Entries Tagged as 'economy'

Cain’s 999 ‘Plan’ is Just a Slogan

October 12th, 2011 at 5:02 pm 20 Comments

At last night’s Republican debate, Michele Bachmann said “If you turn 999 upside down, the devil is in the details.” It was a clever line. Problem is that when it comes to Herman Cain’s 999 plan, there are no details, because there is no plan. What there is is a slightly longer list of talking points, with something that looks like the protean stirrings of a plan sandwiched between them.

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A Template for a GOP Economic Plan

September 28th, 2011 at 11:36 pm 23 Comments

America is now coping with the debt binge of the past decade and stagnating incomes across the board. Trying to provide some cushion for those left economically behind may be a good short-term strategy. But policy makers also need to work toward a restructuring of America’s economic architecture. Unless America’s economic vitality is restored, all plans to reduce the weight of the national debt are moot. A perpetually failed American economy will lead to skyrocketing debt levels, an ever-diminished standard of living, and a weakening of the ability of the United States to project power across the globe.

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Why Canada Can’t Win Forever

David Frum September 24th, 2011 at 10:15 am 28 Comments

In my column for the National Post, generic I ask if Canada is about to face an economic downturn:

Is Canada’s luck finally running out?

Through three bad economic years, buy cialis Canada has emerged as an island of relative stability amid the global storm. More Canadians are working today than were working in the summer of 2008. No other major Western economy has done so well.

Canada has the lowest debt burden of any G7 country. The turmoil in the Eurozone and the gloom in the United States feel very far away from the stability and prosperity of Canada.

Yet Canadians should be warned:

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A Recovery Menaced By Dysfunctional Politics

July 29th, 2011 at 11:28 am 79 Comments

In a time of fundamental uncertainty, case what do we know for certain?

No, order that’s not a Yogi Berra kind of question.

Timing of passage of an increase of some size in the national debt ceiling remains uncertain.

Which side will blink first remains uncertain.

Final form of the legislation remains uncertain.

Market reaction remains uncertain.

But we do know some things for certain.

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The Economy Can’t Survive Abrupt Spending Cuts

David Frum July 12th, 2011 at 1:24 pm 76 Comments

I’m trying to think of an economic precedent even remotely comparable to an abrupt hit-the-wall 44% cut in federal government spending.

The closest I can imagine – and it is not very close – is the defense build-down at the end of World War II.

That build-down was foreseen and planned even before the end of the war. It occurred over three years, not three weeks. Still, it was big:

In an economy of about $200 billion (in the money of the time), annual government spending was reduced by $56 billion.

And what was the real-world effect of the build-down? In the 12 months from 1945 to 1946, GDP dropped by almost 11%.

Happily, the US economy of 1946 was well-positioned to absorb the government cutback.

1) Consumers had accumulated large savings through the years of bond drives, military pay, and rationed goods.

2) Nobody was surprised. Everybody knew that the war would end, and that the military would thereafter shrink rapidly.

3) The cutback was associated with the triumph of American institutions and a more hopeful future: victory, peace, and reconstruction.

Result: by 1947, the US economy was growing strongly again. (Although GDP did not catch up to the 1945 level until 1950.)

Contrast that to now!

1) The consumer is tapped out, still deeply in debt from the housing bubble, and facing the continuing depreciation of the most important consumer asset, housing.

2) Everybody expects a deal to happen at the last minute, so a non-deal would jolt and shock markets.

3) A congressional forced non-payment of US bills would represent a signal and shaming failure of US institutions, sowing doubts about US credibility and reliability among investors and vendors worldwide.

All in all: it would be pretty bad.

So why are we doing this again? To force budget cuts that could be achieved just the same through the ordinary budget process? That’s it?

Fiscal Stimulus Didn’t Work, Now What?

July 5th, 2011 at 12:00 am 29 Comments

A report from the White House Council of Economic Advisers has indicated that the stimulus added 2.3 to 3.2 percent to gross domestic product in the first quarter relative to what it otherwise would have been. The same report indicated that the stimulus was responsible for 2.4 to 3.2 million jobs. This is being reported as good news.

What should we have expected from the stimulus? Actually, what we should have expected was stimulus. For $800 billion, of course gross domestic product had to go up in the first quarter and at least someone should have been employed. But and it is a big but, the stimulus should have reduced overall unemployment and brought private investment dollars into the economy that would have sustained any short term economic gains from the stimulus. The real benefit of stimulus, not simply increased spending, should be appearing in current economic news. It is not.

And what should a new job cost? If 2.4 to 3.2 million jobs cost $800 million, that is a cost of $250,000 to $350,000 per job. It makes one ask for a more precise accounting of the spending. Shouldn’t we have expected more jobs?  Weren’t we promised an unemployment rate of less than 8%? And there appears to be little or no sign that these jobs were not, in part, a continuation of state and city government jobs which are going to be lost in 2011 and 2012 due to state finances.

What is the solution now? Did we sell the seed corn by using up our borrowing opportunity and maxing out the nation’s debt? Perhaps.

Romney Goes for Obama’s Jobs Record

David Frum June 30th, 2011 at 8:55 am 26 Comments

Here’s a powerful Romney ad that (unlike those unintentionally hilarious Pawlenty ads) actually delivers its message:

Obama is His Own Worst Enemy

David Frum June 28th, 2011 at 9:30 am 71 Comments

David Brooks wrote a perceptive column today about the deficiencies in President Obama’s leadership style.

He can expect a barrage of negative comment from conservatives who will reject Brooks’ criticisms as insufficiently spicy.

As president, Obama has proved to be a very good Senate majority leader — convening committees to do the work and intervening at the end.

