Obama himself, talking like a true convert to the Conservative Party

Looks like the media is getting on to a lot of what I’ve been saying since President Obama was a candidate?

These are not your father’s Democrats.

And they afraid we might be the next Greece, and so are on a path to turn us into the next Japan.

GDP is improving modestly, thanks to the 9% federal deficit. However, given the current credit environment and high productivity growth, it’s not enough to bring down unemployment in any meaningful way.

The near 0% interest rate policy continues to suppress private interest income and, along with it’s positive supply side effects, has helped the inflation indicators to continue to decelerate.

Increased exports evidence the more to reduced real terms of trade, with higher crude prices hurting as well. (we are exporting more and more just to ‘pay for’ the same amount of imported crude)

The last thing our standard of living needs is what the President threatened when he said something like ‘now that the worst of the recession is behind us, we can turn our attention to deficit reduction.’

LEFT TO WONDER IF HE’S ON RIGHT
By Charles Hurt
Publication: The New York Post
Date: Wednesday, January 26 2011


 
WASHINGTON – Stop spending! Cut taxes! Simplify the tax code! Expand free trade! Slice the deficit! Slaughter the pork!

No, that was not some Tea Partier or the battle cry of Republicans last night in response to President Obama’s State of the Union Address.

It was Obama himself, talking like a true convert to the Conservative Party.

The lefty liberal asked both parties last night to come together to eliminate the endless complexities in the tax code that has created a cottage industry for accountants but has been the bane of businesses and workers alike.

And he urged Congress to cut taxes. But not just any taxes.

The man many believe to be an all-out socialist whose policies have been hostile to businesses actually called on Congress last night to cut the corporate tax rate.

Few Republicans in these tough times have the guts to carry the banner of cutting this country’s corporate tax rates, which are among the highest in the world.

And it is truly astonishing to hear this from the leader of the party that is so completely devoted to trashing companies and corporate successes like Wal-Mart – even as Democrats claim to want to lower unemployment rates and foster a thriving economy.

Obama called for free trade with foreign countries, even as his fellow Democrats continue to insist that all free traders want to do is send jobs overseas.

And he hewed to a conservative line on cutting the deficit – a truly terrifying burden that just months ago Obama dismissed as insignificant as he added trillions of dollars to it.

The moment Obama really threw down the gauntlet came when he locked arms with conservative Republicans to denounce earmarks, those fat chunks of your money that lawmakers grab to pay for pet projects back home and plum favors for political supporters.

Obama explicitly vowed in no uncertain terms that if Congress sends him any piece of legislation with any earmarks in it, he will flat out veto it.

This was met with muted applause and just a small handful of decent politicians in the chamber leaping to their feet to applaud.

The question now is whether the President Obama we heard last night was genuine – or the speech was just another cynical political ploy by a Washington politician looking ahead to his re-election next year.

Will Obama actually follow through and lead his party to join Republicans to lower the corporate tax rate, dramatically cut the deficit and finally put an end to the political pork spending that politician after politician has proved is the “gateway drug” to corruption?

A glance at his record does not leave much room for hope.

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22 Responses to Obama himself, talking like a true convert to the Conservative Party

  1. Greg says:

    Naked Capitalism had a great post a couple years back about oil being priced off of futures contracts

    http://www.nakedcapitalism.com/2008/07/futures-prices-determine-physical-oil.html

    There is your transmission mechanism. If a commodity is being priced off of futures contracts then speculative activity surely does drive the price of the commodity. Will it last at high levels? Probably not. But volatlity in commodity prices is not good either.

    I think all commodity market speculation should be restricted to those who actually take possession of said commodity.

    Reply

    Tom Hickey Reply:

    Interesting article, but as far as I can see, all it says is that what the Saudis are willing to offer is given cover by futures bidding, and they are the marginal suppliers that set the price. Does hot money give them cover to get a better offer than they would take otherwise. Probably. This could a reason that commodity sales are increasingly being taken off the market via state to state contracts, or physical resources being bought by SWFs. This is China’s preferred m.o., for example, and it is now scouring the world scooping up resources.

    Reply

  2. Jason says:

    Warren,

    There are many screaming that unlike what you claim above, low interest rates are what is12 fueling the big increases in the prices of commodities which is outweighing any increase in supply that low interest rates foster. What’s your take on this?

