Martin Wolf on Fareed Zakaria: Worth a View

FT's Martin Wolf

FT's Martin Wolf

I’m not one to recommend CNN programming these days. Actually, I’m not one to recommend programming on any of the TV stations these days.  However, I  find FT’s Martin Wolf one of the few voices of economic reason in the world. He was interviewed on Fareed Zakaria’s program today.  It’s one of the few CNN programs left with an international twist. They’ve watered down most of the new shows to the point I consider People Magazine a better source of global news.  This program will be repeated this evening at 5 est so you may want to try to watch.  Also, Canadian PM Harper is on the program.  Both the Canadians and the Brit’s have economists for PMs.  It’s amazing to listen to his interview because it’s full of wonky specifics rather than hopey changeyness–that as Martin Wolf says–lacks boldness of vision and action in its actualization.  Listen to Harper.  It’s an amazing contrast to some one who needs a teleprompter with words penned by a 27 year old frat boy to form a complete sentence.

Fareed Zakaria never insults the intelligence of his audience. That is also a reason I enjoy his program.  He wants to stimulate discussions and thought.  He has a juicy wonderful list of books that he recommends.  This week’s selection is a biography of Keynes.  You might know him as the father of economics and government stimulus, but he was also a very interesting character.  He frequently attended white house dinners with

JM Keynes

JM Keynes

his husband of the moment and was known for writing some fairly outrageous social and political commentary.  The book is: John Maynard Keynes, Economist, Philosopher, Statesman” by Robert Skidelski. I’m putting it on my summer reading list.

One of the primary reasons that I listen to Martin Wolf is that he is English so he has no political dogs in the hunt for a return to global prosperity.  His focus is purely on getting out of this mess.  That is why I’m listening to him even more than Paul Krugman.  Krugman may have tenure at Princeton and a Noble prize, but much of his column has to do with maintaining popularity here at home.  After all, he won’t get invited to all those sexy parties if he criticizes the home team too shrilly.   Brit Wolf gives the Obama economic team an English B for a grade. That would translate roughly to a D here in the United States.  He says that it’s not that the talent isn’t there because it is very much there.  Wolf says that there is a time that calls for bold action.  This was a time when bold action could be taken.  He also says what we have gotten is basically carefully parsed politics as usual which is anything but bold.

Wolf’s critique of both the stimulus and the plan for restructuring banks is that they are not big and bold enough. They do not really contain change.  They both continue to reward the same old same old.  He believes we’ve already missed the opportunity to turn things around. This is a scary thought.  He had no qualms of saying even the most pessimistic of scenarios painted by friend Nouriel Roubini last year were not nearly pessimistic enough for the reality we have now.  He and I both agree that this is no longer what you can characterize is a simple recession.  This is a correction more along the lines of the Great Depression.  We’ve already wiped out the wealth created by assets prior to 1997.   Every one’s house and savings is worth far more less than it needs to be to support any level of spending that occured over the last decade.  This is a massive roll-back of every one’s budgets.  This is the kind of thing  Keyne’s described well and prescribed huge, massive stimulus to solve.  We’ve wasted far too much time already and I for one believe it’s time to leave Republicans out of the discussion.  That’s part of the politics that’s not working for us as we attempt to turn this thing around.

I watched a little bit of the Republican response which is of course wrapped up in Ronald Reagan and cutting taxes. This came both from Jindal (pity me, this throwback to the dark ages is my governor) as well as the Limbaugh speech (I listened until my ears bled)  to CPAC.  The Republicans, who should replace their elephant with an ostrich as a mascot imho, are still saying this is more like the 80s and just do a Ronald Reagan tax cut.  Afterall, the Reagan year’s were so prosperous.  (So not true.) This dog just doesn’t hunt.  Reagan was responsible for the largest single tax increase in the U.S. to date.  He also spent us out of that recession by incredible growth in the budget.  He deficit spent like crazy in the name of modernizing the military and bankrupting the USSR in an arms race.  If you want to see the fruits of huge tax cuts as response to recession, you really need to check out the Dubya years.  The so-called ‘jobless’ recovery was the result of all those massive tax cuts.  We got the deficit then with none of the stimulus.  The Republicans need to go back to university and take a few economic history courses.

donkeyHowever, the Democrats need to find principled leadership someplace other than their typical political circles.  Some where in all of those newly elected Democrats has to be one person that actually can do something other than posture for re-election and reward their checkwriters.

It’s time we all wake up to the reality of economic policy made by politicians funded by interests other than the American people as a whole.  The current response to the banking crisis protects investors and management and a range of bad decision-makers, not your average, hard working American.  The response to the decrease in demand is large, but still it is going primarily to those that write checks to our political class.  The only really big vision I see (which is about the green economy and getting rid of oil company influence) is money head away from the one sector that was not linked to democratic political funding.   See what happens when you delink funding of a campaign from an industry?  Change!!!!

