The Political Insider points out a flip flop by Governor Sonny Perdue:
Last week, when questioned about his Philadelphia meeting with Barack Obama, Gov. Sonny Perdue raised doubts about the president-elect’s plans for economic recovery.
“We expressed our concern that we cannot borrow our way back into prosperity,” Perdue said.
But that Keynesian virus is pretty powerful, and the governor announced yesterday that he had come down with a significant infection:
Gov. Sonny Perdue told state lawmakers Tuesday that he will propose an “aggressive” package of borrowing to build schools, libraries, roads and other facilities to help stimulate Georgia’s struggling economy.
The Governor was right last week: You can’t borrow your way to prosperity. If we want to stimulate the economy, let’s reduce spending, taxes, and unnecessary regulation.
{ 20 comments }
I think we should start with all of those federal jobs being provided in Warner Robbins. Totally distorting the free market in Macon.
The let’s halt government purchases from Northrup Grumman and Lockheed.
Have you forgotten this soon that it was LACK of regulation that let the Wall Street and banking communities run wild and lead us to the morass (more asses screwing up) we’re in now? Unfettered “capitalism” is just as toxic as any other powerful drug.
boyreporter,
What caused this mess was government demanding that banks cease ‘redlining’ loans. It was the placement of regulations on banks forcing them to make loans to people who could not qualify under the rational criteria the banks used at the time. The claim made by the Left was that the criteria was racist.
There was an effort to get out in front of the mess for years but Democrats blocked the effort.
The underlying problem was caused by forcing poor loan criteria on banks and then ignoring the warning signs when presented by bank regulators, the White House, and some senators.
In reality, it was congress imposing bad regulations upon the banks that caused this mess!
Capitalism ain’t so bad until you combine it with government and fear and the “leeching off the productive taxpayer” comes into play. As this video explains. http://www.youtube.com/watch?v=krcNIWPkNzA
Buzz
Why do you think financing tax cuts works? .
I don’t think there is any question that government can create jobs, so these defense spending contract analogies are stupid. The economic problem is that government does not spend money to it’s most efficient and best use. The former Soviet Union created a lot of jobs as well. It’s not a question of whether the government can “create” jobs it’s a question of will it cost the taxpayers $2 for every $1 the job would cost from private money.
Here is an article regarding the real estate problems in N. GA. The legislature had a meeting on it and one of the ideas is to provide down-payment assistance to people.
http://www.ajc.com/business/content/business/stories/2008/12/11/georgia_housing_market.html?cxntlid=homepage_tab_newstab
The real issue is the credit markets are frozen via no one trusting valuations. If we do spending or tax cuts we must create more revenue than the cost of financing the debt. That is how we got into this mess as I warned years ago.
The best approach would be helping with SBA style loans that the government helps guarantee a larger portion of the down payment. This would stimulate growth via expansion of business activity with controls and investment by the business.
Also we should look at a partnership with the federal government with low interest loans for cars that get over 30 MPG as long as the customer can put 10% or more down and has a job and cash ratios that supports the payment even with a low credit score.
All the car companies are dying via sales off 37% via the credit squeeze. And this has a rippling affect on our economy.
Currently I foresee an anti-Milton Friedman campaign by the Left against Monetarism, and a run toward failed Keynesian policies. If so, we’re in for the predicted, ‘longer and deeper’ recession, as promised by many economists over a year ago.
I hope that common sense will not take a back-seat to politics in our economic policy or we will actually see a worldview that questions the ‘full faith and credit’ of the US Treasury. Not a good prospect at all.
And nobody is talking about the $40Bn in 0% interest T-Bills sold last week. First time in history, did I miss something? That is scarier than Bloggo teaching ethics at Chicago University.
Tea Party,
There are a lot of reasons why monetarism may not be working now, whereas Keynsian policy may be best at the moment. (and I consider myself much more of a monetarist than Keynsian).
I’ll try not to bore everyone with the fine details, but monetarists deal with the concept that the price level is dependent on the amount of the money supply and the velocity (turnover rate) of that money. In the classic equation, the velocity of money is assumed to be constant, and thus the price of goods is determined by the quantity of the goods and the money supply.
However, with the shock to the banking system and subsequent freeze of the credit market, the velocity of money is all but constant right now. In addition, the supply of money is also shrinking (despite the fact that the government is printing money at historic rates) because of the amount of losses banks are taking to their bottom line, thus reducing their lending ability (and consequently the money supply) by a factor of 10.
