I’m going to be a bit more wonky than usual because I’m going to be making the case that we may need a bigger stimulus package that either the Democratic party or Republican party may be prepared to pass. Right now, it appears the only thing that will get by the Senate right is a package of extended unemployment benefits. I’m going to have to use two concepts that are extremely important to fiscal policy that make all undergraduate students tremble. The first is the concept of a fiscal policy multiplier. The second has to do with sorting through labor markets to get at more than just the unemployment rate to find possible ‘automatic stabilizers’. Both are tedious exercises in basic economics. Both have never been so significant as now due to some structural changes in the U.S. economy since the 1980s.
John Maynard Keynes is the the father of modern macroeconomics and Roosevelt’s New Deal. His suggestions to President Roosevelt during the depression are still regarded as the map that led us our country out of The Great Depression. The UK Guardian just did a reprint of parts of it and it made me think. So, on celebrating our thanksgiving, I thought I’d reprint this letter he wrote to President Roosevelt that first appeared in the NY Times on New Year’s eve in 1933. I know I’m a wonk, and this is a weird thing to be thankful for, but just think of all the bad things that would be happening right now if Keyne’s hadn’t continued to bug President Roosevelt to try some new and radical things.
Even Milton Friedman, whose later reformulation of the Quantity Theory of Money led to his Nobel Prize said that “We are all Keynesians now.” in recognition of this man. I’m closing out on yet another semester of teaching undergraduates the lessons of Keynes. My father who majored in economics used Keyne’s book as his textbook. This was after his return from the European theatre in a tour of duty on a US bomber as the bombardier. I remind my students that had I taught them Keyne’s in the 1920s, I most likely would’ve wound up on a ship to Russia and branded a Leninist. He was THAT radical. Today, he’s at the root of everything.
just because …
Nessun dorma! Nessun dorma!
Tu pure, o, Principessa,
nella tua fredda stanza,
guardi le stelle
che tremano d’amore
e di speranza.
Ma il mio mistero è chiuso in me,
il nome mio nessun saprà!
No, no, sulla tua bocca lo dirò
quando la luce splenderà!
Ed il mio bacio scioglierà il silenzio
che ti fa mia!
(Il nome suo nessun saprà!…
e noi dovrem, ahime, morir!)
Dilegua, o notte!
English Translation of “Nessun Dorma”
Nobody shall sleep!…
Nobody shall sleep!
Even you, o Princess,
in your cold room,
watch the stars,
that tremble with love and with hope.
But my secret is hidden within me,
my name no one shall know…
On your mouth I will tell it when the light shines.
And my kiss will dissolve the silence that makes you mine!…
(No one will know his name and we must, alas, die.)
Vanish, o night!
Set, stars! Set, stars!
At dawn, I will win! I will win! I will win!
Whenever I teach my undergraduates the meaning of measuring the economic development of nations, I always mention the one country that does it differently. This is the tiny Himalayan nation of Bhutan. I know that you all think I’m biased here, because I am a Buddhist in the tradition of the Himalayan region. (My Guru is a Tserpa Lama from Nepal and my lineage’s monastery is from a mountain vally of Mt. Everest.) However, I’m always pleased when Bhutan lives up to and beyond my expectations. Both Nepal and Bhutan are among the world’s newest democracies. Nepal has had many struggles (some violent) to achieve its new form of government. I’m pleased to say my Lama’s wife, Ang Dawa is now sitting in its newly formed parliament. I’m even more pleased to hear the words of Bhutan’s first elected prime minister. Among these is that he is still measuring the country’s progress by not only the Gross National Product, but by its Gross National Happiness. This was something the last monarch held in esteem. My Lama is always trying to convince me to come to Nepal to live and teach; something I will most certainly do in the future when the last daughter is firmly planted in her life. However, if I could choose a country to work with, it would be Bhutan.
Jigmi Y. Thinley is now Bhutan’s first democratically elected prime minister. He sees his first job is to prove to his constituents that democracy is worthwhile. He was elected in a very uneventful campaign between two highly similar parties. He was recently interviewed by the WSJ (see above link) in New York City. I found this quote inspiring.
Mr. Thinley outlines his idea of good governance: “We have to ensure that in the first five years of our governance we act completely within the confines of the constitution . . . that the rule of law prevails under any circumstance. . . . We will respect and ensure the absolute separation of the three branches of government, that’s the judiciary, executive and the legislature.”
He describes the process of drafting the constitution — there was a committee that referred to the constitutions of the world. Mr. Thinley says the U.S. constitution “defined the conceptual framework within which all other constitutions have been drafted. And so the United States Constitution was certainly a major document that inspired and that was referred to by the constitution committee.”
