Sunday, February 8, 2009

Ron Paul: Republicans Acting Like "Born-Again Budget Conservatives"

I love dissenting voices. So Ron Paul's recent comments on the stimulus package definitely caught my attention. Although Paul does his usual "end the government" routine, he makes some valid points during his recent speech on the economy. Paul, for example, accuses Republicans in Congress of hypocrisy: "It is like they're born-again budget conservatives . . . .Where were we in the past eight years, when we could have done something?"

Instead of engaging in partisan fingerpointing, Paul argues (as I have) that: "We have to blame both parties and presidents of the last several decades to have generated this huge government." But I disagree with Paul when he suggests that the private sector alone can fix the economy: "Sure, we want more spending. . . .We need a lot more spending in the economy, but it has to be done by market forces, by individuals, by businesses making proper decisions." Paul forgot to include "businesses" and "individuals" on that list of things that led to the rotten economy.

44 comments:

Anonymous said...

Say what you will, but people spend their own money smarter than bureaucrats spend other people's money.

A Jacksonian said...

Having come from the federal sector and now retired, I can say that the on an equal job basis government is, at best, 65% as efficient as their private counterparts. The extreme overhead on federal workforce time and need for accountability drain money, reduce efficiency and drag out projects.

Mind you, Congress exempts itself from the very same health, safety and workforce regulation they impose on others... so there is a coccoon effect where they think they way they can order their staff around is how the rest of the world works... or the rest of the federal government works. If you tried to purchase the Federal Acquisition Regulations you would be devoting three to six feet of bookshelf space (depending if you got the DFAR also), and even in digital format it requires expert knowledge and navigation to get through. When you see $X billion for a project, make that, at best, 65% of the total with some agencies falling into the 45% category. All that regulation, 'oversight' and such reduced accountability on projects: the more you layer on the less well spent the money is and the less end-accountability you get. Increase 'oversight' and you increase regulations, forms to fill out, meetings to go to, time wasted and spent on that 'oversight' which reduces efficiency and dilutes accountability.

Why people think a 'stimulus' will work coming from government is beyond me. Most of the money spent doesn't go to goods or services requiring flow-through in the economy, but to the place where investment in the economy happens at the lowest rate possible. Even the smartest person in a federal position can't spend money efficiently due to the regulations involved. And in case folks have missed it, a large number of Ivy League degrees have gone into making this financial mess in the first place.

You are the best judge of spending money. It takes government to really create a huge and intractable problem. I don't blame those taking insane loans they couldn't pay back, they should suffer the problems of taking them. I can and do blame government for changing the accounting regulations and putting loan quotas so that money gets pushed out of the door in non-sound ways in the first place... and those regulations are *still* on the books. The source of the problem has gone un-fixed.

El Cid said...

"Say what you will, but people spend their own money smarter than bureaucrats spend other people's money."

I'm sorry, but that's a total nonsense generality.

And not just from the perspective that this country was made by government spending (spending which enables a private market).

You think the American South would be a developed part of the nation and not a hookworm-bedraggled, mud-road, portable electric generator 3rd world agricultural export community like it was before FDR's New Deal and military / industrial relocation in WWII? Hardly.

And also, I know a lot of people. Most of them survive okay, but being magical budgeters because they're private individuals?

Yeah, like the friend helped along due to his gambling losses. Or the bad businesspeople I know.

Bureaucrats, private individuals, and corporations all spend money badly, and I'm tired of this fetish of believing that every fellow citizen is some Adam Smith fount of wisdom on the nature of the free market.

Chuck Martel said...

Three or four months ago, I never thought I'd see the day where Ron Paul was sounding like a rational thinker - I voted for GW Bush twice, McCain once (while holding my nose for that last one), but at this point, with the direction the GOP has taken, Paul is sounding more and more like one of the few politicians that I agree with.

Certainly not on every issue (I fully support our efforts in Iraq, for instance) but in terms of economic and tax policy and definitely in terms of drastically reducing the power of the federal government, he's sounding more and more like someone I could support.

If Michael Steele wants to save the GOP, he needs to act immediately to denounce Snowe and Collins and Specter and any other RINOs who betray our country like they have. He needs to stop issuing "strongly-worded statements" and start acting like a leader, and talking like a realist. The time for bipartisanship is long past. The Dems have shown that they cannot be trusted, that they have no interest in listening, and to continue to act as if our government is acting in the best interest of our country and of the ideals of individual freedom is a waste of time.

Nagarajan said...

"Bureaucrats, private individuals, and corporations all spend money badly, and I'm tired of this fetish of believing that every fellow citizen is some Adam Smith fount of wisdom on the nature of the free market."

You know Mr.El Cid, individuals may spend money badly, but atleast it is THEIR money. That simple fact seems to be lost on you. I already know your political leanings from that one statement.

