Search This Blog

Tuesday, February 24, 2009

The Confusing, if not downright stupid, Republican Response to Obama's speech

Here's the basic Republican 'point' (as it were) as set forth by Louisiana Gov. Jindal immediately following Obama's speech:

1. Democrats' plan is a lot of spending (true, it is)
2. Spending increases debt and potentially burdens future generations (Ok fair 'nuff)
3. We (Repubs) would like to have seen tax cuts instead (.....Ok now you've lost me)

Why am I lost?

Because the implicit point 4 is as follows:

4. Tax cuts DON'T increase debt and potentially burden our future (which is a crock of doo doo)

There are a only a few ways in which point 4 is valid, and each of them is equally ridiculous:

1. Jindal and the Republicans want to decrease taxes AND simultaneously decrease government spending. This is ridiculous because this, for all intents and purposes, would virtually nullify any fiscal simulus effect.

2. Jindal is a follower of Arthur Laffer and believes that Republican orchestrated tax cuts would increase growth so much so as to make future revenues actually exceed the increase in the debt. This is the magical la-la land where Dick Cheney inhabited - the land of pigmies, fairy tales, but not a whole lot of reality or trade offs.

3. Jindal and the Republicans just don't believe in fiscal stimulus in general and the tax cut idea is just the same old LONG-run supply-side tax cuts they've tried to push before. They perhaps think that if they can market them as "stimulative" that maybe they'd have a snowball chance in hell of gaining support. In other words, if this point is the reason, Republicans are purposely misleading or at the very least using the vulnerability of the American people for their political gain.

...I personally think point 3 is the most likely. It is nevertheless, just as offensive as the first 2.

A little optimism.

Consumer confidence down, stock market down (related), Fed outlook fairly gloomy, BUT:
on a more optimistic note.....

Could these numbers be blips? Take CPI for instance. It is fairly common I believe for price changes to be more volatile in recession, but given the depth of their fall in recent months, I would not have expected the .4% gain in January. The question then is, is this a sign of monetary policy working, or a glitch in the way BLS measures the data, or a reflection of economic uncertainty?

...I have no idea. No question that the monetary policy (particularly the non-traditional stuff) has had some significant benefit. But there's also no question that it is not doing everything that economists hoped it would.

Consumer Confidence at Record Low

From the AP:

"The New York-based Conference Board said Tuesday that its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected. The index, which had hovered in the high 30s over the past few months, broke new lows since it began in 1967. A year ago, the consumer confidence reading stood at 76.4."

Economists are still too optimistic - it's systemic, it's problematic, and it is a direct result of many of them being beat over the head with 'classical' models that emphasize efficient markets and the short-lived nature of downturns. These same models add no emphasis on how market psychology can create a downward spiral....

Monday, February 23, 2009

Unemployment Benefits and stimulus

A Moody's study shows you get the largest immediate bang for a stimulus (federal) buck when you expand unemployment insurance benefits.

Obama today defended his modest expansion:

“there are some very legitimate concerns” about the potential expansion of unemployment coverage to part-time workers. But that accounts for only $7 billion of a $787 billion program – a “fraction of the overall stimulus package” and not even the biggest potential expansion of unemployment insurance.

I think using this as a carrot to States is appropriate. I would be leery of forcing States to do this outright, but tying $X to it seems perfectly reasonable. Conservatives are crying foul about how this stimulus package seems more about spending than about jobs. DUH - that's the whole points of a Keynesian stimulus - the idea that in these kinds of crises, you need the spending first to jump start the jobs and output creation. Trying to 'create' planned spending solely out of jobs creation has limits when people and companies just hoard the earnings.

Friday, February 20, 2009

In support of eliminating gas tax in favor of national VMT

I support eliminating retail gasoline taxes and implementing a nationwide VMT tax.

VMT has not been implemented in many places (other than major Urban areas) mostly because the technology to implement either didn't exist or was deemed too expensive.
But, as our technological proficiency grows (esp. in the realm of GPS and computers in general etc.), this becomes less of an issue.

A VMT tax has many advantages over all other forms of externality-adjustments: increased regulation, increased gas tax, Carbon trading.

I've discussed why I oppose increased gas taxes nationally before, but another reason to oppose them relative to a VMT tax is the VMT tax tackles the externality directly: it is a direct tax on driving (the direct cause of congestion and pollution etc.). A gas tax is a tax on those things indirectly but such an effect is muted as part of this is offset by increased driving after consumers start substituting toward higher-MPG vehicles. Gas taxes (like regulations and carbon trading) incentivize better-gas-mileage production and consumption, but a VMT tax would be the same regardless of what kind of car is causing the externality.

This seeming strength of the VMT tax is also it's biggest weakness. We WANT to incentivize higher MPG cars and trucks and the technology behind it. We WANT to incentivize alternative energy other than gas. Gas taxes, regulation, and carbon trading can do this, but a VMT tax alone can not.

This potential downside can be offset if at least part of the VMT tax goes directly to support government spending on green infrastructures, alternative energies, and the like. Of course another way around this is to implement a "carbon"-adjusted VMT tax, taking into account vehicle type and charging a higher tax rate on larger vehicles or on "luxury" gas guzzlers per mile traveled. This could get a bit muddy and confusing to the consumer though, and could incentivize less safe vehicle production at the private level, so I prefer the former option which would allow the government to decide this directly.

