http://www.invisibleheart.com/ en-US Copyright 2009 Mon, 02 Mar 2009 17:52:28 -0500 http://www.sixapart.com/movabletype/ http://blogs.law.harvard.edu/tech/rss on NPR.org on 2/25/09) In his first address to a joint session of Congress, President Obama pledged to cut the federal budget deficit in half in four years. Keeping that pledge won't be easy. The Congressional Budget Office is forecasting a deficit for this year of $1.2 trillion. That forecast does not include the spending package Congress just passed and Obama signed that will add hundreds of billions of dollars to the deficit over the next four years. And that doesn't include unforeseen spending increases in further bailouts for Fannie and Freddie or AIG or Bank of America or GM or the state of California or whoever else shows up in Washington with a hand out. So Obama probably needs to cut spending or raise taxes by at least $700 billion a year. To give you an idea of how much money that is, that's about the amount the payroll tax currently collects. The payroll tax is about 15 percent, shared between employer and employee. Doubling that rate to 30 percent would add an extra $700 billion if — and it's an impossible if — if a tax rate of 30 percent didn't lead employers to reduce their number of employees or force workers to reduce their hours.]]> http://www.invisibleheart.com/2009/03/halve_the_deficit_good_luck_ob.php http://www.invisibleheart.com/2009/03/halve_the_deficit_good_luck_ob.php Taxes Mon, 02 Mar 2009 17:52:28 -0500 on the Boston Globe website on 2/2/09) The House has passed an $819 billion spending package. Soon the Senate will vote. Will government spending get the economy going or slow it down? How long will it take to have an impact? How many jobs will it create? Can we afford it? You would think economists could answer these questions. Since at least the Great Depression, economists have theorized about what causes the economy to slow down or speed up. We've theorized about unemployment and inflation and whether they're connected. We've theorized about monetary policy, tax policy, and the role of government spending. And economists have tried to find evidence to settle these fundamental questions. And yet there is little or no consensus for what we should do right now to get the economy going and prevent it from getting worse. I wish it were otherwise. People expect us to know the answers. And plenty of economists claim to have the answers. Yet some of the finest economists in the country, including Nobel laureates, are on opposite sides of the current debate. And each side can cherry-pick data or historical anecdotes in support of its position. I think the real divide between economists isn't over different macroeconomic theories but over underlying differences in philosophy and ideology. So where does that leave you, the curious, intelligent, non-economist citizen?]]> http://www.invisibleheart.com/2009/03/what_economists_know_and_do_no.php http://www.invisibleheart.com/2009/03/what_economists_know_and_do_no.php Recession Mon, 02 Mar 2009 17:48:28 -0500 on Forbes.com on 1/23/09) President Obama is eager to attack the economic crisis. Here is the speech I'd like to hear from him. My fellow Americans, these are fearful times. Through a set of public and private mistakes, our financial system is in disarray. The problems of Wall Street have spread to Main Street. Unemployment is on the rise. Key sectors of our economy face unparalleled challenges. The auto industry is reeling. Housing and construction are in deep trouble. The financial sector has been hit with bankruptcy and layoffs. The retail sector is struggling. Workers, investors, managers and entrepreneurs face a fog of doubt and uncertainty. When will the economy rebound? Will I lose my job? Will my products sell as they once did and at what price? Investors and employers, consumers and entrepreneurs are sitting on the sidelines. Such caution is understandable. Until people are confident of the future, our economy is going to struggle. What can the federal government do to unleash the forces of recovery? Many are urging a massive increase in government spending coupled with tax rebates as a way to jump start the economy. But the economy is not stagnant because of a lack of spending. The economy is stagnant because of a lack of confidence in the future. Government spending on bridges, roads and new schools will stimulate the construction industry. But without confidence, the benefits will not spread to the rest