Could’ve fooled me

Here’s the NYT:

The cumulative impact of a decade of austerity measures and Labour shifting the political center of gravity leftward on economic policy means that Mr. Johnson has been forced to promise more public spending if he wins the election. But make no mistake: In the long term his administration remains committed, as one Conservative-aligned think tank put it recently, to “rampant individualism” and “a small state.”

I was fooled by the fact that Trump, Johnson and other modern conservatives all over the world are both promising and delivering more public spending.  I thought that meant they no longer favored “a small state”.  My “mistake”.



16 Responses to “Could’ve fooled me”

  1. Gravatar of Tom Brown Tom Brown
    18. November 2019 at 14:53

    They’re populists.

  2. Gravatar of Benjamin Cole Benjamin Cole
    18. November 2019 at 15:30

    Leaders of developed economies and even leaders of China are wrestling with systems that cannot seem to obtain solid nominal GDP growth rates without an even large expansion of credit.

    As Adair Turner pointed out, Western economies had nominal GDP growth around 5% leading up to 2008, and credit expansion at about 15% annually.

    Western economies also have inherently fragile banking systems, in which reserves seem to be somewhere between 10% and 15% of loans outstanding, despite “reforms” and tougher regulations.

    Can orthodox macroeconomists devise a plan wherein nominal GDP hits a growth target, but credit expansion is reasonable?

    Why is credit expansion so much larger than growth rates of nominal GDP?

    Do helicopter drops offer a sensible option to this chronic and dangerous problem of excessive debt?

    Would long-term and persistent quantitative easing by central banks, in which it is understood that balance sheets will continuously grow, offer another solution?

  3. Gravatar of Benjamin Cole Benjamin Cole
    18. November 2019 at 15:44

    BTW… the resistance to central bank quantitative easing seems to have totally evaporated.

    The Federal Reserve has added $280 billion to its balance sheet since September. But this expansion of the balance sheet was explained as adding liquidity to the financial system.

    Perhaps the Federal Reserve needs only to mention liquidity problems in the financial system before engaging in future quantitative-easing projects to effectively offset the amount of credit expansion ongoing.

  4. Gravatar of Benjamin Cole Benjamin Cole
    18. November 2019 at 18:37

    Boston Fed Rosengren joins the widening ranks of central bankers who say the Fed and central banks will be out of ammo soon in any recession.

  5. Gravatar of Ralph Musgrave Ralph Musgrave
    18. November 2019 at 19:41

    I don’t see why Benjamin Cole is so concerned about the “expansion of credit”. Given the fall in interest rates over the last 20 years, it’s no big surprise people are borrowing more.

    One problem with more credit is that taxpayers are increasingly exposed when banks fail. The solution to that is full reserve banking: a system under which those who fund loans carry relevant risks instead of taxpayers carrying the risks.

    If you put money into a mutual fund which lends to corporations, i.e. buys corporate bonds, you carry the risks. But if you put money into an entity with a different name, i.e. a “bank”, and the bank lends to all and sundry, i.e. mortgagors and small or large firms, then for some strange reason you are protected against loss by taxpayers.

    If that blatant anomaly was disposed of, the attractions of credit would be reduced.

  6. Gravatar of Matthias Görgens Matthias Görgens
    18. November 2019 at 22:31

    Ralph, full reserve banking is not a solution.

    Just not putting tax payers on the hook is a solution. Let them fail. As long as we have stable nominal GDP, who cares? You could even remove government sponsored deposit insurance while you are at it. (Private deposit insurance is fine.)

    If people prefer 100% reserve banking, there’s no law against it, is there?

    What would also be useful is a reform of tax system to put debt and equity on similar footing. Capital costs for debt, ie interest payments, are widely tax deductible. Capital costs for equity less so.

  7. Gravatar of Benjamin Cole Benjamin Cole
    19. November 2019 at 03:04

    To clarify, I am not against reserve banking. (Like it matters—we will have reserve banking in the US regardless of my pontificating and likely that of anyone else)

    But it should be understood that reserve banking results in “endogenous money creation” by commercial banks. And that without this money creation, you get an economic stall—unless offset by increased government outlays or helicopter drops.

    Also, at least within the US context, reserve banking is fragile—see 2008.

    To my favorite Aussie, I say we can “let banks fail,” but I see no point in that as long as shareholders and bondholders are wiped out. Why should ordinary depositors get cranked for foolish macroeconomic policies and poor bank management?

    An aside to anyone—

    I think the “trade war” bogeyman-totem is toppling. Markets are up, and no trade deal in sight. The US collects $3 trillion a year in taxes, has regulations up the wazoo. It is against the law to build housing along the West Coast where it is badly needed, and where artificial housing shortages are suffocating economic growth.