    Reply

    Andrew Reply:

    People always say that bubbles are caused by easy money. There has to be enough money around to allow a bubble to form, but barring other circumstances, most of the cause of a bubble is psychological in nature.

    Krugman’s latest column attempted to address commodities and inflation.

    Also remember that most of the cost of things that are produced with commodities isn’t the cost of the commodity itself. Witness the 4% or so increase in the price of a baguette in Paris after a 50% increase in the cost of wheat as a commodity.

    Reply

    Tom Hickey Reply:

    Looks like the latest round of food price increases is due to bad weather (resulting from climate change?) and higher petro prices, since petro is a major cost in agricultural production. In other words, supply and demand instead of speculation.

    Reply

    Jason Reply:

    The price of a baguette in Paris is meaningless. Ask the Egyptians though who spend a large portion of their meager income on food if commodity inflation bothers them. Better yet, just watch.

    So the increases in sugar, cocoa, cotton, oil, rice, wheat etc are all simply weather related? No chance its ZIRP??

    Reply

    Tom Hickey Reply:

    What is the transmission to final demand? Speculation is in futures contracts, which are financial instruments. Who is taking delivery? Is hoarding happening? Where?

    Commodities: This Time is Different

    During the last commodity price spike, less than three years ago, many people laid the blame at the feet of speculators. I never accepted that as the prime cause, mainly because so many of the speculation-did-it people seemed confused about the difference between buying a futures contract and actually hoarding physical stocks; as a very useful analysis by Sanders and Irwin (pdf) puts it,

    “Index fund buying is no more “new demand” than the corresponding selling is ‘new supply’.”

    True, high futures prices can provide an incentive to accumulate physical stocks. But during the 2007-2008 price surge there was little evidence of such accumulation.
    What about this time?

    WARREN MOSLER Reply:

    an actual shortage of food, where someone has to starve simply because there isn’t enough to go around is one thing.

    an institutional structure that over feeds the relatively wealthy and starves people working for a living while at the same time throws away mountains of uneaten food daily (and feeds all of its animals) is another matter.

  3. beowulf says:

    This issue of “standard of living” perhaps demands more scrutiny. I would make the argument that “standard of living” cannot be easily quantified.

    Its not easy but its an important issue. Do we look at average income (GDP divided by population) or median income (level at which 50% of population earns more and 50% earn less)? Do we define poverty level by a fixed amount adjusted only by inflation (as US Govt does) or relative amount (European countries, IIRC, set poverty level as percentage of median income)? How important is income inequality?

    Addressing inequality by taxing the rich is like deficit reduction, its psychic benefits are outweighed by its economic costs. Better I think to focus on helping our fellow citizens at the bottom of the income scale (which can be by increased govt spending on their behalf or by cutting their taxes). If a side effect of this effort is reducing income inequality, swell, but only the former actually helps people live better, the latter only helps people feel better.

    Reply

    danw Reply:

    @ Beowolf

    Excellent points and questions.

    I think it is a very complex issue. Perhaps taxing the rich, despite its lack of connection to operational realities (and thus its negative impact upon economic growth, per se) is “better” indeed BECAUSE of the ‘psychic benefits’ provided to the poor and disillusioned.

    I do not pretend to have any answers. I am very concerned, however, that we are proceeding in a manner that accepts as given certain ideals with regard to this thing we refer to as our ‘standard of living’, but that in reality we are moving forward without a lot of quiet reflection on this very topic.

    Reply

    beowulf Reply:

    I think the psychic benefits of greater income would be even bigger. It doesn’t necessarily require more federal spending. As I’ve mentioned before, Australia is a country of roughly the same per capita GDP and yet their minimum wage is more than twice our, $15/hr vs $7.25/hr here (Aus $ and US $ currently trading at par). I’ll point out that while our unemployment is 9.4%, Australia is at 5.2%, that’s considered full employment by our Congressional Budget Office.

    If Congress made it our goal to gradually increase our minimum wage to the Australian level (with employer wage subsidies to keep teenagers and other low-skill workers employable), we’d eliminate virtually all our means-tested welfare spending (EITC, food stamps, Section 8 housing vouchers, Medicaid) for anyone who had a job, they’d earn too much to qualify.