of the economy. ]]> http://www.invisibleheart.com/2009/03/the_speech_i_wish_obama_had_gi.php http://www.invisibleheart.com/2009/03/the_speech_i_wish_obama_had_gi.php Recession Mon, 02 Mar 2009 17:24:41 -0500 Forbes.com on 11/20/08) President-elect Obama announced the other day that the government would do "whatever it takes" to revive the economy. I suppose that made some people feel good. After all, who wouldn't want tireless effort in the face of a crucial problem? Unfortunately, the problem with the economy isn't insufficient effort or focus. The problem is that no one knows what to do next. Hank Paulson already looks like a man who's not sleeping enough. His problem isn't insufficient effort. It's too much effort. If reviving the economy were like reviving a patient whose heart has stopped, then relentless effort would be the key. Get out those paddles and keep stimulating the guy until he comes back to life. Never give up. Whatever it takes.]]> http://www.invisibleheart.com/2008/11/how_to_move_the_economy_forwar.php http://www.invisibleheart.com/2008/11/how_to_move_the_economy_forwar.php Financial Meltdown Thu, 20 Nov 2008 00:12:10 -0500 NPR.org on 11/14/08) Secretary Paulson might be the only person in America who worries that consumers haven't borrowed enough money. He says the consumer credit market has "ground to a halt." He wants to get it going again — maybe if we all just buy enough cars and use our credit cards, the economy will come back to life. Paulson is also upset that banks aren't doing enough. He's given them all this money and they're sitting on it. He doesn't seem to realize that these two phenomena are really one and the same. He can inject all the money he wants into the consumer credit market and it isn't going to make us want to buy cars or use our credit cards.]]> http://www.invisibleheart.com/2008/11/paulsons_faulty_imagination.php http://www.invisibleheart.com/2008/11/paulsons_faulty_imagination.php Financial Meltdown Fri, 14 Nov 2008 10:00:00 -0500 Wall Street Journal on 10/31/08) People ask me if the current mess feels like 1929. But the right comparison is 1932, when Herbert Hoover was desperately trying anything, anything at all, to get the economy going. The stock market had crashed. The economy was starting to follow it down. So what did Hoover and his fellow policy makers do? In 1930, Congress passed a massive tariff increase, in hopes of protecting American jobs. Hoover signed it. But it simply accelerated the economy's slide. The Federal Reserve contracted the money supply, taking a recession and making it into a depression. By 1932, real GDP was 25% lower than three years earlier. Hoover increased federal spending steadily, including an increase in real terms of about 40% in 1932. At the same time, fearful that deficits were harmful, Hoover raised income taxes. Nothing worked. So Franklin Roosevelt came into office pledging stronger medicine. Enter even bigger increases in government spending. Government nationalization. Bigger deficits. Destruction of crops and livestock in the name of raising prices. Government-organized cartels. A greater empowerment of unions. It was a whirlwind of activity without any real plan. It worked for a while, but then, in 1938, the economy turned sour again. Unemployment, which had been falling, spiked again, reaching 19%. Consumption didn't recover to its prewar levels until 1945. Today, President George W. Bush plays the role of Hoover, the so-called free market ideologue who is trying anything to avert disaster. He signs a $700 billion bill putting Treasury in charge of buying troubled assets. A week later, the money is used to partially nationalize the banks. Some companies, like Bear Stearns, are bailed out. Others, like Lehman Brothers, are not. Some companies are sold. Some are allowed to fail. There is no plan, no rules, nothing to count on. ]]> http://www.invisibleheart.com/2008/10/dont_just_do_something_stand_t.php http://www.invisibleheart.com/2008/10/dont_just_do_something_stand_t.php Financial Meltdown Fri, 31 Oct 2008 09:57:19 -0500 Wall Street Journal on October 3, 2008) Many believe that wild greed and market failure led us into this sorry mess. According to that narrative, investors in search of higher yields bought novel securities that bundled loans made to high-risk borrowers. Banks issued these loans because they could sell them to hungry investors. It was a giant Ponzi scheme that only worked as long as housing prices were on the rise. But housing prices were the result of a speculative mania. Once the bubble burst, too many borrowers had negative equity, and the system collapsed. [How the Government Stoked the Mania] David Klein Part of this story is true. The fall in housing prices did lead to a sudden increase in defaults that reduced the value of mortgage-backed securities. What's missing is the role politicians and policy makers played in creating artificially high housing prices, and artificially reducing the danger of extremely risky assets.]]