The ECB’s Battle against Central Banking - J. Bradford DeLong

Berkeley prof and former Assistant Treasury Secretary Brad Delong is a sharp critic of the inflation-fighters, who believe that austerity is the way out of our low-demand downturn. - GWC

The ECB’s Battle against Central Banking - J. Bradford DeLong - Project Syndicate:

by J. Bradford DeLong

"Our current political and economic institutions rest upon the wager that a decentralized market provides a better social-planning, coordination, and capital-allocation mechanism than any other that we have yet been able to devise. But, since the dawn of the Industrial Revolution, part of that system has been a central financial authority that preserves trust that contracts will be fulfilled and promises kept. Time and again, the lender-of-last-resort role has been an indispensable part of that function.

That is what the ECB is now throwing away."

'via Blog this'

Clean House with new economic advisers - Brad DeLong

Brad DeLong reviews the opinions of key actors in the Obama administration's team two years ago.  The former Deputy Assistant Secretary for Economic Policy  concludes that the only hopeful thing to do is clean house: put new (or returning) actors in key positions, like Chairman of the Council of Economic Advisers, Federal Reserve Bank, etc.

With characteristic gusto he offers

If you were to ask me what thing--aside from the complete and immediate collapse of the Republican Party and the resignation of all of its legislators from both houses of the Congress: if the previous fifteen years had not taught me that Republican politicians have nothing useful to contribute to national governance the last three years would certainly have done so--would most give me confidence that America would surmount this current economic crisis, it would be personnel changes to put qualified people who saw the world as it was in the summer of 2009 into the key economic jobs:

• Laura Tyson or someone like her to Treasury Secretary (recess-appointed, acting, whatever).

• Larry Summers or someone like him to Fed Chair (recess-appointed, acting, whatever).

• Alan Blinder or someone like him to CEA Chair (recess-appointed, acting, whatever)

• Christy Romer or someone like her to Assistant to the President for Economic Policy.

Employment to population ratio

h/t Brad Delong

Bowles-Simpson - A millstone instead of a lifeline

A few months ago Josh Marshall asked why did Barack Obama pick Alan Simpson to co-chair his budget commission?  I am afraid to write the President's  and our political obituary but I fear that Obama chose his and our gravediggers when he picked Erskine Bowles and Alan Simpson to design his long term budget plan.


What Obama needed was a non-partisan not a centrist-rightist bipartisan budget commission.  He needs two plans: one for economic recovery and the other for long term stability.  The least the SOB's could have done was give him a plan that starts in 2014 and works with the restructuring of his  healthcare plan.


I find myself reaching for desperate, tired nautical metaphors.  Is the Democratic House leadership (a decent enough crew) rearranging the deck chairs on the Titanic?  Is this a rudderless ship?  Has  the helmsman lost his bearings?    


 HERE is Berkeley economist Brad Delong's take:

The Big Question: What is the best and the worst recommendation from the president's debt commission?

Well, two things tie for the worst thing about the president's deficit-reduction commission.

The first is Barack Obama's decision to take a long-time budget arsonist like Alan Simpson--somebody who never found a budget-busting Republican initiative he could not vote for or a deficit-reducing Democratic initiative he could not vote against--and give him a fire chief's hat. As a result, Alan Simpson's ideas are now not Alan Simpson's ideas but instead the "recommendation[s][ from the president's debt commission."

The second is the capping of federal health spending growth at GDP+1%/year. That means that, adjusting the aging of the population, the government is supposed to spend a smaller share of incomes on health care as each year passes. That would require not just the repeal of the Affordable Care Act but the elimination of Medicare as we know it.

The best idea... is it cutting schools for soldiers' kids? Or is it paying for reductions in the top income tax rate by cutting the Earned Income Tax Credit so that there are once again lots of families in America where a parent works full time and yet the kids are still in poverty? 

Yours,

Brad DeLong

The Depth of the Recession

Thanks to Brad DeLong

The Real Entitlement Problem

Working stiff  "just getting by" 

Todd Henderson is a past editor of the University of Chicago Law Review. Before becoming a professor he served as a clerk to the Honorable Dennis Jacobs of the United States Court of Appeals for the Second Circuit, practiced appellate litigation at Kirkland & Ellis in Washington, D.C., and was an Engagement Manager at McKinsey & Company in Boston, where he specialized in counseling telecommunications and high-tech clients on business and regulatory strategy.


The real entitlement problem is not workers who want to hold on to pensions, Social Security and Medicare - rather than the freedom of 401(k) and scavenging for minimum wage, non-union work.  The real entitlement problem is the self-indulgence of people like the now notorious law professor M. Todd Henderson from (of course) the free-marketeers' sheltered workshop at the University of Chicago.  In a post that he has taken down due to the notoriety it brought him, Henderson wrote his crie de coeur.  But before we get into it, let's do the numbers.  Here is the Prof's family income - Unfortunately he did not do the numbers: his taxes would go down $3,700 under Obama's plan, as Michael O'Hare analyzes it. 


