Saturday, January 24, 2009
Quote of the Day
Meetings are an addictive, highly self-indulgent activity that corporations and other large organizations habitually engage in only because they cannot masturbate.
Dave Barry
Geithner it is.
Ushering in a new era of accountability, our new Treasury Secretary is Timothy Geithner!
Fun Facts:
Fun Facts:
- Timothy Geithner is a crooked sumbitch tax cheat!
- Timothy Geithner brought you the crooked, sumbitchin' TARP!
- Timothy Geithner's housekeeper was in the country illegally!
- Timothy Geithner tried to claim his child's summer camp as day-care expenses!
Friday, January 23, 2009
Thursday, January 22, 2009
Victory through superior handedness.
President Barack Obama signs his first act as president, a proclamation declaring a national day of renewal and reconciliation and calling on Americans to serve one another, after being sworn in as the 44th President of the United States during the inaugural ceremony in Washington Tuesday, Jan. 20, 2009. (AP Photo/Molly Riley, Pool) #.
Finally President
Now all there is to do is wait for the next constitutional crisis, which will immediately ensue after the election of the first mute to the Presidency.
Quote of the Day
I don't profess to be profound; but I do lay claim to common sense.
Charles Dickens, David Copperfield.
Wednesday, January 21, 2009
Good Economic Policy
Let's pretend this represents the economy from say, 1980, and into the great beyond. Our economy began the 80s under performing. Then came tax cuts which did not restrain, nor were restrained by, federal spending. You have a sharp period of bullshit economic growth, with the eventual collapse well under the level of growth a healthy economy could provide (the first shaded pink area). For the sake of simplification, let's group the dot-com bubble with Bush tax cuts and the housing bubble (bullshit growth area #2), because there was a fair amount of overlap with very little constriction. Any sort of bubble effect is trying to cheat GDP, so you can assume we've been run by cheaters and liars for the past three decades. I hope that trend is broken this time around, but we'll have to see.
The thick red line is what we've had. Periods of bad economic policy providing unsustainable growth, with resulting collapses which make life suck more than it normally would, which hurts even more because life was sucking less than it should just a few months ago.
The problem today is that the collapse is the worse collapse since the Depression, so there is little doubt that the "life sucks" pink area, again, representing the difference between what we have and what we could have, will be very big, and last for a very long time. The financial sector of the economy is right up there with oil in terms of what keeps the economy growing, and that's why this is huge, and this is why we need to do it right.
Today, we have choices. We can do nothing, and let the red line continue until the economy bottoms out, only to slowly recover. Conservatives are half right when they say that we don't have to do anything, and the economy will recover. Of course the economy would eventually recover, and this has the added benefit of eliminating all of the poorly-run companies. But it would take a very long time to get back to a healthy growth rate, and would maximize the life sucks pink area.
We could just deregulate everything and let everything run its own course. But whenever we choose to do this, bad things happen. Read your goddamn history. The whole reason socialism was popular in the late 19th and into the 20th century was because emerging industrial capitalistic economies were always guided by stupid ass lassiez-faire economic policies, which did bad things to most people, like keep them really poor, without access to stuff they needed. It's not that you can't have outstanding economic growth with no regulation. It's just that you will experience more market failure, people can't afford to buy the shit they need, and they will eventually try to shoot your ass and take the shit from you. I'm not anti-capitalist. I am anti-socialist. And the best way to avoid socialism is to regulate capitalism.
We could simply let the market bottom out, but only reestablish regulation so that it never happens again. This would provide some confidence in the economy, so the growth rate would be faster if we did nothing at all. But, again, the economy would continue to get worse before it got better, and that's a very long time of life sucking for everyone.
The government could just go into debt by giving out tax cuts, without any resulting decrease in federal spending, or extending unemployment benefits. In the short run, this could provide a very small increase in economic growth in the form of consumption. In the medium run, there's a good chance it will shallow out the bottom of the economic free fall. But even if you assume this would stop the economy from bottoming out completely, in the long run the tax cuts would give you no assistance at all in the recovery, when the bills come due. It is still a very long hard road of paying back the tax debt, and life would suck for a very long time.
Better, the government could invest in things that would make commerce easier to conduct. But it could spend money on things like building fiber optic networks, expanding highways and constructing bridges. This is just like you and me buying shit, because it creates jobs. But it's also like you and me invested in something that promotes productivity, which also increase GDP, and has the added benefit of making money easier for everyone, which would allow people and businesses to make more money, driving up consumption and investment and tax revenues. Remember your GDP multipliers. If the government invests in things like renewable energy, we wouldn't have to buy so many fossil fuels from other countries, which would reduce the trade deficit, while still buying shit like consumers and investing like savers. This would still take a long time to get back up to our natural economic growth rate, mostly because there is only many, as Krugman says, "shovel-ready projects." It would put some people back to work very quickly, so there would be a short-term bump in economic growth. But in the medium to long run, as more and more of these projects come on line, our capacity for economic growth would actually be better than if we provided no government investment in capital growth. We would more quickly approach what we're used to, and exceed that quicker than any other single plan on the table.
None of these approaches work quickly enough to save us from having our life suck, though some are better than others. Here's a neat trick: You can stack them. You fund some of the short run stuff to stop the bleeding. You can cushion the economy from the effects of the short run stuff drying out by investing in some of the medium run stuff, like tax breaks. You can immediately start your long run infrastructure projects at the same time, capturing that short run bounce and the long run increase, and you can, and should, reorganize the government to pay closer attention to the markets, regulate where they can, deregulate when they can, and most importantly, make sure we do not stray too far from our natural growth rate.