    Reply

    Tom Hickey Reply:

    $15 p hr without benefits is still not enough to make it.

    beowulf Reply:

    Well Australia does have a single payer healthcare system for every citizen that they call, “Medicare”. Tesidents can choose to buy private insurance if they wish. And under their “Social Security Act” (these names all sound so familiar!) does pay out means-tested benefits that full time workers making minimum wage or more (often much more) are eligible with benefits tapering off until they reach income caps (e.g. $127,000 for child care stipend, that’s for one child families, each additional child raises threshold).
    http://en.wikipedia.org/wiki/Social_Security_%28Australia%29

    $15/hr min. wage is the opening offer, and the Australian government keeps raising.

    Tom Hickey Reply:

    That works.

    Tom Hickey Reply:

    Why the Kings of Bhutan Ride Bicycles

    “Bhutan has pioneered the use of Gross National Happiness (GNH) as a measure of progress, instead of the more commonly used GNP. GNH measures not only economic activity, but also cultural, ecological, and spiritual well-being.”

    Reply

    Tom Hickey Reply:

    “Standard of living” is deceptive because it often cited as an average and this skews the reality by ignoring distribution:

    “The standard of living in the United States is one of the top 20 in the world by the standards economists use as measures of standards of living. Per capita income is high but also less evenly distributed than in most other developed countries; as a result, the United States fares particularly well in measures of average material well being that do not place weight on equality aspects.”

    Standard of living in the United States

    See also Gini coefficient

    Reply

  4. danw says:

    Warren et al.

    RE: “…The last thing our standard of living needs…”

    Just a quick observation…(and YES, again and as usual, my observation is as much NORMATIVE as it is MONETARY.)

    This issue of “standard of living” perhaps demands more scrutiny. I would make the argument that “standard of living” cannot be easily quantified. Is a “good” standard of living predicated upon the ability of consumers to choose which sugar-packed cereal they will put in their grocery cart? Which cellular device they will spend 90% of their waking moments staring vacantly….at? Which brand of flat screen T.V. they will huddle about, watching episodes of JERSEY SHORE and WHEN VACATIONS ATTACK? Perhaps a better “standard” could be realized through more humble and “austere” pursuits. And what about the wealth disparity?

    Is it fair to argue that, for men of great wealth, preserving the current “standard” is a priority…while for those in poverty, the current standard remains replete with obstacles and pitfalls?

    And finally…is it OK for us to pursue monetary policies that “enhance” our standard of living while simultaneously having a negative impact upon the lives and “standards” of people around the world?

    Reply

  5. Just to be accurate, a significant portion of the deficit results from a plain simple failure by politicians to collect enough tax to cover spending – so they borrow instead. That portion of the deficit is sometimes called the structural deficit, as distinct from the portion of the deficit designed to bring stimulus.

    Cutting the structural deficit need not reduce aggregate demand.

    But I expect to see Obama actually reduce the deficit long after pigs learn to fly, or Greeks become honest taxpayers.

    Reply

    WARREN MOSLER Reply:

    yet unemployment is the evidence that for a give size govt, taxes are too high (deficit too low)

    how do you reconcile that with the above?

    Reply

    Ralph Musgrave Reply:

    I agree that the deficit AS A WHOLE is too low. The point I was trying to make is that the deficit comes in two bits.

    First, there is the structural deficit. That arises simply because of politicians’ failure to collect enough tax to cover public spending even where an economy is at full employment. (Their motive is to buy votes). Christina Romer in a New York Times article claims this will 6% of GDP and rising in 2020, unless something is done.

    See: http://www.nytimes.com/2011/01/16/business/16view.html?_r=1

    Beware of the 30 second advert you’ll have to watch first.

    Second, there is deficit which is implemented specifically to bring stimulus (e.g. government net spends and channels the money towards a payroll tax reduction).

    My point was that the structural deficit, by definition, has nothing to do with stimulus. Thus it can be reduced without an AD reducing, or “anti-stimulatory” effect.

    I’ll expand on that on my blog in a day or two, because the above is too brief a summary to do the point justice.

    Reply

    Neil Wilson Reply:

    Possibly, but the trouble is that ‘structural’ is in the eye of the beholder.

    I don’t like the term. It can be spun – like ‘debt’ and ‘deficit’.

    WARREN MOSLER Reply:

    ok, seems anything that takes dollars out of the economy takes dollars out, and anything that puts them in puts them in.

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