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06/19/2011

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Thomas Rekdal

Once again, both Judge Posner and Professor Becker provide a plausible analysis of the factors explaining our current economic plight. If the research of Kenneth Rogoff and Carmen Reinhart is accurate, perhaps it should not even be surprising to find ourselves stuck in the mudd this long after another balance-sheet depression. Still, I am inclined to think that the uncertainties surrounding our debt situation does make this time different.

Some years ago, the economist James Buchanan argued (I forget where) that it was a grave mistake to abandon the moral bias in favor of balanced budgets, because, once that norm has been weakened, there is nothing in the American culture or political system to brake an unending upward spiral of spending.

That does seem to be the way things are working out. As a result, many businesses and investors are just plain scared. I know I am.

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Pradeep Despandee

Meanwhile Americans live under the “Hope” that “Change” to lower incentives to produce will lead to prosperity. But this may be even worse than the 70’s. Three billion people in the developing world have woken up to economic freedom and they are not going to wait for the outcome of America’s experiment with socialism (as if we don’t have enough data as to where that leads).

You can be blond, brown, tall, short, skinny, fat, light skin, dark skin. It does not matter. Only the policies matter, and if your policies are the same as Jimmy Carter’s you will get the same economic results. Good-bye American exceptionalism means good-bye prosperity.

Pradeep Despandee

Diverting attention from the fundamental problem facing the West (decreasing competitiveness under the invitation to indolence offered by the European Welfare States and now the emerging American Welfare State) by blaming Greece is rather comical. Much bigger economies in Asia and Latin America have failed over the years without much fanfare.

The main problem with the “Domino effect” is not the fact that the first domino falls. But the fact that all the other elements are also well, …dominoes. In European terms that means moribund economies with anemic, severely and permanently sub-par growth trendlines compared to the world as a whole. America is now joining the same club of Western decline by transitioning to the same Welfare State incentives – also known as “hope” and “change”. “Hope” that facilitating indolence will not lead to “change” towards lower economic growth.

Jim

Most of my friends and family are hunkered down and are most concerned about protecting themselves from what they consider an incompetent president and congress sitting on top of a country which has been mismanaged for years. Not a hopeful scenario.

Sam

Once again, another Keynesian disciple gets it completely wrong. The very idea that the answer for Greece or any country to climb out of economic problems is to devalue or inflate their currency is exactly what has led the world into this mess. Until people realize the complete failure of Keynesian economics as a long term viable economic model, we will continue to live in a world where inflationary monetary policy leads to bubble burst cycles instead of real production based economic growth.

NEH

As has often been said, "Fear is the great mind killer and makes slaves of us all". The issue of "Uncertainty" is certainly one of the underlying causes of "Fear" and uncertainty is clearly a component as itemized in the following list:

1. uncertainty in the minds of key economic actors, business, consumer and government
2. uncertainty in Congressional action regarding the "Debt Ceiling"
3. uncertainty regarding Regulation in the Financial/Health Sectors of the Economy
4. outright fear in the Business community that the Administration has become a captive of the evil Union
5. a short term mentality (that has plauged Business, Commerce, Industry, Agriculture for years)regarding world economic problems and more local problems

The Knight-Keynes "Uncertainty Principle" clearly has some application in the lagging economic recovery, but the real problem is more psychological in nature. This was recognized by FDR in the depths of the Great Depression when he said, "We have nothing to Fear, except the Fear itself".

As for our current Economic Crises, and the mindset currently held by the Economic actors which are holding back a recovery, a new "Can-Do" mindset needs to emerge. Such that; "Either Lead, Follow or get the Heck out of the way"...

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james c

Deleveraging.

an observer

Amazing---using old forecasts intended as facts

Posner writes:

The sharp and rapid decline of the economy that began with the financial crisis of September 2008 was expected to be followed by a sharp and rapid rise (making for a V-shaped economic cycle) . . .

According to whom?

I don't know a single Democrat or Democratic economist (not spinning in an attempt to get Congressional action) who thought this was going to happen. Krugman and Stiglitz were crystal clear that we had driven off a cliff and had destroyed our economy through de-industrialization and globalization. Others like Robert Dugger were blunt that 2006 was America's "last good year," because the World would never again buy our private equity and debt. Watch the program "Recent Credit and Loan Industry Practices," here:

http://www.c-spanvideo.org/program/RecentCr

As for "uncertainty," argument, such is just BS, spin, and mendacity, pumped out by spin doctors for billionaires, solely for political gain.

Keynes was correct---business do distinguish between risk and uncertainty---however, the uncertainty that grips our economy is not over political issues (which are the tail wagging the dog). For example, the uncontrolled cost of health care was killing business before and has continued to kill business, since Obama's election. Businesses, logically, should have been helping Obama pass a health care plan that truly controlled costs.

