(Almost all of the following is simply what I posted a few days ago in the other thread on this subject and another one on a related topic.)
The guy is right about a number of things, but I think it's necessary to fill in a few blanks.
He says that there's all sorts of overheated demagoguery by politicians claiming that even the slightest tax increase on high income earners will "kill jobs." He's right about that, it's obviously an exaggerated claim. And I don't think people running for office do themselves any favors when they make such statements. Of course, many of them have pledged fealty to Grover Norquist, so they've sort of backed themselves into a corner.
On the other hand, some people on the other side need a reality check concerning how much additional revenue increasing taxes on the wealthy would produce. Returning rates to the Clinton-era levels on the top 1% (anyone earning more than about $380K/year, more or less) would only raise a fraction of one percent of GDP, while our fiscal deficit is over 8% of GDP.
He speaks of increasing "demand", but we need to ask the question, "Demand for what? More crap imported from Asia and sold at Walmart?"
Someone mentioned Keynesian economics. I maintain that what we have been trying to practice today is not really Keynesian economics, but rather
pseudo-Keynesian economics. Keynes was not some wild-eyed radical who preached that it's a great idea to create endless budget deficits in order to stimulate the economy. On the contrary, he had a number of rather conservative instincts. He strongly believed that budgets should be balanced in good times, and that deficits should be
very temporary measures that should only be used to get you through the critical period during a severe downturn, and only within the framework of understanding that there would be a clear path toward restoration of fiscal balance.
But I think there's another important point. Not only did Keynes dislike structural deficits, he
abhorred trade deficits, repeatedly counseling that the British should never, under any circumstances, run sustained negative balance-of-payments deficits with anyone else.
But just look at us now. It's pretty pathetic. Fifty years ago, we made almost everything we consumed. If you bought a TV, a pair of shoes, a suit, or almost anything else, it was probably made in the USA. In the 1970s, a number of professors and opinion writers started saying that we needed to "export capitalism" to the rest of the world, and that thereby everybody could become richer. Free trade is wonderful in theory, at least in the event that all your trading partners aspire to similar levels of wages, health care, retirement benefits, environmental protections, etc. -- you know, comparative advantage and all that.
But what if workers elsewhere are willing to (or are forced to) work for wages amounting to a tiny fraction of what it takes an American to support a family? The answer is obvious.
So I think one of our highest priorities should be to fix trade practices that are slowly bleeding our nation to death. I realize that means a lot of consumer goods (which many people buy too much of, anyway) might cost more, but wouldn't that be more than offset by the fact that we wouldn't have to finance all the unemployent benefits for people who aren't working because millions of jobs have been offshored?
Quote:
Originally Posted by Randy4Candy
Also, everyone is always running around saying, "Small businesses are the lifeblood of the economy." Well, they're right. What is overlooked is that Bain and any other VC group, including Hanauer's, isn't very interested in going in on a business that might start up with 3 or 4 people such as Billy Joe's Paint and Body or Susie's Home Cookin' and Salon. One of the hidden pieces of the fallout from Big Banking's mess is that smaller banks who historically provide financing for such little businesses have been hamstrung to an extent by the regulatons currently in the process of being enacted to curb the excesses of the Big Boyz. The jury's still out on whether or not the final version of the regulations will ease the clamps on smaller banks and thus ease up the money supply to small businesses.
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Exactly right, but I'm afraid that it doesn't look likely that the regulatory burden on what we refer to as the "community banks", hisorically the lifeblood of small business in many parts of the country, is likely to be implemented in such a way that it doesn't hamper prospects for return of full health in the small business sector. A few in the media have said that really doesn't make much difference, since there's not that much demand for small business credit anyway. I think that's ridiculous, since loan demand will eventually normalize, as it must if we are ever to have a well-functioning economy, and credit needs to be made available for small firms. Rarely can they be served by the JPMs of the world.
Recent financial "reform" imposes, as a percentage of assets, far more costs on the smaller community banks than on the large TBTF and near-TBTF banks.
I think one of the first orders of business in 2009 should have been to resurrect Glass-Steagall (or something similar), but I don't believe that goes quite far enough.
It's arguably necessary to separate the big depository institutions from the risks associated with I-Banks. But I don't think that alone would eliminate systemic risk in our global, deeply-interconnected financial system.
The too-big-to-fail banks today are about 50-60% bigger than they were in 2007. The five that everyone considers TBTF are, of course, B of A, JPM, Citi, Wells, and Goldman. I think eight or ten more are at least "borderline TBTF", and would send shock waves through a fragile system if any of them blew up.
In my opinion, Dodd-Frank should be scrapped and replaced with more effective reform. It certainly contains a number of good provisions, but it's 2,300 pages long and no one really understands what the hell large sections of it actually say. A whole lot of things are vaguely left to regulators from different agencies to fill in the blanks later. It still will be some time, for example, before anyone promulgates rules regarding what is or is not OK under the Volcker rule.
As a percentage of assets and earnings, Dodd-Frank imposes far higher costs on smaller community banks than on their large competitors. The megabanks love that, since they'll be able to snap up -- at bargain prices -- a lot of assets from smaller banks that can't make it. In fact, a lot of that has already happened.
That 2,300 page monstrosity has been called "The Lawyers and Lobbyists Full Employment Act of 2010", and not without good reason. By contrast, Glass-Steagall was only 37 pages, yet it served well enough for many decades.
Jim Grant of
Grant's Interest Rate Observer proposed what I think would be an effective measure. He suggests that managers and big traders making bets on behalf of institutions backstopped by the Treasury or the Fed should be subject to full clawback if a trade goes bad. His idea is that the responsible party should be on the hook for an amount equal to all salary and bonus income in excess of a certain multiple (Grant suggests 10X) of the average current income of a U.S. full-time worker.
In days gone by, I-Banks that engaged in the riskiest investments were typically structured as partnerships in which the principals were exposed to personal liability. Facing the potential prospect of not being able to hang on to one's luxury homes and yachts tends to focus the mind!
