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Hong Yu

If QE2 is for short-term growth, is starting a war(Afghanistan, Iran, N. Korea ) the action qualified to promote long-term growth?

I agree that the actions you listed will be truly helpful for long-term growth. But I am wondering which party would like to be the initiator at this moment? Actions, such as extending retirement age, reducing retirement income, would easily provoke hatred, thus deteriorating the party's supporting rate.

To change something is really hard in this world, but i am glad somebody,like you, still want to do it.


From the book "AN AUTISTIC WORLD (1)"

As long as there are people willing to take advantage of situations by exploiting the limitations of other individuals, there will be all sorts of mercantilist theories that will excuse their actions. The common reference is the ability to profit from manipulating the loopholes in the law, or the modification of such, to accommodate the complete absence of justice, which enables certain governments or individuals to act in a selfish and amoral manner. The superfluous vision of a theoretical present based on those simplistic but effective actions, includes the creation of dream societies founded on the rotten supports of misleading imaginations, that happily pass the baton of inflation, corruption, stagnation, etc. to future generations.

Some of the Mercantilism theories are alive and well in our current economies. For example, every time that a government, or a group of governments, subsidize the production of goods or commodities in order to sell them in the market, it is practicing in one way or another, those theories, because that government is demanding to compete with the advantage of an unfair trade against other individuals, milking the same cow over and over, and ingenuously expecting that the milk, or the cow, will always be there. Another example is the existence of tariffs and barriers on products that aren’t subsidized by governments in order to protect native industries. Commonly those countries use words like “National Interest” or “National jobs,” but what they are really saying, is that as long as they let them, they would do anything in their power to keep an unbalanced trade policy, because they are incapable of finding an option that wouldn‘t end up in uncomfortable disputes with their respective populations, relying on lies and false statements to conceal a fantasy world of “free trade.”

bankruptcy claim

Thanks for the information..I really like your post..Unemployment due to recession has made the life miserable..


Agreed, except for the VAT. A new revenue stream, however theoretically beautiful, just does not seem like a good idea because there's just too much opportunity for abuse (by "abuse" I mean an excuse for the government to spend more money).

I have read elsewhere that a factor, perhaps a significant one, for the banks not lending out more money is because of the Interest on Reserves. As I understand it, banks get to borrow money at a 0.25% rate or less and then they get a higher return on that money by just collecting the Interest on Reserves. Wouldn't repealing that policy help spur bank lending?


Geez! I hate to conclude a Nobel Prize winner is among the clueless but ...... gawd!

"Forecasters got a shock on Friday with the release of preliminary data that indicated the unemployment rate rose a little from 9.6% to 9.8% in November rather than remaining stable or even falling a little."

....What were "forecasters" counting on? Even the "shovel ready" stimulus programs that economists KNOW are slow to implement are further delayed by winter weather. Hopes of a dab of temp hires in retail?

"The slow recovery is disturbing because speedy recoveries typically follow severe recessions. For example, the sharp contraction of the American economy between 1981-’82 produced an unemployment rate of 10.8% in December of ’82, but that was followed by a steady fall in unemployment to a rate of only 7.4 in November 1984."

...This mess is not "typical". For example in past recessions purchase of new and used homes would have followed a smooth curve down and a similarly smooth curve up. After the tremendous housing bubble fueled by fraudulent practices throughout the "financial" sector it's not only a dead doggie but continuing its downward trend. Banksters hauled up before Congress "testified" they were "40% through the process" ie ......... foreclosures and "workouts" typically followed by foreclosure.

New housing is a particularly powerful spur to climbing out of the "typical" recession as a bit of optimism coupled with a small down payment gins up a quarter million of GDP along with a host of secondary expenditures; fencing, decks, pools, furnishings, appliances most of which are still made here. But housing is off from its frothy peak of 2.5 million starts to just 400,000 ... just 16% of its former self.

Used homes sales too are powerful business generators as former owners pay to fix them up for sale while as new owners pay a host of closing costs in the range of 10% of the sale, and then proudly spend more to fix things up and furnish their new digs as they like. Deadsville.

"Some uncertainty by borrowers and lenders is inevitable coming out of a severe recession. However, that normal uncertainty has been magnified by fears about the government sector. Many businesses have been afraid that the new healthcare law will raise their employment costs, that taxes and regulations on business, high incomes, and investments will go up, that the financial reform act will excessively increase the costs of banking and of other business activities, that the growth in government and the large deficits of the past several years will force increases in future taxes, a smaller private sector, and a less efficient economy."

