Why isn’t the White House making more play with this?
The U.S. Stimulus Worked — Three Million Jobs Created
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Monthly Archives: August 2010
Animal Spirits, Economic Growth – No UK Will Just Rebalance
All the talk from Britain’s Chief Secretary to the Treasury, Danny Alexander, is about rebalancing and getting the country’s public finances in order. All very important, of course, but what remains utterly depressing is the Coalition’s tax position. In an interview today, Alexander confirms that the Treasury is not thinking of reducing taxes on the middle-class and high earners. He says it as unlikely that there will be any tax reductions for the next five years.
Now there is nothing wrong with trying to get to grips with Britain’s £155billion budget deficit — unlike the U.S., Britain is taking decisive action to rein in public expenditure. But retaining the 50p top rate of tax and the higher 20 per cent rate of VAT, which kicks in next January, is going to do little to inspire the animal spirits and will only hold back economic growth — yes, it is the private sector that is going to be the engine to power the U.K. out of the doldrums, if it is allowed.
Politicians just seem intent on making the mistakes that worsened and prolonged the Great Depression back in the 1930s. As Arthur Laffer has noted: “The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity.”
And some off-setting expenditure cuts? Don’t build the two new aircraft carriers and forget a Trident replacement!
Two Economists, Two Different Views
Two different economists and two different views are out there in today’s New York Times and Washington Post. Economists disagreeing with each other! Well, that will shock no one, of course. What is more noteworthy is the simplicity of one argument and the sophistication of the other. And the best argument doesn’t come from the Nobel Prize winner.
Paul Krugman’s stance in the NYT is again all about the need for another Fed stimulus. But over at the Post Mohamed El-Erian, the CEO of Pimco, the investment management company, has a far greater grasp, I think, that the crisis we are in is as much a structural one as cyclical.
Nobel Prize winner Krugman places most of the political blame for the non-recovery recovery on Republican obstructionism and Democratic timidity. El-Erian sees the political dimension of the crisis in less partisan terms – the whole political elite is failing to understand what is happening, is his take.
Here’s El-Erian: “What is critical to keep in mind is that this situation is part of a broad, multiyear process driven by national and global realignments. It’s a secular phenomenon that needs to be better understood and navigated — by recognizing its structural dimensions and by urgently broadening the excessively cyclical policy mindsets that abound…
Policymakers must break this active inertia by implementing a structural vision to accompany their current cyclical focus. Measures are needed to address key issues, which include the change in drivers of growth and employment creation; the high risk of skill erosion and lost labor productivity; financial deleveraging in the private sector; debt overhangs; the uncertain regulatory environment; and the unacceptably high risks facing the most vulnerable segments of society.
Specific measures would include pro-growth tax reform, housing finance reform, increased infrastructure investments, greater support for education and research, job retraining programs, removal of outdated interstate competition barriers and stronger social safety nets.”
And Krugman? “The Fed has a number of options. It can buy more long-term and private debt; it can push down long-term interest rates by announcing its intention to keep short-term rates low; it can raise its medium-term target for inflation, making it less attractive for businesses to simply sit on their cash. Nobody can be sure how well these measures would work, but it’s better to try something that might not work than to make excuses while workers suffer.” Although for Krugman a stimulus would be the thing. Damn those Republicans!
El-Erian, it strikes me, is right.
Who’s A Journalist?
The question is posed by Dan Gillmor in Salon. He expands on the question: “What should we call the people who are creating valuable new information in the new-media ecosystem?”
Part of the reason for his query is that he is close to finishing a book called Mediactive that sets out to “persuade people to become much more active users, not passive consumers, of media.”
On a practical level, Gillmor has a major point when he notes that how you define a journalist has real-word impact. “So-called shield laws, for example, aim to protect whistle-blowers and the journalists whom they tell about government or corporate wrongdoing. Some states specify who counts as a journalist, which leaves out a huge range of people who effectively practice journalism nowadays,” he writes.
