Ruth Marcus Disavows Neo-Hooverism
I’ve been criticizing Ruth Marcus a lot since she published her column “When Life Hands You Deficits…” but now I see Marcus has specifically addressed these points in a Wednesday Post chat:
Prescott, Ariz.: I read your ” When Life Hands You Deficits…” article, and I think you fall into a common (at least to Washington) trap, which is assuming that a recession is a time for the government to tighten its belt and stop thinking big. [...]
Ruth Marcus: I’m sure I should have been clearer on this in the column, but I was not arguing for mid-recession belt-tightening. We’re all Keynesians now and I am open to stimulative action in the short term. What I am hoping for is that the moment could be used as a way to forge a more responsible, more productivity-enhancing budget in the longer term, that could fund investments in important things like health care, and free the next president from some of his more unaffordable promises.
We could quibble all day about what Marcus’ original column really said, but suffice it to say that I think this is the correct position and I hereby foreswear further criticizing her on this point. Let’s hope she’ll dedicate her next column to the need for a Keynsian stimulus package, taking the form of aid to state governments and investments in the kind of green infrastructure projects that can lay the groundwork for future ecologically sustainable economic growth.
27 Responses to “Ruth Marcus Disavows Neo-Hooverism”
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October 17th, 2008 at 6:14 pm
nice post matt.
http://culturedecoded.wordpress.com/2008/10/15/analysis-the-third-and-final-presidential-debate/
October 17th, 2008 at 6:28 pm
It’s all well and good to propose Keynesian stimulus now but the Treasury is on the road to borrowing $2 trillion from 5/08 to 5/09 as tax receipts crater. A good chunk of the borrowing to fund the Feds alphabet soup rescue facilities and the various bailouts like AIG. Not a single dollar going to stimulus.
Virtually all the borrowing is very short term and the enormous auctions are only getting more enormous as the old paper is rolled over. The credit and stock market panics have sent a flood of money into the breach to soak up all that paper and interest rates have stayed low. To the extent the credit market and capital markets in general unfreeze is the extent to which the demand for that Treasury paper will decine and send rates up. Which in turn will again pressure the economy and the markets.
Which is all preface to the idea that if rates rise sharply it’s going to be much harder to fund any stimulus. Then too one can surmise that the market participants are more than happy to lend Uncle Sam money to bail out the banks and financial interests, themselves in other wordd, but might balk at lending money to help out Joe 6 Pack.
The full scale of this crisis still seems to escape people. At heart it goes beyond Wall Street. The soundness of the Treasury is now in doubt. The Treasury directly or through the Fed is now backstopping, money markets, bank deposits on a vastly increased scale, the commercial paper market, untold hundreds of billions of dollars worth of impaired debt they still intend to purchase, the GSE mortgage guarantees, and on and on and on.
The assumption is that the markets will stabilize and the collateral being bought or backstopped will rise in value and so the total cost will be far lower than the nominal amounts represented by those huge deficit numbers. The thing is that the well of bailout money isn’t bottomless. Things could get worse or worse before they get better. Can the Treausry borrow $2 or $4 trillion more to keep funding the backstops and if they do won’t they hindering any credit market recovery by crowding out other borrowers? Yes, they could.
A new arbitrage opportunity is now being openly discussed. Shorting Treasury paper and going long high yield debt that is being backstopped by the Treasury. If you understand that then you will understand that I am calling this the Terrorist Arbitrage. Taking a position against Uncle Sam, you and I, to take advantage of the socialization of the risky paper. It’s a travesty.
October 17th, 2008 at 6:58 pm
but all that socialism. Socialism bad. Me vote McClaine
October 17th, 2008 at 7:12 pm
I wrote that question to her and was glad she answered (esp. in the way she did).
October 17th, 2008 at 7:49 pm
U da bomb, Matt. You’re not afraid to correct yourself, though you can’t help but throw a little snark into the mix. But that’s OK, I love your style! Give the man a phone book, Yglesias gives you back a barrel o’ Hunter Thompson (and spell-checked!). You should run for Parliament, dude.
October 17th, 2008 at 8:06 pm
We’re all Keynesians now
Someone forgot to tell Tom Brokaw, Gwen Ifill, and Bob Schieffer.
October 17th, 2008 at 8:39 pm
We’re all Keynesians now
When you’re in debt, the solution is to spend more, more, more!
Say hello to hyperinflation.
Keynes’s ideas are ridiculous. The only reason they are popular is that they tell people what they want to hear – that the solution for our profligacy is to become even more spendthrifty.
