Best Perspective I've seen on the "Bailout"

I'm not the economic guru so I've been wading through a bunch of sensationalized reports about everything going in the tank and how Congress needs to step up now to save us. I've been very skeptical about the whole 'bailout' plan but realize something needs to get done.

Here is the most level-headed, non-partisan analysis I've seen about the finance meltdown with some good ideas about dealing with it.

So, really, a lot of it comes down to how well such a government fund is managed -- and right now that's a huge open question. If it's managed well, by folks who actually have the ability to get a pretty good read on the likely real value of these distressed assets -- then the splurge plan could work wonders. But how often do you see the government do anything right -- especially when it comes to managing money? So, while, in theory, I don't have a problem with the government entering the market as a buyer, you have to worry significantly about the fact that it's the government, and they're prone to screwing things up badly -- especially once politicians get involved. Once you have people trying to get elected on a regular basis messing around with the decision making, you know things are going to get bad fast.

Honestly I think we need this bailout, but in incremental steps and with an oversight committee who knows what they're doing.  I'm thinking an actual group of economists, and being in Chicago I've gotten some great input from some of the most awarded financial guys on the planet at the U of Chicago.  And here are Robert Shimer's (University of Chicago) thoughts in an email to Greg Mankiw (Harvard University).  The wheels have been churning lately at the U of Chicago's world renowned Department of Economics (and with 6 Nobel laureautes in the economic sciences currently on faculty you'd expect it) and the news has been diverse, interesting, and way over my head.  I wish I understood more, but all I know is that it's bad news for me once I get out of school, good thing I'll be in medical training for the next 15 years!

More After the Fold...

Summary only...

McCain Suspends Campaign

McCain is apparently putting his campaign on hold in response to the economic crisis at hand. He is calling for a meeting of both party's leaders, himself, and Obama to address the financial meltdown and the governments response.

Seems very level headed, responsible, and surprisingly bipartisan. Damn. So that means the post about McCain's unacceptably partisan tone during this crisis that I have been writing is now worthless.

We must meet as Americans, not as Democrats or Republicans, and we must meet until this crisis is resolved.I am directing my campaign to work with the Obama campaign and the commission on presidential debates to delay Friday night's debate until we have taken action to address this crisis.

I know, its from Drudge. It hurts me to even admit that I read that garbage. But damn, the man breaks some stories.

So, is this some cheap trick to give McCain some breathing room for the debate he is about to lose and to give him further excuse to keep Sarah "Delicate Little Flower" Palin out of the harsh, scary media sunlight? Doesn't seem so at first blush. This does actually sound like a smart idea. As the economy veers towards the cliff of depression, maybe a little time away from soap opera politics and some focus on nuts and bolts legislation is a good thing.

Or perhaps what we need is precisely that, a focus on the politics that will determine the next 4 or 8 years of our country's future. Honestly, I cannot think of a more pertinent question to this crisis than which governmental philosophy we will follow going forward.

I am not ready to make a pronouncement yet, but my political lean obviously makes me slightly skeptical of this new-found love of legislation that John "Absentee Senator" McCain has developed.

I eagerly await Obama's response.

Update: Obama wont play McCain's game.

"I believe that we should continue to have the debate," Obama said. "It's my belief that this is exact time when the American people need to hear form the person who in approximately 40 days will be responsibly for dealing with this mess and I think that it is going to be part of the president’s job to deal with more than one thing at once."

Obama said that unlike McCain, he will not suspend ads, or campaign events scheduled between now and Friday's debate.

"I think it's very important that the American people see the people who potentially could be in charge of this problem within the next couple of months and so my attitude is that we need to be focused on solving the problems, as I have been," Obama said. "It's also important that we communicate where we need to go in getting us out of the situation."

Obama said he will stay in Florida for the time being and will not return to Washington unless asked by Congressional leadership.

"I've told the leadership in Congress is that if I can be helpful then I am prepared to be anywhere at anytime," he said.

Emphasis mine. I like it. I'm still not sure if McCain's idea is a good one or not, but it is nice to see a Democrat not asking "How high?" when a Republican says "Jump."

More After the Fold...

Summary only...

Layman Economics

Today the Dow closed at 10609.66, a full 50 points lower than the day George W Bush took office (how's that market economics working out for you?). That means that in 8 years of Republican stewardship the economy has shown a net negative movement.

I wish I had more time to devote to this subject, but as a lowly medical school student I honestly don't know much about the economy, probably about as much as John McCain.

What I do know is the Bush administration, as well as his surrogate nominee John McCain have proposed that our tax money to fund Social Security should be placed in private markets.  Some of the names mentioned for these holdings should sound familiar right about now; Lehmann Brothers and the no-longer-independent Bear Stearns and Merrill Lynch.

Say we would have bet our Social Security future on the market in 2001 assuming that the stewardship of the Republicans would have led to larger gains in those investments.  Remember a lot of their platform is based on larger tax breaks for the wealthy which leads to higher investment in the market and large returns.  Those assumptions would have been wrong.  According to the Center for American Progress, the Bush economic plan (the same one John McCain is pushing, "make the Bush tax cuts permanent", let Phil Gramm who created this mess continue his policies as he is McCain's top economic advisor to the campaign) has stifled the average familial income (PDF) and given large gains to the yacht riding wealthy of the country.

Again, I know next to nothing about the economy, but I can read a chart and seeing the Dow Jones head down down down is not a good sign.  More of the Same????

More After the Fold...

Summary only...

Ready To Throw Out Your Refrigerator?

