Voodoo Economics on Steroids

I’ve been ranting about how there is a confederacy of dunces between journalists who refuse to fact check their guests and themselves and people with absolutely no knowledge of economics making absurd comments on the economy.  Here’s a premier example from Media Matters.  Rush Limbaugh–the usual big, fat liar–has been saying on air that Obama inherited an unemployment rate of 5.7.  Hannity has now gone on Fox claiming the rate was 5.6.  Fact checking these idiots and liars shows the unemployment rate in January 2009 was 7.2 percent.  That’s the real inherited rate that the horrible Dubya economy left the intellectually and morally adrift Obama administration.

How are we supposed to get any significant and correct economic policy when so many people listen to media punditry that can’t even get the basic facts straight?

There’s this continual meme dancing around the media now that says nothing can be done about the current economic situation and that we just have to live with it.  That’s unbelievably false.  There’s even a fear among mainstream Democrats of using the word “stimulus”.  Stimulus is an act committed by Reagan in the 1980s, Nixon in the 1970s, and Eisenhower in the 1950s and yes, Democratic presidents before, in between and after them.   Much of this is Obama’s fault who pushed through an inadequately sized, tax cut heavy stimulus  after the Great Recession when much more bold action was required. From what I now know, administration economists Larry Summers, Christine Romer, and Jared Bernstein warned him. He took the politically expedient cave-in path.   Also, he completely took his eye off the economy to chase down his vanity Health Care Reform which spawned the Tea Party nonsense and a series of law suits. He spent his first two years when something could be done doing something that was unsupported by the public and led to his current issues with the House of Representatives. Now, even the White House says there are no options.  This is simply not true.

Economists all over the world are calling for the same policy prescription and it’s the same BIG option.  Here’s the latest from former French Minister of Finance and now Madam President of the IMF, Christine Lagarde writing in the FT.

So there are no easy answers. But that does not mean there are no options. For the advanced economies, there is an unmistakable need to restore fiscal sustainability through credible consolidation plans. At the same time we know that slamming on the brakes too quickly will hurt the recovery and worsen job prospects. So fiscal adjustment must resolve the conundrum of being neither too fast nor too slow.

Shaping a Goldilocks fiscal consolidation is all about timing. What is needed is a dual focus on medium-term consolidation and short-term support for growth and jobs. That may sound contradictory, but the two are mutually reinforcing. Decisions on future consolidation, tackling the issues that will bring sustained fiscal improvement, create space in the near term for policies that support growth and jobs.

By the same token, support for growth in the near term is vital to the credibility of any agreement on consolidation. After all, who will believe that commitments to cuts are going to survive a lengthy stagnation with prolonged high unemployment and social dissatisfaction?

Will the markets buy such an approach? In some countries, they seem to be pushing for sharp fiscal adjustments. And some policymakers have decided that is the road to follow. But in many countries a short-term focus would be wrong. We should remember that markets can be of two minds: while they dislike high public debt – and may applaud sharp fiscal consolidation – as we saw last week they dislike low or negative growth even more.

Many resources in this country were spent bailing out investment banks, commercial banks, and other financial institutions whose policies and actions brought this country and Europe into a terrible recession  from which recovery has been extremely lacking. No one is discussing the fact that solid economic growth is one way to return sovereign debt to sustainable levels.  Instead, emphasis is being placed on policies that will continue to shrink economies, cause joblessness, bankrupt productive businesses that lack customers, and remove programs meant to sustain economies in recession.  Insanity continues because ignorance rules supreme.

There’s a really good discussion of inter-macroeconomist tit-for-tat going on at Brad DeLong’s blog right now where obvious Republican shill Greg Mankiw is trying to walk back earlier assertions on stimulus.  You can wade through the back and forth if you want, but I’d like to call attention to DeLong’s conclusions.

The U.S. government right now can borrow at a nominal rate of 2.24%/year for ten years in an environment where expected ten-year inflation is around 2.5%/year. The short-term nominal interest rates the Fed usually targets are zero, turning its preferred policy tool–open-market operations–into relatively ineffective swaps of one zero-yield government asset for another. Asset prices tell us that our current macroeconomic distress is that the private sector is desperately hungry not for liquidity (which could be provided for the Federal Reserve) or savings vehicles of substantial duration (which could be provided by inducing businesses to invest) but rather for safe assets, which right now can most easily be provided by having credit-worthy governments spend and borrow.

An open-minded and nuanced look at the current situation strongly leads to the conclusion that conventional fiscal policy is, in situations like today, the demand management tool of first resort.

Exactly.  The bond market continues to see yields drop and prices rise despite S&P downgrades and bond vigilante politics.   Here is one of our biggest problems via Jeffrey Goldberg at Bloomberg.

I thought about this man when I heard, at the end of 2008, that GM was shuttering the Janesville plant, and I thought about him again as I read a compelling and disturbing new book about the U.S. unemployment crisis called “Pinched,” by Don Peck. (Peck is a colleague of mine at the Atlantic magazine, but I’m not involved in his coverage of the economy.)

Peck explains, with coolness and concision, the brutal new realities faced by Americans without college degrees. And he delivers a dystopian vision of a country in which the American dream will soon be dead to the majority of its citizens.

He describes an already entrenched two-tiered U.S. economy. The upper tier is populated by people without elaborate toolboxes but with advanced degrees and superior analytical, creative and interpersonal skills. These people congregate in places like Washington, Boston and San Francisco. They feel few, if any, effects of the recession.

The lower tier is made up of people in places like Phoenix and Las Vegas and Tampa, Florida, who are educationally and even dispositionally ill-equipped for a globalized economy. The recession was a body blow to these people, of course, but they are also suffering because of some longer-term and more systematic problems, such as our neglect of our national infrastructure (think of the jobs that would have been created if we had taken care of our bridges, highways and airports over the past 30 years), our long journey away from manufacturing, and the painful consequences of increased automation and globalization.

As much as I hate referring to John Edwards, I will lift one of his political themes.  There are two Americas.  The vast majority of people live in the second America that never reaches the lying eyes or mouths of Rush Limbaugh, Sean Hannity, or any other Washington Journalist or Politician.  This is the America that yells disapproval in polls and is ignored because only money counts in politics these days. Here’s some disturbing evidence of that. Congressional Asshole Paul Ryan is no long holding free, in-person town halls.  He’s only holding appearances in pay-for-view, friendly environments like local Rotary Clubs. That’s one helluva obvious way of ignoring the voters and pandering to your donors.  That’s a prime way to stay in the frame of mind that everything you think and do is hunky dory when it is actually hurting the very people you are elected to represent.  He’s thinking of running for president now.  The voters in Wisconsin should throw him into one of their rivers instead.

Right now, there’s a bus some where in Iowa with a President that’s talking about what a hopeless situation he’s found himself in because every one else won’t do his homework.  There’s a few other buses in places where there’s elected officials saying gay families aren’t real families,  monetary policy is treason, and that all the answers to our problems lie in the gold standard and confederate ideas of state’s rights.  As of right now, we can either elect people whose ideas are firmly planted in 19th century ignorance or a person that refuses to fight for anything.  That’s Second America’s Hobson’s choice.

I realize that I’ve just inadvertently written yet, another rant.  Economists all over the world are talking until they are blue in the face.  The only ones that understand what’s really necessary are those majority of folks that live in Second America.  Unfortunately, our elected officials and media pundits all appear blissfully ignorant and dwell in that small little gated corner of First America where only the upper 2% of the population can afford to live.