As economist Brad Delong said in his devastating takedown here "Is it pathetic that somebody with nine times the median household income thinks of himself as just another average Joe, just another "working American"? Yes. Do I find it embarrassing that somebody whose income is in the top 1% of American households thinks that he is not rich? Yes."


Below is the (estimated) Henderson family budget and the professor's tale of woe.

$455,000 a year of income, of which:

• $60,000 in student loan payments
• $40,000 is employer contributions to 401(k) and similar retirement savings vehicles
• $15,000 is employer contributions to health insurance
• $60,000 is untaxed employee contributions to tax-favored retirement savings vehicles
• $25,000 building equity in their house
• $80,000 in state and federal income taxes
• $15,000 in property taxes
• $10,000 for automobiles
• $55,000 in housing costs for a $1M house (three times the average price in the Hyde Park neighborhood
• $60,000 in private school costs for three children
• $35,000 in other living expenses

WE ARE THE SUPER-RICH

by Prof. M. Todd Henderson

The rhetoric in Washington about taxes is about millionaires and the super rich, but the relevant dividing line between millionaires and the middle class is pegged at family income of $250,000. (I’m not a math professor, but last time I checked $250,000 is less than $1 million.) That makes me super rich and subject to a big tax hike if the president has his way.

I’m the president’s neighbor in Chicago, but we’ve never met. I wish we could, because I would introduce him to my family and our lifestyle, one he believes is capable of financing the vast expansion of government he is planning. A quick look at our family budget, which I will happily share with the White House, will show him that like many Americans, we are just getting by despite seeming to be rich. We aren’t.

I, like the president before me, am a law professor at the University of Chicago Law School, and my wife, like the first lady before her, works at the University of Chicago Hospitals, where she is a doctor who treats children with cancer. Our combined income exceeds the $250,000 threshold for the super rich (but not by that much), and the president plans on raising my taxes. After all, we can afford it, and the world we are now living in has that familiar Marxian tone of those who need take and those who can afford it pay. The problem is, we can’t afford it. Here is why.

The biggest expense for us is financing government. Last year, my wife and I paid nearly $100,000 in federal and state taxes, not even including sales and other taxes. This amount is so high because we can’t afford fancy accountants and lawyers to help us evade taxes and we are penalized by the tax code because we choose to be married and we both work outside the home. (If my wife and I divorced or were never married, the government would write us a check for tens of thousands of dollars. Talk about perverse incentives.)

Our next biggest expense, like most people, is our mortgage. Homes near our work in Chicago aren’t cheap and we do not have friends who were willing to help us finance the deal. We chose to invest in the University community and renovate and old property, but we did so at an inopportune time.

We pay about $15,000 in property taxes, about half of which goes to fund public education in Chicago. Since we care the education of our three children, this means we also have to pay to send them to private school. My wife has school loans of nearly $250,000 and I do too, although becoming a lawyer is significantly cheaper. We try to invest in our retirement by putting some money in the stock market, something that these days sounds like a patriotic act. Our account isn’t worth much, and is worth a lot less than it used to be.

Like most working Americans, insurance, doctors’ bills, utilities, two cars, daycare, groceries, gasoline, cell phones, and cable TV (no movie channels) round out our monthly expenses. We also have someone who cuts our grass, cleans our house, and watches our new baby so we can both work outside the home. At the end of all this, we have less than a few hundred dollars per month of discretionary income. We occasionally eat out but with a baby sitter, these nights take a toll on our budget. Life in America is wonderful, but expensive.

If our taxes rise significantly, as they seem likely to, we can cut back on some things. The (legal) immigrant from Mexico who owns the lawn service we employ will suffer, as will the (legal) immigrant from Poland who cleans our house a few times a month. We can cancel our cell phones and some cable channels, as well as take our daughter from her art class at the community art center, but these are only a few hundred dollars per month in total. But more importantly, what is the theory under which collecting this money in taxes and deciding in Washington how to spend it is superior to our decisions? Ask the entrepreneurs we employ and the new arrivals they employ in turn whether they prefer to work for us or get a government handout.

If these cuts don’t work, we will sell our house – into an already spiraling market of declining asset values – and our cars, assuming someone will buy them. The irony here, of course, is that the government is working to save both of these industries despite the impact that increasing taxes will have.

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Xxxxxxxxxs are as rich as he thinks

Another take on the Geithner plan

Berkeley prof. Brad DeLong sees the Geithner plan as the Treasury's trillion dollar hedge fund with a potential 5-1 return on equity.  See his blog Grasping reality with both hands