Council on Foreign Relations

Alan writes in National Review Online:

Republicans’ Keynesian Arguments

Republicans should stop using Keynesian arguments against Keynesian policies. The mantra that President Obama should “focus on jobs,” for example, was an open invitation for the GOP to be sucker-punched when Obama simply relabeled his second stimulus bill a “jobs bill.” To demand the president focus on jobs seemed like an endorsement of the president’s odd notion that he can “create or save” jobs by using borrowed money to expand government payrolls and transfer payments.

As I recently explained, “Whether the government pays people to work or to stay on the dole, it has to get the money by taxing, borrowing or printing money — all of which reduce real income and employment opportunities in the private sector. To imagine that borrowing from Peter to pay Paul is a way to create or save Paul’s job is to forget that Peter expects his money back with interest.”

Another unfortunate Republican talking point is that “recessions are the worst time to raise taxes.” Since the economy is out of recession far more often than not, that was an open invitation for the president to raise tax rates in 2011 because his central planners wrongly assume the economy will be growing faster in 2011 (3.8 percent) than in 2010 (2.7 percent).

Obama’s “upper-income tax provisions” cannot possibly raise even the $34 billion the budget hopes for in 2011. When Democrats then start looking for more loot, the Republicans’ Keynesian arguments about the timing of tax increases will prove useless so long as estimated economic growth exceeds zero.

As the health-care debate should remind us, the effect of taxes and transfers on the economy cannot be summarized by their effect on deficits. Mixing a higher tax rate on extra effort with generous subsidies to extra months of unemployment has an unambiguously negative supply-side effect on incentives and economic growth, and therefore on future budgets.

— Alan Reynolds is a senior fellow at the Cato Institute.

This Bloomberg column, “No Swimming Pool in Your Future,” looks at whether the consumer is as much an idiot as current policy of both parties suggests. The article doesn’t totally convey the depth of the data base and, therefore, the value of the findings of the authors (Harvey Rosen, Kristopher Gerardi, Paul Willen). Gerardi and Willen have also coauthored with Andreas Lehnert and Shane Sherlund a Brookings Paper, “Making Sense of the Subprime Crisis.” 

The big sense is that in future mortgages will be cheap but unavailable. I’m expecting a sort of rent control phenomenon.

This article  by Michael Ferri in the Journal of Applied Finance provides more evidence that political events, especially the expected outcome of national elections, can move equity markets. His article uses statistical methods to demonstrate that the reversal in expectations of the outcome of the 2004 US Presidential election moved the US equity markets.

Here’s a recent column by me on whether markets rise when Congress is confused or inactive. Ali Wambold writes in recalling an event that seems to suggest “confusion = good”.  On Sept 18, 2008, Bloomberg carried a story announcing Congress would adjourn and that Senate Majority Leader Harry Reid said “no one knows what to do at the moment. “ 

Writes Ali: “When it looked like Congress was going to check out, the Dow rose over 770 points in 2 trading days, over 7% (the S&P500 rose about 8.5%).  Once Obama, McCain, Barney Frank and Chris Dodd (not a business person among them) checked in over that weekend, most of the gains were unwound in the following two trading days.”
 
The Wambold Suggestion: “We should consider having part-time legislators like the UK:  the less time they have to “do” things, the safer we are.”

This week’s Bloomberg column is on the Sunset movement, which seems to me a good movement for both political parties at this point. John Chachas’s plan to run against Harry Reid is tactically interesting because Nevada has a relatively small population. Rep. Kevin Brady and I connected too late in the day for his quote to make it into the column, but it’s important. “I continue to push for a federal sunset law that would hold all agencies and programs accountable to a sunset date.” In other words, Brady too wants less discretion and more structure in the political process.

In a Forbes column had a chance to describe to describe how Wall Street finally found its voice in Wendell Willkie in the later 1930s. Powerline notes that somebody is speaking out now: Cliff Asness.  As Asness notes, complaining might have an asymmetrical set of outcomes. Not much good comes if you complain; but lots bad can happen.

Writes Asness: “The President’s attempted diktat takes money from bondholders and gives it to a labor union that delivers money and votes for him.  Why is he not calling on his party to “sacrifice” some campaign contributions, and votes, for the greater good?  Shaking down lenders for the benefit of political donors is recycled corruption and abuse of power. ”

Read Asness: “Furthermore, for some reason I was not born with the common sense to keep it to myself, though my title should more accurately be called “Not Afraid Enough” as I am indeed fearful writing this…  It’s really a bad idea to speak out.”  The point is not to fearmonger. It is that the President’s displeasure matters disproportionately. 

Employment data turn out to be the most controversial part of the New Deal discussion. Lee Ohanian testified before the Senate Banking Committee recently, laying out as clearly anyone why labor policy made the Great Depression worse in the 1930s.

Jack Torry of the Columbus Dispatch covered the Senate Banking Committee hearings on the 1930s and then did an interview on TFM. I’m glad I got to talk to him, not just for the interview but coz I like his angle: not a New Deal, but a better deal. Torry took a lot of trouble to figure out the data. All of us involved in the story appreciate that.

Also, one of the most interesting guests at our Second Look conference was Bob Higgs of the Independent Institute, father of the “Regime Uncertainty” concept.  Higgs is on C-Span Book TV in a three-hour marathon session this weekend. To give Higgs this time was probably an idea of Peter Slen, one of the great innovators of C-Span. Higgs’s work is hyper-relevant to enterprise.  It may be a marathon, but run with Higgs. His work explains a lot.

Forbes column on the original meeting in London, 1933….

The upcoming G-20 meeting is not the first conference held in London several months into a new U.S. administration in the midst of an international economic crisis. International powers also met there in the summer of 1933, not long after Franklin Roosevelt’s inauguration. To review that London meeting reminds us just how badly an international conference can flop.

But to the story: The planning for that London….

Something’s right in the world and in this administration if the U.S. can have a President who makes a tape like President Obama’s Nowruz commentary. An unforgettably gracious bit of outreach that will have more effect than we can imagine.