are moving all over the world. Perhaps that should tell us something about our current standard of living.
The exodus south is being driven by a confluence of factors. The baby boom generation – the largest in history – is reaching retirement age, and millions are looking for places to spend the next phase of their lives. As the most educated, well-traveled, and adventurous generation in history, many of these boomers are deciding to retire outside the country – including in Latin America. They're also looking for places that will allow them to stretch their 401(k)s after they lost a lot of money in the last stock market collapse. With the US economy remaining so tentative, and health-care costs so aggressive, retirees want to live where they can afford greens fees and where a trip to the emergency room won't bankrupt them.
It really helps to live in countries where the opposition party isn't trying to actively sabotage your health care system.
The bigger view of all of this, though, is how people are moving to consider themselves citizens of the world and not citizens of a particular country. I was particularly stuck by the story of James Cummiskey, the 20 year marine veteran who now owns his own coffee exporting business in Columbia. In the age of globalization, business can be conducted virtually anywhere so it makes sense to live in a country where you can make your dollars last longer.
As the article indicates, it isn't just Latin America. American retirees are moving all over the world. Perhaps that should tell us something about our current standard of living.
Friday, December 06, 2013
3.6 Percent
The United States Economy grew at the much faster pace of 3.6 percent in the third quarter than originally thought. Second quarter growth was also revised upward to 2.5 percent. The reasons for this growth include private inventory investment, personal consumption expenditures, exports, and state and local government spending.
Very welcome news indeed!
Very welcome news indeed!
Wednesday, December 04, 2013
Back To The Drawing Board
Midwest and national manufacturing grew in November, reports say.
From the article...
Factories making machinery, metal parts, furniture and other long-lasting goods saw product orders jump in November, which helped boost hiring across the manufacturing sector, according to two closely watched reports released Monday.
So, when people buy more things, the companies that make those things hire more people. Huh. I thought companies hired more people when they got tax cuts and demand had nothing to do with it. Apparently, I have been misinformed.
And growth is widespread?
For the nation, the Institute for Supply Management reported growth across several industries, including plastics, rubber, textiles, furniture, paper, metals, transportation equipment, computers and printing. In addition, U.S. manufacturing jobs grew, creating “the highest reading since April 2012,” said Bradley Holcomb, chairman of the Institute’s Manufacturing Business Survey Committee. Fifteen out of 18 manufacturing sectors grew, giving hope that the worst of the lackluster recovery is behind the nation.
And the cost of health care is seen as decreasing?
Over the next few years, the government is expected to spend billions of dollars less than originally projected on the law, analysts said, with both the Medicaid expansion and the subsidies for private insurance plans ending up less expensive than anticipated.
And now even the web site is working better? Sheesh!
Ah well, I guess it's back to the drawing board (and deep into the bubble) for the apocalypcists!
From the article...
Factories making machinery, metal parts, furniture and other long-lasting goods saw product orders jump in November, which helped boost hiring across the manufacturing sector, according to two closely watched reports released Monday.
So, when people buy more things, the companies that make those things hire more people. Huh. I thought companies hired more people when they got tax cuts and demand had nothing to do with it. Apparently, I have been misinformed.
And growth is widespread?
For the nation, the Institute for Supply Management reported growth across several industries, including plastics, rubber, textiles, furniture, paper, metals, transportation equipment, computers and printing. In addition, U.S. manufacturing jobs grew, creating “the highest reading since April 2012,” said Bradley Holcomb, chairman of the Institute’s Manufacturing Business Survey Committee. Fifteen out of 18 manufacturing sectors grew, giving hope that the worst of the lackluster recovery is behind the nation.
And the cost of health care is seen as decreasing?
Over the next few years, the government is expected to spend billions of dollars less than originally projected on the law, analysts said, with both the Medicaid expansion and the subsidies for private insurance plans ending up less expensive than anticipated.
And now even the web site is working better? Sheesh!