Bureaucrats spending money badly is WORSE because they are spending public money - they have a higher standard.

Every citizen is not a fountain of wisdom - but that is such a useless and obvious statement. It is like saying the sun rises in the East. Duh !

But every citizen has the personal responsibility to make sure that his/her investments make sense. You cannot buy a 300,000$ house with a 30K salary and believe that you are going to be paying teaser interest rates for life.

I believe that banks have been some of the biggest culprits in this mess too - which is why they should take personal responsibility for their moronic business practices - but guess what, after this trillion dollar waste, there is going to be another trillion dollar handout to the banks.

It is sickening and a grave moral hazard - today's 10 year olds, when they reach their 40's will curse the culprits of today's crisis.

Greg Toombs said...

"Bureaucrats, private individuals, and corporations all spend money badly" - El Cid

Yeah, but the government infects so much of the "free market" these days that when it gets things wrong, it gets them wrong in such massive ways that destabilize large areas of the economy.

I prefer many more individual decisions made by people with their own money. There's immediate accountability and a better learning curve, succeed or fail.

Anonymous said...

El Cid said:
"And not just from the perspective that this country was made by government spending (spending which enables a private market).:

Total nonsense. The private market exists before any federal spending, since fed spending is money taken from the private market. You cite, and rather sarcastically, showing your great rage at the South as an example, which you seem to be forgetting that anything from FDR benefiting the south was tax money taken from the south and others.

Look man, you have to have wealth before you can spend it. There is no government if there is no gov't money, which has to be taken in taxes first. Gov't is a consumer of wealth before anything else, and very rarely a producer, and even in cases where it does produce wealth it is only because it has had the benefit of prior taxation.

What don't you socialists understand about that?

Darren Lenard Hutchinson said...

Anonymous said: "people spend their own money smarter than bureaucrats spend other people's money." What is "their" money? If we are talking about subsidies, the concept seems a bit more complicated than you suggest. Also, given the role that the housing bubble played in creating this mess, I am not confident in people making wise decisions. This does not mean that government makes wise decisions either. But having blind faith in either the private or public sector is an invitation to folly.

Darren Lenard Hutchinson said...

To several posters who advocate a hands-off approach: Your arguments proceed from the assmuption that people who simply spend their "own" money do not create harms to others (what economists call "externalities"). I could spend my own money to hire a murderer to kill someone, pump toxic waste into lakes, or create a ponzi scheme called a "housing bubble" that paralyzes global financial markets.

I am not saying that regulation works best in all settings, but I do not embrace the opposite idea either. Besides, it's very difficult to even isolate individuals from society. I make my "own money," but I attended public schools until I was 17. Government helped me get to the situation of having my "own money." When did it become my own? There's a line-drawing issue.

Decidere said...

Specifically, the greed with which individuals made stupid mortgage choices, and the idiocy with which they supported a profligate government they expected to profit from say individuals (and businesses) are a huge part of the problem. "Their money"? No, they're willing to spend their kids' and grandkids' money as well.

Decidere said...

And the number of people who received lovely GI Bill housing loans and education to become "self-made" is huge. How much do our self-made men depend on our armies to bludgeon out a piece of the economic pie? (Say, would oil be a profitable business if we rolled the subsequent military costs into the price?). "Their money" is a hugely arbitrary concept. Abramoff and Duke Cunningham turned the defense tab into a private checking account, Enron let government subsidize its attacks on "Aunt Millie", fortuitous ethanol subsidies and tariffs for big business corn farmers let the keep out cheaper Brazilian ethanol with a 63 cent/gallon tax. On a mythical level playing field, perhaps we could talk about people paying their own way and earning their own keep. Down here in the real world, the truth is much more complicated. Imagine if a black entrepreneur had broken the law as much as Joe Kennedy in the 1930's. Would he have been given an ambassadorship?

Anonymous said...

DLH

I could spend my own money to hire a murderer to kill someone, pump toxic waste into lakes, or create a ponzi scheme called a "housing bubble" that paralyzes global financial markets.


Well, maybe in a hypothetical sense. But in fact the housing bubble was created with generous assistance from the government. And based on what's going on in DC these days the government still seems not to have learned its lesson.

There's a line-drawing issue.

Obviously there is. But apart from Paul not many people are proposing abolishing the state. At present the line is drawn to favor bigger government, and the Democrats seem anxious to push it in the direction of even greater state control.

Besides, it's very difficult to even isolate individuals from society. I make my "own money," but I attended public schools until I was 17.

That's true. But those public schools were funded, ultimately, by people working in the free market. Society and productive individuals have a symbiotic relationship.

Anonymous said...