October 17th, 2008 at 8:39 pm
How much bail-out do the bankers merit? Only href=”http://www.guardian.co.uk/business/2008/oct/17/executivesalaries-banking/print”>70 billion dollars for their private purses, it seems.
“in this world you get a top bonus for top performance, a medium bonus for mediocre performance and a much smaller bonus if you don’t do so well”
So I guess that’s why they are taking only 10% of the total bail-out for themselves. Such modesty and bashfulness!
October 17th, 2008 at 9:31 pm
Given that every comment you’ve ever made here has been ridiculous, Glaivester, I guess you’re in a position to know.
October 17th, 2008 at 9:46 pm
…future ecologically sustainable economic growth…
Oxymoron alert! The planet is well and truly fucked at our current rate of consumption, much less even greater amounts.
October 18th, 2008 at 12:45 am
I’d like to see Marcus (and a whole truckload of other centrist pundit types) walk that neo-Hooverite hooey right back on the Sunday shows.
I’d also like to have heard Obama calling BS on that in the debate Wednesday night. He had the chance, and he didn’t. Figure the campaign didn’t want to fight against “government belt-tightening.” I get it. Whether it makes sense or not, why fight it if it sounds good? FDR ran on it, and then (rightly) did the exact opposite.
It’d be nice, though, if someone besides lefty bloggers stood up for (economic) history.
October 18th, 2008 at 1:53 am
Figure the campaign didn’t want to fight against “government belt-tightening.” I get it. Whether it makes sense or not, why fight it if it sounds good? FDR ran on it, and then (rightly) did the exact opposite.
Belt-tightening? Hoover claimed to be for it, and (wrongly) did the exact opposite.
October 18th, 2008 at 5:45 am
What Hartley said. If the pundits are all neo-Hooverist on TV and in their columns, and only clarify themselves in those online chats that have a much smaller impact, that doesn’t even things out.
October 18th, 2008 at 8:26 am
So the Depression got worse because Hoover didn’t balance the budget? Fascinating, Glaivester. Please elaborate.
October 18th, 2008 at 10:40 am
So the Depression got worse because Hoover didn’t balance the budget? Fascinating, Glaivester. Please elaborate.
It’s not so much whether or not he balanced the budget. It is that he spent willy-nilly and expanded the money supply rather than cutting back government spedning and economic intervention. Specifically, the Depression got worse because instead of allowing liquidation early on, the Fed under Hoover cut interest rates from 6% to 2% over 1929 and 1930.
Hoover first cut taxes, then instituted public works programs, and then raised taxes.
H. A. Scott Trask
Johnson’s brilliant discussion of this period is drawn directly from Murray Rothbard’s revisionist masterpiece America’s Great Depression (1963). As Rothbard explains, Hoover tried all of the following to revive the economy: tax cuts in 1930; higher tariffs (the Smoot-Hawley tariff of 1930); deficit spending ($2.1 billion in 1931, and $3 billion in 1932); public works funding; subsidies for agriculture; propping up wage rates; government loans to railroads, banks and financial institutions through the Reconstruction Finance Corporation (1932); bank credit liberalization by the Glass Steagall Act (1932); a huge tax increase by the Revenue Act of 1932; and Fed pump priming. Johnson concluded, “That he sought to use government cash to reflate the economy is beyond question.”
By the end of [1929], they had lowered the discount rate from 6 to 4.5 percent, purchased $375 million in government bonds, and lent member banks $200 million… The Hoover Fed pursued the same course in 1930. They cut the discount rate to 2 percent and purchased another $218 million in federal securities… In the first half of 1932, the Fed purchased $1.1 billion in federal securities and continued discounting for the member banks.
The point is, while Hoover’s (and the Federal Reserve’s) actions were as close or closer to Friedmanism than they were to Keynesianism, they were cannot be described as “liquidationsim” as many claim them to be.
Yes, there was a lot of liquidation during the Hoover administration, but that liquidation happened despite government intervention to prevent it, not because of government inaction. And the failed attempts at preventing liquidation made the liquidation worse than it would have otherwise been and made it harder to recapitalize afterwards.
October 18th, 2008 at 10:43 am
Just to be clear, the fact htat I disdain Keynes does not mean that I promote Friedman as an alternative.
I subscribe to the Austrian school (Mises, Hayek, Menger, Bohm-Bauwerk).
October 18th, 2008 at 11:25 am
My problem with plans for Keynesian intervention is that it seems that 90% of the time people think the economy is in dire straights and in need of stimulus, and any belt tightening would be devastating. I’d need to see more than Wall Street problem to be convinced that the economy is in need of fiscal stimulus, and that calls for such were something other than and excuse for poor fiscal discipline (for example if unemployment shot up).
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