> http://www.invisibleheart.com/2008/10/how_government_stoked_the_mani.php http://www.invisibleheart.com/2008/10/how_government_stoked_the_mani.php Financial Meltdown Regulation Fri, 03 Oct 2008 09:49:42 -0500 Forbes.com on 9/18/08) The collapse of Bear Stearns and Lehman Brothers, and the bailouts of Fannie Mae, Freddie Mac and AIG, have led to an inevitable call for more regulation. Obama promises "real" regulation. McCain will "reform Wall Street." The consensus is that Something Must Be Done to rein in financial markets. This consensus is part of a general theme among some pundits and economists that it's time to give up the naïve faith that markets can solve every problem. We are told that markets have failed. Yet much of the current chaos is the result of attempts to steer or control markets rather than let them be. Much of the chaos is the result of political failure.]]> http://www.invisibleheart.com/2008/09/organic_market.php http://www.invisibleheart.com/2008/09/organic_market.php Financial Meltdown Thu, 18 Sep 2008 09:43:27 -0500 This commentary aired on National Public Radio's All Things Considered on March 25, 2008. Audio is here. Wall Street is all about profit. All about the bottom line. And profit does play a major role in making our world go round. Without profit, there's no point in taking risks. Without risk-taking, there's no investment. Without investment, there's no growth. Profits are the cornerstone of our economy and our way of life. But as Milton Friedman liked to point out, our economic system isn't just based on profit. It's a profit and loss system. It's the combination that sustains and enhances our standard of living. Yes, the potential for profit encourages people to take risks. But without the potential for loss, you have reckless risk-taking. You have risk-taking without prudence. Without the potential for loss, irresponsibility goes unpunished. The Federal Reserve and the Treasury Department have orchestrated the rescue of Bear Stearns. The defenders of that maneuver argue that if Bear Stearns had failed it would have created a lot of collateral damage, so much collateral damage, that you and I, normal folk who don't know anything about high-falutin' financial instruments like "collateralized debt obligations" would have been engulfed as well. If Bear Stearns had gone bankrupt, Lehman Brothers might have been next. Some say that if Bear Stearns had failed, the entire banking system was at risk. Maybe. It seems awfully hard to know for sure. But what I do know for sure is that by subsidizing the marriage of Bear Stearns and JP Morgan, the government has removed some of the loss from the profit and loss system. Oh, they tried to make Bear Stearns suffer by demanding a price of $2 a share. But now the deal has been renegotiated—ta-da!—to $10 a share, a mere five-fold readjustment. What's going on here? What's going on here is that we're in uncharted territory, a world where the Fed and the Treasury are making up the rules as they go along, where accountability is being ignored and a world where the government bails out Bear Stearns and its creditors rather than letting those who have been reckless learn a lesson for the next time. Yes, letting Bear Stearns go under would have been dangerous. But helping JP Morgan devour Bear Stearns is dangerous, too. Where does the government stop in protecting people from irresponsibility? Home owners and lenders are next. The political pressure is inexorable for some sort of bail out. And then comes more regulation of investment banks. In a world where people who make bad decisions are spared the full consequences, only one thing is certain. We've encouraged more people to make more bad decisions in the future. The real price to be paid isn't the dollar costs of any bail out, but the encouragement of recklessness and irresponsibility. That will make all of us poorer down the road. ]]> http://www.invisibleheart.com/2008/03/the_bear_stearns_debacle.php