Sunday, January 02, 2011

The Greenspun Recovery Plan: November 2008

My co-author, rather than updating his Project Afghanistan page for 2010, sends me a link to Philip Greenspun's Economic Recovery Plan -- minimum steps for averting a Depression in the U.S. , with a note that I "will probably find this congenial", probably meaning that it's closer to my views than his, but interesting. So I look at the minimum steps as of two years ago for averting a Depression in the US, and the first thing I notice is that we didn't do those things and we didn't get a Depression, so they weren't minimal steps for avoiding a Depression. QED. (I think we avoided a Depression because the Fed wasn't quite as stupid as it was in the 30s, but I've probably talked about that enough and Greenspun never mentions it.) Greenspun says the minimal steps are
Reducing Government Spending In 2006 we were spending roughly 36 percent of GDP on government at local, state, and federal levels ... We need to [reduce] government spending to 30 percent of GDP within two years and ...
Well, actually I often think about this measure of the size of government; I don't like it much, especially when transfer payments are most of government spending, and ultra-especially when the big transfers like SocSec and Medicare are going to older people, who have other income, sometimes more income than the younger ones, and are also taxpayers. Government salaries are hardly more than a rounding error here. Let's say my income this year is $100 and yours is $10; the government takes $40 from me, carefully evaluates your needs, gives you $10 and spends the rest on other stuff. I now have $60 and you have $20. Now let's suppose that we replace this with a linear tax which is simpler, but nominally even higher: the government takes (50%-$20) from everybody, so it takes $50 from me and $5 from you over the year, and gives each of us $20 in weekly payments. I end up with $70, you with $25. Okay, has the government expanded or shrunk? It collected $55 where before it collected only $40, and borrowed nothing in either case, so obviously it's "bigger" -- or is it? Or is this the wrong question? I'd choose a linear tax at the Federal level (no deductions at all, except that your 401(K) can hold any investment paper you like including your bank account, so money is taxed only as you spend it), and I'd watch state/local experiments with more complicated schemes, but I don't believe "spending/GDP" would measure the result in an interesting way. No, this is not congenial.

Greenspun goes on:

What about Keynes? Japan is a good example of the failure of Keynesian economics in the globalized era. The country spent hugely on public works projects in the 1990s,...
Well, yeah. As Sumner has written over and over again (and as Bernanke wrote years ago), Japan's central bankers have repeatedly chosen a monetary policy calculated to prevent growth no matter what fiscal policy was adopted. Very odd, but Greenspun isn't making a suggestion so much as countering a fiscal-policy suggestion -- yet he never brings monetary policy into it, which I find even odder.

Now we get into strange territory:

Investor Representation on Public Company Boards Right now the shareholders of a public company are at the mercy of management. ...
I don't get this one at all. If management salaries and bonuses are "looting" companies, then investors should do better by choosing the least-looted companies; we are perfectly free to vote with our feet. I think that my simplified no-deductions tax scheme would reduce the value of superstar friends-of-Bill-or-George-or-Barack managers, I see crony capitalism and regulatory revolving doors as significant problems for democracy as well as startup businesses, but I don't see where Greenspun is coming from here.

Depreciation of Capital Expenses...
Oh, please. I believe this to be another non-problem: if a cash-flow-negative company has good earnings prospects it can borrow the money for its first few years. This is routine. If it doesn't, then flexible depreciation won't help.

Education... Our country's best performing schools (all of them private) have non-unionized teaching staffs. We can't afford to experiment with unionized teachers anymore...
Ummmm, well, absotively posilutely maybe. Or not. I could see a federal role for educational infrastructure, mostly in the form of teaching/testing material (especially educational computer games) to be freely used by anyone who likes it. I would like to introduce competition for every school...I would like lots of stuff. My impression of the overall generational impact of the teachers' unions is extremely negative, but I would put this way down on any list of stuff I'd like.

Transportation System Reform... Public transit unions should be eliminated because ...
I think I see a theme here. Greenspun doesn't like unions. Well, I dunno as how I like what they've gradually grown into all that much myself, but if Greenspun thinks that businesses don't invest in NYC because they're afraid that public transit stoppages will keep workers from getting to work, I think he's going just a teensy bit over the top. The main transportation reform we need is for transportation of bits so telecommuting works better than it does. (This will greatly relieve NYC traffic congestion, but congestion charges should be applied also: my E-ZPass should be charged a few cents, about once a block, whenever I drive in NYC -- rather than just once on the GW Bridge as I head to the city and Icon Parking. And E-ZPass should be required for driving in the city. Period. But the Feds should have nothing to do with it, and it has little to do with averting a recession, so it doesn't belong here.)

