The View from Right Field

Nothing Is Better Than Too Much; Nothing Is Better Than Too Little

That is the essence of the dispute in Congress on a coronavirus relief bill.  Senate Majority Leader Mitch McConnell and Senate Republicans say that the plan proposed by the Democrats is too big and they won’t approve it.  Speaker Nancy Pelosi and House Democrats say that the plan proposed by the Senate Republicans is too small and they won’t approve it.  In other words, both of them are saying that doing nothing is better than passing the bill the other side wants.  And so, nothing is done.

Which sounds familiar to those of us in Illinois who remember the Governor Bruce Rauner/Speaker Michael Madigan disputes in 2015-17.¹
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¹ See here and here.

Bridging the Divide

In today’s Financial Times, former Senator Heidi Heitkamp (D, ND) says that “an effective [virus] containment strategy and [economic] recovery plan requires votes from both sides of the political divide.”¹  She is absolutely right on that,  However, she is wrong in how to get such a plan.  She says “[w]hat we need is a series of open meetings” with “[a]ll stakeholders invited” and everything “should be transparent.”

While that sounds good, it won’t work.  As we have seen so often in Washington, public hearings mean public posturing.  Senators, representatives, etc., focus on sound bites and what they can put on Twitter and Facebook, pandering to their base, instead of trying to actually reach an agreement.

When Your Party Leaves You and You Have No Place to Go

Ronald Reagan famously said that he didn’t leave the Democratic Party, it left him.  With what is happening in the Republican Party these days, I think I am beginning to know how he felt.  The only difference is that, when the Democratic Party left President Reagan, he had some place else to go.  I don’t.  

During the GOP’s virtual convention, The Wall Street Journal¹ wrote about Donald Trump’s takeover of the Republican Party:

“President Trump is accepting the nomination for a second term before a party that has largely united behind him, embracing his America-first foreign and economic policies and unorthodox, sometimes chaotic style.

A “V”-Shaped Recovery – Or a Gentle Upward Slope?

So where is the economy going?  The stock market would have you believe it is coming back – and quickly.¹  That would be a so-called “V” recession.  Quickly down and just as quickly back up.  Given it was a government-ordered shutdown that caused the sudden down, maybe a removal of the shutdown will allow things to rebound suddenly.  And that could be the way things go – as long as the confidence we had before the pandemic comes back, too.  If the confidence is back, maybe the economy will be back.

That is the question, isn’t it?  Because even if the government discontinues its shutdown, are we going to discontinue our shutdown?  If there was a vaccine, it might happen – subject to the effect of all those businesses and jobs that got lost during the shutdown.

Coronavirus Emergency Legislation: Fixing “Bugs” and Keeping “Features”

I said in my post of March 23, which is currently pinned to the top of this blog:

“As we get thru this, we must all remember that mistakes will be made. Things will be done that shouldn’t have been. Things will be left undone that should have been done. But helping each other is more important than blaming each other.”

Which means, among other things, that we shouldn’t blame Congress for mistakes or the unintended consequences in the bills that were passed in March and April to deal with the economic fallout of COVID-19.  However, the fact that we shouldn’t blame Congress for provisions that have not turned out as we expected, doesn’t mean that we shouldn’t change or fix provisions that aren’t working as we thought they would or that have consequences we didn’t intend.

Missing Milton – and the Magic Money Tree

A year ago I wrote about what, at that time, I called “one of the new big things” in economics and politics: Modern Monetary Theory (“MMT”).¹  I explained MMT by quoting from The Wall Street Journal:

“Ms. Kelton² argues the government doesn’t need to worry so much about how much it borrows to pay for spending programs.  Unlike a household or business, it can never run out of money.  The government can always print money to pay for debts.  The constraint, according to MMT, isn’t the deficit, but whether the borrowing and spending spurs inflation and disrupts economic activity.”

Disappearance of Physical Cash Is Great – Or Is It?

In an opinion piece in yesterday’s Financial Times,¹ Gary Cohn, a former director of the National Economic Council under President Trump, said that, with coins and bills being potential carriers of Covid-19, he has stopped using cash, and he supports the idea of the US Federal Reserve creating “digital dollar accounts and wallets for all citizens.”

Mr. Cohn sees all kinds of advantages to such digital wallets, in addition to those that are Covid-19-related.  Tax-avoiding black-market sales of cannabis could be effectively stopped.  Digital wallets would have made it easier for the government to send stimulus payments directly to individuals.  While Mr. Cohn admits there are privacy implications to the government having access to peoples’ digital wallets, he likes “how much quicker and efficient the tax process could be.”

The Fed Is Acting as Central Banker for the World. Why Isn’t President Trump Complaining?

At the end of March, the Federal Reserve announced it was establishing a temporary lending facility under which foreign central banks could borrow dollars by giving the Fed their Treasury securities.  Such repurchase agreements, or repos, allow borrowers to temporarily exchange Treasury securities for dollars.  By entering into a repo agreement, foreign central bank don‘t have to sell their Treasury securities in unstable markets in order to get dollars they need for transactions. 

This facility is in addition to other programs the Fed has already set up to lend dollars to fourteen other central banks in Europe, Canada, Mexico, Japan, Brazil, and Australia.

Solving the Covid-19 Crisis with Proposals You Would Have Made Anyway

As our leaders suggest solutions for the problems caused by Covid-19, it is fascinating how many of the proposals are ideas those leaders would have suggested without Covid-19.  Texas is saying abortion clinics aren’t essential businesses, while New Jersey says that gun shops aren’t essential.  And House Speaker Nancy Pelosi has suggested retroactively repealing the SALT deductibility limit for 2018 and 2019 as a way to get more disposable income to people.¹

Overall, I think the proposals you might want to give the most thought to are ones made by people who would not have suggested those ideas before Covid-19 but who think they may be appropriate now.
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¹ I suppose it would give money to people, though almost of it to rich people.
UPDATE (3/31/20 12:24 am): I deleted footnote 2, which I decided was not in keeping with the spirit of my post of March 23, 2020.

Uncertainty: The Reason the Economy Isn’t As Good As It Could Be

Donald Trump, like the real estate developer and TV host he was, calls everything the best and the greatest – and other adjectives I can’t come up with right now.  He says this about the economy.  The problem is that it isn’t true, but it could have been.  The 2017 tax reform act was a boost to the economy,¹ as were the cutbacks in regulation by the Trump administration and the end of the constant uncertainty as to what new regulation or interpretation or guidance the Obama administration might come up with next.  Because of these actions by people in the Trump administration, the economy started growing faster than under the Obama administration.

But, in spite of President Trump’s boasts and tweets, the economy hasn’t grown as much as it could have – because President Trump brought in his own brand of uncertainty.  In 2018, President Trump tweeted that “trade wars are good, and easy to win.”  The American economy doesn’t agree.  While we needed to do something about China’s unfair trade practices, President Trump’s approach of unilateral tariffs, plus China’s retaliation, resulted in higher costs and more uncertainty.  While China might have been hurt, we have been hurt, too.  Uncertainty is a drag on an economy, no matter what else you do.