Monday, December 29, 2008

Most Tranformative Issue to Watch - Task Force on the Middle Class

I think this is the issue to watch:
The Task force on the Middle Class.

The NY Times mentions the task force in its article on Secretary of Labor Hilda Solis

Think of the constituents on this task force: Biden, Solis, Jared Bernstein. WOW. I predict that this is the most likely to produce good ideas to transform the real causes of economic cycles, low wages!!!!!

Saturday, December 13, 2008

Barack Obama - Weekly Address 12-13-2008

This is Obama's HUD announcement. Very excellent for the first three minutes or so...BUT..
At about 3:30 notice how Pres Obama increases his pace and then at 3:45 he is blistering. He needs to go back and read his FDR books. FDR wouldn't mess up the pace. As a preacher, I notice this kinda stuff.

Thursday, December 11, 2008

How much will 2.5 million Jobs cost? – Republican Obstruction of the Auto Bailout

One news items requiring comment today is the Republican refusal to assist the auto industry. This ideological lunacy reveals how the Republicans simply do not understand economics in general, and this particular crisis in specific.

This is a demand crisis or, in other word, a crisis in consumer purchasing power. If we do not assist the auto industry with $14 billion, we will have to spend about a trillion dollars in stimulus to make up for the 2.5 million lost jobs. The republicans it appears don’t understand basic math either. Can you say Joe the Plumber?

If we lose another couple of million jobs in the next 6 months just in the auto industry alone, the ripple effect in other industries of further decreases in consumer purchasing power is just unfathomable. Can you say Herbert Hoover?

Government inaction at this time is absolutely unequivocally irresponsible!!!!

Friday, December 5, 2008

Krugman on Hardball - Unemployment

This is a good listen except for when Chris Mathews speaks. Does not this shock jock realize he is talking to a noble Laurette economist. Anyway, if you can handle Mathews interrupting Krugman, it is good. A great line is at the end when Krugman says that there is nothing that says making bombs is more stimulative than building bridges. It is just that a war has more political support than a huge stimulus package. The question is will Obama go big. Bada-Bing!!

Thursday, December 4, 2008

The Obama National Security Team

Two articles of note:
Kissinger on the Obama National Security Team
This review by Tim Fernholz of the American Prospect on the forthcoming book by Ivo Daalder and I.M. Destler called In the Shadow of the Oval Office

These articles analyze the possible drama between President, Secretary of State, National Security Advisor, and Secretary of Defense that might make for very interesting copy in the eight years ahead.

Tuesday, December 2, 2008

It's All About Demand, Stupid!!

Back in September, I wrote about what I understand to be at the root of the financial crisis and the need for policy to address this problem. The problem is relative wage deflation and the need to stimulate demand via some type of tax/incentive policy. I am feeling rather prescient.

Robert Reich has been writing on these themes for a few days. Check out these tasty quotes:

From one of FDR's fireside chats in 1938: "We suffer primarily from a failure of consumer demand because of a lack of buying power."

and again from the America's Employment Act of 1946 — the year Keynes died — [ the US government] codified the new wisdom [of Keynes], making it "the continuing policy and responsibility of the Federal Government promote maximum employment, production, and purchasing power."

Can you say stimulus package!!!!!

I am middle class, and I have an intimate knowledge of the problem of a lack of purchasing power. If all Americans are forced to spend (or not spend) like my family, then this downturn is going to be very, very, very steep indeed. No air travel, no clothing purchases, no new car, no new guitar for the kids. Burn down the credit. Go low risk all around.

Bottom line: It is about demand stupid. The death knell to supply side economics has been sounded loud and clear.

Monday, December 1, 2008

Hopemonger - Obama to Shift Foreign Policy Emphasis to Development and Diplomacy

The appointments to be announced today will be charged with executing a very new and different foreign policy strategy than that of President Bush.

This emphasis sure puts the exclamation point on Obama's "we can change the world" mantra. First, the president elect has this crazy idea to surround himself with competent pragmatists and now he has this crazy idea that the war on terror can be faught by eliminating the root causes of terror - extreme poverty and hopelessness.