Aside from that, I think Gillmor is making a bit of a mountain out of a molehill. As in earlier post here at Celleno when I considered a similar question, doesn’t it come down partly to the product rather than the “producer.” A point Gillmor himself recognizes when he writes: “People often ask who, in the anyone-can-publish world, is a journalist? I tell them it’s the wrong question. The right one: What is journalism?”
In my post Bloggers as Journalists I wrote: “Blogging can be journalism when being done by a trained journalist or by an amateur who has trained themselves. And for both the end-goal is journalism. What do I mean by that? For it to be journalism, surely, there are certain standards and approaches to be followed? Facts and views have to be gathered, people have to be interviewed off or on the record and that can’t all be done just by online research. Those standards may be relaxed when it comes to opinion journalism, but even then there are certain rules of fairness and accuracy to be observed. Above all, actual knowledge can come in useful – the best of journalism is digging out the truth, as much as it can be known, throwing light on complex problems, explaining process, bearing witness to conflict and loss and terror and tragedy.”
And not just bloggers, of course. My former Cato Institute colleague Radley Balko was producing brilliant journalism at Cato when he was meant to be a research scholar or some such thing — I have forgotten his official title. His work on no-knock raids was the kind of old-fashioned investigative journalism that won people Pulitzers!
Gillmor doesn’t like the word “journalist” even when it comes to old media. “I share some disdain for the word. When I was a reporter I called myself a reporter. When I was a columnist I called myself a columnist. Calling myself a journalist, which I did from time to time, tended to make me feel like I was pretending to a higher role than the craft, however vital and honorable it may be, merited.” My father — a London newspaperman — had a similar dislike for describing himself as a journalist. But I never have — it is a useful catch-all word for the different functions of the profession. One can then always narrow it done after. And surely the same can hold true for new media practitioners. Can’t we call them online journalists as opposed purely to print journalists? Or multi-media journalists, etc.
By using new terms don’t we add to the rift between new and old media, allowing some of the old to denigrate or downplay the new, and the new not appreciate that some of the approaches, standards, etc of the old remain vaild and important?
Ron Paul Favors Ground Zero Mosque
Texas Congressman Ron Paul — the spiritual godfather of the Tea Party movement — has come out in support of the so-called Ground Zero Mosque. On his blog he writes: “The debate should have provided the conservative defenders of property rights with a perfect example of how the right to own property also protects the 1st Amendment rights of assembly and religion by supporting the building of the mosque.
Instead, we hear lip service given to the property rights position while demanding that the need to be ‘sensitive’ requires an all-out assault on the building of a mosque, several blocks from ground zero.”
He blames neo-conservatives for starting the hue-and-cry over the mosque. He says they “demand continual war in the Middle East and Central Asia and are compelled to constantly justify it. They never miss a chance to use hatred toward Muslims to rally support for the ill conceived preventative wars. A select quote from soldiers from in Afghanistan and Iraq expressing concern over the mosque is pure propaganda and an affront to their bravery and sacrifice.”
Good to hear a leading U.S. libertarian staying true to his principles. He won’t be so popular among the Tea Party types after this.
Obama Is A Muslim — Say Republicans
Politico reports on a poll today suggesting that 46 percent of the GOP believe President Obama is a Muslim. My comment: Oh my God!.
Closing the Gap
Why should the British middle-class instantly reach for their wallets whenever they hear a British politician talk about closing the gap between the rich and the poor? Nick Clegg, the U.K.’s deputy Prime Minister, demonstrated exactly why in London today with his speech on creating a more socially mobile society. The rich quickly morph into the middle class, and so what he really means is closing the gap between the middle-class and the working-class. The real rich, as we all know, will just move overseas, if there is too much redistribution out of their pockets.
Of course, Clegg can’t say that, especially as he is in coalition with the Conservatives, but that is what he means.
I am all for greater social mobility – that is one of the driving reasons I, British-born, embraced the United States – but “wealth” redistribution is not the way to do it, or shouldn’t be the main driving force. Britain has been trying that since the Welfare State was established in the wake of the Second World War and as studies have shown it hasn’t been so successful. The increased redistribution primarily from the middle-class to the working-class and tremendous subsidies to geographically poorer areas of the UK under the Brown government failed dramatically to close the gaps dividing north from south or the one separating the middle-class from the working-class.
