Krugman on Deficits

Paul Krugman on his blog yesterday shows once again how he has stopped becoming a serious economics. First Kruggie from 2004, when the budget deficit was a mere $413 billion:

PROFESSOR PAUL KRUGMAN, PRINCETON ECONOMIST: Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there.It's comparable to the worst we've ever seen in this country.

It's biggest than Argentina in 2001.

Which is not cyclical, there's only a little bit that's because the economy is depressed.

Mostly it's because, fundamentally, the Government isn't taking in enough money to pay for the programs and we have no strategy of dealing with it.

So, if you take a look, the only thing that sustains the US right now is the fact that people say, "Well America's a mature, advanced country and mature, advanced countries always, you know, get their financial house in order," but there's not a hint that that's on the political horizon, so I think we're looking for a collapse of confidence some time in the not-too-distant future.

Now from his blog, when it was announced that the deficit will total over $9 trillion, over the next decade, more than double the worst deficit under Bush, for 10 straight years!

It turns out that I was a little over-pessimistic in my assessment, mainly because the $9 trillion includes this year’s deficit, so we start from debt at 40% of GDP, not 50%. Overall, the OMB puts debt in 2019 at 76.5% of GDP; that figure is slightly exaggerated, however, because various financial rescues get counted as additions to the deficit even though taxpayers end up with additional assets. Net of these assets, the debt in 2019 is 68.9% of GDP.

As I’ve pointed out, that’s bad, but it’s not horrific either by historical or international standards. On a comparable basis, federal debt hit
109 percent of GDP at the end of World War II, and hit a second peak of 49 percent at the end of the Reagan-Bush years. And a number of European countries have hit substantially higher debt levels without crisis.

The Postalization of Health Care

I went to the post office this morning, there is a major one only a couple of blocks from work. I simply needed to pick up some stamps. I searched around for a vending machine, as I destest having to deal with postal employees, but alas, there were none. Finally I asked a couple of employees standing behind a counter chatting with each other accomplishing nothing, if I could buy some stamps.

They informed me that I could not, because it was only 8:25, and the people who sold the stamps do not come on duty until 8:30. With a scowl I replied, "Thanks for the great service." and one of them replied sarcastically, and with no apparent sense of shame "you are welcome".

Now continuing what is possibly the world's most clueless argument for getting government involved in our healthcare, is Jesse Jackson Jr. I swear this guy is setting new records for bad economics.

Stimulus Success?

Several months ago I argued that Keynesian stimulus was not a proven concept. It might be a bit early to say definitively, but the early evidence showed that I was unfortunately right.

White House economic adviser Austan Goolsbee promised on "Fox News Sunday": "It's going to take more than a few months to turn it around." That contradicts White House economic adviser Lawrence H. Summers' promise in January that the economy would start improving "within weeks" so long as the president's $787 billion stimulus was passed.

The stimulus actually has dampened economic projections. In January, before the stimulus was passed, 53 business economists and forecasters surveyed by the Wall Street Journal expected gross domestic product (GDP) for the third quarter (July through September) to rise by 1.2 percent at an annual rate. Predictions became gloomier after the stimulus passed in March. In May, these experts forecast only a 0.6 growth rate for the third quarter.

Great Moments in UW Class of 93 History

I was interested to find out the woman who broke the expense account scandal in the UK was a classmate of mine. Unfortunately, I didn't know her. Big school and all.

If the British tabloids knew about the sex-advice column Heather Brooke wrote for the University of Washington Daily nearly two decades ago they might run with it as a salacious news item.

Something like "sex writer rocks Parliament."

But that information hasn't reached them, it seems, and Brooke has proven to an entire nation she is a journalist of another ilk. In doing so, the former Seattleite has shaken up the British parliamentary leadership and perhaps changed forever the relationship between the British press and the House of Commons.

No Kidding

In the bizarre beyond belief category, President Obama proposes the largest deficits, by far, in US history through massive spending increases, and then notes that they are a bad idea.