A lot of the commenters are right that the private sector in general is more efficient than the public sector. In normal times, I agree we should keep the size of government low. However, depression economics turns this on its head. When economic velocity drops this low, you get way more bang for your buck through government borrowing and spending than through tax cuts.

Anonymous said...

The cause of the housing bubble. And note the date on this.


While most CRA-supported borrowers would doubtless find loans in today's competitive mortgage industry, a small percentage would not, and NACA welcomes such buyers with open arms. "Our job," says Marks, "is to push the envelope." Accordingly, he gladly lends to people with less than $3,000 in savings, or with checkered credit histories or significant debt. Many of his borrowers are single-parent heads of household. Such borrowers are, Marks believes, fundamentally oppressed and at permanent disadvantage, and therefore society must adjust its rules for them. Hence, NACA's most crucial policy decision: it requires no down payments whatsoever from its borrowers. A down-payment requirement, based on concern as to whether a borrower can make payments, is—when applied to low-income minority buyers—"patronizing and almost racist," Marks says.

What could possibly go wrong with that attitude being applied to mortage lending?

There is a closed down real estate agent about a half mile from my house. The sign on the window says "No money down. Self Employed. No income verification."

This particular place catered to the massive illegal immigrant population in the area.

A lot of people in private business behaved very stupidly over the last sixteen years. But far from discouraging them from doing so, the government was encouraging them to do it.

Anonymous said...

it's very difficult to even isolate individuals from society


Let me add that people in the Democratic party have a tendency to conflate "society" and "the state". The interests of the two only occasionally coincide.

Anonymous said...

"It is like they're born-again budget conservatives . . . .Where were we in the past eight years, when we could have done something?"

That is exactly right.

The Republicans are as much to blame for the porkulus bill as the Democrats because if they'd been responsible with our money the past 8 years then there would be more of them now to fight this crap sandwich we've just been handed. Maybe there would be enough of them to stop it completely.

Thanks a lot elected Republicans. You are responsible for what is now happening on Capitol Hill.

Anonymous said...

The Republicans are as much to blame for the porkulus bill as the Democrats because if they'd been responsible with our money the past 8 years.


That's not even close to being correct. The Democrats have had both houses of Congress for the past two years. And they had the Senate until 2002.

Darren Lenard Hutchinson said...

Regarding the housing bubble, Anonymous said:

"But in fact the housing bubble was created with generous assistance from the government."

This proves my point: no one is innocent! Exactly how did the goverment "assist" the public? It failed to toughen lending parameters (which was an act of deregulation), did not guard against the spread of bad mortgates throughout securities markets, and did not question - but in fact encouraged - the "easy money" policy of the federal reserve.

So, the government indeed allowed people to spend their own money. Look what that caused....As a true cynic, I see both private and governmental sectors as hopelessly irresponsible without limits.

Darren Lenard Hutchinson said...

Anonymous said: "That's not even close to being correct. The Democrats have had both houses of Congress for the past two years. And they had the Senate until 2002."

So the Republicans were responsible for six of the last eight years? I am not sure how that defends them. Again, the only thing that is BIpartisan is causation.

Anonymous said...

"Paul forgot to include "businesses" and "individuals" on that list of things that led to the rotten economy."

Um, no, it was the subprime mortgage market created by Carter's quasi-governmental Fannie Mae and exacerbated by Bill Clinton's "Let's make sure everybody gets a house" Fannie Mae directives.

Darren Lenard Hutchinson said...

Anonymous said: Um, no, it was the subprime mortgage market created by Carter's quasi-governmental Fannie Mae and exacerbated by Bill Clinton's "Let's make sure everybody gets a house" Fannie Mae directives.

Banks who made subprime loans, borrowers who obtained them, and investment bankers who packaged those mortgages together as securities and spread them across the financial system are all PRIVATE actors. And I would blame the banks and investment bankers more because of their expertise in finance. Again, the private sector is responsible -- as are the government and both political parties. On this issue, I am highly nonpartisan.....

PS: If the GOP controlled the House and Senate up until 2006, why didn't they toughen the standards? Of course, if they did, that would constitute governmental regulation of people's money.

Anonymous said...

So the Republicans were responsible for six of the last eight years?

Ok, I can see that you're not a math major. Or even in possession of basic high school level numeracy.

Anonymous said...

If the GOP controlled the House and Senate up until 2006, why didn't they toughen the standards?


They tried to. They were blocked by a combination of Democrats and GOP "moderates".

Anonymous said...

As a true cynic, I see both private and governmental sectors as hopelessly irresponsible without limits.


DLH, you're well on your way towards becoming a conservative.

Liberals believe in no limits on the government, and libertarians in no limits on the private sector. Conservatives believe in limits on both.

Jason said...

"Banks who made subprime loans, borrowers who obtained them, and investment bankers who packaged those mortgages together as securities and spread them across the financial system are all PRIVATE actors."