Sunday, November 30, 2008

Ideology versus Pragmatism - Obama and Top Military Brass Meet

Obama met with top military brass, and they seem very pleased according to this morning's Washington Post Article.

This quote emphasizes the relief the military feels as they realize that Obama is not the ideologue that Bush was. Military folks are trained to be very practical and for good reason.

"Open and serious debate versus ideological certitude will be a great relief to the military leaders," said retired Maj. Gen. William L. Nash of the Council on Foreign Relations. Senior officers are aware that few in their ranks voiced misgivings over the Iraq war, but they counter that they were not encouraged to do so by the Bush White House or the Pentagon under Donald H. Rumsfeld.

"The joke was that when you leave a meeting, everybody is supposed to drink the Kool-Aid," Nash said. "In the Bush administration, you had to drink the Kool-Aid before you got to go to the meeting."

In all matters, it appears that the President-elect will be pragmatic. As I have noted many times over the years, ideology is the enemy of learning, and, more importantly, ideology is often the enemy of a rigorous, scientific problem solving methodology.

Thursday, November 27, 2008

"The Vision for Change Comes from Me" - Comment and Video

Yesterday during his news conference, President elect Obama was asked why he is appointing so many insiders to his administration when he campaigned on change. His answer is very strong and confident and reveals that ultimately Obama's gravitas comes from the president himself. This week has been all about just that providing the sense of confidence by adding big gun after big gun to the administrations "Brain Trust". This strategy, modeled after Roosevelt and which reveals an understanding of the irrational nature of the markets, appears to be working.

Sunday, November 23, 2008

Ezra Klein on The Peter Orszag and Health Care

Ezra Klein on Peter Orszag
Orszag will be coming from the Congressional Budget Office, OMB's legislative cousin. There, he's shown an almost single-minded focus on health care reform. He's added dozens of health care analysts to the staff, reconstructed the health policy division's management structure, and is readying to release two major books on health policy options
Klien gives the lowdown at what are the ramifications of Orszag appointment as director of the Office of Management and Budget.

The Best and the Brightest - What a Novel Idea

The Obama strategy is so clear and his execution is so flawless. But don't take my word for it, David Brooks is falling over himself giving Obama major props.

Krugman also sees the value of actually picking the best and the brightest to solve the big problems facing Americans

The benefit of the President-elect's competence is that it generates confidence which is exactly our current problem. One lesson we have been learning is that economics is not behavioral science and that consumer decisions are based as much on emotions like confidence and fear as facts like earnings and value. So the Obama is projecting confidence in the FDR model.

My prediction is that this is going to give a little market bump this week. But what would really help would be for Bush to replace Henry Paulson with Tim Guithner immediately so we can avoid the two month waiting period for solutions from treasury.

Did New Deal Policies help?

There is a debate going on this week about whether the New Deal policies played a significant role in turning the corner on the depression. This subject is important because the next big senate debate will be over the size of the stimulus package. Obama has already weighted in by saying that over the next few years we cannot worry about deficits. So the usual suspects are weighing in on their respective and predictable sides.

Tyler Cohen - Says Monetary Policy is the Bigger Issue

In short, expansionary monetary policy and wartime orders from Europe, not the well-known policies of the New Deal, did the most to make the American economy climb out of the Depression. Our current downturn will end as well someday, and, as in the ’30s, the recovery will probably come for reasons that have little to do with most policy initiatives.
Think Progress of Course calls George Will out as well. and Krugman has been saying for a while that a new new deal is needed. (Update: TPM Weighs in)

My opinions is pretty clear. The problem is demand. So, of course, the government cannot do enough to stimulate demand, but we need to do as much as possible. And, in the long term, we need to win the war for green energy innovation just like the cold war led to our leadership role in the technology revolution.

But Last weeks Krugman vs George Will smackdown still takes the cake for political entertainment.

