返回列表 发帖

[基础分析] Stimulus Might Avert Error of Optimism: David G. Blanchflower

(Bloomberg) -- David Blanchflower, professor of economics at Dartmouth College, discusses the outlook for the global economy. Blanchflower talks with Deirdre Bolton on Bloomberg Television's "InsideTrack." (Source: Bloomberg) \


We all seem to know that failing to learn history’s lessons dooms us to repeat them, so you have to wonder why so many smart people seem to make the same economic mistakes.

For the latest example, let’s go back to Jan. 5, 1938, when a famous cartoon was published in the London Evening Standard.

It pictured the residence of Prime Minister Neville Chamberlain at 10 Downing St., emblazoned with the logo, “Downing St. Temple of Sunshine.” A dozen officials stand in front, all half-naked, wrapped in towels, next to a sign saying, “Today’s weather report -- set fair indefinitely.” Walking along Downing Street is a man under an open umbrella who is admonished by the officials -- “the feller ought to be ashamed: encouraging rain.” That man is John Maynard Keynes: written on his umbrella is the phrase, “anti-slump precautions.”

The cartoon followed a letter that Keynes wrote to the Times four days earlier, in which he said that British military spending was the main force keeping up employment, while blaming Franklin Roosevelt for cutting spending and bringing on Round Two of the Great Depression in the U.S.

“Examples abound in all parts of the world where public loan expenditure has improved employment: and I know of no case to the contrary,” Keynes wrote. “Does anyone doubt that employment would decline if public loan expenditure on armaments were to cease tomorrow?”

Semi-Naked
Keynes’ view ran counter to the so-called Treasury view, expressed by the semi-naked officials in Low’s cartoon. That view held that fiscal policy has essentially no effect on the economy and unemployment, even in the depth of recession. Increased government spending, according to that view, crowds out an equivalent amount of private spending or investment. In short, it has no net impact on the economy.

History proved Keynes correct. In contrast to the U.S., the U.K. didn’t experience a slump at the end of the 1930s, because of the increased level of fiscal stimulus as a result of re- armament spending.

Yet the crowding-out view seemed to be held by a number of the countries at the G-20 summit last weekend, especially by the U.K. and German governments. It appears now that even French President Nicolas Sarkozy is on board and plans to implement draconian austerity measures.

This position stands in contrast to the U.S. view that committing to reduce long-term deficits is appropriate only if it’s not at the price of short-term growth.

It is much more likely that public expenditures, rather than crowding out private spending, are promoting it.

Ending Profligacy

The view of the anti-stimulus crowd is that public spending cuts and tax increases now will somehow quickly return us to steady growth and lots of private-sector hiring. Recovery is under way, the slump is over, so let’s start shrinking the over- reaching state and put an end to all that socialist profligacy. Markets are self-correcting, so we must deliver what the markets want or we will become Greece, it is argued.

It’s not a very convincing argument. Austerity can spook the markets if it compromises growth, as it has in Greece.

In a subsequent letter to Roosevelt in February 1938, Keynes explained that premature curtailment of public-works programs had driven the U.S. back into recession in 1937 because of an “error of optimism.” It seems to me that there is a very real danger that German Chancellor Angela Merkel, U.K. Prime Minister David Cameron, Sarkozy and their underlings are being overly complacent and are also in danger of making a huge error of optimism.


Long Depression

There is a significant probability that these leaders will make the biggest macro-economic mistake since the 1930s, which might push us into what economist Paul Krugman has called the Long Depression, equivalent to the depression that followed the financial panic of 1873.

The signs of weakness are in plain sight. Banks are still not lending, which can compromise growth. Money supply growth is sluggish around the world. There is little or no potential to lower interest rates, which are close to zero almost everywhere except Australia.

Central banks are reluctant to do more quantitative easing, as they remain wary of their effects and there is little room to cut interest rates more. And there is even dangerous talk from some inflation nutters that it is time to start raising rates, which would make matters worse.

It doesn’t look like net trade or investment is going to drive growth, and the consumer is beginning to run scared once more. Consumer confidence last month dropped both in the U.S. and U.K., and the outlook doesn’t seem promising: The index measuring consumer expectations for the next six months in the U.S. fell in May to 71 from 85, while a comparable yardstick in the U.K. declined to 93 from 105. Consumer data in Europe paints a similar picture.

All is not set fair. It’s time for more stimulus, not less.

(David G. Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, is professor of economics at Dartmouth College and the University of Stirling. The opinions expressed are his own.)

Goldman Sees "Disturbing Signs"

Goldman Sees "Disturbing Signs" If Government Does Not Bow Down To Krugman, Reflate Monetary And Fiscal Bubbles
Submitted by Tyler Durden on 07/06/2010 19:09 -0500


Last week, Goldman, in a piece unambiguously titled The Second Half Slowdown has Begun, made it all too clear that unless the US government were to succumb to yet another, and another, and another round of drunken sailor spending, the gratuitous ability of its sellside analyst to place crap companies on Conviction Buy lists may suddenly become mysteriously impaired as reality seeps through the gaps, thereby infuriating CEOs of worthless and overlevered widget makers, who know all too well their corporate earnings are about to be taxed through the nose by the Obama crack economic team, as their stock is about to plunge.

Today, just in case the threat may have been missed by the cheap seats the first time around, here comes Jan Hatzius with the ominously titled "Disturbing Signs" which reads like Paul Krugman's induction essay into the Useless Economists' Society.

