Two overarching reasons explain the failure of Obamanomics. First, administration economists and their outside supporters neglected the longer-term costs and consequences of their actions. Second, the administration and Congress have through their deeds and words heightened uncertainty about the economic future. High uncertainty is the enemy of investment and growth.
Mr. Obama has denied the cost burden on business from his health-care program, but business is aware that it is likely to be large. How large? That’s part of the uncertainty that employers face if they hire additional labor.
The president asks for cap and trade. That’s more cost and more uncertainty. Who will be forced to pay? What will it do to costs here compared to foreign producers? We should not expect businesses to invest in new, export-led growth when uncertainty about future costs is so large.
Other aspects of the Obama economic program are equally problematic. The auto bailouts ran roughshod over the rule of law. Chrysler bondholders were given short shrift in order to benefit the auto workers union. By weakening the rule of law, the president opened the way to great mischief and increased investors’ and producers’ uncertainty. That’s not the way to get more investment and employment.
If you think regulatory burdens are growing at an unsustainable rate, you are right.
June 21, 2010
The Cost of Feeding the Nanny State
Posted in Trade by Mike Mandel on June 22, 2010
By John Lippert – Jun 17, 2010
If gas stays above $4, a price that lets companies cover costs on existing wells, U.S. output could grow 20 percent to 65 billion cubic feet (1.8 billion cubic meters) a day from 2008 through 2030, says Peter Wells, director of U.K. research firm Neftex Petroleum Consultants Ltd. Shale gas production could quadruple to more than 20 billion cubic feet, he says.
That would help meet rising power demand. Global energy consumption will soar 44 percent by 2030 from 2006, the U.S. Energy Department says. China and India will siphon off 28 percent by then, according to the DOE forecast. Demand is rising because the planet’s population will balloon to 8.2 billion in 2030 from 6.8 billion today.
Hydroelectric, wind and other renewable sources will plug only part of the gap: They’ll contribute 17 percent of U.S. electricity generation by 2035 from 9.1 percent in 2009, the DOE says.
Not a sign of moral virtue.
I think this argues for either future budget discipline (fiscal restraint) or inflation.
|Global Central Bank Focus|
|Paul McCulley | June 2010|
|Some Unpleasant Keynesian-Minsky Logic|
Sargent and Wallace argued, using simple arithmetic, that sustainability came down to the relationship between three variables:
The authors demonstrated that it is not possible for (1) the monetary authority to sustainably peg real short-term interest rates above the real growth rate of the economy if (2) the fiscal authority insists on running a fiscal deficit as a percent of GDP that is higher than the growth rate of real GDP. Such a combination implies exponentially rising growth for real fiscal interest costs as a share of real GDP, which is axiomatically unsustainable.
But, when Sargent and Wallace wrote their essay, that’s what Volcker and Reagan were doing, implying that in the fullness of time, either the monetary authority would have to loosen up or the fiscal authority would have to tighten up. Put differently, there were limits to the ability of the monetary authority to enduringly fight inflation, if the fiscal authority’s deficit trajectory implied fiscal unsustainability because of the high real interest rates associated with the monetary authority’s restraint. At some juncture, Sargent and Wallace argued, either the monetary authority or the fiscal authority would have to blink, settling the game of chicken.
As secular time unfolded over the 1980s and 1990s, Sargent and Wallace’s question was answered: The Fed sustained its course of disinflation, while the fiscal authority blinked, with presidents Reagan, Bush and Clinton all raising taxes. And so it was that by the turn of the century, America had achieved price stability: The two-decades-long war against inflation was won!