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William Kristol is Opposed so Quantitative Easing Must be OK
We are not political. However, when a political hack like William Kristol takes a position on economic policy, it’s got to be wrong. An open letter in today’s WSJ by “economists” takes issue with the Fed’s recent approach to monetary policy of buying up Treasuries (this is what is called “quantitative easing”) saying that it will debase the currency and drive up inflation. I put economists in quotes because although they were billed as the authors of the letter, it was signed by gasbags like Kristol as well.
Since the goal of this site is to translate this sort of nonsense into something understandable, let’s start with a couple of easy observations.
First, there are economists on both sides of the argument. There is NO agreed upon position by economists as to the efficacy of this approach.
Second, there are Fed economists on both sides of the argument. While this is closely related to the first point, it is worth noting that in this case, the Fed isn’t a monolith. In fact, there are right-leaning economists at the Fed who support the policy.
Third, one impact of this policy that nearly everyone agrees on is that the dollar will be devalued. What that means for ordinary working people is that our exports will be less expensive overseas, and we should be able to sell more of them. That should translate into more jobs.
Fourth, there is no indication that this will lead to rampant inflation. The economy is very weak at the moment; a situation which will act as a damper on inflationary pressures.
Bottom line: Many US economists adhere to a mantra of keeping inflation down at all costs and at all times. This is not a universally shared outlook. There is no reason to think that the second round of quantitative easing will lead instantly to rampant inflation. None.
Oh, and for what it’s worth, the dollar rose today, as investors put their money in this safe haven currency as problems continued in the Euro Zone. I guess the people who wrote this letter were disappointed in that.
Republicans Disagree With the “Free Market”
Turn on the radio and you’ll hear one thing in common from the Republican talk shows: Quantitative Easing is wrong, will lead to rampant inflation and is obviously bad for the economy.
Wait, there are two things you’ll hear from every Republican talk show. The second one is that the free market, embodied by the stock market, is always right. It is the perfect reflection of rational choices made by people’s wallets and so has to be right. That’s nonsense, but that’s what you’ll hear.
What to do about the big runup in the stock market since the Fed’s $600 Billion purchase of treasury bills (the purchase of treasury bills by the Fed is one example of Quantitative Easing)? The stock market has gone up more than 10% since the Fed’s move, and the move up was widely seen as related to the repurchase, which was larger than expected.
How could the stock market respond positively to something that is so fundamentally and obviously bad for the economy? Good question. Maybe someone on talk radio will look at this problematic fact.
Finally Some Good Economic News
Lawrence Summers has left the Council of Economic Advisers. That, dear reader, is great news. If you were to come up with a caricature of all of the worst ideas that led to the current crisis, it would look like this clown.
The crowning glory of his idiotic ideas was his support for the Commodity Futures Modernization Act. This allowed credit default swaps – among other derivatives – to be traded without regulation. Those items, in turn, had a big role in the recent economic meltdown.
My personal theory is that the big money boys at Goldman use people like Summers and Timothy Geithner, Alan Greenspan and Phil Gramm to give their obviously self serving ideas intellectual cover. What do I mean by that? If you’ve ever seen the documentation associated with a publicly traded stock, you know that there is a regulatory scheme in place that is based on disclosure and regulation that works pretty well, and has done so for decades. So if someone said, “hey, let’s introduce a huge new class of securities without regulation,” the common sense response would be to laugh them out of the room.
Everyone knows that if you let Wall Street firms issue securities without loads of disclosure and regulation, they’d instantly be selling all sorts of trumped up bullshit as reliable securities. And of course, that’s exactly what they did. So how did they ever get the authority to do this? They let fools like Greenspan and Gramm go on and on with their ideas that the markets are perfect and the participants have a self interest in seeing to it that there is full disclosure and transparency. Phil Gramm and Summers pushed the Commodity Futures Modernization Act (who could be against modernization) and Greenspan pushed the idea that players in a market have a self interest in transparency.
These ideas are so childishly wrong as to be suspect from the very start. But when Treasury Secretaries like Robert Rubin and Henry Paulsen can rely on the research and theories of the Chicago school of economics, Alan Greenspan, Lawrence Summers and Senator Gramm (himself a PhD), to say that such non-regulation isn’t really an example of the fox guarding the henhouse, then all of a sudden these naive ideas get taken seriously.
I think it goes like this:
Goldman Banker #1: “If we could get a couple of academic types to go along with the idea that the market self regulates, then maybe we can pass some legislation that let’s us issue securities without regulation.”
Goldman Banker #2: “Sure, but that’s such a preposterous idea, no one would EVER go along with it.”
GB #1: “I’ll bet they would if we put them on our board and paid them a little.”
GB #2: “You’ve got a point there.”
Anyway, as Johnny Rotten once said, good riddance to bad rubbish.
btw: for the readers with daughters, Summers is the same asshole who once said women are genetically incapable of being good at science.
originally posted 9-22-2010
Congress For Sale…But For a Good Cause
Congressman Joe Baca has a private foundation that gives out hats and sponsors local kids’ teams. WHO CAN POSSIBLY BE AGAINST THAT?!?!
Congressman Baca is a Representative from California. He was one of fifteen kids and his dad worked like a dog. He and his wife started a travel agency in 1989. He has a sociology degree from a community college. I don’t know anyone with that exact profile, but I know plenty of people who come from challenging backgrounds.
What I don’t know is anyone who never did anything more in the private sector other than a travel agency, and yet has the money for a private foundation. Do you? I don’t know anyone personally with a private foundation. So how did Joe get one?
Easy…he got it from the businesses and wealthy individuals who put money into it. What do they get out of it? Of course, I don’t know exactly, but it’s not real hard to figure out. They get influence and votes and favors from a congressman who’s on some very important committees.
It would be difficult to come up with a more blatantly corrupting mechanism than this. A poor boy works his way up through politics and now gets to give money out to people in his community…money that was given to his FOUNDATION by businesses and people who want him to cast certain votes in his role as a Congressman.
Here’s the link at the NY Times http://tinyurl.com/352zcdy.
If I had asked you, before you read this, if there was a law against a congressman having a private foundation that was funded by companies who have a direct stake in the legislative matters before his committee; you would have thought “of course there is.” It’s obvious corruption. GARDEN VARIETY GRAFT.
originally posted 9-8-2010
A Great Place to Start
It’s great sometimes to read something that is on the same wavelength we are. Especially when the person who wrote it isn’t too far on the fringe for everyone.
Dean Baker wrote a great blurb about the nature of the situation we confront. The link is below. Essentially, Baker makes the point that the bigger issue to be concerned about is that the rules of the game have been and are continuing to be changed. These are the sort of systemic developments that will have a more damaging effect for a longer time than any single election or set of elections will ever have. These are also the sort of changes that will take even longer to fix.
You may have seen Baker on such outlets as CNN, NBC and others.
<a href=”http://www.zcommunications.org/whacking-the-middle-class-by-dean-baker”>
Originally posted 9/3/2010
Business Decoder 