These are our choices. Yes, the economy is that bad. No, the economy will not be good again for a long time. Yes, life will pretty much suck. No matter what, though, we will recover, and life will improve. The point is, if we get our shit together and establish good economic policy, we can recover much more quickly, and come out of the recession much stronger, than we went into it.
The monetary policy component will have to be a major part of the recovery process, and it's something I don't even want to speculate on, simply because I'm not smart enough. I do know that you can pour trillions of dollars into it and you will never get it back. You can set aside money to back every shitty mortgage, but when we're hemorrhaging a half million jobs a month, who the fuck is going to pay those mortgages? There's no guarantee that the commercial banks are going to start loaning money out again, which is the whole goal of the exercise. You have to create jobs so people can pay their mortgages and escape foreclosure. That's the easiest way to stabilize housing prices. Otherwise you're just transferring bad debt to the government with nothing to show for it.
The housing and monetary crises today belie the fiscal problems. Printing money or taking money out of the economy are band-aids, though seemingly very expensive ones. $700 billion for this is a drop in the bucket. But no matter what we do, we cannot simply print money to make the underlying economic situation better.
Jobs, jobs, jobs and infrastructure to support it. Whatever it takes, is the order of the day.
Let me be clear when I say all of this stuff will have to be handled very adroitly and deftly if they are to work at all. Over-regulate, you stagnate the economy, under-regulate, you create another bubble. Miss the tax break by a few billion, you add debt without doing anything, cut too much, and you're basically creating another bubble. Get hamstrung in trying to create infrastructure projects, you retard economic capacity, making recovery longer, create too much, and you can't afford to maintain it.
How quickly we get it right will determine how much life will suck, and when it will stop sucking. There are other problems looming on the horizon, but we will be in a much worse position to handle them if we dick around with the recovery.
I have to hope things are fixable, and we use some common sense, and not stupid ass politics, to get the stimulus done. We're at the end of the rope in terms of how much too cute by half creative accounting we can tolerate.
Tuesday, January 20, 2009
Inauguration.
I have to admit that I can no longer watch things like this live. I have to make sure everything turned out OK before I take a peek. I think I caught ABC showing a side-by-side comparison between the crowd in 2005 and today, and it was a pretty incredible difference. 400,000 people tend to show up to these things, and just in the mall alone, the crowd was estimated at 1.4 million people. Unfortunately, I was unable to tell from the 2005 image how many of the people on the mall stood with their backs to that miserable failure.
I'll put the video of the speech up later.
I'll put the video of the speech up later.
Quote of the Day
[I]n the unlikely story of America, there has never been anything false about hope.
President Barack Obama
Monday, January 19, 2009
Assumptions about Economic Growth
When I draw the little charts and shit, if you're sharp you'll notice that I make assumptions about an expanding labor base as one of the products of time. This is not always true, though, but its kind of like General Relativity; its accurate enough most of the time to take it for granted. If it makes you feel better, though, you can think of time as reflecting both the labor base and the amount of capital in the economic unit under analysis. Relative to what you had before, you have a greater capacity to do work.
Nobody could have predicted...
The Onion, January 17, 2001.
Spent billions on new weapons systems? Check.
Slashed social services? Check.
Gulf war? Check.
250% Military Spending Increase? Check (Only doubled it, if you don't count Iraq/Afghanistan).
Impinged upon a woman's right to choose? Check.
Disenfranchisement of African Americans? Check.
How could they not have predicted how he could have overseen the destruction of a major American city?
How could they not have predicted how he would permit torture of suspects?
How could they not have predicted how he would politicize the Justice Department?
I guess some things even the Onion thinks are a little unbelievable.
My fellow Americans," Bush said, "at long last, we have reached the end of the dark period in American history that will come to be known as the Clinton Era, eight long years characterized by unprecedented economic expansion, a sharp decrease in crime, and sustained peace overseas. The time has come to put all of that behind us."Fucked up the national parks? Check.Bush swore to do "everything in [his] power" to undo the damage wrought by Clinton's two terms in office, including selling off the national parks to developers, going into massive debt to develop expensive and impractical weapons technologies, and passing sweeping budget cuts that drive the mentally ill out of hospitals and onto the street.
During the 40-minute speech, Bush also promised to bring an end to the severe war drought that plagued the nation under Clinton, assuring citizens that the U.S. will engage in at least one Gulf War-level armed conflict in the next four years.
"You better believe we're going to mix it up with somebody at some point during my administration," said Bush, who plans a 250 percent boost in military spending. "Unlike my predecessor, I am fully committed to putting soldiers in battle situations. Otherwise, what is the point of even having a military?"
Spent billions on new weapons systems? Check.
Slashed social services? Check.
Gulf war? Check.
250% Military Spending Increase? Check (Only doubled it, if you don't count Iraq/Afghanistan).
Impinged upon a woman's right to choose? Check.
Disenfranchisement of African Americans? Check.
How could they not have predicted how he could have overseen the destruction of a major American city?
How could they not have predicted how he would permit torture of suspects?
How could they not have predicted how he would politicize the Justice Department?
I guess some things even the Onion thinks are a little unbelievable.
Centrist
One of the many problems a leftist has with a Democratic centrist is Republicans are much better at shifting the Overton Window than we are, so any "compromise" is really a 75/25 split, in their favor.
Market Failure.
When your fiscal picture gets out of whack, people tend to get resentful about the people who are doing well despite the chaos. Good economies can tend to hide the affluent crooks of its society, but in bad economies they become more conspicuous. You saw the Republicans try to pick up the class warfare theme for their own benefit in 2008, which was pretty goddamn stupid. As I already mentioned in a pervious post, bad times in less stable countries tend to produce Marxist dictators. In politically stable countries like ours, you tend to get really good music. The current batch unlistenable shit being the exception to the rule is just yet another failure of the Bush administration.
