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Aug 07, 2011

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John Amberg

It's pretty clear he didn't understand, Ed. He never did. I'd say it's obvious that back in 2008 Obama's "cool demeanor" during the financial meltdown was a bit of a sham. It's easy to look cool and collected if you have no idea what the hell is going on and less of a clue what to do about it. Kind of like that icy, penetrating stare that Tyrone Willingham had on the sidelines as head coach at Notre Dame. We all mistook it for steady stoicism when in reality it was deer-in-the-headlights.

Obama is running on empty. Why else does he constantly parrot that insipid line about "corporate jet owners" and point to "the tsunami in Japan" as the reason for our lousy job numbers?

It's getting quite painful to watch.

Bill Yaner

That piece by Drew Westen in the Sunday Times which I read the old fashioned way this morning - in newsprint - has been ringing true in my head all day. This is a tough moment for Obama supporters, but it just may be that he was indeed the wrong man for the right time.

Billy Jones

It's pretty clear he didn't do anything because the economy was doing exactly as it is designed to do-- separate the working class from their wealth. He's bought and paid for just like Bush.

David Hoggard

I apologize for doing this. I don't generally stoop to cut and past, but this analogy - forwarded via email to me by my 82 year old Dad, just did it for me.
***********************************************
Federal Budget 101

The U.S. Congress sets a federal budget every year in the trillions of dollars. Few people know how much money that is so we created a breakdown of federal spending in simple terms. Let's put the 2011 federal budget into perspective:

• U.S. income: $2,170,000,000,000
• Federal budget: $3,820,000,000,000
• New debt: $ 1,650,000,000,000
• National debt: $14,271,000,000,000
• Recent budget cut: $ 38,500,000,000 (about 1 percent of the budget)

It helps to think about these numbers in terms that we can relate to. Let's remove eight zeros from these numbers and pretend this is the household budget for the fictitious Jones family.

• Total annual income for the Jones family: $21,700
• Amount of money the Jones family spent: $38,200
• Amount of new debt added to the credit card: $16,500
• Outstanding balance on the credit card: $142,710
• Amount cut from the budget: $385

So in effect last month Congress, or in this example the Jones family, sat down at the kitchen table and agreed to cut $385 from its annual budget. What family would cut $385 of spending in order to solve $16,500 in deficit spending?

It is a start, although hardly a solution.

Now after years of this, the Jones family has $142,710 of debt on its credit card (which is the equivalent of the national debt).

You would think the Jones family would recognize and address this situation, but it does not. Neither does Congress.

(There was more, but above is the gist of it)

David Hoggard

Of course it should go without saying: Both Mr. and Mrs. Jones should both take second jobs to pay down their credit card. In other words - the best way out of their predicament would be both an increase in income and a large decrease in their expenditures.

Bill Yaner

Well done, David! I cannot find fault In your reduction.

Grant

"You chatter and dawdle while Rome burns."

Andrew Brod

I can. While I appreciate the sentiment, much of the problem in how economic policy is being communicated is over-reliance on false comparisons to household budgets. That's what led Obama to mimic Republican talking points by saying that if households have to tighten their belts, so should the federal government. If one is upset that Obama didn't do enough to address the fundamentals of the Great Recession, one shouldn't adopt the Jones example as a way to understand it.

(Having said that, David's follow-up comment suggests that he gets this on some level.)

When it comes to budgets, there is one huge difference between a household and the economy. The former isn't a closed system. That is, if a household reduces its spending below its income (which is the only way it can reduce its credit-card balance), there are no implications for other households.

But if everyone does that, it's a problem (known as the Paradox of Thrift). The economy is, to a first approximation, a closed system. If spending falls below income, income will fall. If income falls, unemployment rises.

(Right now, in a weak recovery, this is truer in per-capita terms than in aggregate.)

So if households are deleveraging and spending less than they earn, something in the economy has to spend more than its income in order to keep income from falling. Businesses won't do it--the lack of spending by consumers has them sitting on their cash. State and local can't do it--they're barred by law from running deficits. The only entity that can do it is the federal government. But that means deficit spending, which voters hate during a recession (they don't seem to mind it during an expansion).

This fixation on using household examples to inform fiscal policy is wrongheaded and it diverts our attention from the true and growing disaster of this depression: jobs.

polifrog

Dr. Brod:

While I appreciate the sentiment, much of the problem in how economic policy is being communicated is over-reliance on false comparisons to household budgets.


For all the talk about how personal finance does not translate to macro economic policy, it is odd that Keynesian theory which is generally focused on macro this and aggregate that boils down to “saving for a rainy day”, an approach that only seems to function in the micro world of spending one’s own money.

As you frequently note, Doc, the Keynesian approach of nationalizing “saving for a rainy day” clearly does not translate to the macro world of spending other people’s money.

polifrog

Dr. Brod:

If spending falls below income, income will fall. If income falls, unemployment rises.

It is disingenuous to leave this statement where you did, Doc, as it implies either a continuation toward collapse or a stall in economic activity. Although it is helpful to play such games when arguing for government intervention, neither implication is true.