All his life, Obama has worked in nonhierarchical institutions — community groups, universities, legislatures — so maybe it is natural that he has a nonhierarchical style. He tends to see issues from several vantage points at once, so maybe it is natural that he favors a process that involves negotiating and fudging between different points of view.

Still, I would never have predicted he would be this sort of leader. I thought he would get into trouble via excessive self-confidence. Obama’s actual governing style emphasizes delegation and occasional passivity. Being led by Barack Obama is like being trumpeted into battle by Miles Davis. He makes you want to sit down and discern.

Brooks says Obama is too passive and withdrawn? That’s it? What about the threat to the Constitutional republic? What about deliberately wrecking the US economy so as to impose a secular socialist regime upon the ruins?

Yet Brooks has laid out the most useful and effective critique of Barack Obama for Republicans in 2012: The job has overwhelmed the man. He’s not an alien, he’s not a radical. He’s just not the person the country needs. He’s not tough enough, he’s not imaginative enough, and he’s not determined enough.

In the throes of the worst economic crisis since the 1930s, the president ran out of ideas sometime back in 2009.

In the face of opposition, Obama goes passive. The mean Republicans refused votes on his Federal Reserve nominees and Obama … did nothing. Would Ronald Reagan have done nothing? FDR? Lyndon Johnson?

With unemployment at 10% and interest rates at 1%, the president got persuaded that it was debt and interest that trumped growth and jobs as Public Issue #1.

Yet even as he yields to his opponents on the fundamental question, Obama is surprisingly rigid in his political tactics. Back in 2008, Obama made two big promises: a tax cut for everybody earning less than $250,000 and an Afghan surge. I think it’s safe to say that Obama believed in neither of them. I’d argue that neither was important to electing him. Both were adopted for defensive reasons, to shield himself from conservative critique. In the very different circumstances of 2009, both promises rapidly showed themselves to be counter-productive. The “tax cut” promise caused Obama to direct almost one-third of his big stimulus into an individual tax rebate that no economist would have regarded as effective, for reasons explained by Milton Friedman more than 40 years ago. The Afghan surge promise was regretted by Obama himself as soon as he came into office, and he spent 9 months looking for ways to evade it. He proceeded with both, leading to the two biggest problems of his presidency: a stimulus that added hugely to the national debt while under-delivering on jobs and an expanded Afghanistan war that must end in a reversion to the same disappointing status quo that prevailed before the Afghan surge. Obama probably anticipated both results. And yet he staggered forward anyway. As ready as Obama is to surrender to uncongenial political pressures, he is strangely inattentive to negative real-world results.

Message for Republicans: you don’t have to hate Obama to be disappointed in him. In fact hating him probably blinds you to the most important ways in which Americans have been disappointed.

Listen to Brooks, he shows the way forward.

Are Obama’s Billions Backfiring?

June 13th, 2011 at 1:08 pm 26 Comments

The question worth asking now is pretty simple: will America’s current capital investment program bring about economic growth?

A lot of the capital spending going on at this moment is driven by government planning: spending on alternative “green” energy (a major  priority for the administration); infrastructure (high speed rail has got the most attention but lots of money has also gone for new road and bridges); and Internet bandwidth. All very significant. Alternative energy alone has got subsidies of about $95 billion. If these government financed bets are “right, sick ” and people want these things, recipe the Obama administration will look very smart and the economy will recover.

If it’s wrong, treatment however, no amount of capital spending will do a whit of good.

Like David Frum, I’m skeptical of the idea that additional tax cuts of any sort will really spur an economic recovery in the short term.  That said, increased capital investment and higher worker productivity (and worker productivity growth is pretty healthy right now) is always and everywhere a good thing — as long as it meets what the market demands.

In the long run, living standards will rise only if productivity increases: without more productivity per worker, the size of the pie does not grow in real terms and the entire economy becomes the zero-sum game. If healthier job growth resumes (and it may not) then the most recent economic numbers and the story of higher capital investment with lower job growth will, in hindsight, be considered a painful but necessary move like the corporate downsizing of the early 1990s.

But sustained productivity growth can come only as a result of capital investment that meets market needs. Simply throwing money at building roads, bridges, manufacturing plants, computers or whatever doesn’t do the trick: the former Soviet Union and Japan from 1980 to the present did more capital investment than the United States but fell behind in the long run.

In relatively poor countries, investment-heavy centrally planned efforts work because low-hanging fruit such as making sure everyone has electricity, installing air conditioning in warmer areas, and shifting from cottage industries to centralized manufacturing plants raise productivity everywhere they are tried.

As economies get more sophisticated, however, figuring out the right competitive niche becomes a lot harder and once-successful central planning efforts often fall on hard times.

The Soviet Union’s twelfth (and final) five year plan saw the country become the world’s leading producer of robots but these robots proved next-to-useless because Soviets didn’t have the computer technology to help them do anything. Japan’s vaunted bureaucracy, likewise, misallocated billions on government-planned pipe dreams like a unique high definition television standard that was impractical to manufacture in quantity and a Japan-only computer bus that never caught on. Finally, America’s current stagnation resulted from a similar government-driven over-investment in home building.

In the short run, however, even the “wrong” capital investment can create a patina of growth and prosperity but, when they don’t meet market needs, they are about the worst way the spend money imaginable. It’s better for a society to spend money on life improving things almost everyone would consider frivolous—say, designer clothes and fancy restaurant meals— than to dump it into useless “capital” investments like “roads to nowhere” or manufacturing plants that produce things nobody wants.

Incredible Shrinking Workers’ Income

David Frum June 12th, 2011 at 11:58 pm 91 Comments

Workers’ share of U.S, national income is collapsing.

Two questions for the Republican presidential candidates:

1) Is this a problem?

2) If yes, what can be done about it?