......... Oh? I see. Weren't automakers and others on board for universal H/C such that they would not be paying for the H/C of family members slaving for benefitless outfits? And a possible tax hike of 3%? Is that enough for the "risk averse" to pass up an investment opp?

"excessively increase the COST of banking?"

..... Well I suppose it IS rough to go back to lending 10 times assets after raking it in at 30 times assets! Is SITTING on capital more profitable than lending at 10 times assets?

"I have been arguing on this blog and elsewhere that the best approach now is for Congress and the president to concentrate on increasing long-term economic growth (see my post on 11/07 for an agenda for growth)."

.......... How long? Enough to trigger the "were all dead" of Keynes? Kinda skip a generation?

This would require low taxes on investments, encouragement to basic R&D,

.......... Hmmm? Mebbe a targeted investment tax credit? Any Repubs suggesting that if we ARE going to borrow another $100 billion from future generations that we do insist upon getting SOME social benefit to pass on as well?

and sharp reductions in expected government spending,

.......... hmmm, Now? If poor "bang for the buck" tax cuts for the wealthy pals are to be added to the debt, is it wise to cut back HIGHER bang for the buck government spending? Lay MORE folks off? And "save money" by denying 'em unemployment insurance at Christmas?

"especially on social security retirement income"

.... How so? carve a bit off the $1200 or so our oldsters are getting? so as to have more for the topmost gleaners? paying 15% on divvies and cap gains? How are they to pay Part B and D to Big Pharma??

and Medicare and Medicaid.

........ Well it would have been nice to have compressed prescription drug costs.... kinda like the VA that pays less than half, but Medicaid? Is Becker really willing to take on highly paid specialists and exorbitant hospital bills? If so...... great!

Tax revenue would also have to increase, and this could be accomplished through widening the tax base, such as by eliminating the tax exemption on mortgages,

....... Well perhaps on multiple homes? Yachts used as "2nd homes?" But surely giving up the interest deduction on a primary home will further decrease the value of home inventories and further tank the housing market.

by flattening out income tax rates,

..... "flattening?" How so? by gifting yet bigger breaks to the topmost gleaners? Or? was Becker thinking of using mechanization to squeeze a dab more out of strapped middle and lower income working folk?

and perhaps also by adding a value added tax.

... ah! top it all off with the most regressive tax of all? Sure! tack another 10% on the new $40k Chevy Volt and see how long we can keep our old gas hogs running?

....... Yikes!

Erin Cartman

One things for sure, in this current economy, I almost with I had a disability. At least then I could hunt around for access violations like these guys and sue under the ADA: http://lawblog.legalmatch.com/2010/11/30/how-to-fix-the-americans-with-disabilities-act-while-maintaining-the-right-to-sue/

James Walker

When Becker says we need low taxes on investments, does he mean real capital or loanable funds (savings)? As I explain to my micro students, the demand for loanable funds is a derived demand. Consumers demand the goods and services produced from those capital investments funded with savings. The problem we face is that the primary income gainers have been the wealthiest income groups and are mostly savers while the other income groups are faced with stagnation or even declines in real wages reducing both savings and demand. This will constrain long run growth. From where we are today, long run economic growth requires wage growth sufficient to drive demand as well as supply.


America brings in millions of Mexicans, becomes more like Mexico. Economists struggle to explain why. Story at 11.


Perhaps pitchfork economics have discouraged enough productivity at the margin (for high income high value work pepole) that companies are not expanding as much as before since the rate at which new ideas and high value contribution by these competent people is simply not what it used to be.

Perhaps, excluding short term effects, the recession and recovery are happening against the backdrop of permanent European style average long term growth of 1.5%.

European incentives to produce beget European style growth. After all, why would the United States escape such a fate. A fate that has been tried with similar results in many many countries.


Once implemented, what is to prevent VAT from rising to the 20-25% level, as it has in virtually every European country where VAT was introduced as a modest tax of just a few percentage points?

Amongst other things, VAT will finance propaganda for even more VAT until we hit that 25% rate, plus income taxes.


"Many businesses have been afraid that the new healthcare law will raise their employment costs, ..."

The other, perhaps the biggest, healthcare dis-incentive bomb, is still due to explode, in 2014. That is the year when those making over $88k will pay the healthcare premiums for hemselves and for other people as well (since they will have to pay their premiums with after tax income), while those making less than 88k will basically get it almost free after the subsidies are taken into consideration.

One shoe dropped when the most productive members of American society were vilified and so they started producing less. The other shoe drops when those at the lower end of the pay scale, made more complacent by subsidies, also start producing less.