The reality is that a bottom is always found, after all people need things. Are they going to live off of hemp?

Once that organic bottom is found real non debt funded growth can begin.


David Hoggard

Andrew - I do sort of get it, I think.

What you are saying that if we cut certain portions of our budget to the bone, it so negatively affects certain parts of our economy (or certain portions of the population), that the cuts actually have a negative multiplying effect on our ability to grow our income.

So- If in the "family budget" example above: if one of the Jones' major budget reductions was to stop funding their daughter's college education - that would be short term smart, but long term dumb. Also. Should the Jones' choose to forgo maintenance and repairs on their aging car, but keep their cable bill paid, they won't be able to get to work even for their primary job, thereby cutting off their noses in spite of their faces but still able to watch Judge Judy.

Something like that?

Poli - I know several young folks who seem to live just fine off of hemp. Used to survive pretty well on it myself all those years ago. But, of course, the munchies would always kick in and I'd have to reach for the Ramen noodles.

Andrew Brod

As you frequently note, Doc, the Keynesian approach of nationalizing "saving for a rainy day" clearly does not translate to the macro world of spending other people’s money.

Frog, I'm not sure what you mean, but I have not "frequently noted" that. I have never noted that. I've accepted that there's no point of economic policy you can't misunderstand, but your most frustrating tic is to take other people's comments and misstate them (purposefully, I'm sure).

Of course "saving for a rainy day" translates to macroeconomic policy. Or at least it did for Keynes. He argued that surpluses were necessary when times are good, precisely in order for a country to afford deficits during a downturn.

Yet the previous administration ran huge deficits, so huge that the only good thing one could say about them was, well, Reagan's deficits were bigger as a percentage of GDP. So the problem isn't Keynesian this or Keynesian that. The problem is political. Because we backed ourselves (politically) into a fiscal corner during the Bush years, we have to do extraordinary things now. And those things aren't necessarily what a household would do in these circumstances.

Ed Cone

The weaknesses of the household analogy acknowledged, don't forget the part where Mr. Jones took a big voluntary pay cut at the outset of this mess, and resolutely refuses to go back to his previous salary.

Andrew Brod

David, the macroeconomic logic really doesn't apply to the household budget at all in this particular way. It does in others, e.g. saving for a rainy day. But the rain's already here. It's raining cats and dogs. And so it's not about finding the right spending, as it would be for a household. On the macro level, any spending would work.

To be sure, we'd prefer government spending to be useful. And investments make sense. I sure wish we'd followed through and funded infrastructure projects that weren't shovel-ready in 2009. There's a lot of work to be done and a lot of people who could use the jobs. And I don't see the private sector rushing in to rebuild our bridges! (Nor should it.)

Oh, one more point: Ramen noodles? Really? Not pizza?

polifrog

Dr. Brod:

As you frequently note, Doc, the Keynesian approach of nationalizing "saving for a rainy day" clearly does not translate to the macro world of spending other people’s money.

Frog, I'm not sure what you mean, but I have not "frequently noted" that. I have never noted that

But you did when you did mention that in this thread in the comment prior to mine:

The only entity that can do it is the federal government. But that means deficit spending, which voters hate during a recession (they don't seem to mind it during an expansion).

Of course, a larger point is that drawing from the experience of household budgets when saying "saving for a rainy day" is just fine for Keynesians when attempting to bolster support for the essence of Keynesian Theory, "saving for a rainy day" on a macro scale.

But my primary point is that while individuals and groups of individuals, (the distinguishing characteristic of each being that they are spending their own money) are able to save real dollars, government seems wholly unable to do so when attempting to save other people's money.

Lets look at Social Security. When individuals save for retirement they can point to real assets (their own money) that they have saved for a future rainy day, but when government saves for people (using other people's money) there are no real assets to point to.

In the end a high percentage of individuals choose to depend on Social Security for retirement rather than save for themselves. This results in an overall reduction in real-dollar national savings because dollars that would have been saved on an individual level are spent at the national level.

As you can see nationalizing "saving for a rainy day" through SS does not translate from the individual to the collective. What would have been real dollars in the hands of the individual evaporate in the hands of governance.

David Hoggard

If you actually had money for pizza during your hemp days, you didn't live the full measure of forced youthful frugality.

Yes Ed. That pay cut Mr. Jones took back then certainly didn't help his family's current situation. He really needs to accept it back from his employer and stop being so stoic as his world crumbles around him.

Roch101

I used to try to argue with people who detached meaning from words, but it's impossible. There are people for whom a legitimate "argument" involves ignoring the meaning of words or imbuing them with a meaning the they do not have, sometimes to the point of making them even the opposite of what they mean.

How do you have a discussion with someone when language is intentionally denied the purpose of conveying meaning? Some people view the purpose of a "debate" as constructing an impenetrable barricade against the intrusion of a new idea. Language is not for getting an idea from one mind to another, it is for keeping preconception unmolested; as such, it need not have any fidelity to meaning. The purpose of a "discussion" for the meaning-snatchers is to gainsay, block and frustrate -- abandoning meaning serves that purpose well. But you can't engage it except as a futility.