Quote of the Day
Politics, n. Strife of interests masquerading as a contest of principles.
Ambrose Bierce, The Devil's Dictionary
Militant Democrat.
I think we got pretty good at developing various rules of thumb to anticipate what Bush was going to do. Obama is a different person, but he is not the opposite of Bush. So we are going to have to develop new ways to anticipate his actions. It will take time, considering we've been creating, tweaking, and using our usual ways for the past 8 years.
I don't know what Obama is going to do, and you don't either. I'm not a policy expert, and you aren't either, so stop talking about what he should do.
(I will follow this up later with many posts explaining what Obama should do.)
I don't know what Obama is going to do, and you don't either. I'm not a policy expert, and you aren't either, so stop talking about what he should do.
(I will follow this up later with many posts explaining what Obama should do.)
Sunday, January 18, 2009
More on failed economic policy.
At the risk of looking like I'm having a conversation with myself, I want to elaborate a little on economic policy and its ability to limit or stimulate growth.
Chapter 1 of your Introduction to Macroeconomics textbook tells us that the total product of a nation's economic resources can be represented by a formula that looks like this:
GDP = C + I + G + X
Gross Domestic Product equals consumption (what everyone bought) plus savings (what everyone invested in) plus goverment purchases (what the government bought) plus net exports (what we sold to other countries minus what we bought from other countries).
This simple form of GDP computation is an elegant way to account for all the money everyone and everything in the economy earned, because it keeps track of everywhere that money was spent. Now, national crack sales will not be included in GDP, but what your crack dealer bought would be. Your piggy bank and what's under your mattress obviously wouldn't count, either.
Every economic policy that the government sets forth is to tweak these four variables to manage economic growth. Everything you hear about the stimulus is simply how the government hopes to allocate the various parts of GDP to increase GDP.
Scenario 1:
If the economy was healthy--people were working, saving money which could be given out as loans for new businesses, college educations, home ownership, cars, etc, we'd probably see a economic growth rate of say 5% per year.
GDP = $10,000 = $7,500 + $1,500 + $1,500 - $500
Everything's healthy. The markets are great, supply is keeping pace with demand, prices are remaining stable. Why change anything?
GDP (next year) would be = $10,500 = $7,750 + $1,650 + $1,700 - $600.
Holy shit! We are spending more money this year than we did the last, because we had more money to spend. Our economy grew, so we are richer. We're saving a little bit more money, the government gets more tax money to spend on getting re-elected, but our net exports decreased because we're getting more affluent, and we're buying
more shit like Volkswagens and Colombian coffee beans. That VW dude that was in Fargo and The Big Lebowski and motherfucking Juan Valdez are fucking ecstatic. Everybody loves America! You know life is good when you get mad props from a sadistically criminal, nihilist hipster AND a motherfucker and his donkey. This is especially true considering that we've probably killed some of their ancestors over the past century or so.
Scenario 2:
But let's say our economy wasn't so healthy. Say a lot of that consumer spending came from credit, and people have maxed out their credit cards, so spending has to go down. In a recessionary period, you'd see something like this:
GDP (this year) = $10,000 = $7,500 + $1,500 + $1,500 - $500
GDP (next year)= $9,950 = $7,100 + $1,750 + $1,500 - $400
Our GDP actually went down (that's what recession means--negative economic growth), more people were out of work, so they spent less, people tend to save more, government spending was flat, and our stuff becomes cheaper to people in other countries, so they buy more of our shit, and remember, we're buying less anyway, which combines to reduce any deficit in net exports. Juan Valdez has to sell his youngest daughter to a cartel as a drug smuggling mule and VW guy converts to radical Islam.
The situation will not be better the year after, so our GDP for the year after will look like this:
Forecasted GDP (two years from now) = $9,000 = $6,500 + $1,350 + $1,350 - $200
Oh, motherfuck. Our economy will totally tank next year. Down 10% from where we started. People are spending less, they're paying rent from their savings, they're not providing enough tax revenue for government to spend to re-elect itself, and they're not buying shit from other countries, and other countries now cannot afford to buy anything from us at all (worldwide gross for George Lucas' next travesty will dip below $4 trillion).
So, if you're the boss when your economy is in the middle of a recessionary period, what do you do? I'd hope you say that the easiest way to grow the economy is to decrease our trade deficit--in other words, increase net exports. Who the fuck wants to see a minus sign on their balance sheet? That's hard to do because that cheap shit at Wal-mart is pretty attractive compared to more expensive domestic alternatives--provided we still make that shit stateside, VW Touaregs kick ass, and we use more oil than we can pump out of our national parks.
Also, it's important to note that, at least historically, our dollar remains relatively strong in economic bad times, whereas in less stable countries like Colombia or Germany, Marxists or charismatic Austrians tend to take over and nationalize everything, making their money worth shit.
But, if you're real sharp you'd also notice that if the government spent more, your economy would grow! So you increase your expenditures, and maybe pay for some of that with taxes on imports and borrow the rest. Let's pretend you just want to get back to $10,000, so you raise tariffs a few percentage points, raise government spending a bit, and borrow what you can't pay for with your tax increase.
GDP = $10,000 = $7,250 + $1,250 + $1,800 - $300
Consumers aren't spending as much as they were before the recession, but it has improved. More people are back to work, either working for the government or working for companies that make shit for the government. They're not saving as much either, which means that there will be less credit flying around for people and businesses to borrow. Your governmental purchases are up, mostly to pay for shit like welfare which more people need. That's all paid for by increased taxes and debt. Debt innately sucks because you have to pay it back with future earnings, earnings which would, you know, grow the economy later. Your tariffs made imports more expensive to buy, so consumers either gave up their import, or found a domestic substitute (again, creating a marginal increase in consumer spending). Lucas isn't assassinated by the VW guy or Juan Valdez, who are too busy trying to find food, assuming they haven't died of exposure in their failed invasion of Russia, or malaria from bushwhacking through the rain forest in search of their abducted daughter.