The review the Coalition government is undertaking now of the universal benefits system is a good thing – the well off surely should not be receiving subsidies in the form of child credits and heating allowances they don’t need. But how much is going to get taken from the middle-class at the same time as they are facing higher taxes before they decide either that they have had enough of the Coalition government or decide to trigger a 1970s-style brain drain?
Social mobility comes with providing fine schools, access to excellent higher education and the economic, commercial and regulatory circumstances that encourage entrepreneurialism, wealth creation and prosperity. And as history has shown, countries that declare war on their middle-class tend not to do so well when it comes to economic growth.
Arguably, Margaret Thatcher did more than Brown or Blair for social mobility and encouraging working-class aspirations. She did it by allowing council houses to be bought by their occupants at below market value – a policy fought tooth-and-nail by the left and center-left in British politics. She did it by welcoming success, encouraging entrepreneurism, keeping taxes low, reducing public expenditure and ceasing the British industrial habit of propping up lamb-ducks. She was also more heavy-handed with high-blown, snooty and traditional institutions than many Labour ministers were before her and have been since. And aspiring working-class voters loved her for it – that’s why she was re-elected.
Obviously, it was good to hear Clegg saying that the Coalition government aims to assist social mobility by improving people’s lives rather than by providing hand-outs, but sadly missing from the Clegg speech was anything about lower taxes — just more stuff about “fairer taxes”, in short more taxes on the middle class.
And this on the day when an excellent economist, Danny Blanchflower, a former member of the Bank of England’s monetary policy committee, urged the Coalition government to cut taxes or face another recession.
In Defense of the American Soul
“We are engaged in a battle for the soul of America,” TV actor Joseph Phillips writes in the Daily Caller – a political journalism site I contribute to. Apparently the building of a mosque dedicated to the principles of integration, tolerance and inter-faith understanding two blocks from Ground Zero would mean America losing its soul.
Phillips’ argument goes thus: if the Muslims who want to build the mosque were really tolerant and understanding, they would build the mosque somewhere else, and anyway the only Americans supporting the mosque are leftists who just hate America. In fact, about half of Phillips’ article opposing the mosque is dedicated to a rant against leftists. An argument can be correct even if you don’t like the people making it.
He adds: “It is important to point out that there have been no pronouncements from opponents of the mosque that the American Society for Muslim Advancement does not have a right to build the mosque wherever they wish. Opponents have simply asked that the building not be built in that location. What remains unclear and unanswered is why the supporters of this mosque are choosing to move forward in spite of its offense and emotional injury to others.”
While Phillips recognizes Muslims constitutional right to build the mosque he can’t help but wonder why the federal government can’t step in to prevent it – a point that totally undermines his recognition of the rights of American (sic) Muslims. “I am fascinated that the same people who have been able to find a Constitutional right to government control of education, health care, and the energy industry are unable to divine from that same document any rational basis for the government to prevent a mosque from being built on Ground Zero,” he writes. So much for the constitutional rights of Muslims – if Phillips could have his way the feds would step in.
Why exactly the building of a mosque would be of such an affront necessitating the intervention of the federal government is not explained overtly, except for that talk of “offense and emotional injury.” So all we get in terms of true substance is a tautological argument – the mosque is an affront because it has caused offense. And then his article relies on the “secondary” argument: the mosque should be opposed because “hard-core leftists” who “do not respect America’s traditions or institutions” support it — in other words, traitors.
So, presumably Mayor Bloomberg is a leftist traitor. And apparently I am as well, even though I am an American by choice and not by accident. By the by, my 25 years of writing and journalism has seldom been characterized as leftist.
I don’t disagree with Phillips that this fight over the mosque is a fight for the soul of America. From my point of view the fight is over whether the country will stay true not only to the letter but more importantly the spirit of the Declaration of Rights and the U.S. Constitution – the bedrocks of the United States of America. I can’t recall reading anywhere in either document any comments suggesting either that Muslims should not be allowed to build mosques or that they should not be permitted to build one in a place deemed sensitive or out-of-bounds by others. Yes, we have local zoning rules nowadays but the so-called Ground Zero mosque apparently does not infringe them.
