Obama Economist Solution: Borrow More Money

Writing in today’s Washington Post, former Obama economist Larry Summers put forth the strange hypothesis that more red ink would improve the federal government’s long-run fiscal position.

This sounds like an excuse for more Keynesian spending as part of another so-called stimulus plan, but Summers claims to have a much more modest goal of prudent financial management.

And if we assume there’s no hidden agenda, what he’s proposing isn’t unreasonable.

But before floating his idea, Summers starts with some skepticism about more easy-money policy from the Fed.

Many in the United States and Europe are arguing for further quantitative easing to bring down longer-term interest rates. …However, one has to wonder how much investment businesses are unwilling to undertake at extraordinarily low interest rates that they would be willing to undertake with rates reduced by yet another 25 or 50 basis points. It is also worth querying the quality of projects that businesses judge unprofitable at a -60 basis point real interest rate but choose to undertake at a still more negative rate. There is also the question of whether extremely low, safe, real interest rates promote bubbles of various kinds.

This is intuitively appealing. I try to stay away from monetary policy issues, but whenever I get sucked into a discussion with an advocate of easy money/quantitative easing, I always ask for a common-sense explanation of how dumping more liquidity into the economy is going to help.

Maybe it’s possible to push interest rates even lower, but it certainly doesn’t seem like there’s any evidence showing that the economy is being held back because today’s interest rates are too high.

Moreover, what’s the point of “pushing on a string” with easy money if it just means more reserves sitting at the Fed?

After suggesting that monetary policy isn’t the answer, Summers then proposes to utilize government borrowing. But he’s proposing more debt for management purposes, not Keynesian stimulus.

Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more, not less, and investing in improving their future fiscal position, even assuming no positive demand stimulus effects of a kind likely to materialize with negative real rates. They should accelerate any necessary maintenance projects — issuing debt leaves the state richer not poorer, assuming that maintenance costs rise at or above the general inflation rate. …Similarly, government decisions to issue debt, and then buy space that is currently being leased, will improve the government’s financial position as long as the interest rate on debt is less than the ratio of rents to building values — a condition almost certain to be met in a world with government borrowing rates below 2 percent. These examples are the place to begin because they involve what is in effect an arbitrage, whereby the government uses its credit to deliver essentially the same bundle of services at a lower cost. …countries regarded as havens that can borrow long term at a very low cost should be rushing to take advantage of the opportunity.

Much of this seems reasonable, sort of like a homeowner taking advantage of low interest rates to refinance a mortgage.

But before embracing this idea, we have to move from the dream world of theory to the real world of politics. And to his credit, Summers offers the critical caveat that his idea only makes sense if politicians use their borrowing authority for the right reasons.

There is, of course, still the question of whether more borrowing will increase anxiety about a government’s creditworthiness. It should not, as long as the proceeds of borrowing are used either to reduce future spending or raise future incomes.

At the risk of being the wet-blanket curmudgeon who ruins the party by removing the punch bowl, I have zero faith that politicians would make sound decisions about financial management.

I wrote last month that eurobonds would be “the fiscal version of co-signing a loan for your unemployed alcoholic cousin who has a gambling addiction.”

Well, giving politicians more borrowing authority in hopes they’ll do a bit of prudent refinancing is akin to giving a bunch of money to your drug-addict brother-in-law in hopes that he’ll refinance his credit card debt rather than wind up in a crack house.

Considering that we just saw big bipartisan votes to expand the Export-Import Bank’s corporate welfare and we’re now witnessing both parties working on a bloated farm bill, good luck with that.

The Cloward-Piven Strategy of Manufactured Crisis
[Obama's strategy for destroying the economy]
frontpage.americandaughter.com
| August 31, 2008 | Jim Simpson

Liberals self-righteously wrap themselves in the mantle of public spirit. They ardently promote policies promising to deliver the poor and oppressed from their latest misery — policies which can only find solution in the halls of government. But no matter what issue one examines, over the last fifty plus years, the liberal prescription has almost always been a failure.

Why is this so? Why does virtually every liberal scheme result in ever-increasing public spending while conditions seem to get continually worse? There are a number of reasons:

The programs usually create adverse incentives. This is especially true in so-called “anti-poverty” programs. The beneficiaries find government subsidies a replacement for, rather than a supplement to, gainful employment and eventually become incapable of supporting themselves. This in turn creates a dependent culture with its attendant toxic behaviors which demand still more government “remedies.”
The programs create their own industry, complete with scads of “think tanks” and “experts” who survive on government research grants. These are the aptly named “Beltway Bandits.”
They create their own bureaucracies, whose managers conspire with interested members of Congress to continually increase program funding, regardless of merit.
Members of Congress secure votes and campaign donations by extorting them from beneficiaries of such programs, either through veiled threats — “vote for me or those mean Republicans will wipe out your benefits” — or promises of still more bennies.