As we saw with Japan in the 90′s, cutting interest rates (the monetarist solution) isn’t terribly effective when interest rates are at zero. Keynsian spending to “prime the pump”, while akin to using a chainsaw on the economy as opposed to the monetarists’ surgeon scalpel, is possibly a more useful tool in the current environment.
HOWEVER, as I will probably end up repeating over and over again here, Economic policy is best conducted at the federal level, not the state level.
Icarus,
I think you have your finger on the underlying problem with almost *all* classical and neoclassical economics, which is the assumption of the system being at or near equilibrium. There are a lot of heterodoxies with academic respect that attempt to circumvent this particular situation.
“Currently I foresee an anti-Milton Friedman campaign by the Left against Monetarism, and a run toward failed Keynesian policies.”
Maybe more of an anti-Greenspan campaign. It seems to be hard to think of a program that developed more illusory “wealth” than the Bubbles program of the past couple of decades.
WE are in uncharted waters, Icarus, clearly. Obama would do well to TRY to reduce the rate of gov’t spending increase, stretching to actually attack the reducing underlying amount of gov’t spending.
I am going to find out who spends $40Bn in T-Bills with a zero return. I am trying to wrap my mind around that one…
I think when Greenspan’s career is viewed with historical perspective, he’ll be quite the paradox. I personally don’t understand how he saw the tech stock bubble in the late 90′s, and didn’t see a real estate bubble in the middle of this decade. I personally believe he kept rates too low to help Bush get re-elected in 2004, and then pushed them too high to correct the situation in 05-06. But I don’t think he’ll be viewed as either a hack or a total failure. His job was to keep the economy growing at a steady pace, and he did a reasonable job of that thru 9/11, which represented more than a $1 Trillion shock to the US economy.
While he’ll take a good share of the blame for our current mess, the bulk of the responsibility will lie at the feet of those who failed to regulate the GSE’s (which Greenspan did warn about), and who allowed leverage ratios to increase to 40:1.
And yet, Mr. Greenspan called it with the then-unpopular “irrational exuburence” comment. Folks like Naomi Klein all but pillory Uncle Milty in ‘Shock Doctrine’.
Icarus,
I’ll disagree with you on the GSE’s, but agree on the leverage ratios. Anyone who takes their margin of error down to 2-3% in something as unpredictable as derivatives is simply asking for someone else to tell them when to start selling the furniture.
“Obama would do well to TRY to reduce the rate of gov’t spending increase, stretching to actually attack the reducing underlying amount of gov’t spending.”
If Republicans (and fiscal conservative democrats) are going to have any effect at shaping policy for the next two years, they should focus on a future spending framework in exchange for agreeing to higher spending now.
We’re going to have a $1 Trillion deficit this year. Maybe more, and frankly, I don’t have a huge problem with that given the circumstances. What fiscal conservatives should be pushing for is something similar to a Graham-Rudman style deal whereby Congress must commit to curtailing long-term spending rates. Ideally, a balanced budget amendment should be put on the table. But the deal needs to be, we’ll let you spend today but you must agree to spend less tomorrow. The party that breaks the deal in the future will be the party that loses the mantle of being fiscally responsible.
“I am going to find out who spends $40Bn in T-Bills with a zero return. I am trying to wrap my mind around that one…”
Answer: Foreign investors. The dollar sank to its record lows based on the relative transparancy of our economic system. Everyone in the world knew we were headed for trouble. Only when our bubble burst did the world realize that every other modern economy had the same risk exposure to the types of investments that were going bad here. As soon as that became evident, the dollar began to rally, and continues to do so.
Thus, if you buy a dollar denominated asset with a “zero” return, but the value of the dollar rises during the holding period, (Note, China is slashing the value of it’s currency), then there is a gain even with no interest paid.
So now Georgia’s governor wants to emulate California?
Great……………………..
The Republican Party is now living a lie from DC to Gwinett County.
Why don’t y’all change your platform to “Big Government NOW and FOREVER.” ????????????????????
Seriously, you are claiming principles, STILL, that you have flushed down the toilet.
When is the last time a Georgia “Republican” politician has espoused the virtues of less regulation, free enterprise, competition, small business, family farms, inventors, entrepreneurs, manufacturers, and overall wealth creation from the “bottom up”? And how many political consultants are going to propose a photo-op with a GA success story that does it WITHOUT some type of government participation?
Tea-
Milton Friedman is/was libertarian – Why would the left ever embrace his ideals?
Comments on this entry are closed.