What's with the US budget and recession stuff?

[KrazyHorse]

You need to reread what he wrote; he said that government fiscal consolidation has a negative impact on aggregate demand, which is so much malarkey (to first order)

[KrazyHorse]

By the way, who else thinks it's hilarious that the imbeciles at S&P are going to downgrade US debt (at 55bps 5-year spread) when France's debt (at 140bps 5-year spread!) is still carrying AAA?

[KrazyHorse]

Is this what your college degree got you? A job as a bank teller and the knowledge that cutting spending or raising taxes will reduce aggregate demand?

Under a fiat currency, the central bank determines aggregate demand. Not the chimpanzees in the legislative or executive branches.

[Hauldren Collider]

By the way, who else thinks it's hilarious that the imbeciles at S&P are going to downgrade US debt (at 55bps 5-year spread) when France's debt (at 140bps 5-year spread!) is still carrying AAA?

Are they serious? I thought that was just in response to the possibility of the debt limit not getting raised. That's absurd.

[MichaeltheGreat]

Ideas which could help create jobs which might actually make it through Congress:

1) Allow employers to keep the unemployment payments of each new hire so that it only costs them $20,000 to hire someone for $40,000. It costs the government the same $2000 a month they would have paid in unemployment but this might encourage companies to hire a few people.

Problem is, most unemployment is paid by the states out of dedicated UI funds which still have big surpluses (but high burn rates on those surpluses) FUTA taxes are very small - generally $560.00 per employee per year, unless you're late paying state unemployment tax costs or do business in a state that has a credit reduction status due to not repaying the Feds. Instead of just giving employers payroll tax cuts, you'd be giving large direct subsidies that invite abuse - hire people for the minimum required to get the subsidy, then layoff or churn new employees to get more subsidies. It would be more effective to lower corporate tax rates or give year by year credits against income taxes if certain criteria can be met. Arizona is doing this by eliminating state enterprise zones and providing both property tax benefits and income tax credits to businesses which locate or expand in Arizona with a combination of capital investment and quality job creation or transfer.

2) Pay roll tax reduction for the next year. This would give normal people more money which they will no doubt spend.

Not a bad thing, but I'd go further and make it a permanent restructuring with most tax rate relief targeting the middle class, a compromise on the top marginal rates (let the Bush tax cuts expire and replace with rates halfway between the pre-cut marginal rates and the current marginal rates, with elimination of some preferences.

3) Allow companies to not pay fees or taxes or matching payments (such as SSI) for new hires so that the cost of new hires isn't so high for companies; this might encourage them to hire people. (Kind of the same as #2 but on the employer side.)

This would exacerbate the long-term solvency issues of social security and medicare.

Would help but won't make it through Congress:

4) A real transportation bill which widens freeways, builds new airports & train stations (seriously LAX is 1950's garbage which NYC Penn station is a rat hole; replace them and all the other old ones in the country), and all the thousands of repairs (bridges, freeways, etc...) needed across the country. This would create millions of jobs spread out over every state.

We need to deal with infrastructure issues, but the sheer amount and the available qualified contractors and equipment would make this a slow, expensive proposition, not a rapid boost to growth.

5) Local governments could allow people to write off remodeling or home maintenance costs so that property taxes are reduced on a $1 to $1 basis. This would get people doing a whole lot of home improvement work which would create jobs and increase the net worth of homes but it can't work without some sort of Fed subsidy.

Not a bad concept, but in practice, most local governments are curtailing basic services and in varying degrees of fiscal crisis, so you'd have a million separate fights about what to do with any subsidy and a lot of administrative/compliance costs for short-term fixes.

6) A new CCC which directly employs people to improve farm land, improve public lands, build dams, build aqueducts, build reservoirs, builds public parks, etc... While we're at it hire artists to create public art to beautify our cities and photographers to catalog daily American life. Result tons of jobs and general improvements for a better quality of life for all Americans.

Trouble is, you have the Service Contract Act of 1965 and a slew of procurement and contractor regulations to drive costs up, put most of the money in the hands of contractors, not employees (when I last worked for a USG civilian contractor, my direct pay rate was marked up over 450% for the billing rate to USG for my services. If you want to add public works, fine, but procurment reform, redefinition of prevailing wage to reflect true prevailing wages, limits on indirect costs and stricter standards for allowable cost accounting systems needs to be enacted first.


7) Upgrade and improve every school in the country creating millions more jobs. While we're at it change the laws so that unemployed people can go back to school thus upgrading their skills and making them more employable in the future.[/quote]

Same thing with procurement reform. In 2007, I did a public school job (project manager for one of the contractors) that was a grossly over-budget, incompetent, unsupervised P.O.S. fixing HVAC issues (or lack of HVAC altogether) in 50 year old ghetto schools. You had an art building that had four classrooms with neither working heat nor AC, in an area where weather during school hours ranged from below freezing to over 100 degrees. The mechanical/electrical contractor finally negotiated out of the job because the prime contractor had referred to old drawings and a ground level walk-through and had picked and purchased equipment that was in more than 50% of cases unsuitable. They did this prior to hiring engineers and then expected the engineers to fake it. The state of California got screwed (it was state grant money), the schools got screwed, the kids got screwed, and I walked off the job after my client was 60+ days in arrears.