So, your GDP growth is flat, your people are not spending like they want to, they're not saving like they should, and they've given up the coffee. The only thing keeping your economy from a recession is using the government plastic for things like food stamps and bombers. But for right now, you're better off than you were if you did nothing. You've beat the forecasted GDP by $1,000, by only going $300 in debt. GDP multiplier effect, bitches!
I know, I'm pretty shitty for giving you the basic algebraic formula for GDP and pulling some calc shit at the last minute to save the day. C, I, G, and X are actually functions, and as such can be fucked with by calculus. I really am sorry for fucking with you, though, but the important point here is that each portion of GDP affects every other part, to varying degrees.
Anyway, you did have to take out a $300 debt, which you will have to pay back. And this is the tricky part. There's two point to make here. First, debt robs you of future economic growth. If you spend tomorrow's dollar today, you're just transferring that future wealth to a sooner date. If you are really good at this shit, you'll grow the economy faster than the interest rate, and that debt is worth less and less as a percentage of GDP. This is what republicans believe will happen all the time. Which is not true. But that's a discussion for a later date.
But I digress. By borrowing enough money to spend yourself back up to the $10,000 level of GDP output, you've bought your economy time to recover. You'll probably have to spend more money to fix whatever got fucked up in the fundamentals, but for right now you've stopped the bleeding. Taking on a little government debt to keep bad things from happening is not a horrible idea. You remember the equation above showing economic growth, your people can still consume and save more in a growing economy while still being able to increase government spending to pay off that $300. Their quality of life will still be increasing even if they have to pay off the government debt through increased taxes/reduced services. That's an important point, because you tend not to get re-elected if you fuck up people's quality of life.
When something happens to the GDP, like, say, everybody falsely claims that they have money they don't have, and spend like it, when the bill comes due and nobody can get paid, the economic can quickly snowball out of control, as businesses can no longer operate efficiently. I tried to show in the recessionary GDP and recessionary GDP forecast. The immediate effect of an economic shock is a decrease in demand for everything. People put their money in their piggy banks, and under their mattresses, and buy crack to cope with it all, and then with nobody buying anything, people get laid off, and it snowballs into a huge thing. Which is why George Bush told you to go shopping after 9/11. If people don't keep spending, then the government has to step in and spend for them through deficit spending to give everyone a chance to calm the fuck down and feel comfortable spending again.
So, if a little bit of governmental deficit spending has the ability to turn your economy around, you may ask, why not put $18 trillion on the government plastic and grow our ass faster? Marginal returns, bitches! Government spending has to be low enough for the economy to absorb it, but high enough that it actually takes the place of enough consumer spending to be worth the effort. Since you know your economy can handle $10,000 (GDP at year zero), you know you can keep GDP at that level through the prudent use of government debt, without creating unsustainable growth through debt spending. It doesn't matter if C or G does it, spending on plastic artificially increases demand, which is unsustainable. You run the risk of plowing the country back into a recession once the plastic runs out, and this time, G will have to be bigger at the expense of C and I, which nobody likes, because unless you derive your happiness from helping the Pentagon buy $28,000 toilet sets, most of your happiness comes from C & I. You have to pick the right infusion of money, through government spending, in batches small enough that the economy can absorb it and grow in a sustainable way.
The whole point of economic policy is to control the level of economic growth. To retard demand when it elevates prices to the point that too many people are priced out of the market. To stimulate when markets are down.
You enter a recession when you try to cheat the GDP formula with policies which allow unsustainable demand. Allowing for markets to overvalue things that people buy will add to the GDP in the short run, but decreasing demand in the long run--decreasing C to below what it was before you created your sucker growth! Fucking up my standard of living! You cocksucker!
So, we're clear. Now, I've been writing for a long time without really even getting to my point. The title of the post is "moron, you failed economic policy." So let me show you some nasty-ass economic policy nudity, which may or may not be snuff.
I'll skip some of the historical shit which becomes more and more debatable as events fade into the past (fucking Republican revisionist bullshit usually does a great job of hazing shit up). Basically what happened was that the government was looking at GDP at the tail end of the dot com boom (bubble), and so these senators were standing around saying things like "Damn, that's some busted ass shit." Kneejerk reactionaries otherwise known as conservative republicans said FUCKING TAX CUTS FOR RICH PEOPLE STAT! And banks were like, "You know, government, you are so fucking good at economic policy, that we'll never have another depression again, will we, baby? It turns me on when you say 'fiscal.' I think that is so, so fucking attractive how you did all that. I think maybe you and I could get together after you retire from your senate seat, don't you want to get all up into my board of directors baby? $970,000 a year to play golf and vote yea 4 times a year? Would you like that, baby? Gosh, you're so big and strong and smart that you don't need ALL of that lil' ol' Glass-Steagall Act, do you? I mean, schnookums, that law was written when the government was little ol weakling democrats, and you are strong, strong republicans. I mean they didn't even have computers then. And we would never want to make you mad or be untrue to you. We just want to grow the economy. Just give us a little deregulation, and cross our heart, we promise we'll increase GDP by 2.5% a year. I'll even testify under oath to you that housing prices will never go down! Let us merge our teeny tiny commercial banks with our investment institutions. Maybe sell each other some of our debts as investment opportunities? What do you say, sugar? You wouldn't want to disappoint me, would you now, honey?"
