Archive for May, 2017

Ben Bernanke Invents Supply Side Keynesian Economics

Monday, May 22nd, 2017

Ben Bernanke is back, having been interviewed during the past month by The New York Times, NPR, CNNMoney, The Hill, Bloomberg, CNBC and other media. That his book, The Courage to Act: A Memoir of a Crisis and Its Aftermath, is out in paperback could have something to do with it.

When the hardcover version was released, Bernanke, former chair of the Federal Reserve Board, wrote a piece for The Wall Street Journal titled, “How the Fed Saved the Economy.” Having taken credit for saving the economy after the financial crisis, he’s now giving advice about how to continue saving it. His comments, in which he poses as a supply sider while advocating for still more Keynesian stimulus are almost as unintentionally humorous as his Journal op-ed.

In an interview with The Hill, he said, “What we want to do is try to improve the supply side of the economy, make it grow faster, have greater potential. And I think that probably that to do that, I would think that on the fiscal side, that infrastructure spending that improves our roads, our bridges, our schools, and tax reform, not necessarily tax cuts, but reform that makes the system simpler, more efficient, those would probably be the highest-return fiscal actions in terms of getting higher growth.”

We’re not sure how you can reform the massive federal tax code without cutting taxes for someone, but supply side stimulus spending is an oxymoron. Supply siders would deregulate and cut taxes to encourage business investment. (more…)

Why Home Ownership Is At a 50-Year Low

Monday, May 15th, 2017

After eight years of historically low interest rates, and with the unemployment rate having fallen to a point near what experts consider to be full employment, it would be logical for home ownership to be at an all-time high.

It’s not. In fact, it was recently at its lowest level in 50 years.

In 2016, there were nearly a million fewer homeowners in the U.S. then there were in 2006, even while the number of households rose by 7.5 million, according to “Homeownership in Crisis: Where are We Now? a new report from Rosen Consulting Group and the Fisher Center for Real Estate & Urban Economics.

If the housing market had returned to normal levels by 2016, according to the report, more than $300 billion would have been added to the national economy, which would have boosted growth in gross domestic product by 1.8%. In other words, instead of the anemic 2% growth we’ve experienced over the past eight years, growth could be exceeding the 3.3% average.

As recently as 2004, 69.2% of Americans owned homes. As of 2016, only 63.4% were homeowners. While there are recent signs of improvement, why has home ownership been so low?

The Housing Bubble

Many factors had an impact, as we noted when we wrote about the housing market a couple of years ago. Ironically, a major one was the government effort to increase home ownership.

The Community Reinvestment Act (CRA), which became law in 1977, was meant to encourage lenders to make more mortgage loans to low-income Americans. While the CRA initially helped many struggling Americans become homeowners, over time it morphed into an abandonment of lending standards. (more…)

Pick One: More Government or Lower Taxes

Monday, May 8th, 2017

What’s the best way to boost economic growth – more government spending or lower taxes?

Government spending is the Keynesian approach, which was taken over the past eight years. Build a road, start a war or buy lots of bonds and the spending allegedly will stimulate the economy. In addition to the government jobs created, the money spent will work its way through the economy and create additional jobs while the economy grows.

But the economy doesn’t necessarily work that way. Government spending has to be paid for with higher taxes or more debt. If taxes are higher, consumers have less to spend, which slows economic growth. If the government accumulates more debt without raising taxes, interest on the principal accumulates. Interest must be paid off regularly to keep the country’s credit rating high, so it can continue borrowing at low rates.

Ironically, the only way to keep interest from becoming overwhelming is to cut spending, raise taxes or both, which can stunt economic growth. So, long term, the impact of stimulus spending can be negative.

Another problem with government stimulus programs is that jobs created with government funding disappear if and when the funding expires. It rarely does; instead it becomes an added cost on an ongoing basis, increasing government spending permanently.

How Money Is Spent Matters

How the government spends your money also matters. The American Recovery and Reinvestment Act of 2009, passed to overcome the financial crisis, was the largest stimulus effort ever, but much of the money went to programs that may have had either no positive economic impact or hampered economic recovery. (more…)

Trump vs. the World

Monday, May 1st, 2017

During the presidential campaign, President Trump often came off as a bully. Now that he’s president, the bullying is coming from others.

The “resistance,” the media, academics, celebrities and others have not accepted him as their president. On any given day, you’re likely to read more favorable reporting about North Korean leader Kim Jong-Un than you are about President Trump.

Granted, his statements often accentuate the negative and eliminate the positive. His tweets, at least the ones that catch the attention of journalists, are sometimes crude or unpresidential and many of his braggadocious claims, at best, exaggerate the truth.

But with 100 days gone, is the widespread criticism warranted? How is he really doing as president? And how does his presidency compare with previous presidents?

Before considering his performance to date, keep in mind that judging a president based on such a short period is like judging a corporation based on its performance for a quarter. A presidential term is 1,461 days, so the first 100 days account for about 7% of the president’s term. (more…)