Bob Burnett wrote:
> . . . [between Obama and McCain,] why is the race so close?
It's simple. Obama has not enthusiastically subscribed to the belief
that there is a strong linkage between the war and the economy. If he
is serious, he should pick Joseph Stiglitz as his VP running mate and
talk about the need to end all our foreign wars right away in order to
restore our economic health.
Joseph Stiglitz is only 64 years old and is extremely articulate and,
a first-rate thinker.
Stiglitz, a living Nobel laureate in economics, was also a World Bank
chief economist. He made the right call on both the ills of our wars
and their effects on our economy. And he certainly is well-versed on
remedies/solutions to all types of economic woes. If it is clear now
that the economy is America's number one worry today and if he is not
being utilized to spend the next three or four months to educate the
people about what's been hurting our economy so badly, then Obama is
simply not smart enough to help himself or the country.
THe greatest irony I find is that despite the repeated poll results in
recent months showing the economy being the voters' number one worry
in this election cycle, keeping the wars going remain the same voters'
choice. Either we the American people are a bunch of wishful-thinking
people or we have been insufficiently informed to get it.
So, as I have always advocated, it calls for massive public education,
and for a smart leader to bring it about fast.
Obama has a golden op****tunity to have an articulate, experienced, and
well-respected person in Joseph Stiglitz to help him get the nation
educated.
Obama should understand that a) the economy dictates that we cannot
continue to bleed it any further as Bush has done and b) our domestic
security does not depend on occupation of either Iraq or Afghanistan,
each of which requires an expensive and brutal war to accomplish.
(In fact, the latest news about how we've been fighting the Taliban
which has been orchestrating increasingly sophisticated and deadly
attacks on US-led NATO forces in Afghanistan while al Qaeda has been
successful in recruiting foreigners to the country to blow themselves
up for the goal of driving out the invaders reminds me very much of
the situation with the Spanish Civil War in the 1930s. Anybody heard
of Earnest Hemingway's ``For Whom the Bell Tolls''? Americans as well
as Soviet Russians streamed into Spain to fight the Nazi-backed Franco
and his fascists thugs? Not that those foreign volunteers were very
effective in helping the Republican forces in defeating Franco. But
the noble cause was drawing idealists from over the world to Spain.
It is the same today in Afghanistan and Iraq. We are the bad guy
because we are the invaders and we use extremely destructive and
bloody methods to sustain our military occupation. Even though the
likes of McCain would like you to believe that we're now successful in
Iraq and can keep on occupying the country for decades to come, I
cannot agree less! Our domestic security requires vigilance and the
active participation from all citizens in the past several years have
been instrumental in keeping from happening incidents mirroring those
that took place in London and Madrid from occurring here. It does not
matter who perpetrated the 9-11 attacks, a repeat can't occur simply
because of the heightened consciousness at all levels in our society.
But if we move more troops into Afghanistan, we'll have engendered
even more of a terrorism magnet for those who see our invasions of
Iraq and Afghanistan and our indefinite military occupations today as
unjust and immoral. If we are less arrogant, we ought to be able to
see the futility and destructiveness of our stubborn positions with
respect to those occupation wars. They make no sense and they bleed
our economy to death. Obama should be intelligent enough to know it.
Lastly it doesn't matter that the Spanish Republican Army was finally
defeated by the facists because the facists were on the wrong side of
history and, more im****tantly, because, on pragmatic grounds, it is
simply too self-destructive for us to want to keep on financing these
wars owing to our economic woes. So, Mr. Obama, a hero to so many of
us Americans as that messianic figure to lead us out of our yokes and
shackles that the neocons and the Bush gangs surreptitiously put on
us, you need to spend less time on things like a symbolic tour of the
world and more time reflecting on what you must do next to realize
your god-given potential as a true leader for America as well as the
world!)
For more of my comments on the merits of a Stiglitz vice presidency,
please see attached article.
lo yeeOn
========
Mr. Obama, I know you are a very busy man and a politician.
But America today cannot afford to be business-as-usual any more.
I think you can agree that we're already in recession and we're in a
lot of troubles. Furthermore, they are no ordinary troubles either.
So, for you to become the next president of the US of America, you
cannot afford to go about your election run business-as-usual either.
First I hope that this message can somehow get through to you and
second, you need to take the bold step and get a transcendent choice
as your running mate. And that person may just be Joseph Stiglitz.
You can't afford to simply find another politician, a governor or a
senator, as your running mate, for the simple reason that none of them
in that arena could possibly have the economic know-how, the political
independence, as well as the right perspective about the interaction
between peace and prosperity, the mix necessary for him or her to act
in such a way as to right this wayward country of ours in this time of
our gravest national need.
Some of your advisors might tell you that you need a politican who has
more foreign policy than you do or a military man who can ``give'' you
a stronger national security profile, but that kind of thinking is way
too conventional and the value of such an addition is at best marginal
if not counterproductive.
We need peace not war! And we need prosperity, not a foreign policy
which equates world domination with domestic security and which
equates greater wealth for the super-riches with greater wealth for
the entire country, a line of indoctrinated thinking which has for
decades already drained our treasury and decimated our productivity
and competitiveness for the purpose of empire building.
Personally, you also need a running mate who can strengthen your
credibility regarding where you stand with respect to the Iraq war
because your base is getting quite disillusioned about who you really
represent.
Since the health of the nation's economy transcends race, ***, age,
geographic location, religion, cultural background, education, and
even class, a choice like Stiglitz, at this uniquely special time,
will be truly transcendent.
You'll be seen as a bold and visionary leader that America has not
seen for a long time, instead of just another conventional politician
who we can afford to get disillusioned with. You'll also be looked
upon as truly brilliant by every leader around the world, if you make
that choice.
Good luck, Mr. Obama. Now your fate as well as America's are in your
hands.
(For more details of my argument, please see below.)
lo yeeOn
========
[Regarding our economic meltdown, we should know] that the occupation
wars in Afghanistan and Iraq and our wider goal of trying to bring
down and occupy Iran have everything to do with it.
And so, when our economy is the voters number one worry in this
presidential election, why is it that nobody has ever talked about
getting someone who really knows economics to be his or her vice
presidential runningmate?
What I have in mind is Joseph Stiglitz, a former World Bank chief
economist and Nobel laureate in economics.
Stiglitz was born February 9, 1943. So he is only 65 who is a lot of
younger than McCain and at least a few years younger than Ronald
Reagan when he got first elected in 1980. And he will not be much
older than Dwight Eisenhowever when the latter got elected in 1952.
Apparently, the interviews that he gave in recent months show a man
with sharp mental agility.
And talking about transcendence. Since the health of the nation's
economy transcends race, ***, age, geographic location, religion,
cultural background, education, and even class, why shouldn't people
like Mr. Obama think about bringing in somebody like Stiglitz to help
him out. Stiglitz has demonstrated he has such a clear head that he
can not only make the same claim that Obama has made about having made
the right call on the Iraq war, he has made one of the most lucid
arguments about how the war is closely linked to our failed economy.
His detailed argument is provided in for example the Nathan Gardels
interview, the text of which is appended below.
Just as Ike, the military man who succeeded brilliantly on the
European front to defeat the Nazis, was the right person to lead
America out of the diastrous Korean war in 1952, Stiglitz has the
perfect qualification to both complement Obama and to succeed him in
the event of a succession.
Stiglitz, along with another Nobel economist Edmund Phelps, share
Obama's idea that a gas-tax holiday would be a counter-productive
campaign gimmick also.
Indeed, Joseph Stiglitz will indeed be the transcendent choice for
Obama, if somehow the idea from this post can reach him soon enough.
For more of Stiglitz's economic ideas, please see below (after the
Gardels interview).
lo yeeOn
========
The Nathan Gardels interview with Nobel laureate Joseph Stiglitz
Posted March 4, 2008 | 12:51 PM (EST)
Read More: $3000000 War, Joseph Stiglitz, Joseph Stiglitz Iraq, Linda
Bilmes, Three Trillion Dollar War, Breaking Politics News
In the following interview, Nobel laureate Joe Stiglitz talks about how
the economy has replaced Iraq as the central issue in the presidential
campaign, but how the two are closely related.