And, with a wink and an playful elbow in the ribs by a president who drops his pants for intern hummers, Congress repealed the provisions of Glass-Steagall that prohibited commercial banks from acting like investment banks, and vice versa. And guess what those companies did? They wrote mortgages to anybody who wanted one, and then sold those mortgages to other companies and Norwegian pension funds in the form of securities. Fuck, man. It was brilliant. Trillions of dollars were pumped into consumer spending. Housing prices went up, which meant that if you got one early, you had a lot of fucking value of your house--for no fucking reason at all other than dumb luck--that you could borrow against to buy shit like plasma TVs and whole pages of the Pottery Barn catalog. And everybody was busy at work making deals with the Chinese for importing plasma TVs and Pottery Barn furniture, that we were fucking set. Unemployment dropped below its natural rate. Inflation was kept in control even though we bottomed out interest rates. And the government was like, holy shit, we've got so much GDP now that I can totally fight two wars, do it poorly and over like 100 years, create entitlements on the gold card, while spending like $1 trillion a year on other shit like developing a vast network of telecommunications eavesdropping equipment, and the quality of life isn't flattening. Holy shit! Fuck! Shit! Have a check for $300! Elect me! Have another check! Elect me again! Holy shit!
And what was happening was that housing prices, because of easy access to credit, were artificially inflated. Pretty soon too many people were priced out of being able to afford a home, even at very low interest rates. Demand flattened, then dropped. Prices flattened, then dropped. Suddenly the house you were able to take out $650,000 mortgages on, were only worth $150,000. Why the fuck would you pay $1.2 million in total mortgage payments for a house worth $150k? Fuck that! Foreclosures everywhere. Construction and development stopped. People were laid off. Financial companies who had stocks filled with these bad mortgages failed. More people were laid off. Housing prices continued to fall. Construction material prices fell. Commodity prices fell. Norwegian pension funds failed. The stock market tumbled, people looked at their 401(k) and shot their dog for the pelts. Banks need to keep a certain percentage of assets (savings) for what they give out as credit. Those savings were in the form of mortgage securities. Banks were over leveraged. They couldn't give out any more credit. The Treasury says to Congress, this is all your fault. Give us $700 billion, no questions asked, and we'll try to fix your fuck up. Congress walks out to the podium under the dome and says, slowly and solemnly, "I had no idea it was this bad," and forks over $700 billion without even asking what the Treasury was going to do with it. The Treasury gives the money to the thieves who started this mess in the first place, who promptly steal the money. Republicans lose power in the election. The financial institutions, who 10 years ago had their tongue in the Senates' ear, no longer return their calls.
We can reserve the official right to wig the fuck out when the number of working Americans contract. We can flip out and do crazy things when return on capital is stagnant. When George Bush talks about how the fundamentals of the economy are strong, that's what he's talking about. Those are the real fundamentals. Our manpower, and work more efficiently, continues to increase. This probably won't happen for forever, but for right now it's ok. There is nothing the economy cannot handle except bad government. And, unfortunately, that is what we have seen for at least the last decade.
The whole point to this, is that you cannot cheat the GDP. You have to make informed decisions on how each component of the GDP is operating, and what the sustainable level of growth will be. And then you have to act rationally based on this information, which a lot of smart people collect for you. The tough part is to get government to act rationally on the information they already have. Creating another bubble to help alleviate the effects of a previous one is not sound policy. If it isn't punting the ball down the field to a future administration, it's at least trying to attempt a 78-yard field goal on second down because they've shut down the pass and you don't have confidence in your run game. I'm not sure which metaphor to go with, but there's definitely a kicking-type motion of some sort involved here.
Chapter 1 of your Introduction to Macroeconomics textbook tells us that the total product of a nation's economic resources can be represented by a formula that looks like this:
GDP = C + I + G + X
Gross Domestic Product equals consumption (what everyone bought) plus savings (what everyone invested in) plus goverment purchases (what the government bought) plus net exports (what we sold to other countries minus what we bought from other countries).
This simple form of GDP computation is an elegant way to account for all the money everyone and everything in the economy earned, because it keeps track of everywhere that money was spent. Now, national crack sales will not be included in GDP, but what your crack dealer bought would be. Your piggy bank and what's under your mattress obviously wouldn't count, either.
Every economic policy that the government sets forth is to tweak these four variables to manage economic growth. Everything you hear about the stimulus is simply how the government hopes to allocate the various parts of GDP to increase GDP.
Scenario 1:
If the economy was healthy--people were working, saving money which could be given out as loans for new businesses, college educations, home ownership, cars, etc, we'd probably see a economic growth rate of say 5% per year.
GDP = $10,000 = $7,500 + $1,500 + $1,500 - $500
Everything's healthy. The markets are great, supply is keeping pace with demand, prices are remaining stable. Why change anything?
GDP (next year) would be = $10,500 = $7,750 + $1,650 + $1,700 - $600.
Holy shit! We are spending more money this year than we did the last, because we had more money to spend. Our economy grew, so we are richer. We're saving a little bit more money, the government gets more tax money to spend on getting re-elected, but our net exports decreased because we're getting more affluent, and we're buying
more shit like Volkswagens and Colombian coffee beans. That VW dude that was in Fargo and The Big Lebowski and motherfucking Juan Valdez are fucking ecstatic. Everybody loves America! You know life is good when you get mad props from a sadistically criminal, nihilist hipster AND a motherfucker and his donkey. This is especially true considering that we've probably killed some of their ancestors over the past century or so.Scenario 2:
But let's say our economy wasn't so healthy. Say a lot of that consumer spending came from credit, and people have maxed out their credit cards, so spending has to go down. In a recessionary period, you'd see something like this:
GDP (this year) = $10,000 = $7,500 + $1,500 + $1,500 - $500
GDP (next year)= $9,950 = $7,100 + $1,750 + $1,500 - $400
Our GDP actually went down (that's what recession means--negative economic growth), more people were out of work, so they spent less, people tend to save more, government spending was flat, and our stuff becomes cheaper to people in other countries, so they buy more of our shit, and remember, we're buying less anyway, which combines to reduce any deficit in net exports. Juan Valdez has to sell his youngest daughter to a cartel as a drug smuggling mule and VW guy converts to radical Islam.
