The CEA head who wrote on January 11, 2009 that the Stimulus of almost a trillion dollars would thwart excess unemployment is at it again in her favorite platform, the NY Times. Now readers will remember that when she issued this plan that I had detailed why it would fail, and I am a simple engineer, like those who run China, an economy we can at best admire from afar, have to seek the guidance of economists! Why not witch doctors!
Now in the NY Times this soothsayer states:
WE NEED A HOUSING PLAN, NOT MORE FISCAL STIMULUS The
bubble and bust in house prices has left households burdened with too
much debt. Until we deal with this problem — perhaps by providing
principal relief to the 11 million households whose mortgages are larger than the current value of their homes — we’ll never get the economy going.
Let us examine the facts behind this.
First, when one gets a mortgage, one assumes one can pay the mortgage. Who cares what the house is worth, you have a deal to pay back what you borrowed.
Second, this economist says they "bust" left them with too much debt. That makes no sense. They entered into an agreement to borrow money and pay it back. You borrow money to buy a new car. You drive it a block. It is worth thousands less. Should you go back and renegotiate the deal? My dear Lady, it does not work that way.
Third, this is not the first time this has happened. In 1987 house prices peaked, the market crashed and house prices collapsed. Did people stop paying mortgages. No, they paid even when the house was "under water". I had one of those loans, for eighteen years on a piece of property. Sometimes you win sometimes you lose.
She continues:
Recent research
shows that government spending on infrastructure or other investments
raises demand even in an economy beset by over-indebted consumers.
Another effective approach is to aim tax cuts and government payments at
households that would like to spend, but can’t borrow because of their
debt loads (such as the poor and the unemployed).
Now what is she saying here? First, she speaks of building bridges. Do we not have a gasoline tax to support that? If we need it then raise the tax and make certain it is spent properly. But the problem is that politicians have no ability to ever do the right thing. They will spend it on getting themselves re-elected. Now she switches to give tax cuts to get people who are overly in debt to spend even more. That is like giving a morbidly obese woman an unlimited supply of brownies. Not going to fit into those tight jeans that way.
She continues:
IT’S THE DEFICIT, STUPID People are concerned about the deficit, and this concern is holding back the recovery. Fiscal austerity, not more stimulus, is the answer.
This argument makes me crazy. There’s simply no evidence that concern
about the current deficit is a significant factor limiting consumer
spending or business investment. And government borrowing rates are at
record lows, suggesting that financial markets are not worried about the
deficit, either.
Moreover, as I discussed in a previous column, the best evidence
shows that fiscal austerity depresses growth and raises unemployment in
the near term. That’s the experience of countries like Greece, Portugal
and Britain, which have embarked on drastic deficit reduction plans
over the last two years. Cut the current deficit and you will raise
unemployment, not lower it.
I hate to bring reality to the table, but the deficit does have an effect. It is akin to having death sit at the poker table and just look around at the players. Kind of makes one a tad bit nervous. No evidence, perhaps a conversation with the people who create jobs may be of some help in clarifying the issue. Get out of the ivory tower and find out what real entrepreneurs think.
Now for Greece, you see I had a company in Greece, I speak Greek, I have many Greek friends, I have had Greek students, and I know Greece better than many Greeks. It is an impossible place to get anything done in, which is why many Greeks leave. There are more people on Government payrolls, who collect Government funds, work on EU funded make work projects, it is not the Greeks, it is the socialist system in Greece. Get the Greeks away from Greece and its socialism and they prosper quite well. Leave them there and you can see where we are going. It does help to know something about that of which you speak my good Professor.
She ends with:
The president has started a discussion about job creation. His proposal
deserves a full debate based on facts, evidence and careful analysis.
Her record of analysis stands. It did NOT work in her January 11, 2009 predictions. It will not work now. Her proposal and predictions are facts. They did not even come close! So why should anyone believe a single word she utters on this topic?
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