Private actors can always be expected to act in the manner in which they feel benefits themselves the most. While some of these beliefs will be wrong or irrational, they are at the very least predictable.

Private individuals bought houses they couldn't afford for three reasons in general. The first, and foremost driving rationale is that home ownership has been one of the fundamentals of the American Dream for the last several generations. The second is the largely held belief - substantiated throughout the 90's - that homes constituted a sound investment. Thus, we have established motive. The lynchpin then is the third reason - the means. Individuals who wanted a home were led to believe they could afford it by the lenders - ergo, many new bad loans, and an increased housing demand which artificially inflated the market - the bubble.

The only place in that list where it is reasonable to blame the individual actor is in the malassessment of their ability to meet the terms of the loans they were offered. However, you cannot expect to enforce individual fiscal responsibility through regulation - even if it were doable, that way lies Fascism.

So, next we move on to the culpability of the banks, who in their collective misjudgement offered these toxic loans. But banks are, for the most part, private actors, and we've already established that private actors act in a way that they believe will benefit them. So, why on Earth would banks believe that offering these loans would benefit them?

The first answer to that question is that they had no choice - under the terms of the Community Reinvestment Act as amended by Clinton, banks which failed to offer loans to "underserved minorities" - read: low income individuals - were fined. When you establish a quota system, expect a lot of otherwise irrational behavior done for the sake of meeting the quota. So, reason one amounts to a failure of regulation, but the failure here is too much, not too little.

The second answer to that question has to do with the mispricing of risk. Individually, each of these loans were toxic; however, by packaging these loans as securities, the ultimate risk was obscured, and these securities were resold as far safer investments than they truly were. This is the only place in the chain in which the failure can be seen as too little regulation - obviously, that's why this link gets all the attention. Even so, this is the least important link in the entire setup - removal of it would not have prevent the creation of the toxic debt, although by reducing the banks ability to package and resell this debt it might have slowed the creation somewhat.

The third link in the chain is the vast market distortion created by the FMs under governmental pressure to ensure the availability of homes to low income individuals. The FMs acted as both an unofficial guarantor of the loans and a massive buyer of the mortgage backed securities. The former led to additional mispricing of risk, as the banks (correctly) believed that should the market fail the government would step in. The latter created an artificial demand for those bad securities, vastly increasing their price and thus the rate at which they were created. All of this was done at the behest of Congress. Again, the failure was not lack of regulation, but an overabundance of governmental meddling.

So while you are correct that some fault lies with the poor decisions of individuals, and a significant fault lies with the banks and the mispricing of risk, the root cause here in every case is market distortion created by poor regulation. You cannot blame the individuals for engaging in risky behavior so long as that risky behavior is condoned - indeed encouraged - by the government in whose regulation you place so much faith.

Darren Lenard Hutchinson said...

Anonymous - everytime you post information "detailing" bad loans made by banks with the encouragement of the government, you prove my point: both sectors are guilty. Thanks for supporting my argument!

Jason said...

"Anonymous - everytime you post information "detailing" bad loans made by banks with the encouragement of the government, you prove my point: both sectors are guilty. Thanks for supporting my argument!"

The problem here is not in the assessment of where the fault lies, but in your characterization of the manner in which the government failed. You claim that the government's failure was through a lack of regulation, when that is manifestly not true.

Darren Lenard Hutchinson said...

Jason - interesting post. But you provide an incomplete picture as to the cause of the housing crisis. The level of home purchases by low-income individuals certainly went up during the last decade, but so did home purchases in every income class. And just to clarify, subprime borrowers are not all low-income, and many of them could have qualified for prime credit (ask Countrywide).

Also, many prime borrowers over-extended themselves, seeking exhorbitant profits in wildly appreciating markets. In Washington, DC, San Diego, Coastal Florida, etc., foreclosures are soaring, and you cannot blame low-income borrowers for this mess. The infamous "no-income verification" or "no-doc" loan is a "prime" lending instrument. That's the height of reckless lending from my perspective -- you have good credit, so we do not need you to verify your income. What a joke.

The government also continued to raise the price for which a loan became a jumbo loan. They did this to facilitate purchases in big cities such as NY, DC and San Francisco (and those cities actually lost low-income dwellers during the boom).

Also, the government did not force Bear Stearns, Lehman Bros, and the host of other institutions to make billions of dollars in profits from securitizing bad mortgage debt. What was their incentive: billions of dollars in profits.

At the same time people potray private individuals as savvy and sophisticated, they portray them as utterly helpless in the face of bad incentives from the government. That's too much of a contradiction.

I tend to resist one-sided accounts that blame a particular party, a particular sector (government versus private), a particular income class, a particular ideology, etc., for complex social problems. There are far too many factors that went into this mess. No sector can claim innocence.

