Last week David Leonhardt of The New York Times identified "5 ways Congress can bolster growth." Let me comment on/respond to some of Mr. Leonhardt’s ideas. (Mr. Leonhardt’s ideas are indented.)
"A Race to Solvency. … Imagine if Washington offered to help states get through today’s shortfalls in exchange for making progress on their long-run problems. In the ideal version of this program, states would get some initial money without strings attached. … States that came up with credible plans to reduce their deficits would then get more money over the next few years."
Yeah, right. I’m from Illinois, and I don’t believe in the tooth fairy. The idea of giving money to our politicians in Springfield with the idea that they will come up with plans to cut the deficit later is beyond silly. If Mr. Leonhardt really thinks this would work, then I have a bridge I would like to sell him. It connects Manhattan and Brooklyn.
"Lift Trade. … Another good step would be a trade deal with South Korea, which President Obama recently said he was pursuing."
There has been a free-trade deal with South Korea completed and ready to sign since the end of the Bush administration. President Obama doesn’t need to pursue an agreement with South Korea. He just needs to send the one he already has up to Congress and get Democrats to vote for it. And there is one with Colombia ready to go, too.
"Provide Clarity. Corporate executives complain that uncertainty about regulation has made them wary of expanding. Some of their complaints are classic political posturing ….
But the complaints aren’t totally without merit. Washington has indeed passed some sweeping new laws recently. Fortunately, with health reform starting to take effect and financial regulations on the verge of passing, the future is starting to look clearer for businesses trying to make decisions."
Huh? If Mr. Leonhardt really thinks that the costs and burdens of the new health care plan are becoming "clearer," then he hasn’t been paying much attention to the issue since the bill passed. How President Obama’s plan is all going to work; what the costs will really be; what unintended consequences will be. People aren’t really sure what is going to happen, except possibly to become more worried about costs.*
"The Fed’s Mission. Ben Bernanke, the Fed chairman, seems genuinely torn about how weak the economy is. He has said that inflation is not a problem and that unemployment will probably remain high for years. Even so, he has been unwilling to push down long-term interest rates, which would encourage more consumer and business spending."
First, the Fed can impact short-term interest rates. It does not control long-terms rates; the market does. Second, even though the Fed can’t control long-term interest rates, the fact is that 30-year mortgage rates are at the lowest level in 40 years or more. Ten-year U.S. Treasury bonds are paying 3.06% interest; 30-year Treasuries are paying 4.04%. Even 25-year "A"-rated bonds are paying less than 6%. Long term rates can hardly go any lower.
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* Megan McArdle says: "I now think that I may have seriously underestimated the risk that this thing [i.e., health care reform] will turn into a massive fiscal disaster that could precipitate a serious budget crisis." Shawn Tully wrote this:
"‘What I see out there is apprehension,’ says Randy Altschuler, founder of CloudBlue, a recycler of used electronics equipment, and a Republican candidate for a seat in the House of Representatives from Eastern Long Island. ‘The owners of small companies I talk to are especially worried about health-care costs. Hence, they're holding back hiring and capital investment.’
It's not so much that companies fret that consumers won't have enough to spend on their cars, insulation and restaurants. Their big concern is over their future costs. Employers with more than 50 workers that don't currently provide health care will soon need to pay for it, or face stiff penalties. The health-care bill is part of the spending agenda that's scaring business."
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