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08/01/2011

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Thomas Rekdal

We are already insolvent--in the sense that we do not have the long-run resources to meet our long-run commitments. Would it really be more intelligent to postpone the crisis until, like the Greeks, we actually lack the capacity to borrow? The crisis must come eventually. It is only a question of when we choose to meet it, and how much pain we can endure at each stage of its resolution.

Because it is easier to block something than to pass something, artificial obstacles like the debt ceiling do indeed enhance the veto power of minority factions, but there is no inherent ideological bias to this. Next year, the advantage will pass from the Tea Party to Progressive Democrats, who (whatever the election results) will surely have enough strength to block extension of the Bush tax cuts.

And so we stumble from minority veto to minority veto, not because Congress or the party system is broken, but because American public opinion is broken. Poll after poll reveals that large majorities of the public regard budget cutting as an urgent priority, while even larger majorities oppose cutting any programs within the budget. Congress reflects each pole of our national schizophrenia pretty accurately, and seems to me to be coping about as well as can be expected under the circumstances.

That, of course, is not a recommendation for optimism.

 Anon from Afar

Dear Judge Posner:

Thank you for bringing some sanity into an irrational debate. When you and Paul Krugman basically agree, the world should be paying close attention indeed.

Being in a hopefully safer and saner place than the USA, I would say that what we have seen is a battle between impotence and incompetence.

It’s hard to have any enthusiasm for either side.

Anon from Afar

an observer

the medium-term problem is the depression that the economy is still wallowing in

true

We are already insolvent--in the sense that we do not have the long-run resources to meet our long-run commitments

false

between 20 and 40 years from now, when machines build and repair themselves, productivity will skyrocket and the work will disappear. Our goal is to survive two generations.

Our lack of work is because of productivity, combined with a deeply flawed system of distributing assets and income. By definition, when 400 families have the income and assets of 150 million people, there will be a lack of good paying work. It is simple math. I takes only one person to prepare a $1,000 dinner for four. It takes several times that many people to prepare 200 McDonald hamburgers.

McKinsey just tracked that as income disparity has grown, employment bounces back less with each recession.

The Republicans will rue this day. They have just legitimized extortion. Someday, some part of the left will occupy the position now held by the Tea Party and when that happens all the wealth will be confiscated.

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Mr. Smith

Excellent overview of the main economic problematic! I will follow your insight!

NEH

"The Depression, the Deficit Debacle, and the Debt Ceiling Crisis"? Herr Posner's comment, "The problems are exacerbated by the fact that both political parties are much fonder of increased spending than of increased taxes, so there is built in momentum for increased government debt", puts it all in a nutshell. It's partially a question of cutting expenditures, but more importantly it's a question of raising revenues or taxes. Which the current budget does not do. Everyone wants their perks, especially the Well to Do and Business, but no one wants to pay for them or would rather have the other fellow pay for them. And so... Something is going to have to give - somewhere, sometime.

As Putin said this morning, "Americans are parasites living off the rest of the World". He may be right... We really need to relearn that we need to pay our own way. Increasing the employment rate would be a good start. At least it would bring in more taxes. Unless of course, a Republican Congress cut taxes even more in order to stimulate the Economy. Which we now know doesn't work. Given the eleven years of tax cuts that haven't stimulated the Economy and run the Government's excess fund reserves (rainy day fund)into the ground. Which no longer allows us to pull off a Keynsian stimulus plan by increased Government Expenditures except by going deeper into debt.

TANSTAAFL

If Americans need to relearn that they need to pay their own way, the first step is to issue shovels to the followers of Keynes, including BHO, and put them to work.

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Only the foolish parents, are filial piety rarely soldier. About life sentence: The life value, is not with the time, but uses which the depth weighs weekend's time, drinks together for these in the school or window-shops together

