Common Sense Economics from the Wall Street Journal

Here are two videos of Wall Street Journal interviews. The first video is with Barton Biggs, who manages a giant hedge fund and who was the super influential "chief global strategist" for Morgan Stanley for decades. Biggs suggestions for fixing the economy:
  1. Increase taxes on rich people and on tax-avoiding big companies like GE in order to increase government revenue, reduce the deficit, and to reduce the cost of living of the vast majority of the population whose wages have stagnated.
  2. Make a massive public investment in roads, trains, bridges, and ports so we can catch up with Asia and our economy does not become a permanent backwater - and also to put people back to work.
As Biggs points out, the government can borrow money right now for nearly nothing - and it should take advantage of that. I'd prefer the government to avoid borrowing and just have the Federal Reserve sign over a trillion dollars to the government to fund the investment, but it's not a big deal either way. These ideas are not new, they are not even mildly radical - Biggs is an enormously wealthy Hedge Fund manager, not some left wing revolutionary. The objections to these ideas are coming from Republican politicians who hope to gain political power by making the economy (and the President) fail and from nutcase ideologists who don't care about facts. The second video is from Nouriel Roubini who correctly forecast the Bush Super-Sized Recession. Roubini makes a point that is often forgotten by ideologists of both left and right- the current recession and deficit was caused by the policies of George W. Bush's administration. Roubini points out Bush took us from surplus to deficit with five simple steps.
  1. Huge tax cuts.
  2. Spent $2 trillion on two unwinnable wars.
  3. Doubled discretionary spending
  4. Added entitlement benefits like Medicare drug without any idea of how to pay for them.
  5. Failed to regulate wall street which caused biggest financial crisis ever - and the recession and bailout costs added more to the debt.
So while the GOP tries to blame Bush's fiasco on Obama and the peevish left wants to complain endlessly about Clinton's Secretary of Treasury Robert Rubin and how Obama failed to follow their advice about the size of the stimulus (never mind that it passed by one vote), it's worth recalling that these five steps to the Super Recession are facts, not theories.

Here's Biggs.

Biggs points about infrastructure are may surprise many Americans because our media is hiding from Americans how far we have fallen behind the rest of the world. Anyone who has seen the Beijing subway or modern automated ports in Shanghai or Singapore will understand that you can't run a modern economy by shouting about "American exceptionalism." Only the government can make big investments in infrastructure and we have a lot of catching up to do.

One point that is implicit in what Biggs says, but it often forgotten is that budget cuts are often disguised tax increases on the middle class. When college tuitions rise, when health care benefits are cut, when pensions are slashed, when trains and airports are not maintained, when the electric power grid is allowed to decay, when public transportation is made more costly, slower, and less reliable - the costs fall disproportionately on people who are not rich. The wealthy don't lose anything directly when wage workers have to sit in un-airconditioned filthy trains or run-down congested highways on the way to work - and have to leave hours earlier to compensate for frequent delay. They don't suffer if community college tuition or state college tuition goes up or if teachers in public schools are fired. They don't even have to share our decrepit airports. Bushes tax cuts for the rich caused expenses to increase for working people - that tax cut wasn't free, it came out of the pockets of the people who did not benefit from it.

Tax increases on the rich and closing off corporate tax loopholes so that the public can invest in basic infrastructure and education will have the effect of increasing the incomes of ordinary working people. This is common sense - but it's been obscured through clever marketing.

Here is Roubini.

I am not a fan of the deregulation of banking that Rubin oversaw - and that was passed with huge bipartisan support in Congress - but Bush and his appointees had plenty of regulatory authority but chose to follow a policy of "self-regulation" in financial markets and other markets too. Here's how the deregulation happened.

Where was the indignation when President Clinton signed the Commodities and Futures Modernization Act of 2000 that deregulated derivatives, paving the way for the reckless trading in credit default swaps that almost collapsed the stock market? Phil Graham authored the legislation, but 181 out of 208 House Democrats voted for it. One could easily reach the conclusion that backbones were out of season. The Graham-Leach Bill abolished the Glass Steagall Act that separated commercial and investment banking activities, altering the landscape of the capital markets through deregulation. Bill Clinton defenders accurately point out that his veto would have been overridden, but the act passed the Senate on a 90-8 vote, with notable left wing stalwarts John Kerry, Chris Dodd, John Edwards, Dick Durbin, Chuck Schumer and Tom Daschle all supporting the initiative.
The quote above is from an excellent article about what President Obama has accomplished.


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