Wolfgang Munchau brings up some under covered ideas, and gives a decent perspective for the year to come. Link.
"It is easy and difficult at the same time to predict the economy in 2009. It is easy to predict it will be an awful year for the US, Europe and large parts of Asia. The industrialised world will be in a deep synchronised recession. Global gross domestic product will probably contract also for the first time since the 1930s. There is not a great deal we can do to prevent this."
This is an idea that most of us over look. The relative stability of the last few weeks has made distant the idea that we are in the midst of (not at the end of) the most dangerous economic time and economic environment since the Great Depression. In his analysis Wolfgang speaks of EU, US, and Chinese coordination.
I could not agree more, but I think the answer must go further. First of all I think that those parties only make up 55% to 60% of Global GDP, so larger parties like Japan (12% of GDP), Russia, India, Brazil, and others all need to be included. Undoubtedly he nailed three of the four major players on the head, but to jolt market confidence a broader (surprise) coordination is necessary. A Global coordinated recapitalization of banks and fiscal stimulus could send both the right message to markets and the right medicine to the real economy.
Although this first step may be necessary, it is not sufficient. Wolfgang's point about regulation was spot on, but again I would go one step further. The regulatory regime needs to be a principles based regime coordinated by all of the large players, and this must be coupled with confidence that regulators will act swiftly and efficiently across the Globe.
Once these pieces are set in place Global markets and economic participants may start to regain confidence, resources, and opportunity to get on the path to recovery in 2010.
Tuesday, December 30, 2008
Error
The chart in the post below did not turn out as I wanted, so please just refer to the link for the information.
The Pro-Growth Party?
A few months ago I found a nice little graph comparing Gross Domestic Product (GDP) growth under Democrats and under Republicans. It compared the two parties and the results were startling.
I have not been able to find that graph yet, but here are pretty much that same facts laid out in a slightly different form.
I do not stand behind all of the statistics, but they look pretty close to what I have seen before. Thanks to the folks here for the chart (note: I know nothing about the site other than that the facts look correct so I grabbed them).
Just to be sure I did run a few numbers on my own from FRED data. If one uses 12 years from both Democrats and Republicans one finds some interesting numbers. These numbers use the most recent period of 24 years with an even 12 year split, 1977-2000.
Democrats (Carter and Clinton) - Real GDP Growth was = 3.56
and
Republicans (Reagan and Bush Sr.) - Real GDP Growth was = 3.0
Basically the idea that one party is pro-growth and the other anti-growth does not hold up under the scrutiny of the numbers. If one were to dig deeper one would find median income growth is higher under Democrats, welfare roles decrease at a greater rate, and poverty on average falls more.
Although it may seem that I am advocating Democratic superiority - I am NOT. Because I think that parts of New Deal liberalism went too far in pushing top down regulation. What I am advocating is that the political discourse in this country get away from the partisan growth argument because there is not clear Republican victory. This point will be quite relevant in the pro-fiscal stimulus v. ant-fiscal stimulus debate that has already begun amongst bloggers and lawmakers.
I have not been able to find that graph yet, but here are pretty much that same facts laid out in a slightly different form.
I do not stand behind all of the statistics, but they look pretty close to what I have seen before. Thanks to the folks here for the chart (note: I know nothing about the site other than that the facts look correct so I grabbed them).
Just to be sure I did run a few numbers on my own from FRED data. If one uses 12 years from both Democrats and Republicans one finds some interesting numbers. These numbers use the most recent period of 24 years with an even 12 year split, 1977-2000.
Democrats (Carter and Clinton) - Real GDP Growth was = 3.56
and
Republicans (Reagan and Bush Sr.) - Real GDP Growth was = 3.0
Basically the idea that one party is pro-growth and the other anti-growth does not hold up under the scrutiny of the numbers. If one were to dig deeper one would find median income growth is higher under Democrats, welfare roles decrease at a greater rate, and poverty on average falls more.