Mary Katherine Day-Petrano

This is a very well analyzed post. However, it leaves out the largest present and future economic for the United States -- and that is the propagating Autism problem. Rates of increase in the numbers of Americans with Autism, depending on whose figures you believe, range between 600-1700 %. CDC put the rate at in in 110 Americans. More recently, a Yale study estimated millions of people with Autism are not being counted and the real rate in every 1 in 38. A Harvard Autism cost study estimated the lifetime Autism cost for EACH person with Autism (on the low end) is appx. $3.2. million over a lifetime, while other estimates range upward to $5 million each Autistic. This Autism necessity funding is not being provided to these vulnerable disabled but equal Americans, and it violates U.S. ratified Geneva Convention, and other human rights treaties, as well as Title II of the Americans With disabilities Act and Sec. 504 under 2 U.S.C. 1503(a) & (b), making it an unfunded federal mandate, not to fully fund all these propagating Autism people. It is no different than failure to give the American Indians their Reservations. In almost every state, DOJ is bringing or joining Olmstead v. LC actions. Autism is a natural human variation with susceptibility genes, and linked to 27 sex-hormone genes making it also a gender classification, and arises mostly in descendants of Caucasian European - Middle Eastern Jewish ancestry making Autism a race and/or National origin class as well. The susceptibility genes result in the infliction of epigenetic damage aggravating the underlying Autism that comes from pollution, toxins, and vaccines, among others. The Vaccine Court notoriously violates Sec. 504 and the Architectural Barriers Act and U.S. Courts Design Guide etc. in failing to give meaningful access to the very adults with Autism to file claims who the U.S. vaccine programs injured. There is a tidal wave class of Autism people propagating in massive numbers in the United States for whom the budget will inescapably be called up to fund and address.

THAT is the glaring omission in the above analysis, and Becker's does not mention it, either.

I would welcome any input on this issue, since I am also a public figure in the Autism community as an adult with Autism. There is definitely a giant communication disconnect going on between these budget analyses leaving out the Autism propagation issue and how millions of parents of and persons with Autism see it. Moreover, it is common that once a child is diagnosed on the Autism spectrum, the diagnoses travels up the family tree and the parents and grandparents, as well as siblings, frequently are diagnosed.

And by the way, I have a bit of Econ classes within my joint J.D./M.B.A. degree course concentration. I KNOW an analysis is definitely flawed when one of the biggest budget numbers are simply ... omitted.

Mary Katherine Day-Petrano

Pardon my inability to see the typos in my above post - I see in pictures, not letters due to my Autism, and I also have Synesthesia and genetic inheritance for North Carolina Macular Dystrophy.

corr:
"future economic for the United States" = future economic cost for the United States

"CDC put the rate at in in 110 " = CDC put the rate at 1 in 110

an observer

Former Director of Chicago Fed spills the beans on Greenspan (and this blog) in important letter to Financial Times. Believers in Adam Smith's invisible hand are blind to market realities

http://www.ft.com/intl/cms/s/0/a12f674a-bd56-11e0-89fb-00144feabdc0.html#axzz1TzSgZxBc

an observer

Someone offered up that we need a Keynesian stimulus plan.

Respectfully, Keynes would say no you don't. He would say you need Keynes + (?), the plus factor(?) being unknown.

What ought to be plain to everyone are two things.

First, Keynes was correct. If you used the poor metaphor of a fire, we have been throwing massive amounts of water on a fire, for 10 years, and it is still burning that means that the water, alone, is not doing enough, but that we do needed water to fight the fire.

Keynes only dealt with how government should deal with a deflationary collapse in demand. Keynes did not deal with the three forces that are destroying us: (1) globalization and de-industrialization; (2) Internet which is destroy business models, sometimes overnight; and (3) fraud and agency problems by business managers, lenders, and borrowers, that created a financial crisis not seen in history.

To blame Keynes is beyond stupid. But for him we wouldn't even have known to put water on the fire.

The people we should be blaming are the people who are actively practicing economics, today, like these bloggers who are all equally guilty of: (1) not seeing the fraud and the bubble; (2) sitting silent when Reagan and Bush cut taxes and raised the deficits; and (3) refusing to admit, out of denial, how much damage we have done, undercutting the intensity and passion of anyone who would propose action.

Look at the interest rates on 30 year treasuries and TIPS, which are negative. We have a complete failure of confidence in this Country. We are whipped. Economists won't admit it, because they assume away what they cannot measure, be we where whipped in the one day battle on 9/11, when Bush surrendered and took the planes out of the sky and shut down the entire economy. Ben Laden may be dead but he took the measure of Bush and won the war against the Great Satan that day. Our troops are coming home (and the defense budget is on the block) and they are never going back. The Republicans will not even let us finish off Libya.

My friends, because you do not study art and literature, you do not know that history can moves like a soft breeze or the Wind, and that all that was past can be gone in a moment. Gone with the Wind sums up in 4 words the death of a culture, in ways that most all at that April barbecue at Twelve Oaks never anticipated. You should turn off the TV and put a volume of the Great Bard on your Kindle.