Darren Lenard Hutchinson said...

Jason - actually, I have primarily blamed bad behavior - not regulation! People have portrayed the bank lending issue as a matter of governmental coercion which is a gross distortion.

Jason said...

DLH: While I agree with you in the particulars, I think I still disagree with your overall assessment.

Bad behavior will always be present, but in free market systems most bad behavior tends to sort itself out - the malevolent actors tend to fail early. It is only when that bad behavior is supported externally (through poor regulation or any other means) that it grows large enough to threaten the economy as a whole. I cannot think of a single bubble over the last century wherein this was not the case.

That said, I admit that this is an oversimplification of a complex issue, and the financial sector in particular is far more vulnerable to manipulation and other zero-sum games than is most of the rest of the economy.

However, I find myself increasingly fed up by the constant mischaracterization of regulatory failures and the constant calls for more government intervention into problems that I see as created in the main by said intervention in the first place. Case in point, I find it particularly aggravating that Hoover's failure during Great Depression is continually characterized as a failure of laissez-faire economics, when in truth the Great Depression marks the first instance in US history when our response to a market crash was not laissez-faire.

Red River said...

I challenge you to quit your job, start a company, grow it to 50 employees, then say the same nonsense.

You have the courage of the ignorant.

FLRN said...

Darren - Anonymous - both of you have valid points. This mess is certainly the end result of a housing market bubble that overvalued real estate and undervalued common sense. Across the board Americans have out spent their income and prioritized spending over earnings for more than a decade.

Whether they were pedaling their bike or driving an SUV, their end destination was a retail entity with slogans like" 90 days same as cash" and "no interest for a year" each with small print double digit interest rates waiting at the end of the rainbow.

Darren you are right to point out that areas like coastal Florida were wildly overvalued and consumers were very reckless with the new found equity wealth in their homes using this "leverage" to purchase second homes and then furnishings and services they could not afford to own and maintain. I do not believe that you can hold any one person, party or institution responsible for this mess ~ this was a collective effort largely consumer driven. Americans has forgotten how to save and this inflated stimulus package in its current form is an excellent example of this type of ignorance, and we are about to get the bill. The deregulation of the mortgage industry and the lure of easy money through subprime mortgages are really no different than the impulse items at the checkout counter at Wal-Mart. Bad government incentives are no more responsible than the average person exhibiting poor judgment. We all had an equal opportunity to make a choice and if consumers could not do the math then they could have spend $1.79 and purchased a simple calculator to figure it out! Thank God my parents taught me to walk past the things I want in favor of the things I need. I barely feel the impact of this recession because I am dependent on myself, my income, earnings and savings. - It is possible to be independently able to survive without leaning on the support of taxpayers or bailouts - it takes planning and prioritizing ~ skills sadly lacking and seldom taught anymore. This is the lesson everyone needs to learn from this recession.

Darren Lenard Hutchinson said...

Red River - since most small businesses fail quite early after they start, please explain this point?

Anonymous said...

There are some very interesting comments that have been made.

Most of you are observing this mess from the American point of view. I am observing it from an Asutralian point of view.

I see that a lot of the same mistakes regarding regulation and de-regulation were made in Australia. There is one vital difference and that is the fact that we did not have a Community Reinvestment Act. Instead we have public housing for the low income earners. That did not stop the other lenders from enticing these low-income earners into trying to buy their own homes.

Like Darren says though, it is not just low-income earners, it is in the other income groups where you have these failures. The family business goes bad and then the bank moves in. Or it could be sudden lack of employment and out of control credit card debt (I fell into that trap when my employment opportunities dried up).

Darren I must admit I find your arguments to be quite compelling. At the same time there are a few others that provided excellent points regarding this crisis. We see that the rot goes back to the Carter years but the buck does not stop with Carter, or even Clinton. The regulations introduced do have a role. In my own country I always disagreed with Paul Keating and his deregulation of the banks. I think it went too far the wrong way. (whilst I am a conservative I tend to agree with J.M. Keynes and his assessment of what went wrong in the Great Depression).

I think that you have it right to say that not one single individual is to blame but that the collective is responsible for the mess.

I do not agree with the stimulus bill in the USA or the similar package in Australia. I think that a lot of what is proposed do not belong in a "rescue" package, let alone stimulate the economy.

It is good to see a person on your side of politics making these assessments. It shows a person who is capable of clear thinking :)

Darren Lenard Hutchinson said...

FLRN - thanks for the perspective. We have been debating this for some time now. I think we pretty much agree on the complexity.