Until we delink the interests of Wall Street from the Democratic Party and from this President, my guess is that we will not see what we need to see in the way of reform and stimulus.  Meanwhile, I, like Martin Wolf, am hunkering down for a very prolonged period of economic nastiness because all of this response is still very much politics as usual.  The stakes are way to big right now for this administration whose main talent is just more politics that rewards its minions.


9 Comments on “Martin Wolf on Fareed Zakaria: Worth a View”

  1. Peter says:

    Most honorable Dakini,
    this humble male requests permission to speak in your presence..thank you-I caught Wolf today (have been reading his excerpts at http://www.theautomaticearth.blogspot.com) on TV, and just googled him to see if any one picked up on his honest comments-good of you to post this. Whenever I hear the talking heads proclaim how “transparent” things will now be, well, they should watch this interview to see what real transparency is. And the fools who say we shouldn’t “talk about the negative possibilites”, as they contribute to the downward spiral-well, I’m glad Wolf doesn’t subscribe to that asinine viewpoint. I look forward to coming back here,
    Peter

  2. 1539days says:

    I tend toward the tax cut model because of the psychological incentive of working harder because more of your money is at stake vs. working to have “the government” take a chunk of it.

    Politically, I’ve heard this as the dynamic scoring vs. the static scoring model. The idea is that lowering tax rates leads to an increase in the dollar amount of actual revenue. If productivity increases, there is value added in the total economy.

    It would seem to me that a government spending model would continuously transfer wealth from people to the government and back again. If this were the case, it would be a static transfer of wealth which would make economic growth less incentivised.

    Now, I could see if government were to judiciously budget tax revenue into programs (health care, for example) that made people happier and less worried, it would lead to productivity increases of modest amounts multiplied by hundreds of millions as opposed to a very few incentivised to “make” money through large scale business decisions.

    What is the ideal business model under Keynes?

    • dakinikat says:

      the problem with giving tax cuts is the money doesn’t go completely to stimulus. portions of tax cuts go to income taxes (oddly enough), portions will be saved or used to pay down bills from previous spending, portions will go to buy imports (which stimulate other economies but not ours). with tax cuts, the expenditures are a residual.

      if you give a governor money to build a road, then that governor will hire a local business to do so, it will use materials from local sources and machines bought from local sources and workers that live locally. the first round of the stimulus goes out as 100%. then the second and future rounds are subject to taxes, to buying imports, etc.

      government spending is the most effective spending for a shortage of demand. for long term economic growth, the most effective vehicle is targeted tax cuts. this is a demand side problem because there is a lack of customers. it is not a supply side problem.

      hope this makes sense, if not i’ll explain in more detail

  3. Palin4Prez says:

    Thanks, dakinikat. So, you’re saying that government intervention by spending is a response to a crisis and not a generic plan for the economy, which is what I wasn’t sure about.

    Is there any analysis about the implications of this amount of long term debt from the stimulus? I’ve heard counter arguments that Japan’s lost decade was worsened by a series of large government stimulus plans over the years.

  4. 1539days says:

    Sorry about the confusion with the other comment I just sent. I was in another browser window with my other ID.

  5. dakinikat says:

    the spending is strictly a short term fix. deficit spending should not occur during economic upswings. emphasis at that time should be to contain government spending to control inflationary pressures and the pressure for bubbles.

    Dubya basically played into that … creating a bubble instead of real economic growth. This also happened during the Johnson years.

    There is a lot of problems for a country that has a debt that is a huge portion of gdp. the percentage that debt represents of gdp is the measure to follow. a huge economy can support a huge federal deficit, but not indefinitely. the market will not tolerate this. this is the challenge right now. that is why the obama budget has been proposed out to 10 years … to show to the foreign market that the US will increase taxes to reduce the deficit once the problems are solved. it is a signal to the SWF that we will not release so many treasuries that they will incur increased risk and lower yields.

    Keynes is a capitalist. His proscriptions for government spending deal only with the situation where investment (the business sector) and consumption (the households) are not spending and leading us into a deflationary/recessionary period. even adam smith in his treatise recognized that markets can get into problems and laissez faire only works when there are pristine conditions.

    this is an extreme condition and calls for extraordinary action. the discipline comes in a few years. the increased spending cannot continue indefinitely at this magnitude unless there is a full recovery and there is basic growth beyond what we experience now.

  6. dakinikat says:

    Right now, we need stimulus that gives businesses customers. that is why things like increasing food stamps or increasing unemployment benefits work so well. these folks will spend and spend locally and spend completely all of it…. but again, it should be only while this situation exists. if the economy starts growing it will become inflationary.

  7. ea says:

    Not all states and municipalities have laws that require local hires for construction projects. Typicially state laws require that jobs go out for bid–lowest bid gets the contract. Frequently, the low bidder is an out-of-state megacorporation. Much of the money goes to out-of-state executives and stockholders. Then the giant corporation halts work mid-project, citing higher-than-anticipated costs. It has spent all its money but not produced a finished project, possibly using its own stock materials that do not come from local sources. The state or municipality is then held hostage, as it were, for more funding to get the job finished.

    I agree 100% with respect to buying locally and hiring locally.