Posts filed under “Economy”

Disciple of Stiglitz?


Apparently, I (unknowingly) come from the same School of Economics as Joseph Stiglitz.

In a speech to Wharton Investment Management Conference last month, the Nobel prize-winning economist laid out his critique of what’s wrong with the U.S. economy. He believes that several Bush policies have only made economic problems worse.

Stiglitz’s criticisms (direct quotes in italics) will be all too familiar to readers of The Big Picture:

·   President Bush’s economic policies have failed to spur growth, while exacerbating rising household indebtedness;

·  Increased productivity was a squandered opportunity. Higher productivity should raise living standards — at least when the economy is growing at its full potential. Instead, companies get by with fewer workers and less hiring, and unemployment rises: "In the last four years, we have failed the challenge of increased productivity and lost the opportunity it affords because we have not had enough economic growth."

·   The economy has limped along, losing jobs for the first four-year period since the Great Depression: "We should have created something like six million or seven million new jobs. In fact, we have lost net one million new jobs. The only part of employment that’s growing is the public sector. The private sector is down 1.5 million."

·   The unemployment rate (5.4% in September) understates job problems — it doesn’t include people who have dropped out of the job market.

·   The unemployment rate fails to account for underemployment - that is, people who work part-time, often without benefits, but want full-time work.

·   Since the tax cuts failed to stimulate the economy much, it forced the Federal Reserve it lower interest rates to historically low levels — and yet there’s still too little business investment. Stiglitz blames excessive investment in the 1990s. (the post-bubble overhang);

·   Companies don’t want to borrow — even at low rates — because there is still too much excess capacity (sound familiar?);

·   Reducing taxes for wealthy Americans wouldn’t help the economy,
(In 1993, President Clinton raised taxes on the wealthiest 2% of Americans, and that didn’t hurt the economy);

·   Cutting the corporate dividends tax rate wasn’t originally intended as a stimulus for a sluggish economy — it was merely a tax cut for the rich:  "They said that a dividend tax cut would lead to higher stock prices, and that would lead to more investment. Think about how the economy got into the downturn. It got there in part because of overinvestment;"

·   Instead of lowered tax on dividends, we should have provided investment tax credits for companies;

·   The dividend tax cut, he said, ended up exempting some dividends from any tax. Some corporations don’t pay tax. If these firms pay dividends and those payments are tax exempt for shareholders, then the government never taxes this money. "So now the problem is zero taxation."

Hard for me to argue with much of this . . .

Joseph Stiglitz and Pete Peterson: What’s Wrong With the U.S. Economy and How to Fix It
17 Nov – 30 Nov 2004

Category: Economy

Chart of the Week: Import Prices as a Leading Inflationary Indicator

Category: Economy

Race to the Bottom

Category: Economy

Economists react to the Fed

Category: Economy

Lets hear from the Dismal Scientists

Category: Economy

Nonfarm Payrolls Increase by 337,000

Category: Economy

New Column up at Real Money: Myths of the 2004 Election


The latest column is up: “Myths of the 2004 Election.”

Its a look at some of the more annoying fallacies of this elction cycle.

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Category: Economy, Finance, Politics

Chart of the Week: Dow Industrials Post Election

Category: Economy

Election Outcome Overshadowed by Structural Concerns

The election of your lifetime.

That’s what the vote on November 2nd vote has been called. It’s probably a fair description in many, many policy areas. The two major party nominees for President differ on a host of issues, ranging from international affairs to economic strategy to tax policy. Even on basic issues of science – stem cell research (biology), global warming (chemistry), missile-defense (physics) – there are huge distinctions between the Republican and Democratic candidates.

When it comes to the capital markets, conventional wisdom assumes that the outcome of this election will matter a great deal.

I disagree.

Why? There are simply far too many structural factors that will hamstring whoever assume the Office of Presidency on January 20, 2005. The post-bubble environment has problems that will likely be cured only by the passage of time. Large budget deficits will continue, as will the ongoing weakness of the dollar. The economy is likely to grow, albeit at only a very modest pace, for the foreseeable future.

Further, U.S. presidents have far less influence over the macro-environment than most believe. The United States economy is a multi-trillion dollar behemoth, and its business cycle is not readily changed by minor – or even major – course corrections.

Consider the environment the president-elect steps into: With the 2003 stimulus fading, the economic expansion has already started to slow down. The trend of the past four quarters of GDP growth is revealing: 7.4% in the third quarter of 2003, 4.2% in the fourth quarter, 4.5% in the first quarter of 2004, and 3.3% in the second quarter. The end of the softspot was supposed to be 2004′s 3rd Quarter GDP — that came in below consensus, at a (disappointing) 3.7%.

This movement is even more pronounced if we back out government spending on military and wartime explanations.

Unless another trillion-dollar stimulus package is forthcoming – and given the huge deficit, that is highly doubtful – economic growth will be in the 2.5% to 3% range.

And that’s without factoring in the impact of $50-plus-a-barrel crude.

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Category: Economy

Deficit Issues

Category: Economy