As Becker says, this will not only be a difficult decade, but a decade from which there will be no escape. Once the vicious cycle starts then the more people hurt the more suicidal production dis-incentives they start voting for. That is why many in China think that the US is on a downward spiral.


During the 1930's depression, government and people responded to the distress by voting and enacting even more production dis-incentives. That turned a recession into a depression. The same seems to be happening today.

There is though a significant difference...

When the US finally emerged from the depression, in spite of all the mistakes made, it still had a significant amount of economic fredom compared to the rest of the world just because it was endowed with such a disproportionate amount of personal freedom at its unique creation - in other words it did not use up all its freedom advantage. Not so any more. The economic freedom advantage has thinned as the US first stalled on that front and lateley even reversed course, while at the same time competitors increased their once dismal economic freedom. This time, by the time the US emerges from the recesion/depression it will no longer be the most economically free country in the world. Thus by consequence it will not be the most prosperous either.


Prof Walker: "The problem we face is that the primary income gainers have been the wealthiest income groups and are mostly savers while the other income groups are faced with stagnation or even declines in real wages reducing both savings and demand. This will constrain long run growth. From where we are today, long run economic growth requires wage growth sufficient to drive demand as well as supply."

.... Indeed! And comes now the politic of a "consumption" or VAT tax paid largely by those struggling to make ends meet while those clipping muni bonds and the like go on saving ie amassing a yet higher percentage of the wealth. Careful! one more landing on Boardwalk and the Monopoly Game is over.


Huang: In your selective memory of the success of the US you tip your hand too soon with right wing Kool-aid bits like "most productive members...... "vilified" and the like.

As for US enjoying "economic fredom compared to the rest of the world just because it was endowed with such a disproportionate amount of personal freedom at its unique creation - in other words it did not use up all its freedom advantage."

Ha, yah sure! Let's take one of the largest of our industrial sectors like auto mfg. When challenged by imports that today eat 50% of their lunch it was not a lack of "freedom" nor the fault of their employees that they didn't respond with the competitive vehicles they are now producing.

The recent MESS is the fault of too much "economic freedom" that allowed fraudulent practices to replace closely regulated banking stds that served us well for most of our history. Indeed one DOES hope that when/if we "emerge from depression" that a much more conservative financial sector will again be conveying ACCURATE signals signals to our markets. The "freedom" to lend 30 times assets with zero or less down is hardly a foundation upon which to build the next economy.

Not sure if you are Chinese or in China where, at least for the short run Production is the Thing, but in the US where our consumption is still a major driver of the world's economy it's not production that is The problem but Demand. That's why, if it is the case, "subsidies" for those at the lower incomes solves two problems at once. A. fewer who are eligible for food stamps, housing subsidies and other income related forms of transfer payments and B increased demand. China for one should celebrate the young perhaps single mom being able to replace the worn or outgrown shoes of their kids.

Eric Rasmusen

What do you think about the impact of the extension of unemployment benefits? Has that been done on as large a scale in previous recessions? Do other countries have the same generous policies?

Eric Rasmusen

I just took a look at your and Posner's July posts on unemployment insurance. Yes, unemployment insurance in its current form is bad and there are obvious improvements such as the Deductible idea. Could it be bad enough to be an important part of why this recession is worse than usual?

Here's another argument against unemployment insurance, one I haven't seen before: the Keynesian argument. As you note, the direct Keynesian effect would have to be small. Even without UI, people would consume a base level, and UI probably replaces a lot of private debt with government debt. The new idea is this: to the extent that UI discourages people from taking jobs, it discourages them from spending. The person spends the $20,000/year of his UI instead of the $40,000/year of the salary he would get. This would be true even in the best-case scenario for UI supporters, where UI helps by preventing people from taking bad-fit jobs: the person spends the $20,000 of his UI instead of the $30,000 salary he would get at the bad-fit job. Some PhD students should calculate how much UI reduce aggregate consumption.


Eric: Unfortunately a MESS like this one gores some oxen much harder than others. Those in home and other construction for example. When construction has such a severe cutback where do those journeymen, apprentices, or even semi-skilled workers go? Not easy for them to join the already rather filled ranks of the "info tech" world.

But to your question, if say, a 10% unemployment rate were shared by all in a sort of rotation then each worker would have a short stay on unemployment, but the total would be the same.

As pointed out some 40% have been on unemployment for a long time. Do you suppose those house holds are really enjoying living on a third or less of their former income? After all when things WERE better they WERE willing to work even in light of the stagnant wages offered.


Eric you'll have to go some to find a rational argument against unemployment INSURANCE.