Stiglitz was awarded the Nobel Prize for Economics in 2001. He is the
author, with Linda Bilmes, of The Three Trillion Dollar War: The True
Cost of The Iraq Conflict, just published in the U.S. Stiglitz spoke
with me for my Global Viewpoint on Monday.
Nathan Gardels: The American economy, teetering toward recession or
worse, has replaced the war in Iraq as the key issue in the
presidential campaign. What is the link between U.S. economic woes and
the war in Iraq?
Joseph Stiglitz: The war has led directly to the U.S. economic
slowdown. First, before the U.S. went to war with Iraq, the price of
oil was $25 a barrel. It's now $100 a barrel.
While there are other factors involved in this price rise, the Iraq war
is clearly a major factor. Already factoring in growing demand for
energy from India and China, the futures markets projected before the
war that oil would remain around $23 a barrel for at least a decade. It
is the war and volatility it has caused, along with the falling dollar
due to low interest rates and the huge trade deficit, that accounts for
much of the difference.
That higher price means that the billions that would have been in the
pockets of Americans to spend at home have been flowing out to Saudi
Arabia and other oil ex****ters.
Second, money spent on Iraq doesn't stimulate the economy at home. If
you hire a Filipino contractor to work in Iraq, you don't get the
multiplier effect of someone building a road or a bridge in Missouri.
Third, this war, unlike any other war in American history, has been
entirely financed by deficits. Deficits are a worry because, in the
end, they crowd out investment and pile up debt that has to be paid in
the future. That hurts productivity because little is left over either
for public-sector investment in research, education and infrastructure
or private-sector investment in machines and factories.
Until very recently, we haven't sharply felt these three factors
depressing the economy because the Federal Reserve Bank responded with
the attitude that they must keep the economy going no matter how much
President Bush spends on the Iraq war. Seeing a weak economy, they kept
interest rates low, flooded the economy with liquidity and looked the
other way when bad home-lending practices were shoveling money out the
door. Regulation was lax. The spigot was wide open. More than $1.5
trillion was taken out of houses in mortgage equity withdrawals alone
over the past five years! That is a huge amount of money to be spent.
At the same time, the U.S. savings rates plummeted to zero. So
everything that was being spent, from rebuilding Iraq to redecorating
the home, was on borrowed money. All the problems were papered over by
borrowing. The bubble ultimately burst when the ratio of housing prices
to income -- that is, what people whose incomes are falling could
afford -- was no longer sustainable.
Now that we can see beyond the bubble, the economic weakness caused by
the Iraq war will be fully exposed. And we'll pay for it in spades --
you might say, with interest.
Gardels: One of the bizarre occurrences of globalization is that the
Chinese, who opposed the Iraq war at the U.N., have ended up as a major
financier of that war by purchasing U.S. Treasury bonds with the huge
dollar reserves they've earned from their trade surplus with the U.S.
So, a consumer democracy with no savings borrows from a market-Leninist
state to combat terrorism and hold free elections in the first ****ite
government in an Arab state in 800 years!
How will we sort it all out?
Stiglitz: And the American people haven't a clue about what they are
sup****ting, which undermines democracy at home as well.
The ironies don't stop there. This is the first American war since the
Revolutionary War that has been financed from abroad. At the beginning
of every other war, there was real public discourse about which costs
should be put on future generations and which should be paid today --
in taxes. This is the first war where we have (BEGIN ITALICS) lowered
taxes (END ITALICS) as we went to war.
The Iraq war has not only been financed by foreigners, but it is also
the most privatized war in American history. And the results are
egregious. For example, a security contractor -- I'm not talking about
sophisticated engineers here -- makes well over $1,000 a day, often
more than $400,000 a year. A person in the U.S. Army gets paid a
fraction of that amount -- about $40,000 annually -- for performing the
same tasks. Everybody knows any workplace where one person makes 10
times what the other one does for doing the same job is a recipe for
discontent. So, in order to attract soldiers, the U.S. Army has
increased sign-up bonuses. We're competing with ourselves! And that
raises costs all around.
But that is not the end of the absurdity. On top of that, the U.S.
taxpayer is paying disability and death insurance for the contractor,
but then the insurance policies exempt paying in the cir***stances of
"hostilities." Who are we buying insurance for? The taxpayer, then, is
essentially paying the insurance companies for nothing. Talk about a
sweet deal!
Gardels: What is the big picture in terms of America's economic
reckoning with the Iraq war?
Stiglitz: The big picture is that, by our most conservative estimates,
this war has cost an almost unimaginable $3 trillion. A more realistic
estimate, however, is closer to $5 trillion once you include all the
downstream "off budget costs" of long-term veteran benefits and
treatment, the costs of restoring the now depleted military to its
pre-war strength, the considerable costs of actually withdrawing from
Iraq and repositioning forces elsewhere in the region.
Then there are the micro costs. For example, if a solider gets killed,
his family gets a $500,000 lifetime payment. That is not included in
the public budget when the costs of the war are considered.
These costs are real and are not going away. You can't continue to
sweep them under the rug. Like your credit card bill, the costs only
grow greater if you ignore them.
Finally, anybody who says we ought to stay in Iraq for even another
four years, no less the next 100 years, as John McCain has suggested,
has to honestly tell the American people how they are going to pay the
$12 billion-a-month bill. Where are we going to come up with another
$1.2 trillion? And is that going to make America more secure?
Let's get out sooner rather than later. Above all, let's stop
fantasizing. It's those fantasies that got us in trouble.
Gardels: In your view, is this economic mess a result of the neo-con
fantasy or a conscious cover-up by the Bush administration to hide the
costs from the American public?
Stiglitz: Both. It was a neo-con fantasy that we'd be greeted with
garlands. We'd only be responsible for cleaning up the rose petals.
Iraqi oil would pay for everything else.
It was also a deliberate attempt to hide the costs from the American
people. How else could you justify not providing the American troops
with the equipment they need? How else could you justify not giving the
Veterans (Benefits) Administration what they need to treat the
disabilities of our heroic soldiers who have been both physically and
psychologically maimed by this war? That can only be interpreted as a
deliberate attempt to hide the real costs of war -- at the expense of
weakening our armed forces, which have been debilitated. The Bush
administration has put short-run political advantage ahead of the
security of the country.
Gardels: The economic costs have now come back to undermine the whole
post-9/11 security effort. When John McCain says he's not interested in
and doesn't understand the economic aspect of things, and only knows
about how to keep America safe, what does that say about his leader****p
capability?
Stiglitz: If he doesn't understand the economy, he doesn't understand
security. If we had infinite resources, we might be able to have
perfect security. But America, like every other country, has resource
constraints. That means you need to be smart -- that is, economic --
about the money we spend. If you weaken the American economy, you won't
be able to find the resources you need for security. The two cannot be
separated.
created by charlatan on Mar 06, 2008 at 02:37:54 am Comments: 0
---------
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Malthus Right?"
Economist's View
« links for 2008-06-10 | Main | "Was Malthus Right?" »
June 10, 2008
Stiglitz: Rethink the Sources of Growth
Joseph Stiglitz says we need to change our ways:
The world must rethink the sources of growth, by Joseph E. Stiglitz,
Commentary, Project Syndicate: Around the world, protests against
soaring food and fuel prices are mounting. The poor - and even the
middle cl***** - are seeing their incomes squeezed... Politicians
want to respond..., but do not know what to do. ...
Hillary Clinton and John McCain took the easy way out, and sup****ted
a suspension of the gasoline tax... Only Barack Obama stood his
ground and rejected the proposal... But if Clinton and McCain were
wrong, what should be done? One cannot simply ignore ... those who
are suffering. ...
When George Bush was elected, he claimed that tax cuts for the rich
would cure all the economy's ailments. The benefits of
tax-cut-fuelled growth would trickle down to all...
Tax cuts were supposed to stimulate savings, but household savings
in the US have plummeted to zero. They were supposed to stimulate
employment, but labour force participation is lower than in the
1990's. What growth did occur benefited only the few at the top.
Productivity grew, for a while, but it wasn't because of Wall Street
financial innovations. The financial products being created didn't
manage risk; they enhanced risk. ... Millions of Americans will
likely lose their homes and, with them, their life savings.
At the core of America's success is technology, symbolised by
Silicon Valley. The irony is that the scientists making the
advances..., and the venture capital firms that finance it were not
the ones reaping the biggest rewards in the heyday of the real
estate bubble. ...