The situation will not be better the year after, so our GDP for the year after will look like this:
Forecasted GDP (two years from now) = $9,000 = $6,500 + $1,350 + $1,350 - $200
Oh, motherfuck. Our economy will totally tank next year. Down 10% from where we started. People are spending less, they're paying rent from their savings, they're not providing enough tax revenue for government to spend to re-elect itself, and they're not buying shit from other countries, and other countries now cannot afford to buy anything from us at all (worldwide gross for George Lucas' next travesty will dip below $4 trillion).
So, if you're the boss when your economy is in the middle of a recessionary period, what do you do? I'd hope you say that the easiest way to grow the economy is to decrease our trade deficit--in other words, increase net exports. Who the fuck wants to see a minus sign on their balance sheet? That's hard to do because that cheap shit at Wal-mart is pretty attractive compared to more expensive domestic alternatives--provided we still make that shit stateside, VW Touaregs kick ass, and we use more oil than we can pump out of our national parks.
Also, it's important to note that, at least historically, our dollar remains relatively strong in economic bad times, whereas in less stable countries like Colombia or Germany, Marxists or charismatic Austrians tend to take over and nationalize everything, making their money worth shit.
But, if you're real sharp you'd also notice that if the government spent more, your economy would grow! So you increase your expenditures, and maybe pay for some of that with taxes on imports and borrow the rest. Let's pretend you just want to get back to $10,000, so you raise tariffs a few percentage points, raise government spending a bit, and borrow what you can't pay for with your tax increase.
GDP = $10,000 = $7,250 + $1,250 + $1,800 - $300
Consumers aren't spending as much as they were before the recession, but it has improved. More people are back to work, either working for the government or working for companies that make shit for the government. They're not saving as much either, which means that there will be less credit flying around for people and businesses to borrow. Your governmental purchases are up, mostly to pay for shit like welfare which more people need. That's all paid for by increased taxes and debt. Debt innately sucks because you have to pay it back with future earnings, earnings which would, you know, grow the economy later. Your tariffs made imports more expensive to buy, so consumers either gave up their import, or found a domestic substitute (again, creating a marginal increase in consumer spending). Lucas isn't assassinated by the VW guy or Juan Valdez, who are too busy trying to find food, assuming they haven't died of exposure in their failed invasion of Russia, or malaria from bushwhacking through the rain forest in search of their abducted daughter.
So, your GDP growth is flat, your people are not spending like they want to, they're not saving like they should, and they've given up the coffee. The only thing keeping your economy from a recession is using the government plastic for things like food stamps and bombers. But for right now, you're better off than you were if you did nothing. You've beat the forecasted GDP by $1,000, by only going $300 in debt. GDP multiplier effect, bitches!
I know, I'm pretty shitty for giving you the basic algebraic formula for GDP and pulling some calc shit at the last minute to save the day. C, I, G, and X are actually functions, and as such can be fucked with by calculus. I really am sorry for fucking with you, though, but the important point here is that each portion of GDP affects every other part, to varying degrees.
Anyway, you did have to take out a $300 debt, which you will have to pay back. And this is the tricky part. There's two point to make here. First, debt robs you of future economic growth. If you spend tomorrow's dollar today, you're just transferring that future wealth to a sooner date. If you are really good at this shit, you'll grow the economy faster than the interest rate, and that debt is worth less and less as a percentage of GDP. This is what republicans believe will happen all the time. Which is not true. But that's a discussion for a later date.
But I digress. By borrowing enough money to spend yourself back up to the $10,000 level of GDP output, you've bought your economy time to recover. You'll probably have to spend more money to fix whatever got fucked up in the fundamentals, but for right now you've stopped the bleeding. Taking on a little government debt to keep bad things from happening is not a horrible idea. You remember the equation above showing economic growth, your people can still consume and save more in a growing economy while still being able to increase government spending to pay off that $300. Their quality of life will still be increasing even if they have to pay off the government debt through increased taxes/reduced services. That's an important point, because you tend not to get re-elected if you fuck up people's quality of life.
When something happens to the GDP, like, say, everybody falsely claims that they have money they don't have, and spend like it, when the bill comes due and nobody can get paid, the economic can quickly snowball out of control, as businesses can no longer operate efficiently. I tried to show in the recessionary GDP and recessionary GDP forecast. The immediate effect of an economic shock is a decrease in demand for everything. People put their money in their piggy banks, and under their mattresses, and buy crack to cope with it all, and then with nobody buying anything, people get laid off, and it snowballs into a huge thing. Which is why George Bush told you to go shopping after 9/11. If people don't keep spending, then the government has to step in and spend for them through deficit spending to give everyone a chance to calm the fuck down and feel comfortable spending again.
So, if a little bit of governmental deficit spending has the ability to turn your economy around, you may ask, why not put $18 trillion on the government plastic and grow our ass faster? Marginal returns, bitches! Government spending has to be low enough for the economy to absorb it, but high enough that it actually takes the place of enough consumer spending to be worth the effort. Since you know your economy can handle $10,000 (GDP at year zero), you know you can keep GDP at that level through the prudent use of government debt, without creating unsustainable growth through debt spending. It doesn't matter if C or G does it, spending on plastic artificially increases demand, which is unsustainable. You run the risk of plowing the country back into a recession once the plastic runs out, and this time, G will have to be bigger at the expense of C and I, which nobody likes, because unless you derive your happiness from helping the Pentagon buy $28,000 toilet sets, most of your happiness comes from C & I. You have to pick the right infusion of money, through government spending, in batches small enough that the economy can absorb it and grow in a sustainable way.
