Key leaders of the "Blue Dog Coalition" that represents the conservative wing of the House Democratic Caucus are now openly revolting against the stimulus package's spending proposals -- a stance that dramatically strengthens the hand of Republicans who, for obvious partisan reasons, hope to undermine Obama's popular appeal and ability to move on critical economic issues.No wonder then Niall Ferguson then points out the following (his entire column is a good read)
The Blue Dog Coalition, which claims forty-seven House members, went public with its opposition to elements of the plan that Obama and Speaker Nancy Pelosi, D-California, are supposed to be promoting in a letter sent Thursday to the speaker.
The Western world is suffering a crisis of excessive indebtedness. Governments, corporations and households are groaning under unprecedented debt burdens. Average household debt has reached 141% of disposable income in the United States and 177% in Britain. Worst of all are the banks. Some of the best-known names in American and European finance have liabilities 40, 60 or even 100 times the amount of their capital.
The delusion that a crisis of excess debt can be solved by creating more debt is at the heart of the Great Repression. Yet that is precisely what most governments propose to do.
The United States could end up running a deficit of more than 10% of GDP this year (adding the cost of the stimulus package to the Congressional Budget Office's optimistic 8.3% forecast). Nor is that all. Last year, the Bush administration committed $7.8 trillion to bailout schemes, in the form of loans, investments and guarantees.
Just how much more toxic waste is out there? New York University economistNouriel Roubini puts U.S. banks' projected losses from bad loans and securities at $1.8 trillion. Even if that estimate is 40% too high, the banks' capital will still be wiped out. And all this is before any account is taken of the unfunded liabilities of the Medicare and Social Security systems. With the economy contracting at a fast clip, we are on the eve of a public-debt explosion. And similar measures are being taken around the world.
The born-again Keynesians seem to have forgotten that their prescription stood the best chance of working in a more or less closed economy. But this is a globalized world, where uncoordinated profligacy by national governments is more likely to generate bond-market and currency-market volatility than a return to growth.
There is a better way to go: in the opposite direction. The aim must be not to increase debt but to reduce it.
This used to happen in one of two ways. If, say, Argentina had an excessively large domestic debt, denominated in Argentine currency, it could be inflated away -- Argentina just printed more money. If it were an external debt, the government defaulted and forced the creditors to accept less.
Today, America is Argentina. Europe is Argentina. Former investment banks and ordinary households are Argentina. But it will not be so easy for us to inflate away our debts.
Robert Barro, an economics professor at Harvard, comes out swinging big time. I mean, big time. Read what he says about Krugman:
He just says whatever is convenient for his political argument. He doesn't behave like an economist. And the guy has never done any work in Keynesian macroeconomics, which I actually did. He has never even done any work on that. His work is in trade stuff. He did excellent work, but it has nothing to do with what he's writing about.Ouch. Will this qualify as a "bitch slap"? He does not have patience for most economists too:
Most economists haven't really been thinking about this issue, they haven't really focused on it. It's not their specialty. Most economists today, they haven't really been thinking about this kind of multiplier issue. Which goes back to that first question you asked about how come now we're so worried about this. I don't think most economists are focused on this, or that they're familiar with the empirical evidence. I don't think they've really worked on the theory. So I don't know, maybe they have some opinion that they got from graduate school or something.So, if there is not much of an agreement among these so-called-economic-experts, then .... Am reminded of Casey Stengel, who said:
I think my sense is that the sentiment has been moving against this kind of approach both within the economics profession and more broadly. I think the initial view was that "yeah, this is a terrible situation" -- which I agree with -- "and we've got to do something about this, and maybe this will work." I think there was support in that sense.
"You look up and down the bench and you have to say to yourself, 'Can't anybody here play this game?'