It is refreshing to hear that new democracies realize what our recently ‘elected’ leaders have forgotten. It is all about the rule of law. It is about the Constitution above all. When you consider that Bhutan has provided refuge to many Tibetans fleeing religious and economic persecution by the Han Chinese, it is wonderful to hear an elected official that gets it.
Democracy, according to Mr. Thinley, boils down to “the empowerment of the people, the freedom of the voter. . . . giving the capacity to the individual citizen to determine his or her own destiny,” he says. “Now if these are what democracy provides, then I would say that regardless of what culture you belong to, democracy is essential.”
Prime Minister Thinley is not giving up on the idea of promoting Gross National Happiness–something that it seems only a benign monarch could grant to his beloved peoples. This is probably most telling about a leader who believes he was elected to serve the people; not have the people serve his ego.
Mr. Thinley will continue to implement the government policy of GNH. Happiness is not hedonistic, “it is not the kind of fleeting pleasures that we seek.” It has to do with “being able to balance material needs of the body and the spiritual needs of the mind.”
He says the conditions for the pursuit of happiness have four pillars: Equitable and sustainable socioeconomic growth; conservation of the fragile Himalayan economy and environment; cultural preservation and promotion — and good governance.
Mr. Thinley admits that there’s a limit to what the government can deliver. It can try to create the right conditions, but “the individual himself and herself must pursue happiness.”
I wish Mr. Thinley and the people of Bhutan nothing but continued growth in both GNP and GNH.
I was driving across the bayous today listening to NPR on my way to campuswhen the most empowering and delightful story happened. It was about the “Gulabi Gang” or the Pink Sari Ladies that have decided to take on the corrupt and ineffective men running Northern India. They wear bright pink saris and carry sticks. These gangs of empowered women not only go after corrupt officials but men who abandon or beat their wives.
My thought is we’re seeing the Indian equivalent of PUMAs. They have no political party affiliation and even refuse to work with NGOS. Leader Sampt Pal Devi refuses to to deal with them because ” they are always looking for kickbacks when they offer to fund us.”
The movement is about two years old and has gained ground to the point that Ms. Devi can push to the front of a line of local men to complain to officials about lack of electricity or corruption in the distribution of grain to the poor. They even stormed a police station to free an untouchable man that they felt was being held only for purposes of getting money for his release.
Another interesting pink lady movement in India is the pink cabs in Bombay driven by women for women. This has started an entire movement of entrepreneurial women.
“This is an unmet need,” Renuka Chowdhary, the Minister of Women and Children in India, said as the service started yesterday. “We have had a higher reporting of crime against women passengers. This is also a non-traditional job for women, so they are breaking out and becoming earning members for their families. We are confident it will catch on.”
Many of the women overcame the disapproval of friends and neighbours who thought that they should stay at home to look after their husbands and children.
Shweta Shinde, 42, applied for the job with the backing of her family and said that it had fulfilled her ambition to learn to drive. “For so many years, I wanted to have a car,” she said.
In the scheme, each woman puts down a 19,000 rupee (£232) deposit on a 369,000 rupee air-conditioned car, subsidised by Tata, the Indian conglomerate.
By paying off the balance on the low-interest loans, the women will own their taxis. They are expected to earn about 25,000 rupees a month, nearly three times the salary of a chauffeur and five times the pay of a domestic maid.
Read both the links up top to learn more about the pink ladies of India seeking to empower themselves and other women. I think it will make you smile and know that there is a worldwide sisterhood of pumas out there.
Business Week just named New orleans one of the Best Cities for Riding out a Recessions. These are some of the facts included in the article.
New Orleans, La.
Share of jobs in strong industries: 40%
Number of workers: 101,752
Metro area unemployment rate: 4.7%
Agriculture jobs: 1.21%
Professional, Scientific, and Technical jobs (legal, accounting etc.): 7.17%
Education jobs: 12.23%
Health-care jobs: 13.50%
Public Administration (Government) jobs: 5.85%
New Orleans has plenty of challenges as it recovers from 2005′s Hurricane Katrina. The population has shrunk, putting pressure on university enrollments and hospitals. And tourism is way down. But the unemployment rate remains low. The city’s banks, which did not make a large number of risky loans during the housing boom, are relatively healthy. And firms are investing heavily in construction projects in the city, rebuilding levees and building a new refinery.
Now if we could just convince Mayor Ray Nagin and all his cronies to move to Dallas, we might actually make some progress.