The world needs to rethink the sources of growth. If the foundations
of economic growth lie in advances in science and technology, not in
speculation in real estate or financial markets, then tax systems
must be realigned.
Why should those who make their income by gambling in Wall Street's
casinos be taxed at a lower rate than those who earn their money in
other ways? Capital gains should be taxed at least at as high a rate
as ordinary income. ... In addition, there should be a windfall
profits tax on oil and gas companies.
Given the huge increase in inequality in most countries, higher
taxes for those who have done well - to help those who have lost
ground from globalisation and technological change - are in order,
and could also ameliorate the strains imposed by soaring food and
energy prices. ...
Two factors set off today's crisis: the Iraq war contributed to the
run-up in oil prices..., while bio-fuels have meant that food and
energy markets are increasingly integrated. ...
Huge agriculture subsidies ... have weakened agriculture in the
developing world... Rich countries must reduce, if not eliminate,
distortional agriculture and energy policies, and help those in the
poorest countries improve their capacity to produce food.
But this is just a start: we have treated our most precious
resources - clean water and air - as if they were free. Only new
patterns of consumption and production - a new economic model - can
address that most fundamental resource problem.
The list of criticisms and proposals sounds somewhat like a campaign
speech. And that makes me wonder, four years from now, what will be
different?
Posted by Mark Thoma on Tuesday, June 10, 2008 at 12:51 AM in
Economics, Environment, Oil, Politics, Taxes
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/423467/30008006
Comments
hari says...
I suggest a T/A by IMF/IBRD to assist Treasury in deciding on how to
tackle the points raised by Stiglitz. It's high time structural
adjustment is enforced by IMF to counter the decline of US economy and
its reserve currency and mollify the cries of *wolf* against
globalization.
Posted by: hari | Link to comment | June 10, 2008 at 02:39 AM
paine says...
"mollify"
hari ????
Posted by: paine | Link to comment | June 10, 2008 at 04:05 AM
paine says...
in less then best world
policy made
with an incomplete and uncertain
model of our market dynamics .....
leads to this
my distortion may look like your pareto improvement
we need a simple set of numbers
durable and decisive
as a place to start from
and to measure
our global progress
our national progress
our relative progress
the movement in real wages
inside
all 200 independent state systems
is my notion of such a set of numbers
mission
can we devise policy sets
that lead forward for all 200
and toward convergence of all 200
Posted by: paine | Link to comment | June 10, 2008 at 04:14 AM
save_the_rustbelt says...
I wouldn't let the IMF guard my grandkids piggy banks, let alone
enforce anything.
We have two weak presidential candidates, I guess we need to look for
the least weak.
The Democrats elected weak leader****p in Congress, and that is unlikely
to change.
So we are going to have to do something from the ground up.
Posted by: save_the_rustbelt | Link to comment | June 10, 2008 at 05:03
AM
bakho says...
Tariffs and corn prices:
"Put in round numbers, when crude went from $40 to $120 a barrel, corn
went from $2 a bushel to $6 a bushel, a tripling of both prices. About
$1 of the corn price increase was due to the subsidy and $3 to the
higher crude price."
Even if the government subsidy for ethanol were eliminated, corn prices
would not return to levels of a decade ago, Tyner said.
The Renewable Fuels Standard mandates that by 2015 at least 15 billion
gallons of ethanol be produced annually from corn. Since the federal
law was adopted in 2007, ethanol production has exceeded the mandated
annual level.
Because of the fuel standard and ethanol subsidy, corn prices would not
drop below $3 per bushel even if crude oil prices fell back to $40 a
barrel, Tyner said.
"At present, federal policies do induce a higher corn price," Tyner
said. "But at high oil prices, the role of oil price is more im****tant
than policy in driving corn price."
Tariffs on im****ted ethanol could force corn prices lower, especially
if the tariffs lead to alternative sources of ethanol, Tyner said.
"Since high oil prices directly lead to higher corn prices, corn
ethanol becomes much more expensive," he said. "Sugarcane-based ethanol
is cheaper to produce than corn ethanol at any oil price, but the gap
widens at higher oil prices.
"The removal of the tariff on im****ted ethanol would lead to the
biofuel coming from the lowest cost source - sugarcane - which would
reduce some pressure on corn prices and provide the U.S. with lower
cost ethanol."
http://news.uns.purdue.edu/UNS/hp/TynerEthanol.html
Posted by: bakho | Link to comment | June 10, 2008 at 05:35 AM
ken melvin says...
"The world must rethink the sources of growth" A good start, then just
kind meandered off.
Posted by: ken melvin | Link to comment | June 10, 2008 at 05:54 AM
ECONOMISTA NON GRATA says...
The Rich Stand Accused
By Louis-Gilles Francoeur
Le Devoir
Saturday 06 January and Sunday 07 January 2007
" Capitalism is the source of social and environmental crises."
"......What do global warming, pollution of the atmosphere, streams,
rivers and oceans, the exhaustion of natural resources, the accelerated
extinctions of species, deforestation, the liberation of GMO into the
environment, and - coming soon - the infinitely small and practically
undetectable pollution of nano-materials have in common? Capitalism and
the oligarchy that profits from it, as first cause, answers Herv Kempf
in a bombshell book published in Paris by ditions du Seuil......"
"......First, he explained in a telephone interview yesterday, the
planet's ecological situation is worsening at a rate that neutralizes
all the efforts of millions of citizens and ecological militants, to
the point that the planet is in danger of crossing a threshold of
irreversibility "within the next 10 years," he believes, on the basis
of the speed at which negative outcomes are piling up......"
"......The second observation of this attempt to provide a veritably
comprehensive explanation of the environmental crisis is that "the
social system that presently governs human society - capitalism -
blindly, doggedly rejects the changes necessary if we want to preserve
the dignity and promise of human existence."......"
http://www.truthout.org/article/louis-gilles-francoeur-the-rich-stand-a
ccused
I highly recommend reading the entire article and if you have the time,
the underlying book.
Best Regards
Econolicious
Posted by: ECONOMISTA NON GRATA | Link to comment | June 10, 2008 at
06:02 AM
a says...
Gosh, I guess when an economist finally says, "Consume less," it means
something.
Posted by: a | Link to comment | June 10, 2008 at 06:18 AM
robertdfeinman says...
There is no need for "growth" in the richest economies, they already
consume to much stuff. What they need is to better distribute the
wealth they already have in a more equitable way. This, of course, is
exactly what those of wealth and power don't want to see happen. So
this group keeps preaching the myth of the rising boats.
Preaching that technology will save the day is a cheap way of
maintaining the growth fiction without asking for any sacrifice.
Stiglitz does better than the plutocrat ****lls by sup****ting some
modest tax adjustments and other marginal steps, but one cannot base
policy proposals on the hope that science will find the way.
Prudence demands that policies be adopted which cover the worst case
scenario, or at least those worst cases with a high probability of
occurring. This is the basis of the debate over the Stern re****t. The
debate is framed as one over the future value calculation, but this can
only be projected if one knows the economic forces at work in the
future. If, for example, controlled fusion was finally developed and
electricity dropped to pennies per kilowatt the present plans for
solar-derived power would all be uneconomic. If fusion fails then the
reverse is true. Making projections on the basis of such big unknowns
is not scientific, it is fortune telling.
The other issue that Stiglitz skirts is that of population pressure.
While the rich nations need to scale back their consumption and
"growth" the poor nations need to do the reverse. As wealth increases
in the poor nations (among the peasants) the birth rates will drop and
so will population pressure. In the developed nations the population
growth rate (excluding immigration) is already below replacement level
and instead of considering this as a potential benefit the promoters of
"growth" see it as a threat.
There is life beyond capitalism/consumerism, the economists just need
to start considering what this might look like.
Posted by: robertdfeinman | Link to comment | June 10, 2008 at 06:27 AM
reason says...
I'm with Ken Melvin. Stiglitz has the right instinct for what is
im****tant. He just can't come around to asking right out loud - why is
the cart coming before the horse? Why aren't engineers and scientists
(those really responsible for progress) getting the big bickies instead
of salesmen, managers and financiers? Joe, we all want to know, please
tell us.
Posted by: reason | Link to comment | June 10, 2008 at 06:43 AM
hari says...