Ah well, I guess it's back to the drawing board (and deep into the bubble) for the apocalypcists!
Tuesday, November 12, 2013
Simply Wrong
For the most part, I think it's best to not use comparisons to slavery in this day and age. But if you are Sarah Palin and want to get attention, then I guess it's OK!
Ignoring the obvious offensiveness of the statement, it's simply wrong as I have demonstrated just recently. Our debt is not entirely owned by the Chinese. For the most part, it's money we owe ourselves and it isn't that big of a problem.
Conservatives like to talk about how it's all "simple math" yet they completely ignore our assets as a country (hundreds of trillions of dollars), our economy ($17 trillion and growing), and our very steady revenue stream (just south of $6 trillion a year). Their irrational screeds about spending sound more and more like sermons and proselytizing and less like actual facts. Of course, Sarah Palin can best be summed up like this...
Ignoring the obvious offensiveness of the statement, it's simply wrong as I have demonstrated just recently. Our debt is not entirely owned by the Chinese. For the most part, it's money we owe ourselves and it isn't that big of a problem.
Conservatives like to talk about how it's all "simple math" yet they completely ignore our assets as a country (hundreds of trillions of dollars), our economy ($17 trillion and growing), and our very steady revenue stream (just south of $6 trillion a year). Their irrational screeds about spending sound more and more like sermons and proselytizing and less like actual facts. Of course, Sarah Palin can best be summed up like this...
Saturday, November 09, 2013
Questions
Amia Srinivasan has many questions for free market moralists that deserve answers. Indeed, her entire piece deserves careful study as at eloquently illustrates the dichotomy of welfare liberalism and laisse-faire liberalism. Here are the four questions.
1. Is any exchange between two people in the absence of direct physical compulsion by one party against the other (or the threat thereof) necessarily free?
2. Is any free (not physically compelled) exchange morally permissible?
3. Do people deserve all they are able, and only what they are able, to get through free exchange?
4. Are people under no obligation to do anything they don’t freely want to do or freely commit themselves to doing?
Her answer show free market fundamentalism for the sham that it is. Like those on the left who preach of socialist utopias, libertarian utopias have just as
1. Is any exchange between two people in the absence of direct physical compulsion by one party against the other (or the threat thereof) necessarily free?
2. Is any free (not physically compelled) exchange morally permissible?
3. Do people deserve all they are able, and only what they are able, to get through free exchange?
4. Are people under no obligation to do anything they don’t freely want to do or freely commit themselves to doing?
Her answer show free market fundamentalism for the sham that it is. Like those on the left who preach of socialist utopias, libertarian utopias have just as
Friday, November 08, 2013
Yep
From Paul Krugman
As some of us have tried to explain, debt, while it can pose problems, doesn’t make the nation poorer, because it’s money we owe to ourselves. Anyone who talks about how we’re borrowing from our children just hasn’t done the math.
True, debt can indirectly make us poorer if deficits drive up interest rates and thereby discourage productive investment. But that hasn’t been happening. Instead, investment is low because of the economy’s weakness. And one of the main things keeping the economy weak is the depressing effect of cutbacks in public spending — especially, by the way, cuts in public investment — all justified in the name of protecting the future from the wildly exaggerated threat of excessive debt.
If only those "debt scolds" could leave their emotions and pride out of the equation, we'd have a better economy. My only disagreement with Krugman here is that he, like the people he criticizes, are far too pessimistic. Despite the idiocy of austerity, our economy is doing better as I noted earlier today.
As some of us have tried to explain, debt, while it can pose problems, doesn’t make the nation poorer, because it’s money we owe to ourselves. Anyone who talks about how we’re borrowing from our children just hasn’t done the math.
True, debt can indirectly make us poorer if deficits drive up interest rates and thereby discourage productive investment. But that hasn’t been happening. Instead, investment is low because of the economy’s weakness. And one of the main things keeping the economy weak is the depressing effect of cutbacks in public spending — especially, by the way, cuts in public investment — all justified in the name of protecting the future from the wildly exaggerated threat of excessive debt.