Jason - thanks for your input. As a blogger, I sometimes wonder whether I should express my opinions in the comments threads, but this was too rich to avoid. I think we agree in many ways. And I'll provide you a link to some other readings of mine on the subject. I DISAGREE with liberals who say that Gramm-Leach-Bliley caused the crisis. To the extent that your anger at "regulation" comes from this line of reasoning, then you shouldn't direct it at me!

But setting lending parameters is a question of regulation, and Congress failed on that issue - and so did the President. Bush boasted about Latino and Black homeownership soaring as well, and used the housing bubble to claim that his tax cuts worked. The blame lies everywhere -- but seems like responsibility is nowhere.

Here are some links: Hold Them Accountable Part II: If Conservatives Caused the Economic Crisis, They Had a Lot of Help from Democrats!

Bah Humbug: Both Parties Are Guilty With Respect to the Economy, But Neither Offers Concrete Solutions

FactCheck.Org Confirms What Neither Party Will Admit: Bipartisan Blame for Wall Street Woes

Darren Lenard Hutchinson said...

Anonymous from Australia - the fact that so many of us agree probably means that this is a bipartisan debacle. Now, if we only had public officials who thought that way....Actually, they would probably lose their sanity!

Anonymous said...

everytime you post information "detailing" bad loans made by banks with the encouragement of the government, you prove my point: both sectors are guilty. Thanks for supporting my argument!


You're welcome! It's my argument as well. I think we differ a little as to what government is guilty of though. I'm saying government is guilty of creating incentives for bad behavior, on the part of both the banks and of private citizens.

Anonymous said...

I had time today to review information on Keynes. Alas I no longer possess his book which was something we had to study as part of our economics course.

I did learn a lot from the Wikpedia site, and there is certainly more that I could learn or refresh about Keysian economics. I was a student when stagflation took hold both in Australia and the USA. It was the time when Keynsian economics was seen to have allegedly failed.

However, what I think is that the pundits had failed to see that times had changed and that there was a need to respond to the new situation. Keynes got a lot of his ideas post WW1 when we saw the failures of the Versailles treaty leading to hyperinflation in Germany, as well as a collapse of the world economy. Keynes was responding to that situation.

Whilst there were flaws in the Keynsian theory, and even Keynes was happy to admit those flaws, I do think that Keynsian theory redux is not such a bad idea. My own research today (very basic and not thorough) has at least given me a hint as to why I think that the pork package in the USA and the one proposed in Australia is so very wrong.

It also pointed out where the Bush Administration had got it wrong - specifically what Keynes suggested is that in times of war governments should be increasing taxes and not reducing taxes. Over the past few years we actually saw the opposite taken place which meant that both countries moved from budget surplus and into budget deficit.

Keynes did indeed suggest that during times of high unemployment there should be an increase in government spending. I am not against that idea in principle.

However, where I think that this proposal breaks down today is the nature of the unemployed. Since I have not been in the workforce and have not been studying too closely what has been happening, I have no idea about the ratio of blue collar workers to white collar workers that are unemployed. The kind of stimulus that should or could be provided should reflect the skill base of the unemployed. For example you cannot employ a clerk to help build a bridge because the clerk does not have the same skills as a construction worker.

From what I have seen of the proposed packages these packages, they are nothing more than an exercise in pork barreling and worse they seek to have the kind of add-ons that will cause a lot of people to scream if these were introduced as individual items.

Australia took a hit over the mortgage and cheap loans and a few lenders did go belly up. We also saw the same thing in the UK. This points to the deregulation of the banks as another reason for things getting out of control. The workers who are losing their jobs are not blue-collar workers, they are white collar workers and any package aimed at infrastructure is not going to put this class of unemployed back into the workforce. My husband is one of those who lost his job in recent weeks. Thousands in the finance sector and the airlines industry have lost their jobs in recent months, yet the proposed packages do not address this group of unemployed people.

I noted the points made by A Jacksonian because they were really very valid with regard to the impact of too much regulation. This also comes from too much litigation as companies fear that they will face being sued and so they try to cover their backsides meaning that in the long run there is a lack of responsibility where it is needed most. However, I believe that there needs to be a balance between too much and too little regulation since I see the failure of deregulation of the banks as one of the causes of what has recently been played out in the economy. I certainly think that the Australian crisis has its roots in the policies of the Hawke-Keating years.

Whilst it looks like people are going back to Keynsian ideas I tend to disagree. I think it is more like psuedo-Keynesian economics rather than the real thing. If these packages are accepted then in the long term things will get a lot worse, not better.

FLRN said...

Anonymous said "The kind of stimulus that should or could be provided should reflect the skill base of the unemployed. For example you cannot employ a clerk to help build a bridge because the clerk does not have the same skills as a construction worker."