May 14 (Bloomberg) -- President Barack Obama, calling current deficit spending
“unsustainable,” warned of skyrocketing interest rates for consumers if the U.S. continues to finance government by borrowing from other countries.

“We can’t keep on just borrowing from China,” Obama said at a town-hall meeting in Rio Rancho, New Mexico, outside Albuquerque. “We have to pay interest on that debt, and that means we are mortgaging our children’s future with more and more debt.”

Holders of U.S. debt will eventually “get tired” of buying it, causing interest rates on everything from auto loans to home mortgages to increase, Obama said. “It will have a dampening effect on our economy.”

You Are Joking, Right?

Jake Tapper is about the only serious journalist left. Robert Gibbs continues to be the clown of the White House.

JENNIFER LOVEN, AP: The $100 million target figure that the president talked about today with the Cabinet, can you explain why so small? I know he talked about -- you know, you add up 100 million and 100 million, and eventually, you get somewhere, but it would take an awfully long time to add up hundred million (inaudible) in the deficit. Why not target a bigger number?

GIBBS: (Smiling) Well, I think only in Washington, D.C. is a hundred million dollars...

LOVEN: The deficit's very large. It's not a joke.

GIBBS: No, I'm...

LOVEN: The deficit's giant. $100 million really is only a step.

GIBBS: But no joke.

LOVEN: You sound like you're joking about it, but it's not funny

.GIBBS: I'm not making jokes about it. I'm being completely sincere that only in Washington, D.C. is $100 million not a lot of money. It is where I'm from. It is where I grew up. And I think it is for hundreds of millions of Americans.

LOVEN: The point is it's not a very big portion of the deficit.

TAPPER: You were talking about an appropriations bill a few weeks ago about $8 billion being minuscule -- $8 billion in earmarks. We were talking about that and you said that that...

GIBBS: Well, in terms of -- in...(CROSSTALK)

TAPPER: ...$100 million is a lot but $8 billion is small?

Obama's Economic Mirage

I am a bit behind on this, but this deserves posting, as it makes a point that I have tried to make several times. I don't know what this is, but it sure as hell isn't economics. From columnist Robert Samuelson.

What defines the "post-material economy" is a growing willingness to sacrifice money income for psychic income -- "feeling good." Some people may gladly pay higher energy prices if they think they're "saving the planet" from global warming. Some may accept higher taxes if they think they're improving the health or education of the poor. Unfortunately, these psychic benefits may be based on fantasies. What if U.S. cuts in greenhouse gases are offset by Chinese increases? What if more health insurance produces only modest gains in people's health?

Obama and his allies have glossed over these questions. They've left the impression that somehow magical technological breakthroughs will produce clean energy that is also cheap. Perhaps that will happen; it hasn't yet. They've talked so often about the need to control wasteful health spending that they've implied they've actually found a way of doing so. Perhaps they will, but they haven't yet.

We cannot build a productive economy on the foundations of health care and "green" energy. These programs would create burdens for many, benefits for some. Indeed, their weaknesses may feed on each other, as higher health spending requires more taxes that are satisfied by stiffer terms for "cap-and-trade." We clearly need changes in these areas: ways to check wasteful health spending and promote efficient energy use. I have long advocated a gasoline tax on national security grounds. But Obama's vision for economic renewal is mostly a self-serving mirage.

Jury Strikes Blow for Incompetent Professors Everywhere

Give me a break. I know Harvard PhDs at the University of Washington who haven't been able to get tenured positions yet, and they give this idiot, with a MS in Communications from some unknown experimental university a department chair at CU. He should have never been hired in the first place. Firing was the correct action.

DENVER — A jury ruled Thursday that the University of Colorado wrongly fired the professor who compared some Sept. 11 victims to a Nazi, a verdict that gives the professor $1 and a chance to get his job back.

"What was asked for and what was delivered was justice," Ward Churchill said outside the courtroom.