GWB finished meeting with EU in Slovenia and refused to agree on
climate control as proposed by EU-27. He argued it'd be against growth,
and therefore unacceptable policy for US today.
I suggest the dude is mentally deranged or simply unfit to rule a great
country like America.
It can't be that EU-27 are *nuts* to propose ways and means to
collectively undo the damage that industrialized nations have incurred
hiterto on planet earth climate and whatnot?
Posted by: hari | Link to comment | June 10, 2008 at 06:52 AM
reason says...
I wonder why he doesn't mention intellectual property rights or the
structure of international finance? Surely, I can't be the only one who
sees that that where the stink is coming from?
Posted by: reason | Link to comment | June 10, 2008 at 06:54 AM
reason says...
hari ...
the correct answer is to ask GWB for a definition of growth. And if he
just says GNP, ask him why he thinks that is the appropriate measure.
That should stump him for a while.
Posted by: reason | Link to comment | June 10, 2008 at 06:57 AM
Ben Stein the Hack says...
Normally love Stieglitz, and appreciate the general tenor of his
article, but he's repeating the same stupid Obama talking points
against Hillary's gas tax holiday plan. This is about politics, not
policy.
Recall again that McCain first raised the idea of a gas tax holiday.
This is one of the few things that can actually have a short term
impact on gas prices (along with maybe selling out of the Strategic
Petroleum Reserve). This potentially posed a serious political "man of
the people" challenge to the Dems, who should be reigning supreme on
the economy in this election cycle.
Hillary's response-- we'll take your gas tax holiday and pay for it
with a windfall profits tax on the oil companies-- was genius. It was
political jiujitsu, to use a Karl Rove term. The Republican coziness
with the energy industry was being highlighted. There is basically no
way the Republicans would have passed such a tax increase, and McCain's
proposal, rather than being a cudgel against the Dems, would be used to
hammer him and the GOP for the obscene profits of oil companies (who
are still receiving huge subsidies and tax breaks).
I fully recognize the economic consensus-- we don't want to encourage
more driving, these measures (selling out of the SPR, gas tax holiday)
are tem****ary and will have minimal impact at best)-- but that still
ignores the fact that there is a political element to this as well.
This election cycle, McCain will indubitably hit Obama repeatedly over
his tone-deafness on gas prices, and reinforce the idea that Obama is a
pointy-headed academic out of touch with working class Americans. And
Obama will be boxed in, because he has no counterproposals that can
give immediate gas price relief.
Posted by: Ben Stein the Hack | Link to comment | June 10, 2008 at
07:00 AM
reason says...
Capital gains should be taxed at least at as high a rate as ordinary
income. ... In addition, there should be a windfall profits tax on
oil and gas companies.
We need to be careful about this. Capital gains taxes are asking a lot
of accounting systems (i.e. they are costly to collect). Capital gains
are not capital gains unless you adjust for inflation (think of selling
your beach house) - but having said that, using low cost funds and
leverage you can make lots of real income out of inflation using
capital gains. That is how banks make money, but we shouldn't
necessarily think everybody is doing that. We could end up hurting
exactly the wrong people (giving a deduction for interest paid by
speculators, but not for interest forgone by genuine long-term
investors).
Posted by: reason | Link to comment | June 10, 2008 at 07:03 AM
reason says...
Ben Stein the hack - I understand your point. The correct answer would
have been a flat tax rebate to everyone regardless of how much petrol
they buy. (Or even to have INCREASED the tax and given an even higher
flat rebate. Incidence theory suggests that the tax would partly come
out of oil company profits.)
Posted by: reason | Link to comment | June 10, 2008 at 07:07 AM
kharris says...
Great armchair stuff, but in what way do we "think" sources of growth,
so that we can "rethink"? I recognize that China and to a lesser extent
Japan and just about any country with ex****t-promotion policies has
"thought" sources of growth, but individuals, firms and many western
economies tend to operate rather differently. If we "rethink" then
what? If this is a call for radical change in economic management, it
was the least overt call for radical change I can think of.
Or is it just a complaint against tricke-down tax policy? If that's
what it is, then "rethinking sources of growth" seems a bit abstract.
Even dainty, given that its Stiglitz we are hearing from. I say this as
a moderate fan of Stiglitz...When he gets around to saying what he
really wants, call me.
Posted by: kharris | Link to comment | June 10, 2008 at 07:21 AM
btg says...
i was expecting something else when he talks about growth - as in
sustainable growth along the lines of Herman E Daly, which involves
population growth amongst other issues.
The problem with windfall profits taxes, apart from the disincentives
to investment, is that this becomes something else that will make
lawyers and accountants rich in finding ways around them!
Posted by: btg | Link to comment | June 10, 2008 at 07:43 AM
notsneaky says...
Errr.... ummmm... I don't know what to make of this. Stiglitz starts
out reasonable enough, outlining some problems, criticizing Bush's
fiscal policy and looking with worry at low American saving rates. Then
he goes on to propose a series of solutions that contradict what he
said earlier.
The capital tax is ok. Let's just leave that discussion for another
time.
So initially Stiglitz says "Hillary Clinton and John McCain took the
easy way out, and sup****ted a suspension of the gasoline tax... Only
Barack Obama stood his ground and rejected the proposal". Presumably a
good reason to oppose the suspension of the gas tax was because the
demand for gas is inelastic. Hence in response to the tem****ary gas tax
the oil companies would just jack up their price 1 for 1 and pocket the
savings that were meant to go to consumers. Which is roughly true. But
then the same logic would also apply to any proposals about taxing
"wind fall profits" of the oil companies. This is a bit different, but
pretty much anything short of placing a cap on these companies profits
(and we really don't want to go there) is going to result in those
companies passing off as much of the tax on consumers as they can. And
given that the demand for gas is inelastic, they can.
Similarly if you're worried about food prices and food security for the
poorest people on the globe, it seems strange to decry agricultural
subsidies, which after all LOWER food prices. Sure, they're inefficient
in the sense that developed country taxpayers foot the bill (plus
extra), they might even affect a couple developing (actually, middle
income) countries adversely (though there's very little evidence for
this) but overall they result in greater access to food for many of the
world's poor. In another time and another place - in particular, when
food prices aren't at record highs - it might make sense to talk of
removing these subsidies, but this isn't that time and place.
It seems like Stiglitz has led rhetoric and ideology run away with him
rather than thinking carefully about these things. Maybe economists
just get lazy after they get their Nobel prize.
----
ECONOMISTA NON GRATA says, quotes actually;
"" Capitalism is the source of social and environmental crises.""
Have you ever taken a look at the environmental record of socialist
countries? Good luck fi****ng in the Aral Sea... err ... Seas.
Posted by: notsneaky | Link to comment | June 10, 2008 at 08:05 AM
reason says...
Economista non grata - notsqueaky is right about capitalism itself not
being the source of environmental crises. The problem is a political
and economic one though. Keep thinking (something about foxes in charge
of the chicken koop comes to mind).
Posted by: reason | Link to comment | June 10, 2008 at 08:20 AM
kthomas says...
Capitalism needs to be smashed over the head and buried in hole where
nobody will ever find it again.
Posted by: kthomas | Link to comment | June 10, 2008 at 08:21 AM
Ben Stein the Hack says...
notsneaky,
it's been suggested that along with the windfall profits tax, you also
insert language stating that it's illegal (perhaps criminal) to pass
that tax on to consumers. As btg suggests, this would potentially
increase audit costs, as lawyers/accountants would need to be retained.
but more to the point is this:
this discussion is not an economic one, it's a political one.
Economists are all in relative agreement that there's not much that can
be done short-term to change gas prices. That being said, McCain has
proposed something that might impact gas prices a tad, if
irresponsibly. Obama has no political response, other than to just say
"that's irresponsible". And we know how well that response has worked
in the past (see, e.g., Bush 2001 tax cuts).
Posted by: Ben Stein the Hack | Link to comment | June 10, 2008 at
08:27 AM
Nick Carraway says...
I'll see you Stiglitz and raise you a Hetfield:
Then it comes to be that the soothing light at the end of your
tunnel/Was just a freight train coming your way.
Posted by: Nick Carraway | Link to comment | June 10, 2008 at 08:48 AM
anne says...
"Hillary Clinton and John McCain took the easy way out, and sup****ted a
suspension of the gasoline tax...."