If only those "debt scolds" could leave their emotions and pride out of the equation, we'd have a better economy. My only disagreement with Krugman here is that he, like the people he criticizes, are far too pessimistic. Despite the idiocy of austerity, our economy is doing better as I noted earlier today.
Mea Culpa Is Just Fine
The president apologized yesterday for his mistake in saying, "If you like your insurance, you get to keep it," several times during his campaign to pass the ACA. This is quite illustrative of the type of man he is: someone willing to admit mistakes and work to fix them. And that's just what he is going to do. Notice as well that he is taking the high ground and not blaming the insurance companies which he would be well within his purview to do as it is the truth.
This is quite a bit more than his opponents would do. They never admit error (see: Apocalypse), always blame others, and are actively working to destroy the structures of this country because they are essentially babies who can't accept defeat and any sort of authority in their lives. At election time next year, the problems with the ACA will be fixed (the real ones and not the fake ones made up in bubbleland) and the benefits are going to vastly outweigh the costs.
More importantly, we have seen an improving economy this week. GDP was 2.8 percent for the 3rd quarter and hiring in October exceeded expectations, clocking in over 200k jobs. Revisions were made for August and September, adding in an extra 60K jobs. Imagine how much stronger these numbers would have been had there not been a shutdown. The economy is what really matters to voters in elections and it's pretty clear which party is working to improve it and which one is rooting for it to fail.
This is quite a bit more than his opponents would do. They never admit error (see: Apocalypse), always blame others, and are actively working to destroy the structures of this country because they are essentially babies who can't accept defeat and any sort of authority in their lives. At election time next year, the problems with the ACA will be fixed (the real ones and not the fake ones made up in bubbleland) and the benefits are going to vastly outweigh the costs.
More importantly, we have seen an improving economy this week. GDP was 2.8 percent for the 3rd quarter and hiring in October exceeded expectations, clocking in over 200k jobs. Revisions were made for August and September, adding in an extra 60K jobs. Imagine how much stronger these numbers would have been had there not been a shutdown. The economy is what really matters to voters in elections and it's pretty clear which party is working to improve it and which one is rooting for it to fail.
Wednesday, November 06, 2013
In The Black
Perhaps I was too hasty in poo-pooing comparisons of our nation's economy to an individual's economy. Certainly, there are plenty of differences that are largely ignored by the Right but there are some similarities that were illustrated quite well over at The Pragmatic Capitalist. The first piece, "The US Government is not $16 Trillion dollars in the hole," points out the obvious.
The IER estimates that total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone. These assets alone are FIFTY FIVE times the amount stated in the CNBC report. But that only scratches the surface. I haven’t even looked into the huge amount of federally owned land and buildings that would surely amount into the hundreds of billions if not trillions of dollars. There’s also the gold resources. And there’s the trillions of dollars in its own liabilities that it owns via the Fed and Social Security funds.
Just like an ordinary person who owns land, oil, a profitable business and other assets like gold, the US government also has a gigantic pile of assets that make us far into the black. And that's with all the future Social Security and Medicare liabilities (around $60-7$0 trillion). As PragCap show us, we are not going bankrupt and the people who claim this are simply lying because of their pathological hatred of the US government and their inability to admit fault. Their obsession with spending is essentially holding us back from economic growth and one was to wonder if this is the whole point. They want our country to fail so they can win the argument.
Of course there are still differences which the second link illustrates quite well.
The constraint for the government is different from that of a household or business who can really “run out of money”. The US government’s constraint is not that it will run out of funds, but that it could supply too much liquidity to the private sector thereby causing inflation. So the US government’s real constraint is inflation and not solvency. This is a vastly different issue than the one the US media usually harps on with regards to the budget deficit and the US government’s ability to “afford” its spending.
