Citizen's United II - the other foot

[kandrathe]

I would turn this on its head. Congress gets its way, because the President can't actually legislate. The veto is powerful, popularity is powerful, and the executive can hardly just be ignored. But the President can't just say what he wants, then expect to get it. The congressional meat grinder is far, far too strong for that. Indeed, with this president, what he even proposes tends to be pre-compromised for congressional Republican approval, because the filibuster is, effectively, a veto for the minority party.

There is the bully pulpit and all. I'm not sure if it's cultural, or personality, or a 24/7 news cycle, but the most recent presidents seem to have the attention span of a Ritalin deprived squirrel on Mtn. Dew. Our government seems very reactive, and not leading.

Except that at no point is the US president responsible for the global economy, and a quick peek out the window suggests the economic problems are global. The US is a big player, and the President has a lot of clout, but the world is way bigger than that.

Yes, they are not responsible, but the US governments actions have a big, or at times biggest impact on the global economy.

No. "Dollars" are not resources. They are made of paper, or even more ephemeral bank deposits. They are not in limited supply.

Right. Which is why the Feds balance sheet went from less than a trillion, to almost 2.5 trillion over night. I see their involvement here as a barrier to normalizing the economy.

Have you looked at the more alarming monetarist charts lately? Particularly, velocity, CPPI, total money supply, unemployment (U6 or U7b), labor force participation rate. A good indicator of the US's stagnant economy is the ratio of employment to population. Prior to the crash, it stood at 63%, and since the crash has remained between 58% and 59%. Regardless of how unemployment rates are manipulated, and who is (or is not) seeking work, there are an additional 5% of the employable productive population unemployed, with a larger number under employed. It is probable that the 2008 level was influenced by the boom, however, I'd still expect a normal economy to recover at least 1/2 of the loss.

You are right to foreground inflation as the right consequence. If there is no inflation, then there is no problem. How else do we "pay" for these "dollars"? There isn't any other channel, unless you want to suggest that somehow, adding to the monetary base decreases output directly?

I don't see how the current practice of QE is doing anything more than artificially propping up a deflationary system. If anything, it is allowing bubbles to re-inflate (housing, credit, student loans, whatever), and with any major tremble it will pop again, bringing us right back to 2008, only with some trillions more in debt.

I'm not an Austrian theory dogmatic purist. The global economy is resilient. We get up each day and try to improve our lot in life. We produce the things we want for ourselves (e.g. pancakes and sausages) and then go to work to make the things that other people want. We may then serve others selfishly in order to obtain the things that other people produce, like clothing, or houses. Even though our government manipulates our efforts, it usually does not totally eliminate our productive activity. It is a variable measure of degree in how the damage caused by bad policy will or will not be counter balanced by the actions of free enterprises. Finally, actions by the government inspire reactions by the people (blow back), such as Obama's recent proposals on higher education. I see it only increasing the costs of higher education, and not impacting the ultimate costs causing the rapid rise in tuition prices. Sometimes we will fail to fully offset the government action, but sometimes we can completely offset them. And, rarely, we may trigger innovation that more than offsets the government taxes or regulations. Often, we get unintended consequences that are truly Orwellian to the original intents.

We find ourselves zero-bound, due to too many years of low interest rates. What happens to the US economy when the Feds taper off QE, and the bond rates go above 3 or 3.5? Credit will get a big pinch, just when we are finally ready to maybe grow again. That is here. What about elsewhere? What I see is rising inflation in emerging economies, fueled by plummeting currencies, and weakening growth. Ultimately, this hurts the US too.

I read recently a paper by the St. Louis Feds analysis of the impact of QE, where they project a possible net increase in inflation of up to 4 percent over the next decade. If that is true, it will impact people negatively, especially when your contracts are fixed with little hope of renegotiating them, such as pensions, wages, long term annuities. It is good for those heaped with debts, like our governments. I see this monetarist manipulation of inflation as a covert regressive tax, on top of the overt ones.

But, as I said above, we probably have more to fear in that once the QE manipulation is tapered, that we re-enter a deflationary trend.

P.S. Perhaps the only solution is here as economist, and stand up comedian Yoram Bauman attests.