What is im****tant is never to bother to explain the significant
difference between the Clinton and McCain proposals, never to mention
similar proposals to Clinton's from Nicolas Sarkozy among others, but
just to damage Clinton by inference.
Me, I am all for looking for easy ways out especially since the damage
being done by high oil prices is not being done in any way uniformly as
the protests and strikes in Europe clearly show.
Posted by: anne | Link to comment | June 10, 2008 at 08:50 AM
Bruce Wilder says...
notsneaky, Ben Stein the Hack: All taxes do not have the same
incidence. It is possible to tax "excess profits" without any effect on
the price of product at all. This is elementary economics. The price is
a function of marginal cost; if the tax doesn't affect marginal cost,
the tax will not affect price.
The whole notion of a windfall profits tax arises from the realization
that the high profits of, say, Exxon/Mobil, consist of unexpected rents
on resource factors Exxon/Mobil owns or controls -- in classical
analysis, windfall profits are land rents. If you reduce the rents by
even a substantial percentage, it will not change the allocation of
resources to production, or the unit quantity output produced;
therefore, there is no effect on price.
This is quite different from the argument about the effect of the
excise tax on gasoline, which is a tax of fixed amount on each unit of
sale. An excise tax opens up a margin between the marginal (unit) cost
of production and unit price. So, removing the excise tax, and that
margin, logically suggests a different market equilibrium of price and
output. In the very short run, with the decision space of the producers
constrained, the price should remain unchanged, and all of the former
tax revenue should flow to sellers. In the long run, producers will be
willing to expand output, because higher marginal cost units are now
profitable, and price will have to fall somewhat to persuade consumers
to accept the additional output. In the long run, a reasonable guess,
sup****ted by various studies, is that consumers and producers would
roughly split the tax.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 08:58 AM
bakho says...
Agricultural commodities always have boom and bust cycles. Agricultural
based societies (as opposed to hunter-gatherers) have advanced and
thrived because of the ability to store food for use in "bust" times.
Getting people to produce more food is not the entire issue. A steady
food supply requires growing surpluses that can be both stored and
marketed. The Midwest is dotted with storage silos for grains that can
be stored and marketed years after production. Part of the reason for
Ag subsidies is to encourage producers to fill their silos as a buffer
against unpredictable bad years.
The Whiskey Rebellion had to do with problems of marketing surplus food
in a way that it could be more readily trans****ted (in the form of
whiskey). The problem went away after the canals were built and it
became possible to ****p grain long distances. Midwest agriculture was
only profitable after the canals (later the railroads) opened markets
for the surplus in Eastern cities. The canals and railroads were only
built because of huge government subsidies to start them off.
Underdeveloped countries that have starving populations have periods
where surplus food is produced by those populations interspersed with
periods of famine. Because they are underdeveloped, they lack the
infrastructure for food storage or trans****t. Leveling the boom bust
cycles requires investment in infrastructure for food storage and
trans****t. The problem is NOT that the US has ag subsidies. The problem
is that agriculture in many underdeveloped countries is not subsidized
enough. Ag subsidies for surplus storage have the same dynamics as
insurance policies.
Posted by: bakho | Link to comment | June 10, 2008 at 09:04 AM
Bruce Wilder says...
anne: "I am all for looking for easy ways out"
And, some of us are not so glib and irresponsible.
The Clinton gas tax holiday *** windfall profits tax was superior to
McCain's nonsense, but the price of gas is high, because the cost is
high. We don't lower the cost, by artificially lowering the price.
Stiglitz: "we have treated our most precious resources - clean water
and air - as if they were free. Only new patterns of consumption and
production - a new economic model - can address that most fundamental
resource problem."
I thought robertdfeinman had one of the most thoughtful comments in
this thread, because where Stiglitz is tepidly highlighting the shallow
stupidity of the tax cuts mantra, robert is willing to attack the
shallow stupidity of the growth mantra that lies behind it.
The combination of peak oil with environmental crisis and global
warming make the case new. As the case is new, we must think anew and
act anew. And, then, we might save our planet.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 09:11 AM
anne says...
http://angryarab.blogspot.com/2008/05/i-was-visiting-my-local-toyota-de
aler.html
May 28, 2008
"I was visiting my local Toyota dealer in Bethesda, Md., last week to
trade in one hybrid car for another." * Oh, really? So what do you want
from me? A blender? You need a reward because you are driving a hybrid?
Do you want poor people to buy hybrids too even if they can't afford
it? And how did that pie-in-your-face taste? Was it creamy enough for
you? When I read Thomas Friedman writing about energy and conservation
I get a strong urge to waste energy. I get a strong urge to cut down
trees and to turn on all lights in the house, and to operate my blender
on gasoline. Some people are most annoying when they do this public
service shtick; when they act all righteous. I feel the same when I
watch public service announcements on right-wing, LBC-TV of Lebanon.
When I see them addressing drunken driving, I get the urge to get drunk
and drive all over California. Spare me, please.
* http://www.nytimes.com/2008/05/28/opinion/28friedman.html
-- As'ad AbuKhalil
Posted by: anne | Link to comment | June 10, 2008 at 09:16 AM
anne says...
Got to find a "Burn, Baby, Burn" bumper sticker; I know the context is
wrong, still the moral is all that counts.
Posted by: anne | Link to comment | June 10, 2008 at 09:20 AM
cm says...
reason: "Why aren't engineers and scientists (those really responsible
for progress) getting the big bickies instead of salesmen, managers and
financiers? Joe, we all want to know, please tell us."
I take it that was a rhetorical question?
Posted by: cm | Link to comment | June 10, 2008 at 09:21 AM
cm says...
kthomas: "Capitalism needs to be smashed over the head and buried in
hole where nobody will ever find it again."
To be replaced by what? (With the caveat that I don't know what you
mean by "capitalism".)
Posted by: cm | Link to comment | June 10, 2008 at 09:23 AM
Dennis Blackmore says...
Here is a novel idea - use Iraq's oil for a year to pay back the United
States.
Posted by: Dennis Blackmore | Link to comment | June 10, 2008 at 09:26
AM
Bruce Wilder says...
bakho: "The problem is NOT that the US has ag subsidies. The problem is
that agriculture in many underdeveloped countries is not subsidized
enough. Ag subsidies for surplus storage have the same dynamics as
insurance policies."
The New Deal ag subsidies were primarily price sup****ts, designed to
prevent the booms in output, which created busts in price, from
devastating farms in a vicious cycle. Price sup****ts were set at levels
that prevented widespread farm bankruptcy in boom years (which boom
years in output were, paradoxically, bust years financially for the
farmers, because of depressed prices).
And, it is exactly as you say, ag subsidies acted as insurance, which
allowed, simultaneously, a steady exit of resources from the farm
sector and substantial investment in farming technology and capital
equipment.
(Earl Butz, Nixon's ag sec, screwed this all up, especially as far as
corn (maize) is concerned. But, elections don't have consequences; just
keep telling yourself that.)
My general impression is that price sup****t subsidies are set too high,
especially in Europe, but also in the U.S., and too much of the surplus
is not stored, but dumped on world markets, where it depressed prices.
But, I think Bakho's main point is, essentially, correct. The
conventional, oversimplified analysis is that government policy (in the
developed countries) artificially depresses world prices. This idiotic
analysis leads to economists recommending policies to respond to
famine, which involve raising prices and reducing surplus output. And,
economists wonder why they are derided.
What is needed, in the developing world, is the same kind of
agricultural insurance subsidy that the developed world used, to
finance and organize investment in more productive technology and
equipment and methods.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 09:27 AM
Bupa says...
http://www.eubusiness.com/news-eu/1213111022.74
In France on Tuesday Alexei Miller, head of Russian energy giant
Gazprom, warned that the price of oil is likely to hit 250 dollars a
barrel, without indicating when that might happen.
Posted by: Bupa | Link to comment | June 10, 2008 at 09:33 AM
Bruce Wilder says...
Dennis Blackmore: "Here is a novel idea - use Iraq's oil for a year to
pay back the United States."
Here's a novel idea, Dennis: let's confiscate your pathetic income for
the rest of your miserable life, to pay for some tiny fraction of the
damage the U.S. has caused in Iraq.