The USA has an institutional arrangement in which it is a contingent currency issuer. That is, while the Treasury is an operational currency user (meaning it must always have funds in its account at the Fed before it can spend those funds) it has the extraordinary power to tax and issue risk free bonds that the public will always desire to hold so long as inflation is not extraordinarily high. In addition, even in a worst case scenario, the US Treasury can always rely on the Federal Reserve to supply the funds necessary to fund its spending. Therefore, the US government can be thought of as a contingent currency issuer who can issue the funds to spend. This makes it very different from a household.
The US Treasury is a currency user, but the government as a whole can be seen as a contingent currency issuer by institutional design because of this implicit funding guarantee. So the key here is that there’s no solvency constraint as in, “running out of money”. Greece doesn’t have this arrangement. In fact, since the ECB is essentially a foreign central bank there is a real solvency constraint. So banks and private investors have become hesitant to buy Greek bonds because of this flawed institutional arrangement and the lack of an implicit guarantee. It’s apples and oranges compared to the USA.
Once again, not like Greece. Not going bankrupt. Not overspending. Not running out of money. Plenty of assets.
IN THE BLACK.
The IER estimates that total fossil fuel resources owned by the Federal government are valued at over $150 trillion alone. These assets alone are FIFTY FIVE times the amount stated in the CNBC report. But that only scratches the surface. I haven’t even looked into the huge amount of federally owned land and buildings that would surely amount into the hundreds of billions if not trillions of dollars. There’s also the gold resources. And there’s the trillions of dollars in its own liabilities that it owns via the Fed and Social Security funds.
Just like an ordinary person who owns land, oil, a profitable business and other assets like gold, the US government also has a gigantic pile of assets that make us far into the black. And that's with all the future Social Security and Medicare liabilities (around $60-7$0 trillion). As PragCap show us, we are not going bankrupt and the people who claim this are simply lying because of their pathological hatred of the US government and their inability to admit fault. Their obsession with spending is essentially holding us back from economic growth and one was to wonder if this is the whole point. They want our country to fail so they can win the argument.
Of course there are still differences which the second link illustrates quite well.
The constraint for the government is different from that of a household or business who can really “run out of money”. The US government’s constraint is not that it will run out of funds, but that it could supply too much liquidity to the private sector thereby causing inflation. So the US government’s real constraint is inflation and not solvency. This is a vastly different issue than the one the US media usually harps on with regards to the budget deficit and the US government’s ability to “afford” its spending.
The USA has an institutional arrangement in which it is a contingent currency issuer. That is, while the Treasury is an operational currency user (meaning it must always have funds in its account at the Fed before it can spend those funds) it has the extraordinary power to tax and issue risk free bonds that the public will always desire to hold so long as inflation is not extraordinarily high. In addition, even in a worst case scenario, the US Treasury can always rely on the Federal Reserve to supply the funds necessary to fund its spending. Therefore, the US government can be thought of as a contingent currency issuer who can issue the funds to spend. This makes it very different from a household.
The US Treasury is a currency user, but the government as a whole can be seen as a contingent currency issuer by institutional design because of this implicit funding guarantee. So the key here is that there’s no solvency constraint as in, “running out of money”. Greece doesn’t have this arrangement. In fact, since the ECB is essentially a foreign central bank there is a real solvency constraint. So banks and private investors have become hesitant to buy Greek bonds because of this flawed institutional arrangement and the lack of an implicit guarantee. It’s apples and oranges compared to the USA.
Once again, not like Greece. Not going bankrupt. Not overspending. Not running out of money. Plenty of assets.
IN THE BLACK.
Monday, November 04, 2013
Show Him This
There are many myths about our nation's debt and most our being pushed by the Right. "We can't keep spending like this!" they whine incessantly or "sooner or later, the money will run out!!" Strange, really, because they act as though we don't control our own money supply nor have any revenue. The simple fact is we have both. We have collect just under 6 trillion dollars in revenue and enjoy a 17 trillion dollar economy.