In fact, the First Amendment of the Constitution is uncompromising when it comes to the practice of religion – any religion and not just religions deemed “American” by Phillips or anyone else for that matter. “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.”
Rights are at their most important when most under threat, when the clamor is at its loudest to deny them. Alas, when the Patriot Act was being forced through too few people were raising a hue and cry about the tremendous and disturbing civil rights violations it brought with it. Anyone who truly values the Constitution should be supporting the building of the mosque – and this has nothing to do with the left-right spectrum of American politics, or shouldn’t have.
The real affront that is going on in the controversy over the Ground Zero mosque is that of seeing the First Amendment as unimportant or something that one is loyal to when convenient rather than uniformly and consistently.
There are other affronts, too. The opposition to the mosque relies on two other arguments, sometimes made openly and sometimes issuing more covertly. It relies heavily on the notions that American Muslims are somehow not real Americans and that all Muslims are somehow collectively responsible for 9/11 and the odious Osama bin Laden.
This is exactly what is implied when Newt Gingrich argues, as he did the other day, this: “Nazis don’t have the right to put up a sign next to the Holocaust Museum in Washington. We would never accept the Japanese putting up a sight next to Pearl Harbor. There’s no reason for us to accept a mosque next to the World Trade Center.” These are emotive but erroneous comparisons: German Nazism was a political ideology and Japan is a nation – Islam is a religion with Americans who are also adherents. The real comparison to make would be German Nazism with Al Qaeda – and as far as I am aware no one has shown that the proposed mosque is going to support Al Qaeda or the philosophy espoused by Osama bin Laden.
So now we have the added affronts from those who oppose the mosque – namely, their suggestion that there are different classes of Americans – some real and others not – and that a whole religion, or all the adherents of a religion, should be held accountable and responsible for the actions of a small minority claiming to speak in the name of that religion. That is the kind of language and thinking of Osama bin Laden and his medieval ilk. Are we to allow him and the radical Islamists to change us – to make us the mirror image of them? If we do so, then we have allowed him a victory and handed him something even more damaging to us than 9/11. We would have added to the risk of a war of religions.
And that is precisely the point that answers Phillips’ when he writes: “What remains unclear and unanswered is why the supporters of this mosque are choosing to move forward in spite of its offense and emotional injury to others.” The Ground Zero mosque should go ahead in defiant answer to Osama bin Laden and to all those who would damage the soul of America and who fail to understand that you can’t pick and choose when it comes to the fundamental rights announced by the U.S. Constitution and its amendments. It should go ahead because the people who want to build are American and want commemorate those who died at 9/11. It should go ahead because we don’t believe in collective punishment, unlike Al Qaeda.
Gingrich and those Republicans opposing the mosque may think they have stumbled on a Willie Horton moment ahead of the mid-term elections. But it is a Willie Horton moment profoundly damaging to the soul of America and one that they may well regret indulging in.
The New Normal — What’s To Be Done?
I had an interesting discussion today with the excellent libertarian blogger David Friedman prompted by a USA Today interview with Mohamed El-Erian, the CEO of Pimco. El-Erian was stressing his idea of the New Normal, “which predicts a post-financial-crisis world of lower investment returns, slower economic growth and higher odds of another out-of-the-blue financial shock. In short, a world in which the range of financial outcomes — and risk — is much wider than normal.”
David on Facebook commented: “Pimco’s CEO echoes what I have been saying for a while now: (1) cash is king; (2) asset returns will be negligible for the foreseeable future. You’ve been listening to me, right? You’ve liquidated your real estate holdings and are now renting, right? Right?”