Are you sure you don't want to come across the pond and climb up on our hill??? This observation is brilliant. During times of economic downturn two things happen to the work force the working poor become more so, and skilled white collar workers lose their jobs and enter into competition with the blue collar workers. The result is mix of over and under qualified workers with in a force that cannot be productive. The solution and what SHOULD be in the pork of this stimulus package is a plan to re-train and educate through programs that will boost the blue collar workers and re-skill white collar workers so both groups can go back to work. We simply don't see this here with the Stimulus rescue and this is why Americans and their elected representatives are screaming back and forth. This stimulus plan is too big, weighted and lacks focus on programs that pull Americans forward not handout more economic relief. A rescue package needs to be about short term solutions to immediate needs with a secondary measure to maintain and build an economy which would be a more long term solution. The size and complexity of the package is what makes it so disturbing and belies the label "rescue" - my naive suggestion break it up into two parts - two different bills that one for short term immediate relief (where BC options and fish barriers don't muddy the water) and long term options that shore up a work force, retrain the citizen ship displaced by the turbulence of the economic storm and offer alternative options for career training education, vocational training or a new career path options.~- Civil service jobs exist and offer apprentice opportunities through fire rescue, healthcare, road construction and bridges, environmental management, accounting, nursing, medical options, dental, all levels of teaching, information technology, communications, military services, transportation the list is endless ~ we simply have to think about the options and organize. This approach will put dollars into pockets that will then prime the pump in our retail areas and stimulate the economy - this is how it works. The choice may be simple but it requires a collaborative effort.

Maggie said...

FLRN you make good points and I continue to read the comments here with a lot of interest.

Perhaps it is time to give personal testimony. First of all at aged 54 I am out of the workforce for a variety of reasons, including health. However, I am not entitled to any assistance from this Australian govt. I belong to the wrong income group to get any benefits. Late November last year my husband, who was an executive working for a major Australian airline but in a business unit working on defence contracts was told that he was being retrenched. This took effect in late January. He is aged 55. He has work as a contractor within the same industry. He is highly skilled. Even though I have a university degree I am not highly skilled because when I was in the workforce I was forced into a certain career path. - end of anecdotal story.

My point is that in times of high unemployment there are limits on retraining schemes. I have seen them in action in the past and quite frankly the benefits are marginal. One reason that I will give is that there is a time lag between the loss of jobs and the setting up of retraining schemes and the creation of new jobs.

Another problem that exists is the hidden unemployed. There are a lot of us who are hidden - we are not represented in the statistics because we do not fall into a particular category of the workforce. It means that the information about the potential pool of employees is not all that accurate. To give further anecdotal evidence for 10 years of my working career I was a contract worker.

The rushed way in which both Obama and Kevin Krudd are trying to ram through their packages means that there is little thought going into the make up of the unemployed. People are losing their jobs - hence my anecdotal story about my husband's situation - due to across the board staff reductions.

In a majority of companies there is something called a staff ceiling where limits are placed upon the numbers of full time employees that are wanted on the company books (read here also government departments) when the staffing levels are reduced it usually means that certain groups of employees are targeted and these are usually the over 50s who are already considered too old to be retrained. I have been there and done that as well.

When companies begin to introduce efficiency measure white collar workers normally lose their jobs. Changes in technology normally means job losses as well.

This cycle continues so that supply and demand of labour is normally cyclical. This is when retraining helps to take up the undersupply of labour in one industry due to the over-supply of labour in the new industry.

Also, over the last 30 years there has been a shift in the kinds of industries available in both the USA and Australia. We have lost our manufacturing base because a lot of our manufacturing has shifted overseas to China and India, or in your case Mexico and China.

There is no easy solution for those white collar workers who have recently lost their jobs. An IT consultant for example is not going to want to build bridges. He or she will want to continue in the industry where he or she is trained.

In both countries the proposed packages are not well thought out, and there is no way that they will provide the much needed long term benefits that is need by the economy of our respective countries.

FLRN said...