Then-Gov. Bill Owens was among the officials who had called on the university to fire Churchill after his essay touched off a national firestorm, but the tenured professor of ethnic studies was ultimately terminated on charges of research misconduct.

Great News: Obama Budget Even Worse than Thought

Remember, this is the budget that Nobel Prize Winner Paul Krugman just called "Very, very good". He might want to think about taking that back.

President Obama's ambitious plans to cut middle-class taxes, overhaul health care and expand access to college would require massive borrowing over the next decade, leaving the nation mired far deeper in debt than the White House previously estimated, congressional budget analysts said yesterday.

In the first independent analysis of Obama's budget proposal, the nonpartisan Congressional Budget Office concluded that Obama's policies would cause government spending to swell above historic levels even after costly programs to ease the recession and stabilize the nation's financial system have ended.

The Robert Gibbs Comedy Hour

I hope Obama doesn't get rid of this guy, he is a laugh a minute. The guy is like a one man Abbot and Costello.

A Return to Depression Economics

Nevermind that it was been tried before with disasterous results, populist economics can be, well, popular with some politicians:

"The housing affordability crisis trumps any theoretical recommendations of economists," New York State Assemblyman Jonathan L. Bing, a sponsor of many of the rent-control provisions pending in New York, told FOXNews.com.

Bing supports bills that would further limit the amount landlords can increase rent after tenants move out, and that would increase to $240,000 the maximum income of people who qualify for rent control.

San Francisco Tenant Union Director Ted Gullicksen supports legislation that would llow tenants to avoid rent increases that would make them pay more than 30 percent of their income in rent.

The city's proposed law would also force landlords to let tenants take in roommates, who, Gullicksen said, could help with the rent.

But should landlords be compensated for the new restrictions on their property? "I don't think so," Gullicksen said. "Rents are so extraordinarily high. Landlords in San Francisco are just making huge amounts of money."

Economic Knowledge

I came across a survey which showed how poorly high school students understand economics. I wonder if you gave it to Congress if they would do any better. Or president Obama for that matter...

In 1999, researchers at the Securities and Exchange Commission concluded that 66 percent of high school seniors could not pass a basic economic literacy test. Things have not changed for the better since.

In 2008, the Jump$tart Coalition for Personal Financial Literacy administered its financial literacy test to 6,856 high school seniors in 40 states. The overall score was 48 percent. Only 17 percent knew investing in stocks would probably generate the most return over an 18-year period.

Hey Tim...

While we undergo the biggest financial crisis in 70 years, the Obama administration has enough time to plan attacks against Rush Limbaugh and revamp our social systems for the next 2 decades, but they can't seem to appoint anyone to the Department of the Treasury to actually do anything. Here is a list of the appointed positions there:


Secretary
Deputy Secretary
Under Secretary — Domestic Finance
Under Secretary — International Affairs
Under Secretary — Terrorism and Financial Intelligence
Assistant Secretary — Economic Policy
Assistant Secretary — Financial Markets
Assistant Secretary (Deputy Under Secretary) — International Affairs
Assistant Secretary (Deputy Under Secretary) — Legislative Affairs
Assistant Secretary — Management and Chief Financial Officer
Assistant Secretary — Public Affairs/Director — Policy Planning
Assistant Secretary — Tax Policy
Chief Counsel — Internal Revenue Service/Assistant General Counsel for Tax
Commissioner — Internal Revenue (five-year terms of office)
General Counsel
Inspector General
Inspector General — Tax Administration
Treasurer — United States

Of all those positions, only Secretary Geithner, the guy who can't figure out Turbo Tax, has actually been appointed. Come on, it is not like there aren't any unemployed finance people out there. Hell, I would consider a couple of those positions, if you made the right offer...

Hey Tom...

Now I am not a typical conservative in that I have read far more Thomas Friedman than I have listened to Rush Limbaugh, but I have to take Tom to task for this part of his editorial today.

Meanwhile, the Republican Party behaves as if it would rather see the country fail than Barack Obama succeed. Rush Limbaugh, the de facto G.O.P. boss, said so explicitly, prompting John McCain to declare about President Obama to Politico: “I don’t want him to fail in his mission of restoring our economy.”