The uncertainty that faces the country is that this time it is different. There ain't no bounce back because there is nothing there to bounce back. Give me (or anyone I know) $100 million to invest in a business or business and I would give it back, except farm land that won't flood but has nearby water for irrigation. The are no opportunities. Look at the dwarfs the GOP has running for President. Have you heard one suggest one good idea. No.

Gordon Longhouse

I agree with the observer above. I can't see how anyone could have expected a V shaped recovery after the kind of crash we experienced.

Likewise "uncertainty" is less about this or that program or proposal than about the ability of the political system as a whole to come up with any sensible solution to any major political or economic issue.

insanity

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TANSTAAFL

Becker and Posner raise good ideas about why the economy remains in the doldrums. A major cause they left unmentioned is the many hapless voters who are not old enough to remember Jimmy Carter and, therefore, made a poor choice in 2008. A plain fact.

an observer

Tanstaafl,

As Observer knew Carter, even before he ran for President, all I can say is that you have no idea what you are talking about.

To believe for a moment that things would be better with McCain as President---nuts. Keep in mind that no sharper honest critic of Obama exists. Given his potential, he has deeply disappointed. But to suggest that we would have been better with McCain/Palin

El-Greco

With the exception of his warmongering tendencies and the delusional cost/benefit ratio that he seemed to assign to American interventionism, McCain would have been better on balance.

However, the fact that Obama or McCain are the choices that attract American voters, is yet another indication that the dynamics of American decline are firmly rooted.

Uiop

The only thing that matters is that the productive class be able to make money. People who no longer can pay their mortgages should be forced out of homes like the slobs they are, so that those in the housing industry can go back to making money.

And how dare we feed poor people, especially the elderly who are no longer productive and are only a burden. Grandma, go to hell.

A reader

I agree with the comment above- I can't remember almost anyone "expecting" this to be a v shaped recovery, liberal or conservative.

Also, it is kind of funny saying that Greece's fiscal situation is the reason Americans, especially ones that only have a high school diploma, are out of jobs. Most americans I know don't follow internatonal finance like they do football. And that includes business owners. Besides, do we import from or export to that much with Greece? Posner focuses too much the banking industry's concern with holding bad Greek loans. As if the banking industry is going to hire thousands in America if Greece's loans were good, and as if they are not looking for opportunities to lend since the fed has pumped them with so much capital.

Businesses are not investing because no one has jobs that will give them the income to buy their proucts. There is "demand" uncertainty, not future tax uncertainty, or regulatory uncertainty, or deficit uncertainty, or whatever other uncertainty. No demand, no investment. Classical arguments are too concerned with expectations. They overestimate an individual's sophistication and concern for the future. Also, most people don't have enough money to worry about future investment considerations, they just have enough to live and spend. And they don't even have that now that unemployment is high.

Short term- government infrastructure products that hire undereducated workers to increase employment, and thus demand, for products businesses sell

long term- complete revamping of the entire education system to train individuals who are not college material for gainful employment. This includes privatizing a lot of it, making it actually pay to be a teacher, creating unique curriculums, etc.

I do agree, however, that creating new regulations in health care and the banking industry does create uncertainty. Obama should have waited to his second term to tackle these. He should've been laser focused on the economy. Whether you agree with them politically or not, these changes created uncertainty at a time when we couldn't handle it.

But the short term problem is demand, which monetary policy couldn't solve. Thus, government solutions, or we'll have sluggish growth for the next few years.

TANSTAAFL

Begging your pardon, Observer. I worked for a living, paid taxes, and suffered for four long years under Jimmy Carter. When Carter left office I hoped America would never again see such an inept president. As stated, in 2008 Obama was elected by voters too ignorant of history to know better.

So please explain why you apparently think Obama is a better president than Carter was. Go ahead.

an observer

TANSTAAFL:

Indirect proof: When Shrub (bush II) was President, "I Miss Nixon," bumper stickers and buttons were, appropriately, very popular.

I have not seen any I Miss Carter bumper stickers or buttons.

Near the end, Shrub turned to Nancy Pelosi, with McCain in the room and asked her, "Do you miss me yet?"

Direct proof: Osama Bin Laden is dead

james moylan

I have a web site where I give advise on penny stocks and stocks under five dollars. If their is anyone that is interested in these type of stocks you can check out my web site by just clicking my name. I would like to comment. I do not think that we will see real improvement in the economy until we see sustainable job growth. Recently the number of jobs created has been running around two hundred thousand a month. The GDP report that just came out recently was only 2% this is not nearly high enough to sustain employment growth of two hundred thousand jobs a month Another factor holding things back is stagnation of wages and benifits. This is good for business owners but terrible for workers.

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