Although it may seem that I am advocating Democratic superiority - I am NOT. Because I think that parts of New Deal liberalism went too far in pushing top down regulation. What I am advocating is that the political discourse in this country get away from the partisan growth argument because there is not clear Republican victory. This point will be quite relevant in the pro-fiscal stimulus v. ant-fiscal stimulus debate that has already begun amongst bloggers and lawmakers.
| Metric | Source of data/ analysis | Average under Democratic Presidents/ Administrations | Average under Republican Presidents/ Administrations | Who measured better on this metric? (See critiques page) |
| Average Ranking (lower the number the better) for highest GDP growth, real disposable personal income, employment/ unemployment, deficit reduction 1953-2001 | Average rank calculated from ranking data from Dan Ackman, Forbes.com | Overall rank: 4.58 (top 3 are Democrats) GDP rank: 3.8 Real Disposable Employment rank: 4.6 Deficit Reduction | Overall rank: 6.44 (Reagan is #4) GDP rank: 7.2 Real Disposable Employment rank: 6.4 Deficit reduction | Democratic Presidents [Also see this data |
| Real Disposable Personal Income Growth per year 1953-2001 | Dan Ackman, Forbes.com | 3.65% | 3.08% | Democratic Presidents |
| Employment gains per year 1953-2001 | Dan Ackman, Forbes.com | 1.684 million/year | 1.279 million/year | Democratic Presidents |
| Unemployment: 1962-2001 | P.L.A., using data from the BLS | 5.1 % | 6.75 % | Democratic Presidents |
| Unemployment: 1947-2001 Assuming that each President's policies took effect 1 year after his inauguration | Larry Bartels, Los Angeles Times | 4.8 % | 6.3 % | Democratic Presidents (trend similar if 2 year shift assumed) |
| Unemployment: 1948-2001 Assuming Presidents are also responsible for economic performance 3-5 years after they leave office | CalPundit, using data from the BLS | 3-yr lag: 5.06 % 4-yr lag: 5.04 % 5-yr lag: 5.01% | 3-yr lag: 6.16 % 4-yr lag: 6.18 % 5-yr lag: 6.21 % | Democratic Presidents |
| Average After-Tax Return on Tangible Capital: Jan 1952 - June 2004 | Roger Altman, Wall Street Journal (data from Federal Reserve) | 4.3% | 3.2% | Democratic Presidents [For a Bush I + Bush II vs. Clinton comparison, see here] |
| GDP growth: 1962-2001 | P.L.A., using data from the BEA | 3.9 % | 2.9 % | Democratic Presidents |
| GDP growth: 1948 - 2001 Assuming Presidents are also responsible for economic performance 3-5 years after they leave office | CalPundit, using data from the BEA | 3-yr lag: 3.56 % 4-yr lag: 3.78 % 5-yr lag: 3.71 % | 3-yr lag: 3.35 % 4-yr lag: 3.16 % 5-yr lag: 3.21 % | Democratic Presidents |
| GDP growth: 1930-2000 | Carol Vinzant in Slate | 5.4% | 1.6 % | Democratic Presidents |
| Inflation: 1962-2001 | P.L.A., using data from the BLS | 4.26 % | 4.96 % | Democratic Presidents |
| Inflation: 1948-2001 Assuming Presidents are also responsible for economic performance 3-5 years after they leave office | CalPundit, using CPI data from Economagic | 3-yr lag: 3.33 % 4-yr lag: 3.07 % 5-yr lag: 3.20 % | 3-yr lag: 4.36 % 4-yr lag: 4.60 % 5-yr lag: 4.48 % | Democratic Presidents |
| Percentage growth in Total Federal Spending: 1962-2001 | P.L.A., using data from the U.S. Govt. Budget 2003 | 6.96 % | 7.57 % | Democratic Presidents if lower Govt. spending is better; Republican Presidents if higher spending is better Note, however, that |
| Percentage growth in Non-Defense Federal Spending: 1962-2001 | P.L.A., using data from the U.S. Govt. Budget 2003 | 8.34 % | 10.08 % | Democratic Presidents if lower Govt. spending is better; Republican Presidents if higher spending is better Note, however, that |