The U.S. completely destroyed Iraq, ground the Iraqi economy to dust
under years of sanctions, followed by bombing and a security-free
Occupation, in which many tens of billions were wasted in useless,
corrupt spending. The U.S. killed a 100,000 or more Iraqis. Half the
population is unemployed, and more than a third barely subsist, amidst
a simmering civil war of suicide bombings. Potable water is in short
supply; sewage goes untreated; electricity is available for only a few
hours a day, even in the capital.
The U.S. will leave Iraq, after spending trillions of dollars to make
that miserable, unfortunate country even worse off than it was before.
It is the U.S. that will owe Iraq, just as the U.S. owes Vietnam. But,
of course, the U.S. won't pay or even acknowledge the damage done. And,
why? Because the American Right are a bunch of dishonorable
ignoramuses, determined to dishonor their country and destroy all that
they touch.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 09:39 AM
JeffF says...
Management gets more money because management distributes the money.
One change I would like to make in the US is to imitate some of the
cor****ate governance of the Germans. Their additional cor****ate board
with minority representation from the workers seems to me to be a far
better model of the real stakeholders in a large company than our
owner****p & management only governance structure.
Posted by: JeffF | Link to comment | June 10, 2008 at 09:47 AM
Theory of Interest and Savings says...
"Tax cuts were supposed to stimulate savings, but household savings in
the US have plummeted to zero."
Guys, its time to change your theories. The standard theory is that
real interest rates don't affect the savings rate. Yet here in the land
of the eternal negative after tax interest rate savings are non
existent. Tax cuts are "saved" by remodeling the kitchen, since housing
is an inflation resistant commodity.
Posted by: Theory of Interest and Savings | Link to comment | June 10,
2008 at 10:02 AM
agricanto says...
Yikes bahko !!
"Underdeveloped countries that have starving populations have periods
where surplus food is produced by those populations interspersed with
periods of famine. Because they are underdeveloped, they lack the
infrastructure for food storage or trans****t. Leveling the boom bust
cycles requires investment in infrastructure for food storage and
trans****t. The problem is NOT that the US has ag subsidies. The problem
is that agriculture in many underdeveloped countries is not subsidized
enough. Ag subsidies for surplus storage have the same dynamics as
insurance policies."
Now I know why cla****ng with neo-classical econ has been my fate for
seems like ever... Myth as diagnosis and Growth as panacea.
Myth as diagnosis: "underdeveloped" = famine and starvation. Famines
are rare in the world and "starvation" is hardly a norm even where
chronic hunger is. Underdeveloped countries are ex****ters of ag.
commodities for the most part and in fact do (directly and indirectly)
subsidize their commercial ex****t sector. The indirect subsidy is
ugly... militarized rural areas to put down peasant unrest; transfer of
best soil and rural production areas (with best infrastructure) to a
caste of local land owners in a consortium of international ag capital
and national elites; food security for urban dwellers paid for with US
grain and commodity aid under Pub Law 480; opposition by US to ag.
subsidies practiced in countries under WTO who ex****t to US and EU (see
banana war and US opposition to Lomé convention)... the list is long
and should put the myth of scarcity to rest. But it won't. Ideology is
what feeds neo-classical econ, not empirical facts. Amartya Sen anyone?
Growth as panacea: In biology, unrestrained growth is a pathology..
cancer! In econ it's "the rising tide that raises all boats." But
Herman Daly and Costanza and other ex-neoclasscial economists suggest
that sustainability can only be reached in a move toward zero growth.
The possible choice is to locate the "engine" of economic change in
democracies that create new markets in radical conservation (huge
reduction in resource footprint per unit of production and
consumption). New technologies for radical change in energy use and
steward****p of water, soil and biota can redirect "us" toward a more
social definition of prosperity and sustainability.
PS: A Frenchman questioning Zarkozy's love of the US style of welfare
state (get rid of it) asked philosophically.. "What is the purpose of
prosperity if it is only a promise of a better life that never comes
because people need to work more, pay more, and spend more time making
the economy strong and spending money instead of enjoying the time they
have on earth?"
Posted by: agricanto | Link to comment | June 10, 2008 at 10:12 AM
Counter Productive says...
"At the core of America's success is technology, symbolized by Silicon
Valley. The irony is that the scientists making the advances..., and
the venture capital firms that finance it were not the ones reaping the
biggest rewards... Capital gains should be taxed at least at as high a
rate as ordinary income..."
This would harm the very venture capital firms that finance the
technological revolutions that are so desirable. Because capital gains
taxes tax the nominal gains, rather than real gains, a nominal tax rate
similar to income tax rates would be a real effective rate far higher.
If capital gains are indexed for inflation, then a rate similar to the
income tax would work.
Start taxing home gains, and stop giving deductions for mortgage
interest. That would transfer resources from housing speculation as
inflation hedges to technological revolutions. Get rid of inflation,
and citizens would again start saving in a form that can be loaned out
to start new technology businesses.
Posted by: Counter Productive | Link to comment | June 10, 2008 at
10:13 AM
Bupa says...
"housing is an inflation resistant commodity"
guess you haven't noticed that housing prices are falling in nominal
terms while inflation is rising.
http://calculatedrisk.blogspot.com/2008/05/case-****ller-real-prices-off
-21-from.html
"In real terms, the Case-****ller National Home price index is off 21%
from the peak. Real prices are now back to the Q3 2003 level (nominal
prices are back to Q3 2004).
With existing home inventory at record levels, prices will probably
continue to decline over the next few years - perhaps another 20% in
real terms on a national basis."
Posted by: Bupa | Link to comment | June 10, 2008 at 10:16 AM
Bruce Wilder says...
Theory: "The standard theory is that real interest rates don't affect
the savings rate."
Whose standard theory is that?
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 10:17 AM
Cynthia says...
Now I don't question that Stiglitz's grasp of the language far exceeds
mine, but I do question his choice of the word "ameliorate" in the
phrase "higher taxes for those who have done well...[ ]...could
ameliorate the strains imposed by soaring food and energy prices." Then
again, it might very well be the case that I'm having a bout of
Godel-like angst over the plethora of ambiguities in the language. But
unlike Godel, I find the supermarket too ***y to let myself starve to
death.;^)
Posted by: Cynthia | Link to comment | June 10, 2008 at 11:16 AM
anne says...
Woman is simply a genius....
Posted by: anne | Link to comment | June 10, 2008 at 11:25 AM
bakho says...
Agricanto, what you are describing is not subsidy, but corruption and
exploitation.
The US has all kinds of subsidies at both ends. Price sup****ts for
farmers, food stamps, free lunch, etc at the consumer end.
Posted by: bakho | Link to comment | June 10, 2008 at 11:37 AM
Eric Dewey says...
Paine, great point! All measurements depend on a reference point, an
origin, a zero - but in this discussion, it seems as if all these
highly trained minds are using different values for zero..."my
distortion looks like your pareto improvement".
Is the movement of real wages in all 200 states calculable in a manner
that could lead to a core agreement?
Or does it need to be something like a median productivity output?
Posted by: Eric Dewey | Link to comment | June 10, 2008 at 11:43 AM
notsneaky says...
Bruce Wilder,
"if the tax doesn't affect marginal cost, the tax will not affect
price."
Yes I know that which is why I said "this is a bit different". But
couple things. First, there are situations in which a tax which doesn't
affect mc will change price - if it's basically a fixed cost and the
industry is not perfectly competitive (as the gas industry ain't in
most likelihood) then it will change number of firms, degree of
competitive pressure (those windfall profits gotta come from somewhere)
and hence prices.
Second, I'm not sure how this cannot be a marginal tax in this case.
It's either a tax which says "if your profits are above X$ you pay Y$
in taxes". In which case the obvious, large margin is at the X and I'm
sure the gas companies will contrive to make exactly X-.0001$ in
profits. And I suspect that the best way that they can achieve this is
quantity rationing (which would raise prices), not price cuts.
Alternatively it could be a tax which is a percent of the profits above
X. But this is a marginal tax which, again with demand being inelastic
would likely raise the prices.
Finally, at the end of the day, if you're worried about global warming
you got to reduce the consumption of gas. And to do this you're going
to have to raise the price of gas one way or another - there's just no
escaping that.
Hurray for high gas prices!