Those of us who are adults and who just lived through the last 10 years must now realize that our times were as tumultuous, in terms of change, as the Civil Wars of Rome. All the horses and all the kinds men cannot put it back together again.

We still have extraordinary resources as nation but the question is whether we will deploy or waste them.

The madness of people who suggest that we need a balanced budget amendment shows scope of the political struggle ahead. (If any says we need such, I ask, What rule of Economics sets how much money we may need to borrow to accomplish the tasks before us? Take the poor metaphor of WWII--when we started that War, who knew how much money we would need to borrow?) We do not know the future and don't know how it will end or what we will spend. All we can do is take the first step down the road.

What we can say with certainty is that we have no Franklin or Hamilton in Government (or out). Look at the two guys who write this blog and how they are pygmies by comparison.

When they started their blogs they thought they were being cleaver. What they have ended up doing is documenting they were not. Historians a 1000 years from now will have a better measure of Posner because of what isn't here.

Jack

Observer: I this from your post for a couple of reasons. One, that after a couple of readings of Posner, who has a very good essay this week, I found NO mention of increasing taxes or even the "revenue enhancement" of curtailing at least a few of the more sizable and least worthy tax expenditures (loopholes?).

"between 20 and 40 years from now, when machines build and repair themselves, productivity will skyrocket and the work will disappear. Our goal is to survive two generations."

....... Indeed, even the 2% productivity increases on our tremendously productive base amounts to a LOT in absolute terms each year with a doubling in 36 years, or much sooner if the rate increases even slightly.

Such a doubling, including the doubling from the last 25 years or so SHOULD mean that the "only yadda numbers contributing to SS instead of twice yadda some number of decades in the past" counts as four times whatever number are "working to support those having reached the increasingly distant age".

Trouble is, IF we are to continue to pretend tax policy nirvana was reached during the Bush episode, we've the problem of the past and present of income that SHOULD have accrued to those under the $107,00 SS cutoff having escaped as virtually all of the productivity doubling was garnered by those WELL over the SS cutoff.

http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/

On the 2nd graph down, take a look at the 95th percentile line. It's steep climb had a small dip in 1992 that is far more likely to have been from the recession (taxes being after the event) than the tax increases that would have taken place in '93.

That top 5% line continues up so sharply that had Bush imposed a whopping 10% of total income increase, the top 5% would have still maintained a steeper, increase in income slope, than those of the 80th percentile, and of course, dramatically out-paced the meager gains of the rest.

So, to productivity gains projections? Almost inevitable. Even today's biz news spoke of companies scrambling for automation, computerization and other means of ramping up per employee productivity.

Where, then is the discussion of what WE are going to do with the increased wealth of the higher productivity? Are those of modest incomes ever to benefit? Suppose the new improved economy does NOT need some fraction of the workforce? And those who slogged along in a less productive era building the foundation for much of what we have today during a quarter century of nothing "trickling down?" They are to be "rewarded" with a penny sniping rejiggering of the rate of Cost of Living Allowance?

I say no, as our founders seemed to inherently understand what became America was not to be a society of owners and privileged lords of the factors of production, the technology developed by wage earners, and the natural resources with the rest being "unlanded serfs". Wouldn't have worked then, and won't work today or next year or ever.

The President is right to turn immediately to the issues of revenue enhancement and tax increases.

Actuaries know how much of the income that should have accrued to working folk escaped to well above the $107,000 SS contribution cutoff and before there is ANY further belt tightening of SS those amounts should be clawed back.

Additionally if the top few percent are by design or effects of "The Market" to garner all of the wealth from productivity increases there should be stiff hike in the progressivity of our income taxes. Significantly more than just rolling back the unaffordable at inception, Bush tax cuts. Look at the graph again; the "greatest tax increase" during the Clinton era did not even dent the steep upward slope of the, after tax, increases.

It's neither economically sensible nor the least bit "noble" or moral for Repubs to dig in on the Bushies having "gotten it right" on tax rates.

an observer

Jack:

Hate to hit you with the vision thing, but its not about taxes the way you state the issue.

When you talk about taxes the way you do you reverse how one plans. First gauge the result, then gauge the effort.

Ergo: What result are you trying to achieve by raising taxes?