Came across an interesting fact today that may make you change your mind about whether you can really afford to buy new Energy Star rated appliances.

Refrigerators qualified under the new Energy Star guidelines use less energy than a 75-watt light bulb left on full time. That's a lot of energy savings, $92 million a year if everyone in America who buys a fridge in 2008 buys an Energy Star model.

More After the Fold...

Summary only...

I've Been Stimulated!

Thanks El Presidente for that cool $600 you put in my bank account today. I sat down to plan out how to pay you the favor back and stimulate you to get your economy up. Instead I bought 2 plane tickets to Cancun, I'll try to only buy American goods while I'm there. Hasta pronto!
Chee (that's Tye in Spanish)

More After the Fold...

Summary only...

Economic Stagnancy Package

Monday marks the first day that the government will waste up to $300B to give everyone a little cash in their pockets. The stated goal was to give average Americans a little cash they could spend to help "stimulate" the economy. Here's how I think it'll shakedown.

Most middle class citizens will either a) pay off debt or b) stash the money in savings. Now obviously there is a third option, they could go buy something in the stores, unfortunately everything we have in our stores is made in China so guess who's getting that money back.

Really the only real way that the economy will get a boost is if everyone goes to the store and gets $600 worth of American made beer, so I encourage everyone to go out and meet your civil responsibilities and get hammered after you get your check.

I forgot about the 4th option for the checks. Think how much of that cash is going to be spent by people who just need the extra cash for drugs. And according to the government, drugs are a large contributor to terrorist operations, so whoo-hoo government sponsored terror!

More After the Fold...

Summary only...

Reducing Carbon Emissions Could Help -Not Harm- US Economy

Robert Repetto, professor in the practice of economics and sustainable development at the Yale School of Forestry & Environmental Studies has put together a website that reviews 25 of the leading economic models used to predict the economic impacts of reducing emissions. And he says a national policy to cut carbon emissions by as much as 40 percent over the next 20 years could still result in increased economic growth.

"As Congress prepares to debate new legislation to address the threat of climate change, opponents claim that the costs of adopting the leading proposals would be ruinous to the U.S. economy. The world's leading economists who have studied the issue say that's wrong -- and you can find out for yourself," says Repetto.

The interactive website, synthesized thousands of policy analyses in order to identify the seven key assumptions accounting for most of the differences in the model predictions. The site allows visitors to choose which assumptions they feel are most realistic and then view the predictions of the economic models based on the chosen assumptions.

Among the key optimistic assumptions are that renewable energy technologies will be available at stable or increasing prices; that higher fossil fuel prices will stimulate energy-saving technological change; that reducing U.S. carbon emissions will reduce economic damages from climate change and air pollution; and that the United States will incorporate international trading of emission permits into its national policy.

Growth rates of the U.S. Gross Domestic Product (GDP) have been 3 percent per year over recent decades. With emissions reduced by 40 percent below projected business-as-usual trends, even under most pessimistic assumptions the GDP would grow 2.4 percent a year, reaching $23 trillion by 2030, according to the website's predictions. Under the most favorable assumptions, GDP would rise slightly above 3 percent a year.

"The website shows that even under the most unfavorable assumptions regarding costs, the U.S. economy is predicted to continue growing robustly as carbon emissions are reduced," said Repetto. "Under favorable assumptions, the economy would grow more rapidly if emissions are reduced through national policy measures than if they are allowed to increase as in the past."

More After the Fold...

Summary only...

"For a Fraction of the Cost of This War...

we could have put Social Security on a sound footing for the next half-century or more.” - Joseph Stiglitz, Nobel Prize winner in Economics (2001).

Robert Hormats, vice chairman of Goldman Sachs International, cited the committee’s (Joint Economic Committee, chairman Senator Chuck Shumer) own calculations from last fall that showed that the money spent on the war each day is enough to enroll an additional 58,000 children in Head Start for a year, or make a year of college affordable for 160,000 low-income students through Pell Grants, or pay the annual salaries of nearly 11,000 additional border patrol agents or 14,000 more police officers

Read the full New York Times Opinion piece here.

More After the Fold...

Summary only...

My Economy Stimulus plan

So the government is looking for some fiscal stimulus and of course they'll turn to spending and tax cuts, two devices that have shown to be very weakly related to the growth sector of the economy. One problem is that tax cuts and spending plans are largely retroactive and by the time they are put in place and concrete work is done the economy has moved onto into a different state. Another reason this doesn't work is when you are working with a 13 trillion dollar economy it takes massive shifts in spending or directional cash flow to really effect the health of the whole system.

Any economic stimulus plan that I will support will meet three criteria: 1) the budget deficit will not increase, 2) taxpayers funds will not be wasted, and 3) the plan increases the incentive to produce output. So what do we do? how about this...

The IRS knows how much income each taxpayer reported last year. Why don't we cut everyone's marginal tax rate based on last year's income. So lets say Shivas made $61,500 last year and his tax bracket was 25%. Shivas' tax schedule this year will be exactly the same as last year but for every dollar he makes over $61,500 the tax rate drops to 15%. Every taxpayer will have their own tax schedule and everyone will have a decreasing marginal tax rate above their average income for last year (or the past 3 years, or the past 3 years plus 3% growth credit).

This plan increases the incentive to work and at the same time does not increase the deficit. This in fact will increase tax revenues. The key is a marginal tax cut with a different margin for every taxpayer based upon last year's return. It won't work permanently as it can be gamed, but in special situations it is a smarter way to return money to the economy. rant over.

More After the Fold...

Summary only...