Professor Mark J. Perry's Blog for Economics and Finance
Yesterday, the United States Senate passed a sweeping $800 billion stimulus plan that President Barack Obama says he would like to sign into law as soon as possible. “There is no disagreement,” Obama has declared, “that we need action by our government, a recovery plan that will help jump-start the economy.”
Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. In addition to a faculty appointment at the University of Michigan-Flint, Perry is also a visiting scholar at The American Enterprise Institute in Washington, D.C.
9 Comments:
"3. Obama says that doing nothing is not an option. Do you agree with that?
No. The market economy has an underappreciated, but amazing ability to correct and reverse economic imbalances and problems on its own, and that economic self-correcting resiliency works best in the absence of government interference."
Mr. Perry,
How do you expect the economy to not enter a deflationary spiral without a stimulus bill?
This should not be called Reason.com, it should be called Religion.com or Faith.com. "I don't know how the market will figure this out, but magically it will."
Not withstanding all evidence that at the moment the market is in a negative feedback loop in which lower earnings, cause mass layoffs, which cause less spending, which cause lower earnings and on and on it goes..
Without fiscal stimulus how do you figure this cycle will break?
The stimulus is 95% political necessity rather then proven financial reason but social unrest is also a major concern and given our large gun culture anything that can smooth the edge's will be welcomed even if it has a high price tag.
Too many assume the stimulus decreases the risk of taking down our financial system long term. The gun and guillotine crowd will still be there when gold is at $3500/ounce and inflation's at 40% annually. It will be interesting to listen to the Pied Piper's tune when the 2010 election rolls around, and more interesting to see who's listening.
@Yossarian,
I don't think that you understand what inflation is. But don't worry you have a lot of company. How do you explain falling prices right now?
Charlie Munger:
“Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law.
Many contributors to our over-the-top boom, which led to the gross bust, are known. They include insufficient controls over morality and prudence in banks and investment banks; undesirable conduct among investment banks; greatly expanded financial leverage, aided by direct or implied use of government credit; and extreme excess, sometimes amounting to fraud, in the promotion of consumer credit. Unsound accounting was widespread.
There was also great excess in highly leveraged speculation of all kinds. Perhaps real estate speculation did the most damage. But the new trading in derivative contracts involving corporate bonds took the prize. This system, in which completely unrelated entities bet trillions with virtually no regulation, created two things: a gambling facility that mimicked the 1920s “bucket shops” wherein bookie-customer types could bet on security prices, instead of horse races, with almost no one owning any securities, and, second, a large group of entities that had an intense desire that certain companies should fail. Croupier types pushed this system, assisted by academics who should have known better. Unfortunately, they convinced regulators that denizens of our financial system would use the new speculative opportunities without causing more harm than benefit.”
> "I don't know how the market will figure this out, but magically it will."
Amazingly, time and again, it does do this. It has its own inherent stabilization mechanisms built into it.
The best action would be to cut taxes, preferably by a large amount -- if only for a fixed time period.
Ace makes the obvious point of just how BIG this pork-laden atrocity REALLY is:
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As I've pitched before, I don't know if Mankiw's idea is this dramatic, but Flip Pidot ran the numbers and for the $1.2 trillion the stimulus was (it's growing), we could cancel all employer-paid payroll taxes for 2 1/2 years, or cancel both employer and employee paid taxes for 1 and 1/4 years.
Using standard economic modeling, such cuts should result in a gain of 2.8 million jobs, Flip found.
[Mankiw] pushes his own spin on the idea here.
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Even "doing nothing" would be one hell of a lot better than throwing money out the windows of a car careening out of control.
That the roads behind you have Democratic Party stooges doing the road cleaning work doesn't fix the problem with the flinkin' car.
> The stimulus is 95% political necessity rather then proven financial reason but social unrest is also a major concern and given our large gun culture anything that can smooth the edge's will be welcomed even if it has a high price tag.
LOL. The only people who have to worry about our "guns" are the perennially re-elected millionaire politicians who created this mess in the first place.
Most of 'em need hanging anyway.
> How do you explain falling prices right now?
What, you mean other than the bleeding obvious facts of prices driven up by oil prices, themselves driven up by widespread oil demand from an expanding world economy (and/or speculations, the actual cause of that having become completely moot), now being lowered as a result of vastly lowered oil prices (<50% of peak prices), presumably from collapsed demand and/or speculations?
Other than that, which was obvious to even the most dunderheaded fool out there???
Again the silly question by someone who hasn't learned from history: "How do you expect the economy to not enter a deflationary spiral without a stimulus bill?"...
Where is that alledged fiscal stimulus in this pork bill?
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