175 comments on DrumBeat: October 31, 2008
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175 comments on DrumBeat: October 31, 2008
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"Funny how the libertarian types are yelling for bailouts now."
Hmm, it would seen not all "libertarian types are yelling for bailouts now."
http://online.wsj.com/article/SB122541582835686689.html
Its free.
I think we may have a failed new deal: The goverment throwing tons of money at the fake economy, without doing anything about the real economy.
I think people take for granted how much infrastructure (much of it we still depend on) was created during the New Deal. It would be a shame if we have huge Gov spending without actually creating stuff or giving people jobs.
Now would be the perfect time to nationalize and rebuild the electric grid.
We could do a lot of useful infrastructure work (concentrated solar thermal power, electric grid, electric rail, urban renewal etc. with the money we are throwing at Wall Street. And the best part is, after you do this, you have something useful at the end.
Well if there one thing this administration has shown itself as, it's that it picks appointees terribly. So it should come as no surprise that the high level appointees are failing to do the right thing, even if given fairly flexible financial tools by congress. Of those who are a little more competent, they seem to have an idealogical handicap -- When pressed by Waxman, Greenspan a few weeks ago said the crisis made him notice some problems with his neoliberal worldview. Maybe the people who are in charge need to be removed because they are not the right people for the job.
Where's Roosevelt when you need him?
"...it's that it picks appointees terribly."
but isnt that what you would expect from an administration handicapped by a narrow facist adgenda ?
But...there's no proof there is such a thing as a successful new deal.
And we're in a much different position now than we were 70 years ago. We're in debt, and dependent on imports, which will make building infrastructure more difficult.
Not to mention, if we do try it, we will likely be building the wrong infrastructure. The "second stimulus" package is supposed to bail out state budgets, and that will likely be more highways and bridges, not more solar thermal.
"proof" of success depends entirely on your definition of success.
If the definition of success is providing desparately needed employment and income for millions of impoverished people, providing a social safety net, and building durable infrastructure that is still largely in use 6 decades later, then the New Deal can be "proved" as successful on a factual basis.
If the definition of success is rescuing the market economy and causing a recovery of capital markets, then the success/failure of the New Deal will be debated endlessly depending on ideological stance.
Similarly, economists will debate the most effective measures for economic recovery today, but a bailout that provides durable and appropriate infrastructure will benefit the public, no matter what economic sect proves closest to predicting the future. Starting with constructing passenger rail and installing building insulation would provide unquestioned economic, employment, and environmental benefits.
But that is not what the bailout was supposed to provide.
That is what the bailout was supposed to provide.
If the point is to build infrastructure, then build infrastructure.
But I suspect it will be far more difficult these days. It's a global economy now, with global supply chains. I'm not sure we can build anything without the markets. That is, I suspect, how they sold the bailout to our congresscritters.
Exactly my point, that is why I think the bailout is wrong-headed. I agree with Greer that the $ should have been put in the real economy. I understand the theory, that if we give a jolt to the fake economy, it will rescue the real economy on it's own. I think this would also work the other way around. Instead of buying up bad paper, I would rather have seen a massive jobs/food stamps/CCC program.
I work in the fake economy (hedge fund) and I know that I don't deserve to be bailed out. I should be allowed to lose my job, and be put to work rebuilding infrastructure. In the long run, I think that's the better way to go.
But at this point, it's the fake economy that's keeping the real economy going.
Projects were halted this summer due to asphalt shortages. While China was fixing up Beijing for the Olympics, there were shortages and hording of steel. We also import materials like silicon and germanium.
How do we keep our access to other people's resources without the fake economy?
I agree that we need some financial sector. I thought Greer didn't give enough credit to how important finance is to 1. Pool capital and 2. Spread risk.
My point is that this needs to be built on top of a solid foundation of real economic production (agriculture, manufacturing, resource extraction/utilization, durable construction). I think if you prop up the parts of the fake economy that are not directly supporting parts of the real economy, you will wind up in the same place in a few years.