The problem with these programs is that a lot of incompetent and unscrupulous people who know how to work the government procurement system will barnacle on and suck the benefits right out of the program. I've been on both sides of it, working for USG and for government contractors.

The hard truth is the US doesn't have a debt crisis right now and people are begging the US to issue more debt for them to buy. Right now the yearly borrowing cost for borrowing $1 trillion is ~$20 billion, which is the lowest rate since Eisenhower was president in the 1950's, so rather then listening to Republicans who are deliberately trying to crash the economy we should be spending big fixing everything which needs fixing here in America. After all the cost of keeping all of those people unemployed is much higher then the borrowing costs to actually put them back to work rebuilding America (it costs about $20 billion to spend a trillion employing people while unemployment is costing about half a trillion a year lately). We're going to spend the money either way so why not do something which actually helps the economy and improves the country long term (by building all that infrastructure).

We have a huge debt crisis, with both consumer debt, corporate debt and public sector debt. The Republican solution is a bunch of crap - cut, cap and balance is a joke, but the Pelosi-Reid mantra of tax the stinkin' rich and protect our entitlements is every bit as unrealistic. I've been working with $250 million of energy projects which stalled in financing due to uncertainty over the whole debt ceiling/default issue and how it would affect interest rates. Those projects (and potentially two more tied to one of them) would provide 120 direct long-term quality jobs, over 500 indirect long-term quality jobs, 400-600 construction period jobs, and tons of local spending and tax base, all in HUBZone communities, and financing uncertainty has been a huge impediment.

The best thing Congress AND the President could do to get the economy moving is to cut the partisan rhetorical BS, accept that nobody is going to get everything they want, and address all the government's fiscal issues (including revenue, cost containment and sustainability for entitlements, and serious deficit and long-term debt reductions, and really unsexy issues like procurment reform, performance management, regulatory reforms in certain critical portions of the private sector, etc.) with a long-term, incremental, consistent and predictable approach.

We've got a Congress that functions about as well as the legislative branch in Burkina Faso, and a President who does not have the power or ability to dominate his critics and detractors and lead above and beyond the name-calling morass on Capitol Hill. It's one thing if the federal government has no real role in the economy, a la 1811, but it's another thing entirely when federal actions and inactions and policy and lack of policy pervade economic activity. What this government is doing (and both parties and the full spectrum of ideologies are to blame) is undermining consumer, lender and market confidence. When they stop doing that, the economy will start sorting itself out.

[MichaeltheGreat]

You need to reread what he wrote; he said that government fiscal consolidation has a negative impact on aggregate demand, which is so much malarkey (to first order)

It's absurd, but my guess is they're assuming that French politicians won't **** things up as bad as ours will in the near term.

[Al B. Sure!]

You need to reread what he wrote; he said that government fiscal consolidation has a negative impact on aggregate demand, which is so much malarkey (to first order)

Not exactly what I said. I said that if you are trying to assist the recovery, raising taxes and cutting spending are not two ways to do that. They may not necessarily reduce demand but they don't increase it either and aren't ways to 'get out of' a recession.

[Kuciwalker]

You need to reread what he wrote; he said that government fiscal consolidation has a negative impact on aggregate demand, which is so much malarkey (to first order)

Not if your central bank sucks...

[KrazyHorse]

Not exactly what I said. I said that if you are trying to assist the recovery, raising taxes and cutting spending are not two ways to do that. They may not necessarily reduce demand but they don't increase it either and aren't ways to 'get out of' a recession.

There is absolutely no a priori reason to believe that the impact on aggregate demand is positive rather than negative.

Empirically, there is some evidence to suggest that it may be positive, because

your central bank sucks...

[Kuciwalker]

Well it's rather important how your CB sucks.

(I agree that right now in the US it's probably positive or neutral.)

[KrazyHorse]

It's absurd, but my guess is they're assuming that French politicians won't **** things up as bad as ours will in the near term.

1) You quoted the wrong post
2) In other words, they are substituting their judgment for a clear signal from the market. I would lend them a lot more credence if:
a) they put their own money on the line every time they did that, and
b) they had a history of beating the market

On a side note, they were rating Greece single-A in ****ing JANUARY when its debt had credit spreads of ~1000 bps

[KrazyHorse]

Update: those ****ers at S&P actually did it.



Wonder if I'm going in to work this weekend

http://www.cnbc.com/id/44039103

[notyoueither]

Is this a 'splotion segment of the slow motion train wreck?

[KrazyHorse]

No idea. This is going to be an operational nightmare.

[Tupac Shakur]

By the way, who else thinks it's hilarious that the imbeciles at S&P are going to downgrade US debt (at 55bps 5-year spread) when France's debt (at 140bps 5-year spread!) is still carrying AAA?

It's a pretty bald-faced attempt by S&P to use their power to affect US policy decisions.