We know why Republicans don't want to raise taxes---they have been bought and paid for by the rich. If you want to do such out of vindictiveness, say so.

My two cents is that doing such isn't justified--people who live in glass houses should be wary of throwing stones.

In my view we need to raise taxes for a number of reasons:

1) we need surpluses for the next time we have to bail out the banks. nothing has been corrected that removes that risk

2) we need to restore fairness. As I have often said, all distribution of income is a political question. Undoubtedly, our political system is broke---there is no other explanation about what has happened.

3) vision thing---people must believe in their society

4) support additional borrowing. Looking at the latest stats, and applying by broader and deeper view of our situation, my deduction is that the three forces have really ripped into national fabric.

For example, I can make a pretty compelling case that we need to raise the percent of Americans who are college graduates to 50% of our population within 5 years. We have made a comparable education of large numbers of people only once WWII and years thereafter. The productivity gains drove the late 40s and 1950s, as I have explained before.

At the same time, we need to reduce health care cost by 50%, from 20 to 10% of gdp, like the Swiss.

Third, we need to rewire, electric and internet, and bring natural gas fully on line so that we are energy independent.

There is no reason we could not do all three by 2015---we have no enemies creating friction as during WWII

What we lack is confidence, will and resolve.

IOW what we need is energy, intensity and passion. What we will get, most likely from you, is a reactionary defense of the status quo.

A number of months ago I posted the story about China building a hotel in 2 weeks.

We need to capture that image (doing everything in the next two weeks)

an observer

reasonably speaking folks on cognitive dissonance of tea party

http://www.msnbc.msn.com/id/21134540/vp/44007696

ray ban outlet

I am quite sure they will learn lots of new stuff here than anybody else!

an observer

A few days ago Observer called this, viz our immediate need to devalue the $Dollar

Current Wire Service News:

he Japanese Yen plunged overnight as the Ministry of Finance intervened into currency markets . Finance Minister Yoshihiko Noda said the action was unilateral, but noted he was in contact with other country’s authorities prior to stepping in. He added that recent Yen price action has been one-sided, threatening Japan’s recovery. The sharp spike in USDJPY spilled over into the spectrum of the US Dollar pairings, pushing the greenback aggressively higher against all of its counterparts.

The Swiss are also devaluing. People, the Tea Party just blew up the World. There theme--greed, me, immediately, coupled with being amoral---has made the World realize that it is all going to come apart quickly unless some really serious people can control, which is highly unlikely.

We have Obama, the leader from behind, and Merkle, whose political speed limit isn't fast enough for current events.

Obama is such a dull knife that he didn't even get the FAA issue resolved as a part of the debt deal.

You couple this with idiots in the house who just extort---the House FAA bill cuts out a secondary airport in Utah---instead of being principled (either we need to fund secondary airports or we don't) . . .

All the while, these bloggers remain silent.

Xavier L. Simon aka Xavier

For the record, I just entered the following in Paul Krugman’s latest blog entry, Rates of Wrath referring to the ongoing stock market crash, in the New York Times:

I just entered this in the Wall Street Journal. Can you take it? [He did post it.]

The US has become a crumbling banana republic, courtesy of both parties.

After the 1997/98 crises responsible developing countries changed course dramatically. For 25 years they had run deficits based on Keynesian economics, e.g. Krugman and the advice that W got and now Obama gets. After 125 crises many changed course. They tightened their belts, saved for a rainy day, and ran responsible budgets.

Cumulatively they generated huge savings, nearly two trillion dollars that they deposited in the US and Europe for safekeeping. In the 2000s we borrowed that money to go on a spending binge, we became a banana republic. The shoe was now on the other foot.

After 2008 the people got the message and began saving (many were too stretched anyway but all saved). Yet based on the same economics that emerging countries jettisoned after 1997/98 the US government now tried to make up for the reduced spending of the people. It ran massive deficits. Instead of imposing discipline after the 2000s binge, Obama decided that the spending should continue. He then began distributing a crumbling pie.

The main reason we haven’t grown more rapidly is the wise people who continue saving. They didn't listen to Obama. Had he only borrowed what the people were saving maybe we wouldn't be in such bad shape. After all, we would have been borrowing from ourselves. But no, like a good banana republic Washington has been borrowing from other countries, even from Russia and Mexico!