The VMT would reduce 'frivolous' driving, increase bike trail use etc, increase demand for local produce consumption etc., reduce pollution.... Down the road, these devices could be installed in all new vehicles at minimal cost of marginal production (I mean they can put GPS in a little phone now).

Note that I'm NOT supportive of a VMT tax that would actually be a net increase taxes on consumers (for the same reasons I'm against a gas tax in general. I'm saying we should replace our existing gas tax with a VMT tax over the long-run - and that this in and of itself could create social efficiency gains over a gas tax.

Thursday, February 19, 2009

UBS Bank Should Be Shut Down, Not Just Fined

This is disgusting. This bank shouldn't just be fined, it needs to be shut down and its assets seized by the federal government, liquidated via public auction whereby other more reputable institutions can bid on the assets, the proceeds of which should be paid to taxpayers via a tax-cut.

When will we learn that these slaps on the wrist of huge financial entities that shield rich people from paying their fair share do nothing to solve the problem of corporate corruption over the long-run.

Mike Moffatt on Immigration as stimulus

I completely agree with him on this.

I have before on this blog advocated immediate (not just a 'path' to) granting of US citizenship to foreigners who graduate from a U.S. institution of higher learning with a graduate degree. I still think this makes sense, not just for short-term reasons like Mike notes, but also for long-run growth not to mention the cultural and diversity value such a policy might provide.

Saturday, February 14, 2009

Selective Mankiw

Mankiw says we live in a land of make believe where economists agree on most of the important issues of the day. Hardly. I use this survey (which Mankiw I know has posted in the past) in my class when I teach macro - he just so happens to have pulled issues where economists agree on specific things. There are plenty where they don't. Either way, I for one have never put much weight behind whether or not scientists agree on this or that. ---especially when the economists you are asking all have the same mainstream bend. That just begs for bias.

Wednesday, February 4, 2009

Richard Lugar, Gas Taxes, and Matt Tulley of the Indy Star

Apparently Indiana Senator Richard Lugar supports a gas tax. I don't.
I take more issue with the Indianapolis Star's Matt Tully's stated opinions that he offers without data to back it up:

"In the Indianapolis area, more people were suddenly carpooling, biking to work and, imagine this, even taking the city bus. Many people began to consolidate their weekend chores into fewer trips and to cut down on unnecessary drives."

Just how many is "more?"

I provide you two datasets:
Vehicle Miles traveled (VMT) did fall by 5% from summer 2007 to summer 2008.

Gas prices rose by 40% or so from summer 2007 to summer 2008.

Lugar essentially wants to go back to where we were (in terms of VMT) a year and a half ago. Will he still think this was a good idea when gas goes back up to $3, $4 a gallon (before tax)?

Was the 5% drop in miles traveled during the period really due to just the gas price increase, or could it have been the expectations of a slowing economy as well? Is all the interest in hybrid vehicles due just to gas price increases, or could it be our general "green" consciousness is growing?

Is such a small VMT drop worth the huge price distortion and potential regressiveness during times of economic crisis? I think not. I certainly don't think we can trust our government to just cleanly and smoothly deliver the gas tax hike back in the form of payroll tax reduction etc. There's certainly no reason to think they'd do so without transferring wealth from one class of citizen to another. It's just not worth the disruption. There are less traumatic ways to support the environment.

Ponzi and Minsky, and Arnold Kling's view

And yet continued evidence in support of Hyman Minsky's theories:

"I think that what happened last fall — the drastic market behavior — just put these guys in a position, you know, the cockroaches came out of the wall"

Arnold Kling agrees Minsky may have got at least part of this whole mess right. But he questions why we should bail out the "fools" that fell for such schemes. I think perhaps he forgets that many of those "fools" were hard working Americans that were either unsophisticated investors, or indirect (but nevertheless just as effected) innocent bystanders.

Tuesday, February 3, 2009

Much Better

This Indiana economist seems much more reality-based than some others in the State:

As an aside, Indiana's previously eternally optimistic economist has changed his tune recently. ...literally just weeks after saying "it's [recession] going to come and go pretty quickly." ...Either that or one of the two media sources grossly misquoted him.

Republicans' odd definition of "waste"

Apparently Republicans think helping our environment is a waste:

(buidling zero-emissions coal plant that, while cost ineffective now, could be much more viable in the future)
(tax credit for hybrid purchases)
(funding for green technologies domestically and for our military)

...and they think programs to help Americans' get healthy is wasteful:
(money for smoke cessation programs)
(money for CDC and STD prevention programs)
(money for alcohol and drug cessation programs)

I mean I could just go on and on here! Their argument against the current stimulus is ridiculous. I'm not saying that every single spending item is closed for debate - it's not. But it seems the Republican leadership is completely unwilling to work with the arm-extending Obama administration and they are grasping at straw to convince folks that the stimulus needs to be redrawn - and wasting valuable time in doing so. Frankly, they are succeeding in this stall tactic to some degree - but that just cements in my mind just how completely ideologically and how completely un-pragmatic the Republican leadership is. And it is to everyone's detriment.