It's like arguing with gibberish. One might as well be arguing with: "You said, 'Keynes suffocated oranges for the transport of the orbiting oak spoons,' but his dog collar chastity is more of an aerobic digestion, not the marbled decorum you wrongly espouse. So there!"

polifrog


The hemp comment was a vague reference to this comment by Andrew Brod:

In the long run, the consumer will be back. I remain unpersuaded that there's an alternative to a consumer-driven economy. Even if our values change and we become less materialistic (yeah, right), consumers will still buy stuff. What else are we going to do? Quit our jobs and make everything out of hemp?
David Hoggard

Makes no difference to me where it came from, poli. I just saw an opening and jumped in.

Roch - I'm not sure if what you said above will be understood by some here, but I sure like the way you said it.

Andrew Brod

No, Frog, you misunderstand again. The comment of mine that you highlight doesn't imply that "saving for a rainy day" doesn't work for macroeconomic policy. What it does is acknowledge that it's politically unpopular. There's a difference. I've never claimed that there's political support for sound economic policy. In fact, I've lamented that there's so little.

So if your point is that government does fiscal policy badly, you'll get no argument from me. That's not a Keynesian viewpoint; it's just common sense. The Keynesian view is that notwithstanding that point, we need deficit spending now.

Of course, you don't stop there, and insist on drawing larger conclusions, such as your point about SS, which is wrong.

Andrew Brod

I shouldn't have argued with Frog. Roch said it all. Orbiting oak spoons, indeed.

pointyheads in love

with knowing grins and comforting smirks, thus they soothe themselves.

polifrog

Dr. Brod:

No, Frog, you misunderstand again. The comment of mine that you highlight doesn't imply that "saving for a rainy day" doesn't work for macroeconomic policy. What it does is acknowledge that it's politically unpopular. There's a difference.

Translation: Macroeconomic "saving for a rainy day" policy works; it really does! It just doesn't work politically.

So I guess what we need is some of that non governmental macro economic policy?

polifrog

Roch 101

How do you have a discussion with someone when language is intentionally denied the purpose of conveying meaning? Some people view the purpose of a "debate" as constructing an impenetrable barricade against the intrusion of a new idea. Language is not for getting an idea from one mind to another, it is for keeping preconception unmolested; as such, it need not have any fidelity to meaning. The purpose of a "discussion" for the meaning-snatchers is to gainsay, block and frustrate -- abandoning meaning serves that purpose well. But you can't engage it except as a futility.


I assume this is an off topic comment, as I can find no examples within the confines of this thread.

Could you reference some?

sean coon

ribbit. ibid.

Jim Buie

Compelling critique of that NYT article on Obama's loss of passion. Click. Short version: Andrew Sullivan calls it a "fairy tale from the dreamy left." Click.

justcorbly

Frog mentioned an "organic bottom". What is that? Some kind of expensive cut of ham from Whole Foods?

Andrew points out that one person's spending is another person's income. Americans went deep into debt for a decade or more to finance their spending -- you all do remember refinancing. credit cards, and debatable mortgages, right? We took that money and went to Hawaii and bought two new cars and remodeled the kitchen and paid for a year's college tuition.

That money went into some other schmuck's pocket, who was also busy buying stuff.

It was us, as individuals, doing this. Not the feds. They were doing quite nicely, at least till the Bushies came back to town.

Now, after the Bushies' refinancing of the country to channel your children's money into drug companies and defense contractors, most everyone's got religion, and they're not spending. Including the feds.

But, if no one spends, no one gets paid.

polifrog

Organic bottom - The point at which non incentivized natural spending occurs.

Only when that point is found can a healthy market grow our economy. Keynesian solutions keep this point from being reached through creating artificial demand. What Andrew calls government stepping in to fill demand lost to recession.

This is how Keynesian solutions created the Great Depression. Remember it wasn't even called the Great Depression until after the crash of 1937 which itself was the result of seven years of Keynesian stimulus.

This is why there was a recession at the close of the "Keynesian jobs package" more commonly known as WWII.

This is how Keynesian solutions created the Japanese perma-recession.

This is how Keynesian solutions have put the US in the precarious state it is in now.

sean coon

so what would you have done in january '09 if you were elected president? wait for the "organic bottom" to occur?

Billy Jones

Actually, under our current economic system, there is no other choice but to wait for the "organic bottom" to occur. Stimulus packages-- even a rebirth of The New Deal-- serve to only delay the inevitable-- the transfer of wealth from the working class to the top 1%.

It's the way the system is designed to work-- like a game of musical chairs with no one to stop the bullies from pushing the smaller kids from their seats.

And there's nothing that amphibians or economists can come up with that will matter.

Things will get better when politicians, government workers, economists and banksters can be found on street corners holding signs that read, "Will tax for food."

Andrew Brod

Frog: "Keynesian solutions created the Great Depression."

I think that says it all.

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