| Non-defense Federal Government Employees: 1962-2001 | P.L.A., using data from the U.S. Govt. Budget 2003 | Rose by 59,000 (16 % of total rise over 40 years) | Rose by 310,000 (84% of total rise over 40 years) | Democratic Presidents (assuming smaller Govt. is better) |
| Yearly budget deficit: 1962-2001 | P.L.A., using data from the U.S. Govt. Budget 2003 | $36 billion | $190 billion | Democratic Presidents |
| Increase in National Debt: 1962-2001 | P.L.A., using data from the U.S. Govt. Budget 2003 See follow-up by P.L.A. | Total debt increased by $0.72 trillion (20 years) | Total debt increased by $3.8 trillion (20 years) | Democratic Presidents |
| Annual stock market return: 1927 (through) 1998 | Pedro Santa-Clara and Rossen Valkanov Research Paper, UCLA (via Atrios) Results are "statistically significant" Also reported by | ~ 11% (value weighted CRSP index minus 3 month Treasury Bill) | ~ 2% (value weighted CRSP index minus 3 month Treasury Bill) | Democratic Presidents (Delta increases to 16% for The study says: |
| Annual stock market return: (1900) 1927 - 2000 | Carol Vinzant in Slate | 12.3 % (S&P 500) | 8.0 % (S&P 500) | Democratic Presidents |
| Annual stock market return: (1900) 1927 - 2000 | Carol Vinzant in Slate | Democratic Senate 10.5 % (S&P 500) Democratic House 10.9 % (S&P 500) | Republican Senate 9.4 % (S&P 500) Republican House 8.1 % (S&P 500) | Democratic Senate or House (but see article for qualifications) |
| Annual stock market return: (1900) 1927 - 2000 | Stock Traders' Almanac as reported by Carol Vinzant in Slate | 13.4 % (Dow) | 8.1 % (Dow) | Democratic Presidents |
| Rankings for highest GDP growth, biggest increase in jobs, biggest increase in personal disposable income after taxes, biggest rise in hourly wages, lowest Misery Index (inflation plus unemployment), etc. (until 2001) | Arthur Blaustein, Mother Jones | N/A. But all these best case metrics were under Democratic Presidents | N/A | Democratic Presidents |
| . | . | . | . | . |
| District spending by Congress: 1995 - 2001 | Associated Press report: 1, 2 | Democratic districts: $3.9 billion in 1995 to $5.2 billion in 2001 (34% increase) | Republican districts: $3.9 billion in 1995 to $5.8 billion in 2001 (52% increase) | Hard to say who is better but certainly not Republicans, who shifted spending to RICHER districts from poorer. |
Monday, December 29, 2008
LBJ's Dream of a Great Society
Currently, watching a series on PBS about LBJ and many of the interviews detail a President Johnson who was much more interested in his Great Society than in fighting a War in Vietnam. They detail a man more interested in a War on Poverty than a war against a poor Southeast Asian country. But most people interviewed believe that the President was trapped, and that there were no good options. I do not know how true this is, but it is tragic none-the-less.
On the economic front it is also quite clear that Vietnam diverted the funds that would have been used for the Great Society. There is often partisan debate about the short and long term effects of the Johnson years on the economy, just from the video the results are not clear to me. More to come ...
On the economic front it is also quite clear that Vietnam diverted the funds that would have been used for the Great Society. There is often partisan debate about the short and long term effects of the Johnson years on the economy, just from the video the results are not clear to me. More to come ...
Sunday, December 28, 2008
Monday Morning Krugman - Fifty Herbert Hoovers
Paul Krugman makes a very good, very scary point about cuts in state and local government spending. Link.