Truth is UI benefits commercial interests and society in general even more than the individual. Consider...... most cars are bought on time or leased. W/O UI they could pile up back on the lot in just a few months of incomeless UI. Same with housing. Surely you know someone who is able to pony up a mortgage payment on UI and cutback enough in other areas to "get by" for a while.

I like you to turn this around in your mind for a bit: Consider those VERY well off committed fraud in the years that coincide with the repeal of Glass-Steagal -- and the lack of oversight of the Bush admin, that caused much of this mess. Their institutions have largely been made whole while the individual miscreants are "retiring" with the millions they creamed off.

Now it's those most vulnerable to economic shocks that ARE paying much of the price and you've some "theory" as to why you not only want to set them adrift but take their one oar as well? Why?


No sitting Federal Appeals Court Judge should be blogging as long as he holds the PRIVILEGE of the office which requires verbal constraint beyond his right as a citizen to speak his mind; mind you now Judge, all in the favor of your reputation for impartiality in upholding "contemporary need" over the Constitution!

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"American GDP has been growing at the unimpressive annual rate during the past two quarters of about 2%, while productivity has been improving at a quite good rate- it increased by 2.3% in the 3rd quarter of 2010. This leaves only limited, if any, room for growth in employment."

........ Indeed! structural unemployment with productivity increases negating "growth" and with all of the productivity gains accruing to those of the topmost income tiers who'll now be further ....... empowered? by extended tax breaks.

Perfect recipe! Little for working blokes on either the public or private sector. And ha! once they are broke the wealthy owners of the factors of production will have few customers. Great eh?


Well, there are other things that would jump start the economy that the post did not mention.

There are several industries that are now in effect outlawed in the USA which would generate large numbers of jobs. Fossil fuels, refining, and fish farms come to mind. Especially in fossil fuels, since 80%+ of our energy comes from them, and would do so for the next 20 years even if we discovered the perfect fuel, it makes no sense to import it all.

Then there are regulations. Everyone wants clean air, water and land. But the EPA has gone off the deep end. There are millions of acres of commercial and industrial land lying dormant because of the Draconian laws demanding a pristine woodland quality for industrial properties.

And of course zoning hasn't helped us. Michael Porter and others have long ago described how governments have made it almost impossible to rejuvenate inner cities (here the EPA is in the way also) because of the warren of zoning, taxes, licenses, and legal exposures that have infested many of our cities. Why not open them up and allow entrepreneurs to see what they come up with?

In general our regulations have by now encouraged all kinds of investment and creativity to leave the country. Like the oil drillers in the Gulf, when they are scared off, it will be years until they come back.

It is popular to talk of low wages as the motivation to off-shore. Regulation tops it all. As an example, you are a business owner who laid off 50 product managers during the recession. Now you have an uncertain economy, uncertain taxes, and rising health care costs. Will you hire them back? Or will you just outsource it to the product manufacturer in Romania and tell them to increase your cost of goods 3%?


Companies Cling to Cash
Coffers Swell to 51-Year High as Cautious Firms Put Off Investing in Growth


Corporate America's cash pile has hit its highest level in half a century.

Rather than pouring their money into building plants or hiring workers, nonfinancial companies in the U.S. were sitting on $1.93 trillion in cash and other liquid assets at the end of September, up from $1.8 trillion at the end of June, the Federal Reserve said Thursday. Cash accounted for 7.4% of the companies' total assets—the largest share since 1959.

The cash buildup shows the deep caution many companies feel about investing in expansion while the economic recovery remains painfully slow and high unemployment and battered household finances continue to limit consumers' ability to spend.

The buildup has a big downside for companies, which get little return on their money because interest rates are low, but it reflects the relatively few opportunities they see to deploy their cash more creatively. "The corporate sector is looking at the household sector and saying, this is not the environment where we should expand our business," said Deutsche Bank economist Torsten Slok.

In one bright sign, the Fed's data show that the net worth of U.S. households increased to $54.9 trillion in the third quarter, up from $53.7 trillion in the second quarter, as rising stock-market wealth more than offset declining home values.

That was still well below the second-quarter 2007 peak of $65.7 trillion. After-tax household income rose to an annualized $11.42 trillion from $11.37 trillion in the second quarter.

The cash pooling up at companies has the potential to help the economy grow more vigorously and bring unemployment lower—if they start spending it on new plants, equipment and employees.

But in the wake of the worst economic downturn since the 1930s, companies are hesitating to make that shift, said Brian Bethune, economist at IHS Global Insight.