    Another $50 billion in annual tariffs was and is peanuts.

  8. Gravatar of Ralph Musgrave Ralph Musgrave
    19. November 2019 at 04:06

    Matthias, Your “not putting taxpayers on the hook” is pretty much the definition of full reserve. To be more exact, under FR, anyone who wants a bank to lend on their money has to bear relevant risks (rather than the deposit insurance system and/or taxpayers bearing the risks). Also under FR, those who want total safety have their money lodged at the central bank: something people can do at the moment in the UK in that anyone can open an account at the government run “National Savings and Investments”.

    Benjamin, I fully agree that the deflationary effect of switching to FR has to be made good by helicopter drops or some similar form of stimulus. But what of it? As Milton Friedman said, stimulus dollars cost nothing to create in real terms.

  9. Gravatar of Michael Rulle Michael Rulle
    19. November 2019 at 04:51

    Who ever thought that Trump was a small state kind of guy? He has been a deregulator in energy production—-or at least eliminated some rules preventing it. So that is a small state kind of thing. He also did not join the Paris accords, also a small state kind of thing.

    One irony of the Democrat Party is he would have been more than amenable and likely still is to create fiscal stimulus in exchange for ——-some kind of immigration reform—-which despite the rhetoric—-is unclear whether his reform would be all that unacceptable to the Democrats—-although he has already said things unacceptable to Ann Coulter. Trump has small amounts of ideology—-he is fixated on trade deficits—-but We still have a new NAFTA that goes unsigned by Congress.

    The years of his presidency will not be fully judged until after his presidency (I leave out cause and effect statements). But so far, “despite” him, we have not fallen apart. No need to write random thoughts on how he is lucky or whatever—or a baboon—don’t care and is not really relevant to me.

    And maybe the House’s impeachment process is an excellent thing, preventing further harm by doing only impeachment work. Although I think both branches agreed on some giant omnibus bill with spending decisions to come later.

  10. Gravatar of ssumner ssumner
    19. November 2019 at 07:55

    Michael, You said:

    But so far, “despite” him, we have not fallen apart.”

    I wonder if people understand just how foolish these comments are. Imagine if I judged the quality of my plumber’s repair job based on how America is doing. The President is way more powerful than my plumber, but still has only a very minor impact on how the overall country is doing.

    BTW, this fallacy is bipartisan—both parties suffer from the same misconception.

  11. Gravatar of Carl Carl
    20. November 2019 at 09:09

    There doesn’t seem to be much of a market for fiscally conservative politicians anymore. I don’t know why. Did the majority of voters change their opinion that the market allocates resources better than the government? Or, did the majority always believe government allocation was better, but the government fisc was restrained by some technical factors that have since been overcome?

  12. Gravatar of Tom Brown Tom Brown
    20. November 2019 at 10:11

    Carl, you mean like those politicians catering to the Tea Party? The Tea Party (outside of a tiny minority of true believers) were just a bunch of frauds looking for (fiscal) cover for what really worried them.

  13. Gravatar of Carl Carl
    20. November 2019 at 12:01

    @Tom Brown
    I’m looking further back than the Tea Party to when the federal government only spent an amount equal to a single digit percentage of GDP.

  14. Gravatar of Lorenzo from Oz Lorenzo from Oz
    20. November 2019 at 14:08

    A lot of people, especially in working class communities, feel that globalisation and marketisation has not worked to their advantage. Politics is responding to that.

  15. Gravatar of Carl Carl
    20. November 2019 at 15:08

    But what changed to make people think that the government could do a better job? At least in the US, confidence in government has been going in the opposite direction.

  16. Gravatar of Michael Rulle Michael Rulle
    21. November 2019 at 05:32

    Scott—-I kind of like you comparing a President to a Plumber. It raises the question of what the function of a President really is. Yes, it is true, I assume, both could do a bad job and America would be fine. But you wouldn’t be if the Plumber screwed up. I agree with your implicit belief that it takes a while for a bad President, or a series of bad Presidents, to really screw up the country. That is a good thing. There is, unfortunately, a ultimately good reason why Trump was elected. Unlike Michael Moore or Scot Adams, I have no idea what that reason is. But it had to relate to a great distaste for the style of persons we have become used to seeing. Maybe we were sick of anti energy policies—or wanted some small reversal of tax policy. Or sick of being scolded for certain beliefs people have, secular and religious alike. But your question was who knew Trump was a spender like all other presidents for the last 70 years? Probably most people. As will the next President, and the next after that one.

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