Nobel Prize winning economist Paul Krugman writes in today's Times:
Free-market fundamentalists have been wrong about everything — yet they now dominate the political scene more thoroughly than ever.
The column is linked here.
Showing posts with label free market ideology. Show all posts
Showing posts with label free market ideology. Show all posts
Monday, December 20, 2010
Thursday, January 8, 2009
Walker sacrifices Milwaukee on the altar of a failed ideology
Milwaukee County Executive Scott Walker's decision to reject federal economic stimulus dollars reflects a zealous commitment to the very market extremist ideology and Republican orthodoxy that has helped create the current economic crisis.
As several commentators ranging from Gretchen Schuld, Bill Christofferson, and Rob Henken to the Milwaukee Journal Sentinel editorial board have noted Walker's position sticks it to Milwaukee County which has significant infrastructure investment needs including: $10 to $15 million for the Milwaukee Public Museum; $5.5 to $8.5 million for the Milwaukee County Zoo (plus another $130 million for capital improvements); $276.6 million for the Milwaukee County Parks; and $56 million for 150 new buses and $15 million annually to operate the collapsing county transit system.
And what about the community's growing number of unemployed workers. Milwaukee has lost 6,000 jobs this year. Black male unemployment is the second highest in the nation. The city's official unemployment rate stands at 7.7%. The real rate including those who have dropped out of the labor market and those working involuntarily part-time is almost 13%. We have the 7th highest poverty rate in the nation. Yet, Walker intends to turn down proposed federal investments in the community that will help repair the failing infrastructure and create jobs.
The investments that Walker opposes are effective job creators, much more effective than the tax cuts than Walker says he would consider supporting.
The investments that Walker opposes are effective job creators, much more effective than the tax cuts than Walker says he would consider supporting.
I have attached a chart based on data complied by Mark Zandi, a former economic advisor to Senator John McCain, that show that tax cuts are an ineffective form of stimulus compared to alternatives such as extending unemployment benefits, increasing food stamp allocations or investing in the infrastructure.
We've been down the Walker tax cut road before and it leads to nowhere.
A year ago, as layoffs increased and output declined, it was clear that monetary policy, the manipulation of the money supply to promote economic growth with price and employment stability, was not enough to end the recession. Unfortunately, President Bush and congressional Republicans refused to consider any form of economic stimulus except tax cuts. They even refused to support an extension of unemployment benefits for workers who had exhausted their 26 weeks of unemployment compensation despite the rapid increase in the ranks of the long-term unemployed. They stubbornly refused to support any increases in federal spending because it did not fit their narrow ideology.
A year ago, as layoffs increased and output declined, it was clear that monetary policy, the manipulation of the money supply to promote economic growth with price and employment stability, was not enough to end the recession. Unfortunately, President Bush and congressional Republicans refused to consider any form of economic stimulus except tax cuts. They even refused to support an extension of unemployment benefits for workers who had exhausted their 26 weeks of unemployment compensation despite the rapid increase in the ranks of the long-term unemployed. They stubbornly refused to support any increases in federal spending because it did not fit their narrow ideology.
So the first stimulus package was limited to $152 billion worth of tax cuts. It failed to jump start the economy because instead of spending their tax cuts, people saved 80% of it. Today consumer and business owner confidence is even lower. When consumers and business owners are concerned about the future they do not consume or invest. This is why cutting taxes as the
Zandi chart indicates are among the least effective form of stimulus.
Economists have labeled this the paradox of thrift and it was first identified by John Maynard Keynes, the noted English economist. Established economic theory assumes that the pursuit of self interest will be good for the entire economy. But when the economy is doing poorly, people save for a rainy day. While this may be personally rational, it is irrational for the economy as a whole which needs increased aggregate spending to grow.
Economists have labeled this the paradox of thrift and it was first identified by John Maynard Keynes, the noted English economist. Established economic theory assumes that the pursuit of self interest will be good for the entire economy. But when the economy is doing poorly, people save for a rainy day. While this may be personally rational, it is irrational for the economy as a whole which needs increased aggregate spending to grow.
The economy has lost 2.6 million jobs in the last year and more than a million in the last two months. Milwaukeans are hurting and the County is falling apart.
County Executive Walker's stubborn refusal to recognize these dire circumstances and the need for immediate action has nothing to do with principles. It is the type of reckless zealotry that sacrifices the lives and well being of millions on the altar of a failed ideology.
County Executive Walker's stubborn refusal to recognize these dire circumstances and the need for immediate action has nothing to do with principles. It is the type of reckless zealotry that sacrifices the lives and well being of millions on the altar of a failed ideology.
Friday, January 18, 2008
Free market ideology contributed to housing bubble and economy's free fall
Paul Krugman explains how Alan Greenspan and top Bush administration officials' rigid commitment to free market ideology contributed to the housing bubble and emerging recession.
In Friday's New York Times he writes:
...U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which my dictionary defines as “a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone.” E.g., “Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad.”
In other words, the United States was not, in fact, uniquely well-suited to make use of the world’s surplus funds. It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.
... the next year or two could be quite unpleasant.
What should have been done differently? Some critics say that the Fed helped inflate the housing bubble with low interest rates. But those rates were low for a good reason: although the last recession officially ended in November 2001, it was another two years before the U.S. economy began delivering convincing job growth, and the Fed was rightly concerned about the possibility of Japanese-style prolonged economic stagnation.
The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild.
It wasn’t just Alan Greenspan’s unwillingness to admit that there was anything more than a bit of “froth” in housing markets, or his refusal to do anything about subprime abuses. The fact is that as America’s financial system has grown ever more complex, it has also outgrown the framework of banking regulations that used to protect us — yet instead of an attempt to update that framework, all we got were paeans to the wonders of free markets.
...let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.
In Friday's New York Times he writes:
...U.S. financial markets, it turns out, were characterized less by sophistication than by sophistry, which my dictionary defines as “a deliberately invalid argument displaying ingenuity in reasoning in the hope of deceiving someone.” E.g., “Repackaging dubious loans into collateralized debt obligations creates a lot of perfectly safe, AAA assets that will never go bad.”
In other words, the United States was not, in fact, uniquely well-suited to make use of the world’s surplus funds. It was, instead, a place where large sums could be and were invested very badly. Directly or indirectly, capital flowing into America from global investors ended up financing a housing-and-credit bubble that has now burst, with painful consequences.
... the next year or two could be quite unpleasant.
What should have been done differently? Some critics say that the Fed helped inflate the housing bubble with low interest rates. But those rates were low for a good reason: although the last recession officially ended in November 2001, it was another two years before the U.S. economy began delivering convincing job growth, and the Fed was rightly concerned about the possibility of Japanese-style prolonged economic stagnation.
The real sin, both of the Fed and of the Bush administration, was the failure to exercise adult supervision over markets running wild.
It wasn’t just Alan Greenspan’s unwillingness to admit that there was anything more than a bit of “froth” in housing markets, or his refusal to do anything about subprime abuses. The fact is that as America’s financial system has grown ever more complex, it has also outgrown the framework of banking regulations that used to protect us — yet instead of an attempt to update that framework, all we got were paeans to the wonders of free markets.
...let’s hope that when the dust settles a bit, Mr. Bernanke takes the lead in talking about what needs to be done to fix a financial system gone very, very wrong.
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