OK, that sounds nice, Rush has become the Democrats designated whipping boy, an intentional plan as it turns out, but that is not what he said. Here is the original quote which started this whole thing off.

If I wanted Obama to succeed, I'd be happy the Republicans have laid down. And I would be encouraging Republicans to lay down and support him. Look, what he's talking about is the absorption of as much of the private sector by the US government as possible, from the banking business, to the mortgage industry, the automobile business, to health care. I do not want the government in charge of all of these things. I don't want this to work. So I'm thinking of replying to the guy, "Okay, I'll send you a response, but I don't need 400 words, I need four: I hope he fails."

He never says that he wants the country to fail, just Obama. And he is even more specific than that, he is talking about specific economic policies that Rush opposes, not the presidency in general. Whether you agree with him or not, that is well within the normal political discourse and Thomas Friedman owes him an apology.

Alan Greenspan: We Didn't Do It

In today's Wall Street Journal Alan Greenspan makes an argument that I have been making for a while. Obviously he knows a little more about the subject than I do, although he is a bit biased.

There are at least two broad and competing explanations of the origins of this crisis. The first is that the "easy money" policies of the Federal Reserve produced the U.S. housing bubble that is at the core of today's financial mess.

The second, and far more credible, explanation agrees that it was indeed lower interest rates that spawned the speculative euphoria. However, the interest rate that mattered was not the federal-funds rate, but the rate on long-term, fixed-rate mortgages. Between 2002 and 2005, home mortgage rates led U.S. home price change by 11 months. This correlation between home prices and mortgage rates was highly significant, and a far better indicator of rising home prices than the fed-funds rate.

The Smartest Woman in the World

OK, I had better stop now, this could go on forever.

Tiredness appeared to show Friday when she answered questions in front of 500 young Europeans at the European Parliament, where she was the highest-ranking U.S. visitor since the late U.S. President Ronald Reagan in 1985.

A veteran politician, Clinton compared the complex European political environment to that of the two-party U.S. system, before adding:"I have never understood
multiparty democracy.

"It is hard enough with two parties to come to any resolution, and I say this very respectfully, because I feel the same way about our own democracy, which has been around a lot longer than European democracy."

The remark provoked much headshaking in the parliament of a bloc that likes to trace back its democratic tradition thousands of years to the days of classical Greece.
One working lunch later with EU leaders, Clinton raised more eyebrows when she referred to EU foreign policy chief Javier Solana, who stood beside her, as "High Representative Solano."

She also dubbed European Commission External Relations Commissioner Benita Ferrero-Waldner as "Benito."

Condoleeza Rice Would Have Got it Right

Apparently the State Department doesn't own a Russian-English dictionary. I suppose I could loan them one of mine if they are that hard up.

Clinton presented Lavrov with a gift-wrapped red button, which said "Reset" in English and "Peregruzka" in Russian. The problem was, "peregruzka" doesn't mean reset. It means overcharged, or overloaded.

And Lavrov called her out on it.

"We worked hard to get the right Russian word. Do you think we got it?" Clinton asked Lavrov.

"You got it wrong," Lavrov said. "This says 'peregruzka,' which means overcharged."

They must not have worked that hard. The least they could have done was write it in Cyrlic. And just how smart was it to give the Russians a big red button? We have been trying to keep the Russians from pressing the red button for the last 6 years now.

Diplomatic Blunder #2

The other day I posted about how the Brits felt slighted regarding Obama's treatment of their PM. Now it appears I could start an entire series on the new administration's diplomatic idiocies.

As he headed back home from Washington, Gordon Brown must have rummaged through his party bag with disappointment.

Because all he got was a set of DVDs. Barack Obama, the leader of the world's richest country, gave the Prime Minister a box set of 25 classic American films - a gift about as exciting as a pair of socks.