http://www.invisibleheart.com/2008/03/the_bear_stearns_debacle.php Financial Meltdown National Public Radio Regulation finance money moral hazard Wed, 26 Mar 2008 11:02:31 -0500 This commentary aired on National Public Radio's All Things Considered on February 20, 2008. Audio is here. A friend of mine told me the other day he’s planning to vote for John McCain. Why? Because McCain promises to keep the Bush tax cuts and my friend thinks that a good idea. Why would my friend think that John McCain will keep the cuts—after all, he voted against them as a Senator. My friend said, well, McCain said he’d keep the cuts. I know. It seems pretty absurd doesn’t it? Ridiculous, really. Who actually believes what politicians say? But my friend who likes McCain is no fool. He’s probably read more history books than a lot of history professors. I’d never call him naïve. But he wants to like one of the candidates and McCain is his best shot. So he’s managed to convince himself that McCain is going to keep the tax cuts. I have to conclude that my friend is living in something of a fantasy world. But he’s not alone. Any one who’s passionate about a candidate is doing the same thing. Hillary is promising universal health care. And why should we believe she’ll keep that promise? Because she says so. Where’s the evidence she’ll succeed the second time around? Outside of politics, we’re usually a little more down to earth when it comes to rhetoric and promises. Suppose you see an ad for anchovy ice cream. The ad promises "It’s delicious!” Convinced? Probably not. You take that word “delicious” with a grain of salt. Actually more than a grain. More like a pound. You realize that the seller of the ice cream is self-interested and just trying to make a sale. I treat the rhetoric of politicians like ads for anchovy ice cream. Call me a cynic, but I assume they’re trying to make a sale. So when Obama says on his web site that he’s tired of “divisive ideological politics,” I wonder: what other kind of politics is there? Promising politics without “divisive ideology” is like selling a sure fire way to be a millionaire , working from home using the Internet. Most of us know it’s too good to be true. But Obama is selling like hotcakes even though his promise is just as unrealistic. We have such a yearning for a candidate with principles and ideals. We like to think our candidate is the good one, it’s the other guy’s favorite who’s the evil opportunist. But they always break our hearts, don’t they? Too many of us, I fear, are living in a fantasy world. Once in office, they all want to be popular. They like power more than principle. They respond to the political winds, rather than the rhetoric that got them elected. And when they break their promises because it’s politically expedient, they always have a justification. The good news? That evil candidate from the other party that you hate, isn’t nearly as dangerous as you think. Once in office, he or she will listen to the public rather than to principles. It happens every time. ]]> http://www.invisibleheart.com/2008/02/selling_anchovy_ice_cream.php http://www.invisibleheart.com/2008/02/selling_anchovy_ice_cream.php National Public Radio Politics pandering political promises political rhetoric politicians Wed, 20 Feb 2008 21:51:52 -0500 This commentary aired on National Public Radio's All Things Considered on January 16, 2008 in response to much talk about the the need to create a stimulus package to avert a recession. Audio is here. Love that word—stimulus. It sounds so scientific. With the right stimulus, you can even make the leg of a dead frog twitch. A heart attack victim gets the stimulus from those chest paddles and bam. Back to life. My online dictionary defines stimulus as something that "rouses or incites to activity." Sounds like the perfect prescription for an ailing economy. But if politicians know how to stimulate the economy, why wait for a recession? If you can make the economy grow, why wait for bad times?]]