Saturday, November 22, 2008

Barack Obama Weekly Address 11-22-2008 with List of Commentaries

In today's Weekly address, President-Elect Obama announces that his economic teams is "already working on an Economic Recovery Plan that he will begin implementing the plan as soon as he takes office on January 20th. The goal of this plan is to generate 2.5 million jobs by January 2011. The president-elect calls the plan "big enough to meet the challenges we face".

He outlines the basic approach:
1. Infrastructure: build roads and schools
2. Green Energy infrastructure (wind and solar farms).

The economic team will include Tim Geithner at Treasury, Peter Orszag at the Office of Management and Budget, Jack Lew and Jason Furman at the National Economic Council, and Austan Goolsbee at the Council of Economic Advisors. (HT: Reich)

Transcript here:

Three things that I would note:
1. Obama's approach is focusing on exactly what is necessary: Long term innovation and immediacy of action. We will only have a thriving economy if the government supports and creates incentives for the next new economy which will be green energy.
2. Obama is making it clear that he isn't too interested in handing out a check to Americans to boost spending. I sure would like one but I have to admit I wouldn't spend it.
3. Obama is a pragmatic who will take urgent action to address the economic crisis. The markets gotta love this. I expect that this approach and the competence that Obama and his team project will help the markets next week.

See also the following bloggers for more commentary:
1. Robert Reich: How Obama is Already Taking Charge
2. to be updated..

Thursday, November 20, 2008

GM and Value - Everything You Ever Wanted to Know about Economics

I drive a Toyota. I think that about suns up my opinion of why the Big Three are failing. My Toyota truck has 219,000 miles on it. It does not leak or consume oil. I can go 50,000 without an oil change if I wanted to. It gets 28 MPG. I once owned a GM car, and it was a total POS.

Everything about the GM car I owned cost me money and was plain poorly and cheaply designed. Everything about my Toyota truck rocks.

All You Ever Wanted to Know about Economics
When I was young, I read a lot of Karl Marx. Marx knew absolutely nothing about the 21st century. Marx said basically workers work and create value. The bosses underpay the workers and the value that they do not pay the worker is called profit. Profit equals surplus labor value. This theory completely does not understand value. But it does explain, how GM management thinks. Both GM and Marx miss the point of value. Let me explain.

Consider in front of you two chairs. Both are made of about $5 worth of wood and fabric. Maybe one has about $6 of wood and fabric. Both take about $5 of labor to build and both have about $20 of various overhead costs also amortized into the cost. One sells for $40 and the other for $100. One company has to pinch pennies and cut costs to survive in a competitive market. The other has to cut costs and pinch pennies to crush the competition. What is the difference between the two chairs? Design!!!

Human intelligence creates value. One company had an engineer who was creative and gifted and made beautiful innovative designs. The other company understood a chair as something with four legs, a seat, and a back. The knowledge of what a chair is is called commodity knowledge and generic chairs are commodity products. Stuff that is unique and innovative is called proprietary product.

Proprietary ideas equals profit.

The big three have been making generic cars for about 60 years. What is the difference between a $60,000 BMW and a $16,000 Ford Taurus. Design. Design. Design.

Toyota is successful because they have designed in functional, innovative ideas in both the design of their cars and the design of the production of their cars. Toyota has an inexhaustible supply of CASH.

My advise to GM. Squeeze 30 years of innovation into the next three months or you are toast. Or continue your old strategy of going to the government to protect you from the need to actually innovate. What is the definition of insanity? To keep doing the same thing over and over and expect different results.

Wednesday, November 19, 2008

Paulson and Frank et al Differ on Intended Use of The TARP Bailout Funds - My Solution

These politicians sure make it hard to be post-partisan.
Congress democrats yesterday argued, as President-elect champions as well, that the TARP assets need to be used for direct foreclosure relief. As quoted in the NYTimes Editorial this morning, Frank seems to have read the bill and Paulson maybe not,
Mr. Frank pointed out several sections of the bailout law that direct the
treasury secretary to engage in foreclosure prevention. Perhaps the most
important of those provisions authorizes the treasury secretary to “
use loan
guarantees and credit enhancements to facilitate loan modifications to prevent avoidable foreclosures.”

