Big - and getting bigger and bigger

Business Times - 25 Dec 2008

Big - and getting bigger and bigger

Consensus seems to be that long-term consequences can wait; things need fixing now


BARACK OBAMA will be inaugurated as the next US President on Jan 20. Yet, if you happen to read the headlines in the major American newspapers or watch television news regularly, you would probably conclude that Mr Obama has been occupying the White House for quite a while, as he and his aides have been bombarding the media and the public through statements and leaks with their continuously changing programmes for fixing the American economy - which tend to be confused with the old and new plans proposed by the current president, George W Bush, for, well, fixing the American economy.

The only thing one could be certain about these days is that this American economy is continuing to plunge just as both the departing and arriving presidents are adding billions - no, change that to 'trillions' - of US dollars to bring it back to life, energise businesses, add new jobs, save this or that industry, reform the healthcare system, deal with the environment, and fight in several wars overseas, among many other things.

Indeed, Mr Obama seemed to have more than tripled the size of the economic stimulus package that he had embraced during the presidential campaign. Top aides to Mr Obama, including Vice President-elect Joseph Biden, told reporters over the weekend that they are anticipating rising rates of unemployment, and that the Obama administration was preparing the biggest economic stimulus in US history that could range in size from US$800 billion to US$1.3 trillion - more than what the US had spent on the Iraq War (US$597 billion) or on the Korean War (US$454 billion) - and that the president-elect was hoping to save or create at least three million jobs over the next two years.

The new Democratic-controlled Congress is scheduled to convene in early January, and most observers expect that the House of Representatives and the Senate would be able to agree on and approve a stimulus package before or shortly after Mr Obama takes office. Democratic lawmakers have expressed the hope that Congress will pass an initial stimulus package of between US$600 billion and US$850 billion, although the number could change as economic conditions continue to worsen. Moreover, Congress could end up embracing other new spending measures to stimulate the economy later in 2009.

The news comes as reports indicated that about 1.9 million American jobs were lost in 2008 and that economists were predicting that the unemployment rate could rise above 10 per cent as the economic recession continued to deepen. Public opinion polls indicate that a majority of Americans support the passage of such large economic stimulus packages and the Democrats are certainly confident that they would be able to pass them, although a coalition of Republican and conservative Democrats in Congress could try to oppose this large spending spree by the federal government, which - together with the costs of the quantitative-easing measures adopted by the Federal Reserve - could raise the budget deficit to new heights.

In addition to paying about US$150 billion for the costs of tax relief for the poor and the middle class, the stimulus package will fund a variety of federal and state programmes to develop 'green' jobs, including by promoting energy created by solar and wind power, and infrastructure projects to repair America's roads and bridges, to upgrade computers in public schools and government agencies, etc. The consensus among most economists is that in order to prevent the current economic recession from turning into a full-blown depression, Washington has no other choice but to pump the economy through an expensive fiscal programme that together with the Fed's monetary measures could revive the economy.

But sceptics have expressed concern that the stimulus package would create incentives for interest groups representing various industries as well as state and local governments to use their political power to receive slices of the federal spending cake to support their own pet projects.

Moreover, it is not clear how these huge federal spending programmes will affect the economy in the long run. Tax rebates and public works projects are not going to necessarily encourage consumers to spend their new income since they recognise that these programmes are temporary.

At the same time, the spending on infrastructure and other public works projects does not really create new jobs but only funds temporary employment. Hence, when a local government completes building a road, the temporary workers return to the ranks of the unemployed or the government is forced to subsidise them by continuing to fund unnecessary public projects. As a result, these programmes tend to create enormous waste and distort government spending priorities without fixing the structural problems facing the economy, and in many ways worsen them by creating massive deficits on the federal, state and local levels and delaying reforms.

But at this stage of the economic crisis, it is clear that notwithstanding these and other reservations, policymakers and lawmakers in Washington have decided that the benefits of what could turn out to be a short- term stimulation of the economy outweigh the long-term costs in the form of waste and deficits.

Copyright © 2007 Singapore Press Holdings Ltd. All rights reserved.