The IMF used to save those countries, it still does some. But who will save the US? The IMF is not big enough even for European countries. That is why two years ago the biggies—Germany, France and the UK—dropped most Keynesian economics and tightened their belts. How many remember the rebuffs Obama got at meetings of the G7 and G20? They were embarrassing and underplayed by the media.

The only smart ones have been the people but unfortunately their pain isn't over yet.

Xavier L. Simon aka Xavier

By the way, and since I recall that there are a few of you out there that love Obama’s new healthcare law. Guess what else is holding back the recovery of the economy by holding back employment? In my post above I mentioned lack of demand. There are also the rigidities of excessive regulation and the uncertainty created by the coming new ones—some 5,000 pages of new law (healthcare, financial, consumer [I’ve heard the FDA wants to regulate even almonds as medicine!], and others) that still have to be converted into regulations which together are going to run to another 50,000 to 100,000 pages.

Now, about helathcare. You’ve seen the recent profit reports: up, up, up. Why? Growing productivity. And why is productivity suddenly shooting up so fast? Companies are doing with fewer workers and more capital. Why the sudden increase, however? Guess what? Rapidly increasing labor costs. Oh, but wages and salaries are depressed. Yes, but the expected costs of additional healthcare premiums are killers. They already went up more than 25 percent since the new healthcare law was passed and more premium increases are being forecast. So companies want to cut their workforce.

Wake up people. Obama conned you into believing it wasn’t going to cost more. Did you really believe insuring 30 million more, doing away with all of those pre-existing conditions, lowering deductibles, increasing lifetime maximums, and on and on were going to be a gift from…God? Guess who is paying? Employers so they employ fewer people. Fewer people with jobs translates into even less consumer demand and slower growth. You all figure it out.

As I said, Obama might have inherited a crumbling pie but instead of fixing it he found it much easier to distribute it and make up the difference with borrowed foreign money.

Xavier L. Simon aka Xavier

Oh, I forgot. The ONLY way that the deficit can be reduced, even with the just approved CUTS IN THE RATE OF GROWTH OF SPENDING is to grow the economy even faster than spending will still grow. The last time I checked the White House was assuming an average yearly growth rate of 5 percent. In the last few quarters we have been doing only 2 percent, about the historical average, and we may now be going into another recession. Grow the economy? Ha ha! Now please tell me that we are not going straight into another crisis.

an observer

The idiots in the Tea Party thought that the only victims of their extortion would be in the United States.

Europe and Japan have separately decided that they have to go it alone, starting currency wars (which is why the Dow has dropped) because a United States under the influence of the Tea Party cannot be trusted.

If you were a central banker in Europe or Japan, would you trust Rush or Sarah?

an observer

Sage counsel for Obama. Contrast the lack of in-depth analysis by this blog

http://www.hanoverinvest.com/pdf/HIGComment110725.pdf

PrometheeFeu

Maybe the knowledge that the debt ceiling could be a dramatic face-off can help the government try to avoid having to raise the debt limit in the future.

Jack

Xavier???

Why? Growing productivity. And why is productivity suddenly shooting up so fast? Companies are doing with fewer workers and more capital. Why the sudden increase, however? Guess what? Rapidly increasing labor costs. Oh, but wages and salaries are depressed.

......... Indeed! And "guess what?" with WEAK demand they can easily create the DEMANDED (salable) quantities.


Yes, but the expected costs of additional healthcare premiums are killers. They already went up more than 25 percent since the new healthcare law was passed and more premium increases are being forecast. So companies want to cut their workforce.

........ Xavier????? "25%?????????" Now you know it's a sin to tell fibs? As for cutting costs? why not dump one overpaid CEO so as to retain 400 working folk? Mebbe ask the Repubs to get rid of the private jet tax breaks? You know, unless they really gin up that much biz at sports arenas?

Jack

Xavier: Not many "love" the H/C reform Congress passed that mandates most being shoved into the waiting maws of our insurance parasites, instead it's a stop along the way, a bit like an awkward adolescence.

Wha'd you like most about the old system? The knowledge that once you had any "pre-existing conditions" that you could never change jobs or I-parasites? Or was it the added court and other costs of medical bankruptcies that's such a side effect of getting sick in the US? and is virtually unknown in the 30 civilized nations that have long had H/C for all? Wait! one more for you to pick from! Laying out 17% of GDP? so we can brag about H/C costing nearly double what other nations pay?

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