So here is the problem, if being post-partisan is about maximizing opportunity and economic mobility and the right wing is ultimately about the solidification of power in the hands of the few, it becomes very easy to demonize Mr. Paulson. Paulson's unwillingness to address the actual victims in the crisis appears so crass. His actions thus far and his plans give way to the charge that he and the remaining days of the Bush administration is just giving away BILLIONS with a B to financial CEOs and stockholders. Why? Because they can.

What Paulson's unbalanced approach does is leads to further distrust by us lower middle class folk of the entire system. In fact, Robert Reich, in his blog makes just these cynical (and possibly true??) claims.

What happened to all the money? About a third has gone into dividends the banks
are paying their shareholders. Some of the rest into executive salaries and
bonuses. Another portion toward acquisitions designed to raise share values.
Another chunk for bailing out giant insurer, AIG.That's not what taxpayers
bargained for...

Come on you guys. You are making it hard to be post-partisan here. Reich's point is that the bailout money went not to fix credit but to fix investments. This is a pretty dire if true. The fact is that as many economists have been saying, Paulson is just wrong on his approach.

Paulson's Root Cause Analysis is Wrong

This is pretty simple. The problem is we had an artificial housing bubble. The bubble pushed housing way up. Bank balance sheets are now all screwed up and people are in foreclosure at such a rate that no one knows where the bottoms is. This lack of an ability to actual value people's mortgages has led to a total freeze of the credit markets. The containment action is pretty simple. To contain the problem, we need to find the housing bottom by re-valuing and setting prices on mortgages. This is exactly what Paulson is unwilling to do. The containment action that addresses the actual problem is FORECLOSURE RELIEF. This is a no brainer.

Think about it the bubble was artificial so we need to look backwards as if the bubble never happened and revalue the loans at a reasonable price for the homes and reasonable structures to the mortgages. How come a simpleton like me can figure this out. It makes one a tad upset!!! The bottom is actually pretty easy to find.

Why is Paulson unwilling to do this? This is pretty obvious. If this happens the balance sheets of the banks will be so out of whack that a lot will go out of business. The banks are going to have to suffer a lot. That is just the bottom line. There is no saving investors in this one. The banks are going to be way upside down.

The second thing we will need to do as I work through this is actually give bridge loans to a lot of banks. Basically Paulson tried to start with this step. He gave money to the banks without containing the real problem which is that we do not know the value of the assets. So, the loans [capital infusion] are being wasted.

Lastly, next year some time, we deal with the root cause and legislate regulation against what really is real estate speculation. There shall be no interest only loans. There shall be no sub-prime high risk loans. There shall be no default credit swaps to offset risk. This would take a lot of study to really understand what to do and I am not yet an expert (give me a few days). But the basic questions should be, "How do we prevent a bubble?" We need to keep demand and prices more stable. Sorry folks no flipping houses in a post-partisan world.

Think stability. It undermines our get rich quick fantasies, but it is far better for all of us in the long run.

Tuesday, November 18, 2008

Daily Reads

today, I made my daily rounds of the big newspaper editorials and articles. The best reads:
Henry Paulson - Fighting the Financial Crisis, One Challenge at a Time
Paulson's self-defense is similar to his interview with Jim Lehrer last week. Paulson's case is that he was never trying to save the economy but save the financial system. His second point is that we still have 450 billion left for the next administration. He certainly seems to be saying, "I'm outta here". At least that is my take.

Richard Cohen's - Finding His Inner FDR - I totally agree with Cohen here. The point is that Obama needs to keep the American people optimistic. This is a bit of a no brainer point but it is important when thinking about priorities and in understanding Obama. Obama's big passion is actually unity and the new politics, but his number two passion is hope. I think Cohen missed it in the sense that President-elect Obama made the point about FDR's ability to coach people through the depression via the fireside chats already. What is interesting is to pay attention to how much irrationality and mood plays a role in economics. In other words, consumer confidence is a good term to use to gage, well, the economy.