But talking about the economy in a simplistic way is what the Right does, not the rest of us who understand the complexities of monetary policy. The truth is, as Lawrence Summers puts it, the debt isn't that big of a deal.
More fundamental is this: Current and future budget deficits are now a second-order problem relative to other, more pressing issues facing the U.S. economy. Projections that there is a major deficit problem are highly uncertain. And policies that indirectly address deficit issues by focusing on growth are sounder in economic terms and more plausible in political terms than the long-term budget deals much of the policy community is obsessed with.
The latest Congressional Budget Office (CBO) projection is that the federal deficit will fall to 2 percent of GDP by 2015 and that a decade from now the debt-to-GDP ratio will be below its current level of 75 percent. While the CBO projects that under current law the debt-to-GDP ratio will rise over the longer term, the rise is not large relative to the scale of the U.S. economy. It would be offset by an increase in revenue or a decrease in spending of 0.8 percent of GDP for the next 25 years and 1.7 percent of GDP for the next 75 years.
Here is our budget deficit over the last five years.
There is no doubt we are heading in the right direction. And, as I have explained many times, we have been in debt pretty much since we have started as a country. Take a look below.
Certainly, we have been in far worse spots and predictions of 100 percent debt to GDP in the last few years have not materialized. Right now we stand at just over 70 percent debt to GDP which is entirely manageable. In fact, there are perils in the philosophy of austerity as Eduardo Porter pointed out recently that illustrate the cost-benefit analysis of taking on some more debt and getting paid off in the long run with more growth and thus, less debt.
A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs. The costs are mounting across the Atlantic, too, despite the contentment in London and Berlin.
A study by an economist from the European Commission published this month concluded that spending cuts put in place by governments from Greece to Germany since 2011 had stalled the economic turnaround of the entire euro area. A host of economic analyses over the last three years by researchers from different corners of the world — including Roberto Perotti at Milan’s Bocconi University, Alan Taylor and Òscar Jordá at the University of California, Davis and researchers at the I.M.F. — have concluded almost invariably that budget cutting in a depressed economy is counterproductive.
By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.
Exactly right. This is why we have the anemic growth that we have right now. I suspect that many in the business wing of the GOP know this and they just want Obama to fail so they bloviate about cutting taxes and bring guys like Arthur Laffer back into the mix.
I think that Simon Wren-Lewis, a professor of economics at Oxford University, has it right. Arguing that the tiny amount of economic growth Britain has recently achieved after a years-long downturn proved austerity to be the right policy is tantamount to saying that global warming skeptics had “won the climate change argument because of recent heavy snow.” Of course, they argue that as well!
So, when your weird uncle, who, at the age of 40-60 something, still has a problem with authority, starts spouting off at the upcoming holiday gatherings about the deficit, the debt, and how it's "math," show him the information in this post and have him explain his understanding of these facts. And then read him this.
If even half the energy that has been devoted over the past five years to “budget deals” were devoted instead to “growth strategies,” we could enjoy sounder government finances and a restoration of the power of the American example. At a time when the majority of the United States thinks that it is moving in the wrong direction, and family incomes have been stagnant, a reduction in political fighting is not enough. We have to start focusing on the issues that actually are most important.
Drop me an email or put up a comment and let me know what he says:)
But talking about the economy in a simplistic way is what the Right does, not the rest of us who understand the complexities of monetary policy. The truth is, as Lawrence Summers puts it, the debt isn't that big of a deal.
More fundamental is this: Current and future budget deficits are now a second-order problem relative to other, more pressing issues facing the U.S. economy. Projections that there is a major deficit problem are highly uncertain. And policies that indirectly address deficit issues by focusing on growth are sounder in economic terms and more plausible in political terms than the long-term budget deals much of the policy community is obsessed with.