Maggie - You bring forward excellent points and for the most part I agree with your view point - however I will offer two or three observations. I completely understand your example of contract labor as this is bread and butter for many nurses across the county. I will point out that - the higher wages associated with contract labor are engineered to supplement personal needs and should in theory not be considered salary rather these $$ are to act as benefit supplement. - This is why contract labor is meant to be temporary while you "look" for a more permanent solution. There already exist opportunities to re -skill white collar workers through tuition reimbursement and financial aid - I assert that programs of this type are not enough and should be a focal point of long term reform measures. You suggest that "There is no easy solution for those white collar workers who have recently lost their jobs. An IT consultant for example is not going to want to build bridges. He or she will want to continue in the industry where he or she is trained."
When you are having difficulty paying your bills, making your mortgage or putting food on the table it matters little about what you "want" and matters every bit about what you need! This is the 'any port in a storm until the weather clears' mentality that aids survival and fosters ingenuity. I have been hungry, poor and uneducated. I worked several jobs to pay for multiple college degrees because I did not want to be in debt, nor did I have available creative aid packages for tuition reimbursement. It was only later in life that I recognized these options do and can exist, and I offer the State of Florida nursing shortage as an example. I never dreamed of being a nurse - but I am a highly skilled, even thinking, sought after competent care giver and I learned these skills because this was a scarce resource nursing professionals for my area (a need that still exists TODAY in almost every health care related job RN, x-ray, claims, admin,) and by goodness I am a nurse because I needed -not wanted - a job. It was serendipity that I now do a "job" that comes with wide open employment options and a solid career (plus I love it).
I use this field as an example of re-training and re-skilling workers because there is a critical nursing shortage that has existed for years - long before Americans even thought about recession. The state of Florida and the Health care industry across the US offer many creative programs - mortgage forgiveness, housing credits, tuition reimbursement, indenture programs retention bonuses, flex schedules, child care supplement, vacation and benefit packages all designed to lure and retrain white collar workers and elevate blue collar worker on to different career paths within the health industry - all for the cost of a 2 year degree with the promise of future education and the delivery of a life time of employable skills.
My example illustrates the difference between wants and needs - re-training can be challenging and scary, yes it hurts, yes it's risky but it can be done and be done well. In times where money is tight and choices are slim the options may appear narrow but I assert they are wide open and exist in almost every field you can name the pay may be less but the cost to us all has to be considered. Re-training and re-learning is not always about using the skills you have, rather it is about making the choice to take on something new and then find an application avenue to incorporate the past experience. Sometimes it is not about learning to build a bridge or a road; it is more about learning to walk across one to find a new path.

Margaret said...

FLRN
your own example is a good one since it involves matching up training to a need. My example was very different because the conditions themselves are different. In my own case, I could not retrain as a nurse. I simply could not do the work for health reasons, plus age is a factor.

However, I am in Australia and much of what you observe is different over here. There are still huge costs involved, especially to the taxpayer and these costs I believe need to be re-evaluated from time to time.

Given what I have been reading about the USA stimulus (porkulus) proposal and the Australian stimulus (porkulus) proposal, I think that both need to be gone through with a fine tooth comb so that all of the pork is removed. I believe that the only measures that should go forward are the ones that will deliver good consequences in the long term. The problem with the present proposal is that in the long term the increase in government debt will have a negative impact on GDP in the future. This is undesirable.

A strong approach needs to look at the problem on an industry by industry basis. It needs to match up skills and as you say retrain people for jobs where there is a shortage of labour. This approach also means looking at why jobs in certain industries are being moved off-shore, including customer service related jobs that could be done in both of our countries.

Personally, I am no longer participating in the workforce. It is a decision that I made based upon health grounds. One fall too many and a second tailbone fracture means that I am not prepared to work in a company where I would be required to sit for long periods at a time.

I think that we do agree in a very vital area with regard to skills, but I still maintain that people will not easily be retrained into building bridges and making roads.

The reason that I say that we are in agreement is that I see this from the need to match supply and demand. On the other hand, I see a difficulty because of the time-lag that is required in training. It is the supply and demand issue that comes into play. The demand is now which means that skilled workers can earn higher pay, this in turn encourages others to join that field of employment, leading to people going to college, university or whatever to gain required skills, such that at the end of the 2 year period there is an increase in the supply of the skilled workers which has its own consequences. However, in a large country with a large workforce this probably just means being more mobile and flexible in finding places of employment.

This does not resolve the issue of people in the IT industry or other white collar industries where jobs are being shed at a rapid rate. There are obviously other factors that need to be examined.

Neither the USA nor Australia can go backwards into protectionism with regard to the creation of jobs, yet something needs to be done to stop the bleeding. Government is not the answer, the stimulus needs to be within the private sector.

I see one of the failures within Australia is the lack of a strong central employment database and strong vocational guidance. People end up being the hidden unemployed because they are usually overlooked by government (in Australia I refer to Centrelink) with regard to being able to get employment help. If you do not fit the criteria then it is just too bad. I think I already mentioned that I was pigeonholed in the type of work that was being offered to me. I have a degree in Accounting, and I did get a higher qualification. However that qualification did not get me a job in the field where I wanted to get practice. I was pigeonholed and I could not even get work in the corresponding field. It meant a limiting of opportunities for work.

What I am saying is that I do not think that the packages on offer address these other issues. Something is missing in the equation.

FLRN said...

Margaret - The countries may be different but I believe you are right and we do agree!!!! The whole issue is significant and will not resolve over night. THe solution has short and long term aspects that need management to remove the pork - sadly I do not think this will occur as most law makers are playing chicken! I will keep "reading" your valid points in other postings with interest!

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