The whole point of economic policy is to control the level of economic growth. To retard demand when it elevates prices to the point that too many people are priced out of the market. To stimulate when markets are down.
You enter a recession when you try to cheat the GDP formula with policies which allow unsustainable demand. Allowing for markets to overvalue things that people buy will add to the GDP in the short run, but decreasing demand in the long run--decreasing C to below what it was before you created your sucker growth! Fucking up my standard of living! You cocksucker!
So, we're clear. Now, I've been writing for a long time without really even getting to my point. The title of the post is "moron, you failed economic policy." So let me show you some nasty-ass economic policy nudity, which may or may not be snuff.
I'll skip some of the historical shit which becomes more and more debatable as events fade into the past (fucking Republican revisionist bullshit usually does a great job of hazing shit up). Basically what happened was that the government was looking at GDP at the tail end of the dot com boom (bubble), and so these senators were standing around saying things like "Damn, that's some busted ass shit." Kneejerk reactionaries otherwise known as conservative republicans said FUCKING TAX CUTS FOR RICH PEOPLE STAT! And banks were like, "You know, government, you are so fucking good at economic policy, that we'll never have another depression again, will we, baby? It turns me on when you say 'fiscal.' I think that is so, so fucking attractive how you did all that. I think maybe you and I could get together after you retire from your senate seat, don't you want to get all up into my board of directors baby? $970,000 a year to play golf and vote yea 4 times a year? Would you like that, baby? Gosh, you're so big and strong and smart that you don't need ALL of that lil' ol' Glass-Steagall Act, do you? I mean, schnookums, that law was written when the government was little ol weakling democrats, and you are strong, strong republicans. I mean they didn't even have computers then. And we would never want to make you mad or be untrue to you. We just want to grow the economy. Just give us a little deregulation, and cross our heart, we promise we'll increase GDP by 2.5% a year. I'll even testify under oath to you that housing prices will never go down! Let us merge our teeny tiny commercial banks with our investment institutions. Maybe sell each other some of our debts as investment opportunities? What do you say, sugar? You wouldn't want to disappoint me, would you now, honey?"
And, with a wink and an playful elbow in the ribs by a president who drops his pants for intern hummers, Congress repealed the provisions of Glass-Steagall that prohibited commercial banks from acting like investment banks, and vice versa. And guess what those companies did? They wrote mortgages to anybody who wanted one, and then sold those mortgages to other companies and Norwegian pension funds in the form of securities. Fuck, man. It was brilliant. Trillions of dollars were pumped into consumer spending. Housing prices went up, which meant that if you got one early, you had a lot of fucking value of your house--for no fucking reason at all other than dumb luck--that you could borrow against to buy shit like plasma TVs and whole pages of the Pottery Barn catalog. And everybody was busy at work making deals with the Chinese for importing plasma TVs and Pottery Barn furniture, that we were fucking set. Unemployment dropped below its natural rate. Inflation was kept in control even though we bottomed out interest rates. And the government was like, holy shit, we've got so much GDP now that I can totally fight two wars, do it poorly and over like 100 years, create entitlements on the gold card, while spending like $1 trillion a year on other shit like developing a vast network of telecommunications eavesdropping equipment, and the quality of life isn't flattening. Holy shit! Fuck! Shit! Have a check for $300! Elect me! Have another check! Elect me again! Holy shit!
And what was happening was that housing prices, because of easy access to credit, were artificially inflated. Pretty soon too many people were priced out of being able to afford a home, even at very low interest rates. Demand flattened, then dropped. Prices flattened, then dropped. Suddenly the house you were able to take out $650,000 mortgages on, were only worth $150,000. Why the fuck would you pay $1.2 million in total mortgage payments for a house worth $150k? Fuck that! Foreclosures everywhere. Construction and development stopped. People were laid off. Financial companies who had stocks filled with these bad mortgages failed. More people were laid off. Housing prices continued to fall. Construction material prices fell. Commodity prices fell. Norwegian pension funds failed. The stock market tumbled, people looked at their 401(k) and shot their dog for the pelts. Banks need to keep a certain percentage of assets (savings) for what they give out as credit. Those savings were in the form of mortgage securities. Banks were over leveraged. They couldn't give out any more credit. The Treasury says to Congress, this is all your fault. Give us $700 billion, no questions asked, and we'll try to fix your fuck up. Congress walks out to the podium under the dome and says, slowly and solemnly, "I had no idea it was this bad," and forks over $700 billion without even asking what the Treasury was going to do with it. The Treasury gives the money to the thieves who started this mess in the first place, who promptly steal the money. Republicans lose power in the election. The financial institutions, who 10 years ago had their tongue in the Senates' ear, no longer return their calls.
We can reserve the official right to wig the fuck out when the number of working Americans contract. We can flip out and do crazy things when return on capital is stagnant. When George Bush talks about how the fundamentals of the economy are strong, that's what he's talking about. Those are the real fundamentals. Our manpower, and work more efficiently, continues to increase. This probably won't happen for forever, but for right now it's ok. There is nothing the economy cannot handle except bad government. And, unfortunately, that is what we have seen for at least the last decade.
The whole point to this, is that you cannot cheat the GDP. You have to make informed decisions on how each component of the GDP is operating, and what the sustainable level of growth will be. And then you have to act rationally based on this information, which a lot of smart people collect for you. The tough part is to get government to act rationally on the information they already have. Creating another bubble to help alleviate the effects of a previous one is not sound policy. If it isn't punting the ball down the field to a future administration, it's at least trying to attempt a 78-yard field goal on second down because they've shut down the pass and you don't have confidence in your run game. I'm not sure which metaphor to go with, but there's definitely a kicking-type motion of some sort involved here.