Predictable Product Liability System We need a fixed range of prices for people killed or injured by products...
Wow. Well, I guess we're working on Exodus 21 KJV
28 If an ox gore a man or a woman, that they die: then the ox shall be surely stoned, and his flesh shall not be eaten; but the owner of the ox shall be quit. 29 But if the ox were wont to push with his horn in time past, and it hath been testified to his owner, and he hath not kept him in, but that he hath killed a man or a woman; the ox shall be stoned, and his owner also shall be put to death. 30 If there be laid on him a sum of money, then he shall give for the ransom of his life whatsoever is laid upon him. 31 Whether he have gored a son, or have gored a daughter, according to this judgment shall it be done unto him. 32 If the ox shall push a manservant or a maidservant; he shall give unto their master thirty shekels of silver, and the ox shall be stoned.
Wow. I guess I sympathize with Greenspun, and with those who disagree with him. Hmm... It doesn't belong here. What else?

Labor Market Deregulation We may soon have deflation. Workers who are young or with poor skills need entry-level jobs in order to build skills and experience. They won't be able to get them if the minimum wage is set higher than the market-clearing wage. ...
Well, here again I think I'm seeing a tendency to look at the current (2008) emergency and see one's prior preferences as solutions to whatever's wrong. Yeah, I think that some entry-level unemployment, along with the increasing use of gadgetry in your neighborhood McDonald's and Burger King, are driven by the minimum wage. And I'd like to get rid of it, as one of the items that gets replaced by the weekly payments of my linear tax scheme above. But I'm averse to pushing it into a "minimum steps" for Depression-aversion.

Substitute Web-based Education and Trade for Foreign Aid We don't spend a large percentage of GDP on foreign aid, but the perception is that the absolute amount is large and nearly all of it is wasted or siphoned off by Third World officials. ...Let's start with a simple message that business investors can embrace: "We've eliminated all U.S. foreign aid spending."
That's interesting, and again I can mostly support his substitution (especially the end to farm subsidies) as better support for developing-country economies. But I simply wouldn't put it in this list at all.

Immigration Policy ...With our crushing overhang of government debt, entitlement programs, and public-employee pensions, the only question we can afford to ask about an immigrant is "How much in taxes will this person pay and for how long?" Countries such as New Zealand apply a point system.
Well, that's interesting. And I do think that our excess housing inventory could have been fixed, reducing the minor recession that we would have gotten even if the Fed had chosen NGDP level targeting from (at least) early 2008 onwards, by admitting a whole bunch of people on a points system. And our current immigration system is so awful that any rational basis would be better than what we've got. But It Doesn't Belong On This List.

Now, my short-range recovery plan, for whatever it may be worth, would be Sumnerian -- it would have to do with my acceptance of Sumner's view of the immediate causes of the recession. Note again that Greenspun was writing in November 2008. As Sumner says,

1. The NGDP and RGDP collapse ... occurred almost entirely between June and December 2008. I argue that NGDP targeting could have prevented that collapse..... the financial crisis of September 2008 did not cause a stock market crash, as the markets expected the Fed to continue its multi-decade policy of keeping NGDP growing at about 5% a year. If the markets had given up on the Fed in September 2008, they wouldn’t have waited until October to crash. 6. I argue that stocks crashed 23% in early October on little financial news. Instead, there were ominous reports of rapidly falling orders all over the industrial world. Markets then sniffed out Fed passivity, a failure of the Fed to do what it takes to maintain the Great Moderation. They became demoralized. 7. I argue that the only significant Fed policy during the October crash was the [contractionary] IOR program,
The recession's unemployment has gradually become more structural, but I believe more monetary response would still help a lot. Indeed, I believe QE2 did help a bunch.

Whatever. Yeah, I'm Greenspunish in some ways. Okay, I'd really like "Market Deregulation" on a really large scale -- in fact I'd like to move away from regulatory government to required-insurance government. Hm... that's not a Greenspun concept. Overall, I don't find Greenspun all that congenial. Interesting, and he's dissatisfied with many of the same things I am, but not congenial. There's an overlap between his thinking then and my thinking now, but then I overlap quite a bit with almost everybody.

Except, of course, for me. I hardly overlap with me at all, and since whichever of us is right I'm certainly wrong, these thoughts belong on this blog.

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