> http://www.invisibleheart.com/2008/01/the_science_of_stimulus.php http://www.invisibleheart.com/2008/01/the_science_of_stimulus.php National Public Radio The Economy Thu, 17 Jan 2008 12:38:35 -0500 This commentary aired on National Public Radio's All Things Considered on December 26, 2007. You can listen to it here. I know the economic news doesn’t seem very cheerful these days. But a lot of it is blown out of proportion, stories and subplots designed to scare us, told by politicians and people with their own agenda. Let’s not let them push us around whether they’re on the right or the left, Republican or Democrat. They always tell us the sky is falling. That’s the minimum standard for getting our attention in a busy news cycle. But remember that the sky usually doesn’t fall. We just move on to the next scare. So my New Year’s wish for America is that we be skeptical of falling sky stories and that as a result we all sleep better. ]]> http://www.invisibleheart.com/2007/12/sunny_side_up.php http://www.invisibleheart.com/2007/12/sunny_side_up.php National Public Radio The Economy Wed, 26 Dec 2007 09:13:28 -0500 Foreign Policy, November 2007 To hear most politicians talk, you’d think that exports are the key to a country’s prosperity and that imports are a threat to its way of life. Trade deficits—importing more than we export—are portrayed as the road to ruin. U.S. presidential hopefuls Hillary Clinton and Barack Obama want to get tough with China because of “unfair” trading practices that help China sell products cheaply. Republican candidate Mitt Romney argues that trade is good because exports benefit the average American. Politicians are always talking about the necessity of other countries’ opening their markets to American products. They never mention the virtues of opening U.S. markets to foreign products. This perspective on imports and exports is called mercantilism. It goes back to the 14th century and has about as much intellectual rigor as alchemy, another landmark of the pre-Enlightenment era. ]]> http://www.invisibleheart.com/2007/11/why_we_trade.php http://www.invisibleheart.com/2007/11/why_we_trade.php International Trade and Globalization exports imports mercantilism Schumpeter trade deficit Thu, 01 Nov 2007 09:00:00 -0500 This commentary aired on NPR's All Things Considered on September 13, 2007. You can listen to it here. At the age of 20, Rick Ankiel was a starting pitcher on a playoff-bound St. Louis Cardinals team. Then it fell apart. I was there. I saw him throw five wild pitches and walk four against the Braves in a single inning. He never got over that. He tried the minors to find the lost magic in his arm. Then surgery. Nothing helped. The dream died. But Ankiel wouldn’t let it die. It took him almost seven years, but he made it back to the major leagues as an outfielder. That was heartening enough. But he did more than make the team. He played with flair. With grace. With excellence. Suddenly, he was leading the Cardinals toward first place. Then came the news that Ankiel had ordered human growth hormone, or HGH, in 2004. Suddenly, the golden boy was tarnished. Sports writers called it a tragedy. My nine year old son’s face fell when I told him. Why are you sad, I asked. All those things he did, he said. It wasn’t him.]]> http://www.invisibleheart.com/2007/09/defending_baseballs_unnatural.php http://www.invisibleheart.com/2007/09/defending_baseballs_unnatural.php National Public Radio Ankiel baseball HGH Steroids Thu, 13 Sep 2007 11:24:31 -0500 This commentary aired on National Public Radio's All Things Considered on June 7, 2007. You can listen to it here. According to the White House, the new immigration bill will "Help Keep The U.S. Competitive In The Global Economy By Establishing A New Merit-Based System For Immigration That Is Similar To Those Used By Other Countries." And how is it going to do that? There's going to be a point system to determine who gets one of the precious 380,000 visas that are up for grabs. Highly educated people get points. People with skills that are in high demand, whatever that means, get points. Young but not too young? Points. Speak English well? More points for you. Speak it badly, fewer points. Don't speak it at all? No points. People with the highest point totals get the visas. Some people complain that the Bush Administration is too free market. But the idea that Washington bureaucrats can figure out which skills are in high demand is an idea straight out of the old Soviet Union. It would be great if we could get some old communists from the politburo to administer it, but we won't be able to. They won't score high enough on the point system to get a visa. The whole thing's pretty inspiring isn't it? We once believed in a lady in the harbor with a lamp beside the golden door. ]]> http://www.invisibleheart.com/2007/06/the_lady_in_the_harbor.php http://www.invisibleheart.com/2007/06/the_lady_in_the_harbor.php Immigration National Public Radio Immigration politicians Thu, 07 Jun 2007 12:15:26 -0500