Below is a very interesting excerpt from an article by Mike "Mish" Shedlock, who is a brilliant analyst, and who really sees the big picture supported by tons of technical details of the small picture. It is about how the government should proceed to help the economy stop heading into depression. The answer to that would have been to get out of the way, which works brilliantly, but they've so hideously screwed things up that saving the economy isn't possible.
Q. Do we need to stimulate housing?
A. No we have a glut of housing. We have massive shadow inventory on top of that.
Q. Does housing typically lead every expansion out of recession?
A. Yes, it does. So we do not need to add to the housing glut.
Q. Do we need more commercial real estate?
A. No, and we do not need any more Pizza huts, Home Depots, Lowes, Restaurants, strip malls, nail salons or any other such projects banks normally lend to.
Q. Do we need more public workers at the city, state, or municipal level?
A. No, we surely do not. Public pension plans and public union salaries have bankrupted cities, counties, and states. We need to get rid of public workers and reduce benefit levels to match private sector.
Q. Do we need more roads programs?
A. Didn't we just try that? It did not work either, did it? All it produced was a flurry of activity that died as soon as the handouts stopped. Just as with housing, there is a limit to how much demand can be brought forward.
Q. Did we get our money's worth for those programs?
A. Absolutely not. Money was thrown around without regard to cost, instead focusing on how quickly it could be spent. Much of the money was wasted.
Q. Are we going to "Drill Baby Drill"?
A. Hardly
Q. Does making schools and government buildings more energy efficient make any sense?
A. Of course not. The expected payback on those programs is negative.
Challenge to Krugman and Calculated Risk
If you want jobs, name a jobs program that makes fiscal sense.
I suggest it cannot be done. Yes, demand can be brought forward, but only for so long. Housing starts indicate housing is headed back to the gutter. Thus those housing tax credits were a waste of money.
The problem is debt, at every level (personal, corporate, government). Worse yet, that problem comes at a time when boomers have not saved enough for retirement and pensions promises are coming to the forefront.
Rising taxes to pay for those public pensions is not the answer. Moreover, students fresh out of college with no job and hundreds of thousands of dollars in debt are delaying family formation, and family formation is one of the keys to economic expansion.
Those clamoring for "jobs, jobs, jobs" never bother to explain what happens when the stimulus runs out. It ran out in the 1930's as well. Krugman mistakenly blames that small amount of tightening for sinking the US back into deflation.
The reality is stimulus money always runs out and priming the pump is nonsense. Japan has proven that in spades. What brought the US out of deflation was WWII.
This may sound like the "broken window fallacy" and it is in aggregate. However, the US was the one country that did not have its productive capacity destroyed in the war, and that coupled with the start of the baby boom, led the world recovery.
Those who claim we can grow our way out of debt now because we did it after WWII fail to understand boomer dynamics. Baby boomers and their kids supported growth for decades. Unless we have another baby boom it will not happen again.
In fact, because of peak oil and because of consumer debt coupled with global wage arbitrage, it's not possible to spend our way to prosperity this time, even with another baby boom.
Besides, WWII was one hell of a price to pay. Let's all hope it does not take war to solve the issue this time.
In the meantime, the problem is debt and as Japan has shown, and Greece after that, with more countries like Spain waiting on deck, it is impossible to spend one's way out of a debt problem.
Japan shows it is possible to get away with deficit spending for a long time, but Greece clearly shows what happens when time runs out.
Fix the Structural Problems
Instead of "jobs programs" per se, we need to fix the structural problems: Unsustainable pension promises and government wages, debt at every level, corporate tax policies that encourage jobs to move overseas (deferral of taxes on profits held overseas and excessive corporate taxes in the US), and the entire tax and spend structure at every level, especially the public level.
If we address the structural problems, jobs will eventually take care of themselves."
No comments:
Post a Comment