Posted by: notsneaky | Link to comment | June 10, 2008 at 11:57 AM
anne says...
http://query.nytimes.com/gst/fullpage.html?res=9B0DE5DE1539F932A15755C0
A961948260
June 21, 1987
Logic and Other Imperfect Things
By GEORGE JOHNSON
FOREVER UNDECIDED
A Puzzle Guide to Godel.
By Raymond Smullyan.
IN the domain of mathematics, Kurt Godel's Incompleteness Theorem
enjoys the same notoriety Werner Heisenberg's Uncertainty Principle has
in physics. Both of these curious, often misunderstood ideas are seized
upon by writers, scientists and the occasional mystic as founts of
paradox, demonstrating that at its heart reality is twisted in
astoni****ng ways.
Kurt Godel ended the quest for a perfect, all-encompassing mathematics
by showing in 1931 that any formal system that is at least as complex
as arithmetic is (like a diamond) inherently flawed. It must be either
incomplete or inconsistent. To be complete such a system must be able
to prove that any formula expressible in its language (a mathematical
equation, for example, or a statement in symbolic logic) is either true
or false; nothing can be undecidable. To be consistent it must contain
no errors. One would think that a system lacking either quality should
be declared in violation of its warranty and returned to the
manufacturer. But Godel showed that if you have one of these
characteristics you can't have the other; they are mutually exclusive.
Godel proved his theorem by demonstrating that our various systems of
mathematics and logic have the ability to talk about themselves.
Because of this self-referential quality, paradoxes arise, rendering
them unreliable. More specifically, Godel proved that for every
sufficiently complex formal system (and only the complex ones are
interesting) there is a proposition that says, in effect, ''This
statement is not provable.'' If the statement is true, then the system
is incomplete -there is one statement that it is incapable of proving.
If the statement is false, then it must be provable - so we can prove
that it is unprovable. Thus the system contradicts itself....
[Or, tasting artichokes.]
Posted by: anne | Link to comment | June 10, 2008 at 12:17 PM
Bruce Wilder says...
notsneaky: "those windfall profits gotta come from somewhere"
Yeah, they come out of economic rents. That's the rationale behind a
windfall profits tax -- that the profits being taxed represent and are
economic rents. Economic rents are, by definition, unrelated to whether
resources are used in production; in theory, the whole rent can be
taken away, and the resource will still be allocated to the same, best
use. Only if you took away more than the rent, would the resource be
allocated to the next best use. So, your argument that the number of
firms or competitive pressure will change in response to a windfall
profits tax basically comes down to the assertion that "windfall
profits" being taxed are not, in fact, pure rents or that the tax, as
implemented, will be somewhat less than perfect in discriminating the
"windfall" to be taxed, and will end up taxing away something else --
perhaps, the whole economic profit, plus part of the normal return on,
and recovery of, investment.
Some of the big oil companies are, in fact, earning huge rents on
resources that they own or control, and which resources were dedicated
to oil production at much lower prices. I'm reasonably confident that
the government can take in taxes a ****tion of those rents, without
affecting economic profit on new investments, if that's desired; if
large cor****ate bureaucracies can manipulate their profits to the
fourth decimal, large government bureaucracies can manage to manipulate
the tax bill to effect such an end.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 12:24 PM
Bruce Wilder says...
notsneaky: "Hurray for high gas prices!"
I'm not sure I'm ready to cheer, but, yes, at the end of the day, we
need gas to be expensive, because it is, in fact, costly.
So, a tax on windfall profits, which, might, in error, slightly raise
gas prices, but, nevertheless, bring in large revenues to the
government that could be used to allocate resources for urgent
purposes, would seem prudent.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 12:29 PM
notsneaky says...
"So, your argument that the number of firms or competitive pressure
will change in response to a windfall profits tax basically comes down
to the assertion that "windfall profits" being taxed are not, in fact,
pure rents or that the tax, as implemented, will be somewhat less than
perfect in discriminating the "windfall" to be taxed, and will end up
taxing away something else"
Yes, that is in fact my argument, or at least a part of it. The
confusion arises because of the difference in the colloquial use of the
term "windfall profits" - which basically means, "really high profits"
(not necessarily rents) - and the academic use of the term in the sense
you have it above.
Note however that a monopoly makes "rents". Yet, taxing that monopoly,
if its a marginal tax, raises prices. The situation you describe above
would arise essentially if the supply of the good in question is
perfectly inelastic (like land, which is where the whole rent thing
comes from). But if it were in fact so - or at least more inelastic
then the demand - then we wouldn't be seeing oil companies passing off
cost increases to consumers to the extent that we do.
And I completely disagree with the last sentence of your second
paragraph. In fact, it's not unreasonable that the more complicated the
large government bureaucracy tries to make the tax code in order to
manipulate tax bill, the more likely they are to inadvertently create
all kinds of loopholes, distortions (it's not going to be a fixed cost
tax anymore) and op****tunities for the violation of the spirit if not
the letter of the law.
Personally I don't see a good way out of this mess in the near
future/short run. There are these disparate goals of keeping gas prices
low, keeping gas consumption low and let's throw in there sticking it
to the gas companies. And these goals are often at odds with each
other. So at this point all I can say is some weak "let's invest more
in alternative fuels".
Posted by: notsneaky | Link to comment | June 10, 2008 at 01:04 PM
notsneaky says...
As an aside, any idea/reference on how big these "windfall profits" are
supposed to be? I'm just wondering what kind of compensation per capita
would they make possible.
Posted by: notsneaky | Link to comment | June 10, 2008 at 01:20 PM
mik says...
When he gets around to saying what he really wants, call me.
I would not hold my breath. But in an unlikely event that Stig will say
something that is actionable, could do you also put me on email list?
Posted by: mik | Link to comment | June 10, 2008 at 01:40 PM
mik says...
When I read Thomas Friedman writing about energy and conservation I get
a strong urge to waste energy. I get a strong urge to cut down trees
and to turn on all lights in the house, and to operate my blender on
gasoline. Some people are most annoying when they do this public
service shtick; when they act all righteous.
Ah, old Tommy, still doing his shtick. For those who don't know how
righteous this man is
(www.wa****ngtonian.com/articles/mediapolitics/1673.html):
Friedman married into one of the 100 richest families in the country a
quarter century ago and now is far more famous than it is. The
Bucksbaums, widely recognized as benevolent leaders in the real-estate
industry and pioneers in the development of shopping malls, are worth
about $2.7 billion. Friedman says his father-in-law, patriarch Matthew
Bucksbaum, is his best friend.
In 2003, the Friedmans built a palatial 11,400-square-foot house, now
valued at $9.3 million, on a 7.5-acre parcel just blocks from Bethesda
Country Club.
I would guess just an electrical bill for the estate is on order of
$2-3K/mo.
But never mind, he recycles.
Posted by: mik | Link to comment | June 10, 2008 at 02:02 PM
Michael McKinlay says...
Of course the tax laws need to change, drastically. How about the same
tax rate for everybody, that is individuals, business, dividends,
capital gains and estate?
Then credit must be repriced to reward sustainable activity while taxes
are used to discourage wasteful consumption.
To end our debt spiral we need a public central bank that reprices our
credit while creating money without debt. Without an end to borrowing
at interest we cannot break the consumption addiction that uses our
credit for the wholesale carnage of the world's resources.
Posted by: Michael McKinlay | Link to comment | June 10, 2008 at 03:52
PM
ken melvin says...
In rural merika, high gas prices makes it difficult if not impossible
to get to the food bank.
Posted by: ken melvin | Link to comment | June 10, 2008 at 04:41 PM
Bruce Wilder says...
notsneaky: "First, there are situations in which a tax which doesn't
affect mc will change price - if it's basically a fixed cost and the
industry is not perfectly competitive (as the gas industry ain't in
most likelihood) then it will change number of firms, degree of
competitive pressure (those windfall profits gotta come from somewhere)
and hence prices."
Over the course of the day, I was mulling over what you said here. I
often rail in comments against the bad habit of analyzing market
dynamics as if a market-clearing price was arrived at by tātonnement,
when, in fact, most prices are administered in conditions that more
closely resemble monopolistic competition, and many markets do not
clear; I was aware of an irony in my conventional analysis.
The chain of bureaucratic enterprise, which brings oil out of the
ground and then refines and distributes it is long and complex, and the
price of gasoline has many components representing a return on various
links in that processing and distribution chain.