1. Friday’s jobs numbers were disturbing. At best, they show an economy that is growing only quickly enough to keep the unemployment rate flat near 10%.  At worst, they suggest that the labor market is once again turning down.  Both the manufacturing workweek (the only part of the employment report included in the index of leading indicators) and the employment/population ratio (the broadest job market measure in the household survey) dropped significantly in June.  Given the noise in these series and—in the case of the workweek—the potential for substantial revisions, both fortunately fall short of a clear-cut signal that another labor market downturn has begun.  But we will need to see at least a partial reversal of these declines next month.

2. This comes at a time when the end of the inventory cycle has triggered the inevitable slowdown in the manufacturing sector. With inventory investment now again close to a normal rate, GDP growth is likely to converge to final demand growth, which has averaged only 1½% since mid-2009 and is unlikely to accelerate given the various headwinds facing the economy.  The resulting slowdown in GDP growth is likely to be concentrated in the goods-producing sector, which previously received the largest boost from the inventory cycle.  Hence, further declines in the ISM index following last Thursday’s drop to 56.2 are likely; our GDP forecast implies a decline to around 50 by early 2011.

3. The weak labor market implies not only a great deal of hardship for workers, but also a growing risk of deflation.  Although the last couple of core CPI/PCE releases were a bit higher than those earlier in 2010, the trend still seems to be downward and other measures such as wage growth and inflation expectations have been declining.  In particular, the 5-year 5-year forward breakeven inflation rate in the TIPS market has fallen 75bp since April and now stands at 2% for on-the-run securities, the lowest level since mid-2009.

4. Our recently released Global Economics Paper No. 200 entitled “No Rush for the Exit” argues that policymakers should react to the combination of a sluggish recovery and declining inflation with additional policy easing, either via a return to unconventional monetary policy or via further fiscal stimulus. The obvious counterargument is that monetary and fiscal easing carries long-term costs in the form of, respectively, a risk of a renewed asset bubble and a higher public debt burden.  But our study shows that these costs look far from prohibitive at present.  On the monetary side, US financial markets are nowhere close to bubble territory.  On the fiscal side, it is difficult to argue that the US government has reached the limits of its debt capacity when long-term bond yields are low and falling, and when federal interest payments stand at just 1½% of GDP.  When compared with the risk of a renewed economic downturn and/or a descent into deflation, the cost of additional stimulus seems to be well worth paying.

5. So what is to be done?  On the monetary side, the possibilities include additional purchases of Treasuries and mortgage-backed securities, as well as TALF-like structures—i.e., special purpose vehicles that lend to nonbanks using equity provided by the Treasury and debt provided by the Fed.  Whether these will happen anytime soon is another matter.  Additional purchases of Treasuries and/or MBS mortgages do not yet seem to command a sufficient majority on the FOMC.  This might change if growth and/or inflation ease further.  But even then it is unclear just how effective they would be.  After all, Treasury purchases did not seem to have much impact in 2009, and MBS spreads are already quite compressed, limiting the potential for further narrowing.  A TALF-like structure could be more powerful, but it would need the Treasury’s cooperation and the Fed’s authorization under article 13.3 of the Federal Reserve Act, i.e. the Fed would need to invoke “unusual and exigent circumstances.”  This is a very high hurdle.

[TD: please Jan, have you met the criminals who run this country? The "very high hurdle" is about $100,000   per fat, bald and corrupt politician ]


6. On the fiscal side, we hope that Congress passes the extension of emergency unemployment insurance, continued aid to state and local governments, and at least a temporary extension of the bulk of the 2001/2003 tax cuts beyond the end of 2010.  If some of the tax cuts are left to expire, then this should be offset by temporary fiscal easing elsewhere.  The point is that a tightening of the overall fiscal stance at a time when the economy is already struggling to maintain the current, unacceptably low level of resource utilization is a bad idea.  In fact, we favor additional deficit-financed stimulus, coupled with a commitment to cut the longer-term deficit more aggressively than currently envisaged in the administration’s 10-year plan.  The consolidation could include cuts in discretionary expenditures, slower growth in entitlement spending, and gradual hikes in both direct and indirect taxes.  The precise mix is a matter of political preferences, and reasonable people can disagree about the pros and cons of different measures.  But the need for long-term budget restraint should not stand in the way of a near-term boost when the economy clearly needs it.

7. A failure to enact additional stimulus—at a minimum, extended unemployment benefits, state fiscal assistance, and extension of the bulk of the 2001/2003 tax cuts—would imply a downside risk to our GDP and employment forecasts, specifically for 2011.  Right now, we are showing a gradual reacceleration to 3% on a Q4/Q4 basis in 2011, but we worry that this might end up being too optimistic.  We will evaluate developments both on the policy front and in the US economic data closely over the next few weeks to see whether any adjustments are warranted.
And what is unsaid: should GDP downside risk materialize, you can kiss all those Buy Rated companies goodbye, as Goldman moves to a conviction sell on everything that moves, thus wiping out about $5 trillion in stock market value. Obama: you have been warned - how will your corporate sponsors feel that for once you did what is in the interest of the people of this country, instead of the 100,000 richest folks, who just happen to pay 80% of all taxes, and proceeded to destroy the bulk of their equity values. Oh yes, and that whole thing about the Fed buying up your debt via the Goldman/JPM-led group of Primary Dealers... you can kiss that goodbye too.
返回列表