Meanwhile, our Governor, the exorcist, Bobby Jindhal is going down the rabbit hole of Iowa. He’s been seems to be on the Republican’s sweetheard list of up-and-comers. Frankly, y’all can have him. Last year he was saying the state was so awash in funds that he wanted to get rid of the income tax. This year, we’re looking at tremendous cutbacks and dipping into the state’s emergency fund. This is another one of those guys that the press falls in love with but refuses to cover the whacky side. This guy coverted to Catholicism after participating in an exorcism and has been known to say things that make Pat Robertson look enlightened. Maybe he and Huckabee can work their voodoo in Iowa and fall into a black hole. I’d like to see that state lose its first in the nation status and its caucus system. They’ve been responsible for so many travesties that I think we could hold them for Treason.
Anyway, New Orleans is still here! Come visit us!
We have not entered uncharted territory in the economy yet. I suppose that should be reassuring in a world where uncertainty seems to rule the day. The deal is this, while economists have charted the territory, we’ve never be in the position of stopping so many things from heading that direction. That is what is worrying me right now. That is also why I am relieved that among the advisers the next president has picked is Hillary Clinton and some very good economists. I’m not sure how much good this is going to do because I still am not sure if President Elect Barrack Obama is going to be up to the task, but I think that the measure of how huge of task lies ahead of him might be sinking in. I think there’s a realization that he’s going to need a lot of help. That in itself says something. After a few inklings of Pritzker for Commerce Secretary or Larry Summers for a repeat performance as Treasury, President Obama changed direction. To me, that was a good thing.
I keep looking at the volatility in the market, the problems that face the dollar as the world’s currency, the collapse of GM, and the challenges that face us globally, and I’m glad Hillary is there at the table. I’m glad some of the best bureaucrats that came up in the Clinton Administration will be there too. I may not like Barrack Obama, but I certainly do not want him to fail. If he is smart enough to realize that what is going on is far bigger than anything he is prepared to handle, than that is good first step to regaining some solid ground.
There is realization that the Fed can no longer wonk the economy into a stable state. Its primary tools are the dollar and interest rates. Interest rates are so low they have lost their ability to translate stimulus into the part of the economy where jobs are created and food is bought. The dollar is facing its own set of challenges. Due to the enabling of export economies like Saudi Arabia, Japan, and China, the United States has been able to avoid tax increases, support growing wealth among its richest citizens, and preserve the dollar as the international currency. This has been true since the Reagan years. Countries like these have given us money so we can turn around and buy their products. They have basically agreed to lower living standards in their countries so that they could hook into the benefits of a stable US economy with its safe financial system and lack of financial dramas. This is no longer the case.
There has been a huge accumulation of dollars in these countries. There has also been a huge foreign investment in the Treasury bills and bonds that have funded two wars (with no tax increases) as well created an extremely well-paid financial sector. Meanwhile, we’ve agreed to seeing manufacturing jobs transferred abroad while replacing those jobs with low-paying service jobs. We do not have a free market or a free trade system with floating currencies (even though they like to tell us we do). We have a bunch of countries holding informal agreements to rules that have sustained us for maybe 20 years. The US has huge trade deficits while they fund our budget deficits. The export countries accept a low standard of living so they can grow the countries with exports using the drama-free dollar.
Is this situation on the verge of a game change? I think it is. Who better to work these issues out than Hillary Clinton and a team of first rate economists. If we have to endure fireside chats with Obama to get the Treasury and the State department out there ahead of this disaster, than I say, fine … I’ll just change the channel and hope she gets the job done. Meanwhile Richardson can negotiate the next industry looking for a hand out. That’s going to be the real dirty job. What a great person to get the blame for the next taxpayer’s check to a Corporate Welfare Queen.
Meanwhile, I’m glad to see the appointment of Tim Geithner at Treasury. As the president of the NY Fed, he’s already been a part of the team carrying out monetary policy and the Wall Street Rescue and is already on the ground running. He’s worked in the gut operations of both the IMF and the Treasury. From folks that know him, I hear that he’s not a person that ever feels the need to prove himself and is a person that does not make judgements until he understands the situation.
It’s a grim situation out there in both the equity and the credit markets. Last week, we broke thru two ‘psychological’ levels in the markets. The situation with the S&P 500 is beyond troublesome. Many of these stocks are so cheap now that institutional traders will no longer be allowed to hold them in portfolios. They’ll be forced to sell. We’re seeing the lowest treasury yields ever. There’s not just a flight to quality, there’s a stampede. I’m glad to see the main team for the next administration on deck. What we need now is both the Bush and the Obama administration to work together and show some leadership and announce some joint policies as well as folks that will work to transition together. Obama cannot afford to sit in Chicago and look pensive nor can Bush sit in Crawford and look any more lame.
This is getting more serious by the day. I’ve been avoiding the “d” word because I know we know what it takes to fend that off. I just need to see movement by the folks in charge right now that shows they know it too. We do need some major stimulus and the two camps better sit down and get it started right now.