Adam Smith said…
Why Don't You Hedge Your Economic Future?

The Economy? They Paint It Black.
Let's Paint it Green, Will You?

What Are They Offering Except to Wait, Suffer and Be Patient Till, On the Long Run, The Crisis is Over?

A milder avatar of the present crisis started in Japan in 1993. Its consequence was called "Japan Lost Decade". It is 15 years old now.

Believe us they tried everything available: Keynesian Fiscal Policy, Zero Interest Rate Policy (ZIRP), Quantitative Easing... You Name It!

DIE ZEIT: Can the right monetary and fiscal policy keep the US out of a recession?

Master Conductor Alan Greenspan:

"Probably not. Global forces can now override most anything that monetary and fiscal policy can do. Long-term real interest rates have significantly more impact on the core of economic activity than the individual actions of nations.
Central banks have increasingly lost their capacity to influence the longer end of the market.

Two to three decades, ago central banks were dominant throughout the maturity schedule.
Thus, the more important question is the direction of long-term real interest rates."

Sir Alan 'El Maestro' Greenspan

The Great Irony of Success
© ZEIT online, 30.1.2008

"The long run is a misleading guide to current affairs. In the long run we are all dead.

Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is past the ocean is flat again."

Sir John Maynard 'Invisible Hand' Keynes
A Tract on Monetary Reform (1923) Ch. 3

We Can't Afford to Wait That Long. Or Can You?

"The decadent international but individualistic capitalism, in the hands of which we found ourselves after the war, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous—and it doesn’t deliver the goods.

In short we dislike it and are beginning to despise it. But when we wonder what to put in its place, we are perplexed.”

John Maynard 'Invisible Hand' Keynes

1776 - Annuit Cœptis Offers Its Solution,

Dynamic on the Short Run & Stable on the Long Run:

A Credit Free, Free Market Economy

1776 - Annuit Cœptis Not Only Offers a New Idea,

It Propose Its Practical Implementation,

Its Exit Strategy.

"The composition of this book has been for the author a long struggle of escape, and so must the reading of it be for most readers if the author's assault upon them is to be successful, a struggle of escape from habitual modes of thought and expression.

The ideas which are here expressed so laboriously are extremely simple and should be obvious.

The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds."

Sir John Maynard 'Invisible Hand' Keynes
The General Theory of Employment, Interest and Money,
December 13, 1935 Preface

"At the present moment people are unusually expectant of a more fundamental diagnosis; more particularly ready to receive it; eager to try it out, if it should be even plausible.

But apart from this contemporary mood, the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood.

Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist.

Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. Emperors and armies come and go; but unless they leave new ideas in their wake, they are of passing historic consequence.

I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas. Not, indeed, immediately, but after a certain interval;

for in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.

But, soon or late, it is ideas, not vested interests, which are dangerous for good or evil."

John Maynard 'Invisible Hand' Keynes,
The General Theory of Employment, Interest, and Money,
13 December 1935, p. 383.

Quoted by Master Conductor Sir Alan 'El Maestro' Greenspan.
Adam 'Defunct Economist' Smith
At the Adam Smith Memorial Lecture, Kirkcaldy, Scotland
February 6, 2005

On Friday 19th, December 2008, 1776 - Annuit Cœptis has elected its Master Conductor Sir Alan 'El Maestro' Greenspan.

In the Age of Turbulence We Want an Adventure in a New World Economic Order.

To be sure he will launch our economy as soon as he thinks it is feasible.

✔ Protect Your Economic Interests.

✔ The Numbered Account: A Ticket to Ride.

✔ The Credit Free Currency.

✔ Assets Transfer: The Exit Strategy no one Can Afford to Refuse, or Can You?

✔ A Specific Application of Employment, Interest and Money:
Why We Got Here and Why Our Exit Strategy is Credible.

In order to keep the public informed about the development of its actions, of the "catastrophic event" and avert the suicidal behaviours that are known to take place during periods of Great Economic Depression 1776 - Annuit Cœptis sponsors a Discussion - Support Group

Consider your economic environment, print and give a wide audience to this document.

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