In short, all develop a vested interest in the program’s survival. But if the result is always more and more government, of government, by government, and for government, with no solution in sight, then why do liberals always see government as the solution rather than the problem?

Similarly, liberals use government to promote legislation that imposes mandates on the private sector to provide further benefits for selected groups. But the results are even more disastrous. For example, weighing the laws or stacking the courts to favor unions may provide short term security or higher pay for unionized labor, but has ultimately resulted in the collapse of entire domestic industries.

Another example is health care. The Dems are always trying to impose backdoor socialized medicine with incremental legislation. Why do you suppose American healthcare is in such crisis? Answer: the government has already become too deeply involved. For example, many hospitals are closing their doors because they are overwhelmed with the burden of caring for indigent patients, illegal immigrants and vagrants who must, by law, be admitted like everyone else, despite the fact that they cannot pay for services. Read about it here — Destroying Our Health Care. The net result is reduced availability of care for everyone, exactly the opposite of what liberals claim to want.

To further complicate things, liberal jurists and lawyers have created new theories of liability that utilize the legal system as a means to further redistribute income. This too, has resulted in higher costs and prices in affected industries, higher insurance costs, or in some cases, complete elimination of products or services.

Liberals’ endless pursuit of “rights” for different groups also does little but create increasing divisions in our society. Liberal policy pits old against young, men against women, ethnic and racial groups against one another, even American citizens against illegal aliens, all in the name of “equality.” The only result is anger, tension and equal misery for all.

How does any of this improve our lot?

Finally, when companies relocate overseas to avoid the high cost of unionized labor and heavy domestic regulation, liberals sarcastically excoriate them for “outsourcing” America. Yet, when it comes to certain domestic industries, liberals in Congress suddenly become free marketers and choose to buy from overseas contractors rather than domestic suppliers. This happened most recently with a huge military contract being outrageously awarded to the heavily subsidized European consortium, AIRBUS, over America’s own Boeing. Since liberals claim to be so determined to “save the American worker,” what gives?

You have to take a step further back and ask some fundamental questions. Why is the liberal public policy record one of such unmitigated disaster? I mean, even the worst batter hits one occasionally. No one bats zero. No one that is, except liberals.

Prior to the Republican takeover in Congress in 1994, Democrats had over fifty years of virtually unbroken power in Congress with substantial majorities most of the time. With all the time and money in the world — trillions spent — they couldn’t fix a single thing, not one. Today’s liberal has the same complaints, and the same old tired solutions. Can a group of smart people, studying issue after issue for years on end, with virtually unlimited resources at their command, not come up with a single policy that works? Why are they chronically incapable?

Why?

When things go bad all the time, despite the best efforts of all involved, I suggest to you something else is at work — something deeper, more malevolent.

I submit to you that it is not a mistake, the failure is deliberate!

There is a method to the madness, and the method even has a name: the Cloward-Piven Strategy. It was first elucidated in the 1960s by a pair of radical leftist Columbia University professors, Richard Andrew Cloward and Frances Fox Piven:

The strategy of forcing political change through orchestrated crisis…. …the “Cloward-Piven Strategy” seeks to hasten the fall of capitalism by overloading the government bureaucracy with a flood of impossible demands, thus pushing society into crisis and economic collapse.

[Part II of this article will explore those organizations created to implement the Cloward-Piven strategy and their ties to the presidential candidacy of Barack Obama.]

The Complete Cloward-Piven Series

The Cloward-Piven Strategy, Part I: Manufactured Crisis
The Cloward-Piven Strategy, Part I — print copy
The Cloward-Piven Strategy, Part II: Barack Obama and the Strategy of Manufactured Crisis
The Cloward-Piven Strategy, Part II — print copy
The Cloward-Piven Strategy, Part III: Conspiracy of the Lemmings
The Cloward-Piven Strategy, Part III — print copy
Hate Crimes Legislation — Back Door Censorship
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Also see (from David Horowitz's DiscoverTheNetworks.org) ...

THE CLOWARD-PIVEN STRATEGY (CPS):

http://www.discoverthenetworks.org/groupProfile.asp?grpid=7522
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Cloward, Piven and the Fundamental Transformation of America

Tuesday, January 05, 2010
By Glenn Beck

Meet Richard Cloward and Francis Fox Piven,
authors of the Cloward-Piven strategy

"I'm going to give you a hard concept to get your arms around: It's the concept that there are people in this country who want to intentionally collapse our economic system."-Glenn Beck

http://www.foxnews.com/story/0,2933,582097,00.html

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