There is nothing inherently wrong with Mortgage Backed Securities, and trading them. This can be a way to pool capital and spread risk for construction projects. The problem is when it doesn't rest on a solid foundation (often literaly in this case) of proper valuation and good construction and a sustainable living arrangement, that it all goes to crap.
PS, how do I likify a word? I wanted to say "Greer" and then have that be a link to his article on economic abstraction.
It's plain old HTML. If you use Firefox, I recommend the BBCodeXtra extension. Makes creating HTML links and formatting a breeze.
You put a tag in front of it like:
<a href="http://www.inter.net/link/whatever.html">
Then you put your word:
Greer
Then you put a closing tag after it:
</a>
Be sure to put the closing link, otherwise it sorta makes a mess of your post.
More generally, at least in Firefox, if you want to know how someone did something in HTML, you can highlight the region of interest (left mouse button down and then drag) and then right click and pick "View Selection Source".
For example, try it on this HTML coded string: Greer
Now try it on this differently HTML coded string: Greer
See the difference?
The first "Greer" will take you basically nowhere.
If you click on the second hyperlinked "Greer" ... well try it and see what you learn.
Happy HTML trails to you.
... but you don't need the 'rel="nofollow"' stuff, and it will be done automatically ...
I listened to an explanation yesterday about how sick the idea of Credit Default Swaps actually is. The metaphor is that it is like buying fire insurance on your neighbor's house using borrowed money. The only way you could profit from the plan is if your neighbor's house burns down. Basically they have been betting that certain loans will be defaulted but not enough loans to bankrupt the insurer. As long as only a small number of loans were over insured the impact would be small. With insurance on 100s of times the value of the original loan just a few defaults causes the plan to collapse. It is insurance fraud on steroids in which the crooks made sure the law didn't apply to what they were doing.
That's a good analogy - one I have used myself from time to time. The point that you miss is that such a structure gives you a direct incentive to burn down your neighbour's house for profit. Otherwise viable companies will be driven to the wall for exactly this reason, by whatever market mechanisms exist. The immediate personal gains to the perpetrators will more than trump the resulting huge losses to the global economy in the longer term.
The CDS market is approximately $62 trillion and when it melts down due to counterparty risk, as it inevitably will, the impact will be far beyond anything we have seen so far. Deflation never plays out as a slow squeeze.
We build silicon refineries. And steel plants. Not sure about the germanium, we might still need to import that.
"...the most effective measures for economic recovery today,"
how bout: start living within our means ?
that wont be easy or quick(it took a long time for those clever tax cut economic wizzard politicians to get us where we are today.........'bout 26 yrs, by my calculation).
Neoconservative David Brooks call for just this, more highways and bridges.
http://www.nytimes.com/2008/10/31/opinion/31brooks.html?th&emc=th
If the second bailout is going to bailout state governments, I would expect it to be spent on retaining state employees, such as teachers and police. At this point many state govs don't have the revenue to continue paying their staffs.
We need a New Deal, but one quite different from that last. Rebuilding our infrastucture as it is, is pointless and impossible. We face a world with diminishing underground resources. Any New Deal has to focus on adapting to that reality. This means rebuilding and repopulating small towns, densifying them, getting rid of cars, communalizing some things (oooh, I used a dirty word), connecting them to agriculture, etc. This means contracting and centralizing the suburbs (possibly multiple centers), going up a few floors, returning land to agriculture, parks, forests, etc. This means getting rid of cars in cities, rebuilding rail transportation to rural areas, etc. And all this needs to done keeping in mind the depletion curve, so that we are somewhat ahead of it. And it should be made certain that one way or another no one starves, has a roof over their head, and basic medical care, and has a role in the restructuring.
That's what ought to be done. And it is entirely practical and possible to do it. But it won't be. It's not profitable. It won't be until profit is no longer the final arbiter of what gets done and what doesn't.