|Samuelson: Keynes is, ah, wrong because, ah, wow, is that the new Porsche??|
Dean Baker gets as howling mad at Robert Samuelson as I was with his assertion that Keynes was circling the drain. Au contraire, M. Samuelson, c'est toi, c'est toi:
Okay, Samuelson actually wants to say goodbye to Keynes, but he would have had a better case if he was talking about Darwin and the theory of evolution. After all, when we have seen nothing but confirming evidence for years, why should we still accept the theory?
Samuelson tells readers:
"The eclipse of Keynesian economics proceeds. When Keynes wrote “The General Theory of Employment, Interest and Money” in the mid-1930s, governments in most wealthy nations were relatively small and their debts modest. Deficit spending and pump priming were plausible responses to economic slumps. Now, huge governments are often saddled with massive debts. Standard Keynesian remedies for downturns — spend more and tax less — presume the willingness of bond markets to finance the resulting deficits at reasonable interest rates. If markets refuse, Keynesian policies won’t work."
It seems the problem here is that Robert Samuelson has not heard about the euro. The countries he has identified as reaching a situation where they "lose control over their economy" are all on the euro. These are countries that do not issue their own currency. In this sense they are like Ohio and Texas. These states cannot freely run deficits because the Federal Reserve Board has no explicit or implicit commitment to back up their debt. Greece, Italy and Spain are in the same situation, as the European Central Bank (ECB) has repeatedly insisted that it will not back up the government debt they issue.
Samuelson says it is "unclear" why, given our own debt and deficit, interest rates are still just 2 percent and investors are willing to lend us trillions of dollars. Actually it is very clear. The Federal Reserve Board stands behind the debt of the United States government and there are few good investment opportunities in the current economy.It's time we realize there are a whole lot of economists and economics pundits who have to be bunched together into the club where they actually rightfully belong: how about calling it the Austrian dead-enders? Or the Hayek zombies?
By the way, Samuelson does something that is the most annoying: he fills his article with sentences in which he admits he's not, well, wrong. No, that can't be it. It's that he's right but just can't explain the low bond rates. Otherwise, everything's ducky!
Update: Paul Krugman discovers a Samuelson flub about his Keynes contention. Or is that fib? Tsk, tsk, Robert.
|Spanish Parliament. Here's where they decide to destroy themselves. Ole!|
Atrios latches onto yet another story about a euro country with a new conservative government that is fighting a failing economy with spending cuts. It works so well:
Spanish newspaper El Mundo reports that Rajoy is planning to cut spending across the board, and only pension payouts will rise in the coming year. His plans include the reduction of public debt to 60% by 2020 from as much as 69% next year and more than that this year, according to Dow Jones. He also advocates a plan to privatize segments of the public sector.
More importantly, Rajoy has promised to cleanse the Spanish financial system of overwhelming debts and difficulties. He reportedly (via El Mundo) said this effort will include a new "wave" of bank fusions where stronger banks will absorb smaller ones, although he mentioned nothing about reported plans to create a "bad bank" which would absorb toxic bank assets. That second plan has been a topic of speculation for the last month, particularly due to similarities with a policy Ireland pursued in an attempt to cleanse its banking system.Yes, let's imitate Ireland, which has a tanking economy post-austerity. Last quarter the Irish GDP only slipped 2.2% year-on-year. But who's counting? (I suspect maybe the Spanish Socialists, who are counting the days before their country cries for them to come back.)
|This hurts me more than it hurts you. Really. No, really.|
As if John Boehner hasn't caused enough grief. Even Chris Cillizza thinks killing the payroll tax holiday is "risky":
In so doing [rejecting the Senate version], House Republicans are making a major political gamble on a very popular piece of legislation, essentially risking the failure of the payroll tax extension by pushing the ball — figuratively speaking — back over to the Senate.
(For what it’s worth, the Democratic Senate leadership seems willing to call House GOPers bluff; Senate Majority Leader Harry Reid (Nev.) said Monday no further discussions will occur until the House passes the two-month extension agreed to by the Senate.)
Listen closely to Boehner’s rhetoric this morning and it’s clear what Republicans are up to: making the case that a two-month extension is nothing more than passing the buck or, in Boehner’s words, kick the can down the road. (Does anyone actually kick a can down the road anymore? Wethinks not.)I wish I had confidence that Reid really means it about calling Boehner's bluff. That would be so cool! By now we should all know that to get it passed, the Dems will cave and approve the Keystone XL pipeline and legalize the summary execution of activist judges (only the liberal ones). Compromise, anyone?
|Shanghai. Ready for real estate prime time?|
As if we needed China to have a credit bubble. Don't worry, it's popping:
It is hard to obtain good data in China, but something is wrong when the country's Homelink property website can report that new home prices in Beijing fell 35pc in November from the month before. If this is remotely true, the calibrated soft-landing intended by Chinese authorities has gone badly wrong and risks spinning out of control.
The growth of the M2 money supply slumped to 12.7pc in November, the lowest in 10 years. New lending fell 5pc on a month-to-month basis. The central bank has begun to reverse its tightening policy as inflation subsides, cutting the reserve requirement for lenders for the first time since 2008 to ease liquidity strains.
The question is whether the People's Bank can do any better than the US Federal Reserve or Bank of Japan at deflating a credit bubble.
Great. I wish someone had warned us. Wait, there was that warning (or twelve) from Dr. Doom...Who listens to him?Chinese stocks are flashing warning signs. The Shanghai index has fallen 30pc since May. It is off 60pc from its peak in 2008, almost as much in real terms as Wall Street from 1929 to 1933.
But Beijing is moving in the opposite direction. The leadership responded to Western market turmoil not by boosting consumption but by increasing state and private spending on fixed investment, which now accounts for nearly half of China's growth. The result has been an explosion in residential and commercial real estate, more state spending on infrastructure and more cheap loans from state-owned banks to state-owned enterprises.
Indeed, a key obstacle to reform is that China remains so heavily invested in its state-managed model of capitalism. Of the 42 Chinese companies listed in the 2010 edition of the Fortune 500, 39 were state-owned enterprises, and three quarters of China's 100 largest publicly traded companies are government controlled. Party officials with a stake in the success of state-owned enterprises have amassed considerable power within the leadership, and they ferociously resist efforts to transfer away their wealth to private enterprises and ordinary citizens.
China has the cash and foreign reserves to postpone a crisis. But growth is slowing, financial stresses are rising, and there is good reason to fear that China's days of can-kicking are numbered as well.Update: Speaking of Paul Krugman, it slipped my mind what he wrote about China only yesterday. Yikes! You've got good company, Nouriel.
|The Doomster. No wonder they call it the dismal science. (Wish he was wrong.)|