Stimulus Arguments
From everything I understand a fiscal stimulus is a necessary course of action to avoid a drastic decline in economic activity. It also seems that there is consensus among most economists and economic thinkers, but over the course of the last few days there has been a sizable group arguing that tax cuts not government spending is the more effective way to stimulate the economy.
This is an interesting argument, and the research seems quite appealing. And the basis idea is this; the multiplier effect of tax cuts is about $5 per $1 of tax cuts, where as the effect is only about $2 or 3$ per one dollar of government spending.
First, I think that this evidence is strong, and that seems to be part of the reason that the Obama fiscal stimulus will have tax cuts as a piece of the plan. But there are three arguments for government spending as fiscal stimulus that I find quite appealing.
(1) The trouble that the folks at the Federal Reserve and the Treasury have found is that investors, banks, and other market participants are hoarding money; so what makes us think that individual tax payers will not do the same in the form of savings, paying down debt, or foregoing purchases until prices fall further - deflationary spiral anyone? (I believe it was Mark Thoma who first articulated this idea). The other piece of this argument is that the fiscal stimulus multiplier effects of tax cuts were found in a more normal economic environment, so even if the last sentence is incorrect, how can anyone be so sure that tax cuts will yield those same results.
(2) The Obama Argument - The multiplier effect arguments may even be a little bit scewed because it is quite difficult to take into account all of the benefits that result from government spending and even tax cuts for that matter. A perfect example is electronic medical records, it is unclear the productivity increases that will result from increases in information transfer and greater medical efficiency. It is also unclear how more advanced efficient care made possible through electronic medical records will affect the overall health and productivity of the work force. It is difficult to say that the Obama argument is unequivocally correct, but it is also difficult to assume that the exact benefits of such fiscal stimulus are quantifiably deficient.
(3) The Summer's Argument - In a Washington Post article Larry Summers began to lay out the outline of and rationale for the incoming administration's fiscal stimulus plan. His point about our economy's problems and our over-reliance on consumer spending are well taken. I think the general idea is that more tax cuts to only boost consumer spending were part of what got us into the mess we are in, so we probably should try something a little more creative and hopefully more effective.
This is an interesting argument, and the research seems quite appealing. And the basis idea is this; the multiplier effect of tax cuts is about $5 per $1 of tax cuts, where as the effect is only about $2 or 3$ per one dollar of government spending.
First, I think that this evidence is strong, and that seems to be part of the reason that the Obama fiscal stimulus will have tax cuts as a piece of the plan. But there are three arguments for government spending as fiscal stimulus that I find quite appealing.
(1) The trouble that the folks at the Federal Reserve and the Treasury have found is that investors, banks, and other market participants are hoarding money; so what makes us think that individual tax payers will not do the same in the form of savings, paying down debt, or foregoing purchases until prices fall further - deflationary spiral anyone? (I believe it was Mark Thoma who first articulated this idea). The other piece of this argument is that the fiscal stimulus multiplier effects of tax cuts were found in a more normal economic environment, so even if the last sentence is incorrect, how can anyone be so sure that tax cuts will yield those same results.
(2) The Obama Argument - The multiplier effect arguments may even be a little bit scewed because it is quite difficult to take into account all of the benefits that result from government spending and even tax cuts for that matter. A perfect example is electronic medical records, it is unclear the productivity increases that will result from increases in information transfer and greater medical efficiency. It is also unclear how more advanced efficient care made possible through electronic medical records will affect the overall health and productivity of the work force. It is difficult to say that the Obama argument is unequivocally correct, but it is also difficult to assume that the exact benefits of such fiscal stimulus are quantifiably deficient.
(3) The Summer's Argument - In a Washington Post article Larry Summers began to lay out the outline of and rationale for the incoming administration's fiscal stimulus plan. His point about our economy's problems and our over-reliance on consumer spending are well taken. I think the general idea is that more tax cuts to only boost consumer spending were part of what got us into the mess we are in, so we probably should try something a little more creative and hopefully more effective.
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