And the edited exchange between us went thus:
Jamie Dettmer: “Actually, David, my old Cambridge contemporary doesn’t say anything of the sort. He does say there is too much home bias but it makes no sense to sell your property now in the troughs of the markets. Sure if you had investment property you should have sold long ago. Otherwise you sit tight — you have to live somewhere. Or rent your property out, if you are in a high-rent area and can go to a low-rent area for your needs. One thing that ordinary people make a mistake on is taking the advice of gurus like Mohamed. His clients are big corporations and high net-worth individuals. But I think he is right about the New Normal and that ordinary investors in particular should be careful of equities and look to emerging markets and foreign currency holdings. But should they sit on a lot of cash — more than, say, a year’s need? I am not so sure. In savings accounts and fixed bonds they are losing money when inflation and tax is taken into account — it maybe better, depending on personal circumstances, to pay the mortgage off or down. They would secure a better return.”
David Friedman: “Admittedly, his phrase “a lot of home bias” is ambiguous. I can see it being interpreted either as meaning too much money in one’s home or too much money invested in one’s home country. Which, in essence, is a distinction without a difference. So, I don’t see why you say he doesn’t say anything about home ownership.
But, generally, yes, the more equity one has in one’s home the more able one is to ride out rough economic storms. But, many people don’t have sufficient equity in their homes and so are teetering on the edge of bankruptcy. Better to liquidate one’s expensive, illiquid, and leveraged “investment” than to suffer the caprices of economic growth.
Finally, it’s not true that housing is a hedge against inflation.”
Jamie Dettmer: “No, my point about paying off or down on the mortgage wasn’t as a hedge against inflation as such. It was more that they are paying interest on their mortgage and by keeping lots of cash they are not getting a return on their savings to match or compensate what they are paying for their mortgage — at least over the long or even medium term. I agree that if someone is struggling and is over-leveraged on their home and they can get a sale, them they are better advised to escape. His comment about home bias is highly ambiguous — does he mean investing at home or being invested in a home? Even if it is the latter, then personal circumstances kick in. Last, it also comes down to where your property is. The US has a national housing market but with significant variations. I am reasonably content with having property in the DC-Baltimore metro area — but I would not be sitting comfortably if my property was in Enid,OK, say. But as I get older there are two things I am fairly sure about — taxes and death! Wow, that’s a bit depressing — think I need another espresso.”
David Friedman: “But, if we assume that he means US investors are over-invested in their home country, and we further make the assumption that most people’s largest investment is in their house, then it follows that most people would be better off liquidating their real estate investment and investing that cash abroad….”
Jamie Dettmer: “That might be. But he also notes that you should avoid big risks with equities and that things are going to be topsy-turvy and that people should invest in what they know. Further, I do have most of my cash in foreign currencies but I can find no really worthwhile fixed bond or savings account that would not have me losing when tax is taken into account. Standard Chartered offers an offshore fixed bond of 4.5 percent over a year. Others at the 4 percent mark require the bond to run for three to five years.”
David Friedman: ‘Well, it seems to me that what he’s really talking about here is that one should diversify across asset classes, and make that diversification international. Which is fine, as far as it goes, but as you say, that’s not practical for the average investor. So, the average investor, who more likely than not, has most of his net worth concentrated in his house, is sort of screwed.
On the other hand, when financial crises hit, all correlations go to 1, as we saw in 2009.
I think the lesson here is that volatility is inherent to financial markets, and that no government can mitigate that volatility. Better, then, to make peace with volatility, than to try to defeat it. Admittedly, that’s a fatalistic view of finance, but there you have it.”
Jamie Dettmer: “Yea, I think that’s right. We are mere corks floating on the water.”
David Friedman: “The first person who figures out how to properly hedge portfolios 100% of the time is going to make trillions.”
Jamie Dettmer: “Well, several big investment banks thought they were doing just that — great while it lasted, for them. And they were encouraged by Brown (the end of boom and bust) and Greenspan.”
I ought to point out that the David Friedman in this exchange is not David D. Friedman.
UK Property Prices Drop Even Further
Fine piece, by Mary Ann Sieghart in today’s Independent on baby-boomer selfishness but somewhat over harsh towards the middle aged and elderly by criticizing them for seeing property as a future pension. Of course, they did. The state pension in the UK is an insult and Brown & Co. made an outrageous raid on pension funds that reduced significantly the value of private pensions. Where else were they meant to turn but to property, if they wanted to stay out of penury in their old age?