08 Jun Comment Prof :Humm… that would be an interesti
Question
الوصف: move to previous threadMonetary and Fiscal policy
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Question”
Please listen to this comment by Mr. Keene from Bloomberg on Mr. Bernanke, the Fed chairman:
http://www.bloomberg.com/video/keene-on-bernanke-never-seen-this-type-of-hatred-0icjz0saSJ64uNDQ62_~Vw.html
Sorry, the link does not seem to work, but go to the bloomberg.com website and you should be able to find it.
What do you think about Mr. Keene’s comment?
As you might know, Congress left town (Washington DC), not to return until after the election, in order to campaign for their reelection, in spite of the fact that much work needs to be taken care of, including finding a solution for the “fiscal cliff” before the end of the year (and then there will be the election itself, the thanksgiving break and the Christmas holidays). Only the unelected members of the Fed remain in town to handle the economy, even though most economists tend to think that fiscal policy would be more effective at this time than monetary policy.
If you were a benevolent dictator/king (assuming that there is such a thing), how would you conduct monetary and fiscal policy in the U.S.?
Comment classmate from H:If I were a benevolent king of the US, I would rather stand my position on the normal person. I don’t care how stock markets are going on today or how keep the eyes of everybody in the world seeing US. Now I need to put my eyes on the basic needs. Such as do all my people still live the life like before? As we all experience, now we need to think about a plan to save the gas which I never though a year ago. Also, when I go to Walmart, I feel the same 50 dollars, but the products I bought were sharply down. Frankly, I may pay attention to the world or the US economy unless I satisfy my own life. The congress is the position too high to reach by normal citizens, so could all my fellows move their eyes a little bit down. Do not just focus on the thing just meet small portion. If things keep going like now, I believe I will lose my position unless the economy recover by itself.
Comment Prof:Author: James Clooney
Date: Thursday, September 20, 2012 12:46:36 PM CDT
Subject: RE: Overall economic conditions
While the U.S. economy is very slowly recovering, if there is not a faster rate of job creation and people and business don’t start to spend more money, then this recovery could potentially take a decade.
So what needs to happen for faster economic recovery to occur? Well, the QE3 will help, but jobs need to be created, people need to be put back to work, the U.S. Congress needs to provide a little help, fixing the roads, bridges and other decaying infrastructure, more people need to pay tax. With added job growth and more people spending money, the economy should be repaired faster than at its current rate.
OK, but how would a benevolent dictator manage the monetary and fiscal policies of the US, given current economic conditions, in order to maximize the benefits of all the people?
My classmate S:There is no doubt that we are living in very difficult times. If I could provide some help to the economy I would abolish all but a few government agencies. The purpose of government is to provide a safe place to work and live not to take care of the rest of the world. I would cut all foreign aid come what may. I do not plan on becoming an isolationist. I would also require government agencies to be profitable and self-sufficient if they failed to do so they would lose funding after a period of 2 years this would be conducted by an external audit. I would also cut all subsidies! The most important step would be to set property tax at 1% of the revenue earned by the property and would tax investments and idle funds at 1% of interest earned this would include any foreign investment. In doing so I believe that the U.S. would attract a great deal of direct investment and would create many new jobs. I would also set term limits and would require government officials to play by the rules they set.
Comment Prof :Humm… that would be an interesting experiment! For government agencies to make a profit, they would have to charge the users for their services (instead of taxing the whole population). So the Pentagon would send us a monthly invoice for protective services! The firefighters would request a check before extinguishing the fire that is destroying our home! The problem is that government provides public services that we want, at a loss because taxes are too low. I understand that the role of government is an important topic of discussion, but it is critical to be specific about the services that we do not want the government to provide, or if we want those services to be provided, then we have to pay for them in the form of taxes since they are public and not private goods. Thus the problem may not be with the government but with the private sector (not anyone in particular) who wants more services but does not want to pay for them.
In any case the last crisis did not originate with the government but with the private sector which overconsumed and overborrowed. Now the private sector is deleveraging (reducing its debt) and thus firms and consumers are spending less. This lack of demand is at the origin of our recession. If the government did not use fiscal and monetary policy to try to increase Aggregate Demand, it is likely that the recession would have been much worse (like in the U.K. or Greece). I would recommend that those of you who have not read Richard Koo’s paper about balance sheet recessions do so.
Comment calassmate S :I do not believe that it is responsible of the Fed to give QE2 and QE3 to the banking sector. Mr. Koo will only be correct if the investments made by the government are more profitable then the funds used to stabilize the economy but the investment will still have to be paid off at a later date especially in the U.S. because it would be financed with borrowed funds. I see a great danger in letting our government choose winners and losers. If I could decide to place the funds I would have invested in the people not in a broken financial system that would not lend the funds until it made up for its losses. If one focuses on the time between when the government and the private sector transfer assets to fix the balance sheet the debt is not resolved. In essence you are only taking money out of the right pocket to pay the left. This, trade off of debt is not a sustainable plan because eventually someone will not be able to afford it. I also believe that the frequency of Mr. Koo fallacy would increase if companies knew that the government would step in when they overleveraged there investment during a bubble. In regard to my previous comment, my plan the increase revenue brought in by taxes would be sizable with the bond market alone worth an estimated 82.2 trillion there is plenty to be made off the interest earned by investors especially if services were charged directly for individuals that consumed them, this would also reduce the amount of miss allocated funds.
Comment Prof :I am not sure that I follow your logic here! Is there anything wrong with borrowing to finance investment? I thought that this was the normal way of financing investment. If overborrowing there was in the U.S. prior to 2007, it is by the private sector who borrowed to finance consumption and housing. Unfortunately we (the taxpayer) bailed out those financial firms who made those loas as they were “too big to fail”. Unfortunately, we still haven’t fixed the problem and they are still too big to fail, except for Lehman Brothers who is no more!
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