In the aftermath of the 2000 dot-com bust, many nonfinancial companies adopted a more conservative stance, holding more cash, and less debt. When the recession hit in late 2007, and the financial crisis erupted in 2008, their stronger balance sheets helped them weather the storm.

"They did well by being conservative," said Mr. Bethune. "Why would they depart from that?"

FMC Corp., a chemical company based in Philadelphia, is among those that have sharply reduced their debt loads and increased their access to cash in recent years, a shift that helped shield many businesses from the downturn.

The company doesn't plan to expand beyond its three main areas of business—herbicides and pesticides, food additives, and lithium that goes into batteries. Nor does it plan to make any major acquisitions. It is exploring ways to reinvest its cash in the company and, if it can't, it will likely pay it out to shareholders through dividends and stock buybacks, according to Chief Financial Officer Kim Foster.

But the company will likely maintain the conservative stance it adopted prior to the financial crisis. "That decision has been validated," Mr. Foster said. "We're not going to be financially aggressive going forward."

Much of the cash accumulating in corporate coffers belongs to technology companies, which typically don't need to tie up nearly as much money in plants, real estate, equipment and inventory as do manufacturers and retailers.

Tech companies in the Standard & Poor's 500-stock index now hold some $352 billion in cash and short-term investments, according to Standard & Poor's index analyst Howard Silverblatt.

Among the top holders are Microsoft Corp., with $43.25 billion in cash and short-term investments; Cisco Systems Inc. with $38.9 billion; and Google Inc. with $33.4 billion.

But the propensity to save rather than spend shows up across the corporate landscape.

With sales slumping, Avery Dennison Corp., a Pasadena, Calif. maker of labels and packaging materials, laid off workers and cut its dividend last year in an effort to preserve cash.

As sales began to come back, the company's cash hoard swelled. In the quarter ended Oct. 2, Avery Dennison held $157.8 million in cash and cash equivalents—up from $91.9 million a year earlier.

The company will likely spend more money, said Chief Executive Dean Scarborough. But unlike in the early 2000s, when Avery Dennison made a string of acquisitions and invested heavily in emerging markets, it will take a conservative approach to expansion.

"There will be a modest increase in capital spending and a modest increase in hiring," Mr. Scarborough said. "If we do acquisitions, they'll likely be small."

When Fastenal Co. considered what it might do with the cash built up on its balance sheet in recent quarters, it decided that giving it back to shareholders was a better idea than investing it in growth. Fastenal said it made the decision partly because of uncertainty about tax policy on dividends next year.

On Monday, the Winona, Minn.-based company, which sells screws, nuts, bolts and other supplies to factories and construction companies, paid out a special dividend of 42 cents a share, or roughly $62 million.

But even after the dividend, Fastenal, which had $172 million in cash and cash equivalents in the third quarter, is holding more cash than it did prior to last year. "We're saving our firepower for when opportunities might come up," said chairman and founder Bob Kierlin.

Printed in The Wall Street Journal


Jim While here in Alaska we've outlawed fish farms because they'd pose an unmitigated disaster to our plentiful wild stocks are legal in much of the US and generally screwing things up along the BC coast where the drug-ridden mutants spread disease and world wide consume more anti-biotics than does the entire cattle industry.

From my perch here where oil is of a major interest there is the constant litany of "We'll leave if........ yadda" but one thing I've noticed over the decades is that they tend to be attracted to areas that HAVE oil, and especially so when price manipulation has been as effective as it has in recent years. $80 for what sold for $18 a decade earlier seems quite an incentive.

BTW have you noticed that the "well to wheel" efficiency of oil has fallen to 15% despite increases in engine and mileage efficiencies in the portion of our fleet subject to President Carter's visionary CAFE stds? At those rates doesn't it strike you as a bit wasteful to burn a gallon of oil only to employ 15% of the BTU's to move the vehicle?

But you're right in that swapping eighty of our hard-earneds for a bbl of imported oil which then builds up the economies of OPEC is a drag on our economy and a factor in this depression. But, consider oil (somewhat curiously) is priced world-wide. I've not heard any projection from even the giddiest of the "drill-baby" faction that would increase WW production by even 5% and thus have virtually no impact on the somewhat manipulated price.

Now consider: Here we are handing off billions to OPEC to feed our oil addiction with LNG imports coming along as well. Surely, given the blind canyon we've been flown up with few options during the last 30 years, conserving and finding alternatives for increasing percentages of what we now consume and waste is cheaper, cleaner and more sustainable than throwing caution to the winds while pumping US reserves bone dry. Wouldn't insightful conservatives think it a national security risk to, soon, be 90% or 99% dependent on the kindness of strangers?

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