I don't know much about the various links in that chain, but I know
that gas stations basically collect an administered margin, as a return
on their costs and investments. That margin is effectively, like the
federal excise tax on gasoline, a fixed amount per gallon sold.
In the 1970's, during previous gasoline price spikes, the structure of
retail gasoline distribution was profoundly affected by the run--up in
gas prices. The number of service stations in business fell
drastically. The number of gas station attendants was cut back, and
people learned to pump their own gas. I think advertising of gasoline
brands declined. I suppose one could say that high prices and increased
competition squeezed margins.
And, the changes proved to display path dependence. When the real price
of gas and oil declined again in the 1980's and 1990's, the nubmer of
service stations did not rebound; the job of pump jockey did not come
back. A new structure had emerged, in which the typical service
stations became convenience stores, which incidentally sold gasoline in
very large volumes.
These are the kind of changes that cannot be predicted by a general,
abstract theoretical model of tātonnement. (I am sure changes took
place at the refinery link in the chain, as well; I am just not
familiar with them.)
High prices for oil resulted in a far more efficient service station,
operating on a larger scale and with less labor. Presumably, that
tended to lower price, a bit, in the long run.
The fairly radical change in the gasoline service station business is
the kind of transformation that seems almost a commonplace after 250
years of industrial revolution, and it is the kind of restructuring
that most non-economists look for, whether they are advocating
investment in "alternative fuels" or investing in rail trans****ation or
calling for auto fuel efficiency mandates.
Just something to think about.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 06:53 PM
Mark Thoma says...
Bruce - haven't been following this closely, but you might be
interested in some recent New Keynesian models where some prices are
set by rule of thumb (e.g/ administered, fixed-mark-ups over MC, etc.),
while others are reset optimally.
The idea is that firms can only afford to devote energy to a thorough
effort to reset prices intermittently, and in the interim they use
rules of thumb to set prices (which I think would proxy for what you
have in mind). These models were developed in part as a means of
matching the actual persistence we see in inflation rates (standard
Calvo-type price-resetting can't explain persistence in inflation).
Posted by: Mark Thoma | Link to comment | June 10, 2008 at 07:00 PM
ken melvin says...
The harshest burden of the high gasoline falls upon the poor. So it
should be, since they, no doubt, are responsible. That's the way the
system works.
Posted by: ken melvin | Link to comment | June 10, 2008 at 07:08 PM
Bruce Wilder says...
ken melvin: "The harshest burden of the high gasoline falls upon the
poor. So it should be, since they, no doubt, are responsible. That's
the way the system works."
Yes, ken, that is how the system works, and poverty is, what it means
to be poor.
People, who think the economy is a moral engine, doling out just
deserts, are morons.
Posted by: Bruce Wilder | Link to comment | June 10, 2008 at 08:00 PM
Lafayette says...
Mission Impossible? ... redux
Article: The world needs to rethink the sources of growth.
Right, but how?
Shouldn't the world also rethink the sun setting in the East and rising
in the West? Who knows? After all, maybe it could diminish polar cap
melting?
Surely, I joke. Stiglitz is nonetheless asking the right question. It's
the answer that's difficult to ascertain.
Growth sources are phenomenon that economists measure and observe.
There is not much one can do about them, given prevailing mentalities.
Name one country that is willing to change its sources of growth to
satisfy a normative criteria of whatever may be the Best Growth. Is
Europe willing to reduce its subsidies to the Agricultural
Conglomerates that receive them? Nope again. Is the US? I doubt it.
Change agricultural subsidies? Alter our usage of precious resources
such as water. Get unhooked from the carbon molecule as our principal
source of energy.
They are all possible. But, that's not the right question, I submit.
Are they plausible? Not without significant dislocations, meaning
economic and social disruptions to the prevailing order. Few
politicians have the courage to push the Paradigm Change thing too far.
They know full well that policy making cannot outpace the willingness
of a people to assume the consequences.
I like the question Stiglitz poses. I just don't see how. Anybody have
a vision to share with us?
PS: And, finally, when it comes to growth and the massive wealth that
it generates. Consider to whom that wealth is mostly attributed. Are
they willing to sit back and blithely watch it wither away? Nope again.
Posted by: Lafayette | Link to comment | June 11, 2008 at 04:49 AM
notsneaky says...
Bruce,
At this point I guess the matter comes down to empirical details. I
think that, one way or another, a tax on "windfall profits" is going to
get passed onto consumers (which isn't necessarily a bad thing, given
global warming and the need to cut gasoline consumption) while you
think that it will mostly hit those profits. I understand your argument
and where you're coming from and I think it's a perfectly valid
position to take. I disagree still because I think the proper way to
look at the problem is different but you could very well be right.
Without more detailed knowledge about industry structure, elasticities
etc. it's hard to come down strongly on either side of the issue.
Also I agree with your description of path dependence here - though I
don't think it's really related to the issue at hand. In the long run,
generally, the problem is not as difficult, for many reasons - like the
path dependence you mention, but also quite simply because gas demand
is quite elastic given sufficient time for household to purchase new,
more fuel efficient cars, and allow for changes in the composition of
the existing fleet.
However, based on my personal experience I actually think prices in the
industry are set differently then from what you describe. Well, first,
lemme just note that it probably isn't the owner of your local corner
franchise grocery store/gas station that is making those "windfall
profits", though they are probably benefiting as well. So I'm not sure
that this is the proper level of industry at which to look at. Second,
when I worked at a gas station, the prices were set not by any kind of
institutional/cor****ate mark up policy but by, each morning, the
owner/manager calling the gas station across the street and talking it
over with the corresponding owner of the competing store (which was of
course illegal). In other words, while there may be some cor****ate
guidelines in how franchises or even company stores set their prices in
response to big macro shocks (probably mostly the price of crude) there
is also a lot of variation based on local conditions - which include
the number of stores in the area and hence the degree of competition.
Posted by: notsneaky | Link to comment | June 11, 2008 at 02:44 PM
Lafayette says...
ns: However, based on my personal experience I actually think prices
in the industry are set differently then from what you describe.
You mention price setting by "tātonnement" -- which means groping about
in the dark. Or randomness. I think this is what you mean. Correct me
if I am wrong.
In my experience, the only industries that I know who do this are
high-tech innovators who develop a product that has no competition.
They throw it out on the market and see who is willing to pay for it.
It's fairly random.
I suggest that gas prices are not sensitive to such pricing tactics,
for as long as there is sufficient competition -- and that there is. If
not indirect price-fixing, which is certainly not random.
The price speculation, presently, is purely dependent upon future spot
pricing. And, that spot pricing is sensitive to constraint parameters,
not only in the extraction process but that of refining.
Until I see a better explanation, methinks.
Posted by: Lafayette | Link to comment | June 12, 2008 at 09:11 AM
reason says...
Notsqueaky is perfectly - we should be charging domestic producers more
resource rental not putting an increased excise charge on all petrol.
That WILL squeeze profits because they have to compete with im****ted
fuel which are not subject to the resource rental charges.
Posted by: reason | Link to comment | June 13, 2008 at 08:49 AM
John says...
I'd suggest dis-incentives on speculation...
For example, government-imposed transaction costs for short holding
periods.
Posted by: John | Link to comment | June 14, 2008 at 04:17 PM
Lafayette says...
Financial calamity?
John: For example, government-imposed transaction costs for short
holding periods.
That's good for starters. But, the real measure tampering rapacious
greed would be higher marginal tax rates. It takes a bit of the
sweetness out of cor****ate compensation for having manipulated markets.
Please, aside from profit, can someone explain AND substantiate, what
is the beneficial purpose of such arbitraging? Meaning, if it were not
done, what financial calamity would be upon us? (Which would be worse
than an asset bubble or the subprime fraud?)
Posted by: Lafayette | Link to comment | June 15, 2008 at 01:18 AM
bulgarian solicitor says...
FTA: "...while bio-fuels have meant that food and energy markets are
increasingly integrated." Absolutely. And I think the prevalence of
huge domestic ag subsidies means both of these markets -- energy and
food -- are ****elded from outside competition in a manner such that
developing countries that could feasibly contest American corn farmers,
for example, are stuck watching on the sideline. Not the article's main
point but interesting nonetheless.
Posted by: bulgarian solicitor | Link to comment | June 15, 2008 at
11:13 PM
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