Mr Brown is not thought to be a film buff, and his reaction to the box set is unknown. But it didn't really compare to the thoughtful presents he had brought along with him. The Prime Minister gave Mr Obama an ornamental pen holder made from the timbers of the Victorian anti-slave ship HMS Gannet.

What, was there a sale at Best Buy?

Obama Insults the Brits

Who would have thought we would be looking back at the comparative competence of the Bush administration.

Obama to World: Drop Dead!
The White House could easily have granted the press conference Gordon Brown so clearly craved. Though there was something a little craven, a touch humiliating about much of the build-up to this week's Prime Ministerial visit to Washington, it's reasonable to suppose that, in this instance at least, Brown may have been treated a little shabbily. The kindest way to view this is that the White House is so focused on economic fire-fighting that it has little time for diplomatic niceties;
alternatively it sends a tough reminder as to who wears the trousers in this relationship partnership. There'll be none of this Athens to Rome nonsense, Mister Brown. (Was it just a coincidence that the BBC went big on Macmillan visiting JFK in their footage last night?)

Well, maybe next time we will elect someone who has actually managed to hold down a full-time job for more than a couple of years?

Paul Krugman Then and Now

If there were still any question that Paul Krugman, large cash awards from Swedish bankers aside, should no longer be taken seriouslyas an economist, check out this editorial from last week. But first, let's set the stage by looking at his previous statements.

From 2003, when the budget deficit was a "mere" $378 billion:

As a drunk is to alcohol, the Bush administration is to budget deficits.....

It's O.K. to run a deficit during a recession, as long as the deficit is clearly temporary. But both the numbers and the administration's search for excuses tell us that there's nothing temporary about the red ink. On the contrary, we'll probably be on a deficit bender until the baby boomers retire -- and then it will get much worse.

Paul Krugman in 2004, when the deficit was $413 billion:

Well, basically we have a world-class budget deficit not just as in absolute terms of course - it's the biggest budget deficit in the history of the world - but it's a budget deficit that as a share of GDP is right up there.

It's comparable to the worst we've ever seen in this country.

It's biggest than Argentina in 2001.Which is not cyclical, there's only a little bit that's because the economy is depressed.

Mostly it's because, fundamentally, the Government isn't taking in enough money to pay for the programs and we have no strategy of dealing with it.

So, if you take a look, the only thing that sustains the US right now is the fact that people say, "Well America's a mature, advanced country and mature, advanced countries always, you know, get their financial house in order," but there's not a hint that that's on the political horizon, so I think we're looking for a collapse of confidence some time in the not-too-distant future.

Now, Paul Krugman on a Obama budget that starts out at $1.7 trillion and even in its best year never dips below $500 billion, more than any Bush deficit:

But I don't blame Obama for leaving some big questions unanswered in this budget. There's only so much long-run thinking the political system can handle in the midst of a severe crisis; he has probably taken on all he can, for now. And this budget looks very, very good.

In fact that is even the title of the editorial, in big bold letters:

Krugman: This budget looks very, very good

Amazingly he even spins things to make it look like Bush had it easy as a result of the real estate bubble:

Bear in mind that from 2005 to 2007, that is, in the three years before the crisis, the federal deficit averaged only $243 billion a year. Now, during those years, revenues were inflated, to some degree, by the housing bubble.

By contrast I am not aware of him ever pointing out that the surplus of the late 90s was mainly due to capital gains resulting from the stock market bubble, even thoough most serious economists admit it was, to Krugman it was purely the genius of Bill Clinton and Robert Rubin.

And finally he manages to spin this once more:

But won't the deficit be swollen by interest on the debt run-up over the next few years? Not as much as you might think. Interest rates on long-term government debt are less than 4 percent, so even a trillion dollars of additional debt adds less than $40 billion a year to future deficits.

Oh, great. You ruin the economy to the point that the Fed drops interest rates to effectively zero, and scare everone from investing in anything other than treasuries, then take pride in the fact that the national debt is cheap to finance.

And they gave a Nobel Prize to this guy?