Tuesday, May 29, 2012

FLG's Time Horizons Theory

Perpetually relevant...

In the long run we are not dead, we will still be recovering from the Great Recession. We should therefore weigh stimulus policies not just on their immediate effect but on their consequences over time. Sensible Keynesians recognise this. They bet that reviving growth through government spending today outweighs the future loss of growth as the debt taken on to fund current spending is paid back.

13 comments:

Withywindle said...

Just to repeat my two cents: it's forcible savings that makes Keynesianism work. So instead of just reducing our various benefits, convert a fraction of them into 50-year TIPS bonds at 0.5% annual interest over inflation. This still shafts people--"I want my pension now, who cares about my grandkids?"--but it's something less than a pure shaft, and it does actually build in the long-term expectation of continued income, which should help Keynesianly. And then, all stimuli should be accompanied by an equivalent of forced taxation, equally redeemable as 50-year bonds.

If not a panacea, I still think this would be an improvement on current policies.

The Ancient said...

Stimulus now (but targeted, unlike before, and composed primarily of tax reductions), increasing austerity later (but locked in now), radical tax reform as soon as possible (an entirely different tax system) accompanied by a constitutional limitation on federal spending except in times of national emergency (as declared by roll call votes in both houses, repeated annually).

As for Krugman's unstoppable bleating for immediate federal aid to state governments -- not now. Instead, rollback federal mandates that have bloated state employment rolls. There's hardly a state in the country that couldn't usefully cut its employment by 20%. Also, no more collective bargaining for public employees -- for the same reasons FDR once gave.

Lastly, something must be done about the future cost of state and local pensions, which are unsustainable. (Not a federal takeover but something like a structured bankruptcy that radically reduces benefits across the board. How to sell it? "Corrupt bargain" has always been a useful complaint in American politics.)

Withywindle said...

Remind me again: how many views do you share with your McGovernite younger self?

The Ancient said...

Well, I wouldn't object to confiscatory estate taxes on estates above $1 billion -- because I don't want us to become even more of a plutocracy than we are now.

I think we are too quick to send young men abroad on ill-conceived missions.

I think every American child is entitled to the best education the state can arrange and the child can absorb. (It was HG Wells, I seem to recall, who once said that each generation is in a race with disaster. The last couple generations have lost that race.*)

I think the government should more closely oversee campaign finance, and that businesses should not be able to contribute directly.**

And there are other things.

________________
*And it's getting worse. Another school falls to the Levellers:

http://www.washingtonpost.com/opinions/an-uneven-base-of-knowledge-at-thomas-jefferson-high-school/2012/05/29/gJQAl2H0zU_print.html

**My old idea: Allow everyone to contribute -- within limits -- to whomever or whatever they like, but only through the FEC, which would re-distribute the money as soon as the check cleared, and post the source of it for all to see on a government website.

Withywindle said...

Interesting. I take it that your relative preference for Republicans is in spite of their unlikeliness to enact such laws and policies?

The Ancient said...

The Republicans are the lesser of two weevils.

(But they're still bugs, right?)

The Ancient said...

P.S. Withy --

A while back. we had a passing conversation elsewhere about the "Americans With Disabilities Act."

I have subsequently been persuaded that I was entirely wrong, as it effectively ends the concept of "employment at will."

Withywindle said...

Forgive me--I'm a little hazy now--does that mean you're now agin it?

The Ancient said...

I'm a little hazy now--does that mean you're now agin it?

It do.

The Ancient said...

FYI --

http://www.guardian.co.uk/business/2012/jun/03/paul-krugman-cassandra-economist-crisis

The Ancient said...

More from Paul ("Call-Me-Sandra") Krugman:

http://www.salon.com/2012/06/02/paul_krugman_european_celebrity/singleton/

The Ancient said...

Larry Summers is a little more specific than Krugman ...

http://www.washingtonpost.com/opinions/it-is-time-for-governments-to-borrow-more-money/2012/06/04/gJQAaky4DV_print.html

The Ancient said...

But Bob Barro disagrees ...

To achieve a real recovery, government policy should focus on individual incentives to work, produce and invest. Central here are tax rates and regulations, including especially clarity about future policies. In a successful policy package, the government would get its fiscal house in order and make meaningful long-term reforms to entitlement programs and the tax structure.

The Obama administration seems to think that individual incentives and serious fiscal reforms are of no great importance and policy should emphasize Keynesian-style demand stimulus (public works, prolonged benefits) along with bits of industrial policy (loans and grants to "green" energy companies). This approach has failed for three years.


http://online.wsj.com/article/SB10001424052702303918204577444222179044362.html

 
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