The latest Congressional Budget Office (CBO) projection is that the federal deficit will fall to 2 percent of GDP by 2015 and that a decade from now the debt-to-GDP ratio will be below its current level of 75 percent. While the CBO projects that under current law the debt-to-GDP ratio will rise over the longer term, the rise is not large relative to the scale of the U.S. economy. It would be offset by an increase in revenue or a decrease in spending of 0.8 percent of GDP for the next 25 years and 1.7 percent of GDP for the next 75 years.
Here is our budget deficit over the last five years.
There is no doubt we are heading in the right direction. And, as I have explained many times, we have been in debt pretty much since we have started as a country. Take a look below.
Certainly, we have been in far worse spots and predictions of 100 percent debt to GDP in the last few years have not materialized. Right now we stand at just over 70 percent debt to GDP which is entirely manageable. In fact, there are perils in the philosophy of austerity as Eduardo Porter pointed out recently that illustrate the cost-benefit analysis of taking on some more debt and getting paid off in the long run with more growth and thus, less debt.
A recent analysis by the research firm Macroeconomic Advisers estimated that cuts to discretionary government spending — roughly everything the government spends money on except for Social Security and Medicare — trimmed growth by seven-tenths of a percentage point a year since 2010, and cost some 1.2 million jobs. The costs are mounting across the Atlantic, too, despite the contentment in London and Berlin.
A study by an economist from the European Commission published this month concluded that spending cuts put in place by governments from Greece to Germany since 2011 had stalled the economic turnaround of the entire euro area. A host of economic analyses over the last three years by researchers from different corners of the world — including Roberto Perotti at Milan’s Bocconi University, Alan Taylor and Òscar Jordá at the University of California, Davis and researchers at the I.M.F. — have concluded almost invariably that budget cutting in a depressed economy is counterproductive.
By cutting teachers or raising taxes, reducing government transfers or trimming public purchases of goods and services, austerity shrinks the economy in the short term, often more than it shrinks the burden of public debt.
Exactly right. This is why we have the anemic growth that we have right now. I suspect that many in the business wing of the GOP know this and they just want Obama to fail so they bloviate about cutting taxes and bring guys like Arthur Laffer back into the mix.
I think that Simon Wren-Lewis, a professor of economics at Oxford University, has it right. Arguing that the tiny amount of economic growth Britain has recently achieved after a years-long downturn proved austerity to be the right policy is tantamount to saying that global warming skeptics had “won the climate change argument because of recent heavy snow.” Of course, they argue that as well!
So, when your weird uncle, who, at the age of 40-60 something, still has a problem with authority, starts spouting off at the upcoming holiday gatherings about the deficit, the debt, and how it's "math," show him the information in this post and have him explain his understanding of these facts. And then read him this.
If even half the energy that has been devoted over the past five years to “budget deals” were devoted instead to “growth strategies,” we could enjoy sounder government finances and a restoration of the power of the American example. At a time when the majority of the United States thinks that it is moving in the wrong direction, and family incomes have been stagnant, a reduction in political fighting is not enough. We have to start focusing on the issues that actually are most important.
Drop me an email or put up a comment and let me know what he says:)
Monday, October 28, 2013
A Change of Heart On Inflation
My latest installment on Stiglitz was heavily centered on the issue of inflation and how the Fed seems completely obsessed with keeping it low. Yet, a recent piece in the New York Times indicates that there might be a sea change with the appointment of Janet Yellin.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
I agree. We have to end the inflation hawk hysteria and move towards a more balanced approach towards growth. This is exactly what Stiglitz was hoping would happen when he wrote his tome two years ago and we may finally be heading in that direction.
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama’s nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
I agree. We have to end the inflation hawk hysteria and move towards a more balanced approach towards growth. This is exactly what Stiglitz was hoping would happen when he wrote his tome two years ago and we may finally be heading in that direction.
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