Quote of the Day
[W]ho journeyed to Denver, who died in Denver, who came back to Denver & waited in vain, who watched over Denver & brooded & loned in Denver and finally went away to find out the Time, & now Denver is lonesome for her heroes.
Allen Ginsberg, Howl
Thomas Friedman.
Name one thing Thomas Friedman has ever said that is true, or has turned out to be true.
One fucking thing.
I'm not even sure he's done the basic research to know his own surname.
A
nd now he's on the TV telling me all I need to know about the stimulus, and the housing crisis, and what Obama should do, what he shouldn't do, etc.
Seriously, I want that gig. I can make up bullshit and say it convincingly, too. I can even stare at my interviewer and raise my eyebrow, just like him.
Let me be a tool, too! I can be your corporate tool, your industry spokesman, your foreign policy monkey, your war-selling hack! I can bring my own bullshit perspective and wildly inaccurate sense of Zeitgeist to continue the narrative that I am smart and insightful. Fuck! Of course I am capable of knowing everything, I am a columnist for the New York Times! I buck conventional wisdom by using conventional wisdom to sell my conventional ideas--WITHOUT ANY INNATE CONCEPT OF HOW SUCH THINGS WORK! Correlation can imply causation if we really want it to because this is America! I can sell your bullshit with a dramatic flourish of eyebrow gesticulations
and blunt invective against cultures I do not understand! I once had to rent a Lincoln, because they were out of imports at the airport! Americans can still make quality cars! I drove one for 3 days! I know! I wasn't even that embarrassed! I had a kid from the neighborhood program the time on my laserdisc player! Let's see a Nigerian kid do that! America is special and is going to win! 
But we should still give all of our Betamax shit to Nigeria so they can create their own Hollywood, because rich celebrities make regular people want to succeed, and this is how you make Africa prosperous. What part of this sentence do you not understand? Fuck! I peer at you from under my eyebrows so you know I'm serious, and so you know that I know I just won the argument I just decided to have! 
Do you see how easy I make it? Tell me where you want me to go to be wrong about something! I can be wherever you need me--I have an Orvis catalog in the shitter, I am prepared for anything! Let me be your Friedman monkey! Suck. On. This! 
Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! We can use the money from the oil to pay for it all! We can bury the dead Iraqis in a large pit and put something heavy on top, like the corpse of the antiquated Fourth Amendment, and in 6 more months we'll have more oil! 
This is what Americans want! If we give $18 trillion to the banks our crisis is solved in 5-6 months! What we have GOT to figure out is that we. can. not. stop. listening. to. columnists. who. insert. dramatic. pauses. into. sentences. they. wish. to. emphasize. on. TV--or we lose to Islam and variable interest rates!
Oh God damn. I almost began sweating in my mock turtleneck, gripped with fear that someone would be onto my game and call me the fool I am! I was wrong. Thomas Friedman, no one can do what you do, day after day, month after month, half year after half year.
One fucking thing.
I'm not even sure he's done the basic research to know his own surname.
A
nd now he's on the TV telling me all I need to know about the stimulus, and the housing crisis, and what Obama should do, what he shouldn't do, etc.
Seriously, I want that gig. I can make up bullshit and say it convincingly, too. I can even stare at my interviewer and raise my eyebrow, just like him.
Let me be a tool, too! I can be your corporate tool, your industry spokesman, your foreign policy monkey, your war-selling hack! I can bring my own bullshit perspective and wildly inaccurate sense of Zeitgeist to continue the narrative that I am smart and insightful. Fuck! Of course I am capable of knowing everything, I am a columnist for the New York Times! I buck conventional wisdom by using conventional wisdom to sell my conventional ideas--WITHOUT ANY INNATE CONCEPT OF HOW SUCH THINGS WORK! Correlation can imply causation if we really want it to because this is America! I can sell your bullshit with a dramatic flourish of eyebrow gesticulations
and blunt invective against cultures I do not understand! I once had to rent a Lincoln, because they were out of imports at the airport! Americans can still make quality cars! I drove one for 3 days! I know! I wasn't even that embarrassed! I had a kid from the neighborhood program the time on my laserdisc player! Let's see a Nigerian kid do that! America is special and is going to win! 
But we should still give all of our Betamax shit to Nigeria so they can create their own Hollywood, because rich celebrities make regular people want to succeed, and this is how you make Africa prosperous. What part of this sentence do you not understand? Fuck! I peer at you from under my eyebrows so you know I'm serious, and so you know that I know I just won the argument I just decided to have! 
Do you see how easy I make it? Tell me where you want me to go to be wrong about something! I can be wherever you need me--I have an Orvis catalog in the shitter, I am prepared for anything! Let me be your Friedman monkey! Suck. On. This! 
Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! Six more months and victory in Iraq! We can use the money from the oil to pay for it all! We can bury the dead Iraqis in a large pit and put something heavy on top, like the corpse of the antiquated Fourth Amendment, and in 6 more months we'll have more oil! 
This is what Americans want! If we give $18 trillion to the banks our crisis is solved in 5-6 months! What we have GOT to figure out is that we. can. not. stop. listening. to. columnists. who. insert. dramatic. pauses. into. sentences. they. wish. to. emphasize. on. TV--or we lose to Islam and variable interest rates!
Oh God damn. I almost began sweating in my mock turtleneck, gripped with fear that someone would be onto my game and call me the fool I am! I was wrong. Thomas Friedman, no one can do what you do, day after day, month after month, half year after half year.
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