Sunday, November 16, 2008

What is Left Wing and Right Wing (and Center Left and Center Right)? – A Paradigm for Post-Partisan Dialogue

Yesterday, my son asked me, “What is right wing and left wing?” This is a great question for a thirteen year old to ask, and a clear articulation of the answer functions nicely in helping lay a foundation for a post-partisan approach to today’s problems. It is important in overcoming partisanship to be able to articulate both sides of our current political dialogue in such a way that validates the values of the two majority perspectives. If we actually understand the perspectives of both sides accurately and can help articulate their positions, we can avoid the partisanship that has at its root misunderstanding and mistrust of our political adversaries. Post-partisan dialogue is ultimately about disregarding the old categories and articulating new terminologies that better define various positions. Because the terms left, right and center are here to stay, it is important to use these terms in a non-partisan fashion in which the terms are not used as a means of demonizing our adversaries.

So here are what I believe are the criteria that constitute balanced definitions of the terms left, right, and center. In this discussion it is important to remember that these terms refer to actual historical realities. The extreme left wing is used to refer to communism, and the extreme right is used to describe fascism or military dictatorships. Therefore, the criteria we use to define these terms need to accurately reflect these forms of political economic societies.

The primary criteria which separate left wing and right wing is the idea of equality and the way in which equality or inequality interacts with freedom and opportunity. I would define the far left as state imposed equality. The fundamental example is communism. In communist society, the goal is classlessness and economic equality. The problem is that state imposed equality undermines freedom and opportunity. Using this same criteria, far right would be defined as state imposed inequality. The primary example of far right then would be racist regimes like apartheid South Africa or Nazi Germany. Also, any regime in which power is concentrated in one small group by heritage or military might would be considered far right. In both far right and far left, freedom and economic mobility is sacrificed for either state imposed equality or state imposed inequality.

Using these same criteria helps us define the center. The center is then defined as the political-economic system which maximizes freedom, opportunity and social, political and economic mobility. These definitions are helpful because they distinguish between theoretical and practical freedom. Freedom is defined as a condition in which economic mobility is as closely correlated to the free exercise of ingenuity and effort. Freedom is the condition in which through wise effort, the individual or a group of individuals can progress economically and if desired politically.

By these criteria, the center is the goal. The goal is to maximize freedom, opportunity and class mobility. In America, we then primarily have positions of center right and center left. A center right position is held by those who argue that state sponsored equality has undermined freedom and opportunity and therefore a move toward less state sponsored equality is needed. The center left are those who argue that social conditions are such that unregulated power has solidified to such an extent that opportunity and economic mobility has been impeded. In such a scenario, state sponsored action is needed to provide greater opportunity. Both center-right and center-left perspectives, it is assumed, are crafting policy to increase freedom, opportunity, and mobility. When both wings of the American political spectrum define the ideal as the American Dream both parties are describing economic mobility.

Using these definitions and assuming that both center-right and center-left has mobility as the goal has the benefit of generating dialogue with respect to policy without categorizing either perspective as hard left or hard right. It is assumed that the goal of both American parties is not state-sponsored equality or state-sponsored inequality but freedom, opportunity, and mobility. But the norm in partisan rhetoric does not assume similar goals but instead demonizes the intentions of the opposition. The right all too often characterizes the left as those desiring to promote equality at any cost including the sacrifice of freedom, incentive, and innovation. On the other hand, the left often describes the right as the collusion of economic and political power to such an extent as to solidify the power of the few and undermine the economic mobility of the majority. The reality is that neither of these scenarios describes the intent or values of either position.

Post-partisan dialogue therefore needs to begin by defining the goals of all to lie in this ideal center of maximized freedom, opportunity, and mobility. If we can start our political dialogue and determine the merits of a given policy using these mutually accepted goals, we will find that we can enter an era of civil, post-partisan dialogue in American politics.

Technorati Tags: ;