How to solve many problems
Post stimulated by Steve Benen. Content due to John Quiggin.
This is arithmetic “Arithmetic tells us there are two ways to achieve the goal: the government can bring in more money and put out less.”
This isn’t “a combination of cuts and tax increases were necessary when the deficit got really big”
Revenue doesn’t come from taxes only. Consider the TARP big bank bailout. The Treasury turned a profit. The debt is less than it would have been without that program, but it wasn’t a spending cut or a tax increase. Or how about the Carter Chrystler bailout (not the Obama Chrystler bailout). Ditto.
Sometimes the US Federal government buys risky assets. It doesn’t do this for the high returns, it does this to prevent bankruptcies. This is not a promising time to invest, obvoiusly the Federal Government only invests when no private agent is willing to invest. But it still often makes money (for those keeping score at home Fannie and Freddie and mabye GM are predicted to be the only exceptions and all of my predictions about how the official predictions are pessimistic have been confirmed so far).
I think that the Federal Government can handle it’s financial problem by issuing more bonds and investing the proceeds in riskier assets. Contrast the Social Security Administration with state meployee pension funds. The SSA faces an actuarial shortfall (not huge compared to its revenues and maybe just the result of pessimistic forecasts). So do some state pension funds. But wait no state pension fund has the same sort of huge year by year surpluses the SSA has had (even proportionally). They say they are solvent, because they claim they will get higher yields on their portfolios than they would if they had to invest only in Treasuries. The SSA would be solvent and then many trillions to spare if it were allowed to invest the way all other entities with trust funds invest. Why not ?
Now I have praised TARP and proposed more fancy federal financial transactions. This is not because I have any sympathy for the financial services industry. I think it should shrink. I think this would be an additional benefit from my approach. The high returns on financial assets reward the people who play the market compared to their more small c conservative friends and neighbors. This happens even if they tend to buy high and sell low (betting against more sophisticated investors). So they keep at it. This is what creates the huge profits in finance. Reduce those unreasonable risk premia and you reduce those huge profits.
Yes the Fed Gov would bear aggregate risk. If the economy tanked a lot of the nation’s losses would be in the form of a larger national debt (which people usually barely notice hence the need for this post) not lower personal wealth of individuals or lower book equity of firms. Oh yes, my plan to eliminate the debt without tax increases or spending cuts will also work as an automatic stabilizer causing higher aggregate demand in recessions and lower aggregate demand in booms (when consumption crowds out investment).
So I claim I have a simple proposal to eliminate the national debt and reduce the magnitude of the business cycle and reduce the obscene profits of financiers.
I am not joking.
“I am not joking.”
Nor am I. We’ve a name for places where they thought that politicians knew how to allocate capital better than markets.
Poor countries.
Wow … I’m normally a lurker, but this post drew me out as it’s possibly the most idiotic thing I’ve seen posted to this blog – ever. Congrats.
Tragic.
TARP seems to have “bought” around $700B. I am not a close follower of TARP. I could suggest a GAO report, not handy on a Friday as I prepare for a weekend road trip.
However, the fed (Bernanke’s realm) has added a bit to the asset side of their balance sheet. About a trillion in T Billls to keep up QE XX, and a trillion in MBS they “picked” up off the street.
Maybe the fed did more than TARP?
Wall St remains a complete mess!!
I am not discussing picking winners. 10% of everything is just saying that market risk premia are higher than risk premia would be if there were a rational representative consumer. The key cite for empirical evidence supporting my proposal is Mehra and Prescott. Yes that Prescott.
I think I mentioned in the post that I have not read a counter argument. I have read “you have to be joking” and “that is idiotic” a lot. Don’t you think there’s something odd going on if may people say something is plainly idiotic but no one says why ?
I point out that I am very far from alone in making this proposal. It was also made (at a more modest scale perhaps) by Bill Clinton and Ronald Reagan.
Yes Reagan’s proposal supported by Mehra and Prescott’s research, but it is clearly left wing lunacy.
I used the word premia somewhere and was told it is not a word. Turns out they were right.
The Fed did more than TARP (roughly twice as much). Buying treasuries (actually T-notes not T-bills … why don’t they just call them all donds ?) is not what I’m talking about. They are presumably not risky unless the Republicans are as crazy as they claim to be.
It is not possible to tell the long run effect of the Fed’s purchases on public debt because they still have that trillion in MBS (all MBS issued by government agencies, although that includes Fannie and Freddie which are government agencies now but weren’t when they issued the MBSs).
The Fed has reported profits of oh around $ 150 B due to these efforts. It definitely reported (and handed over to the Treasury) the highest profits ever reported by any entity in the USA.
The difference is that the rule (about which I complain) for valuing the Treasuries unusual assets is not applied to the Fed.
They claim they have made a mega killing saving the financial system. But they have over a trillion at risk (the $ T of MBS are most of it but they also have other money at risk in Maiden lane no number, 2 and 3 and loans to Fannie and Freddie and loans to AIG).
My personal guess, for what it’s worth (zero) is that the Fed’s accounts are about equal to the expected value of impact on the debt (so debt down …. I forget but well over $ 100 billion). On the other hand, I think the CBO is forced to overestimate probably Treasury losses on Fannie and Freddie and (slightly) underestimate profits from saving banks.
The “slightly” means probably even less than $10 B. The reason is most of that uncertaintly is resolved.
It is also true that much of the Fed’s really unprecedented playing of the market has been resolved. The stated profits are 100% safe as the assets have matured. This is some hundreds of billions aside from the stuff I mentioned above. Term this and that facilities whose term has long been up and which are closed at a huge profit to the Fed (handed over to the Treasury).
Oh also I didn’t know that Singapore was so poor.
But that isn’t what I am talking about. No discretion. No picking winners. 10% of everything means no decisions made by Bureaucrats.
I didn’t say that I think the Treasury (or SSA or whatever) should be required to vote shares proportionally to how the other shares are votes, so they will have no influence on the outcome of shareholder resolutions.
You seem to think that 10% of everything is more than 10% of some things. But it gives the Treasury much less power. They can’t threaten to sell stuff if management doesn’t do what they want.
So the public sector shares risk and reward but does not gain economic power.
If you’re going to socialize investment you might as well aim for the euthanasia of the rentier (I’m for both).
It’s not a horrible idea, as far as Robert Waldman ideas go. There are two big problems:
1) It sets up the Federal Government as a profit making enterprise. Not a good idea when it is also makes and enforces the laws.
2) Where are you going to get the money? The federal debt is already $14T and the Fed is already buying 70% of new Treasuries. There is a reason we can’t print unlimited amounts of money. You know what that is.
But sometimes a bad idea leads to a good one: asset sales. The Federal government owns many billions/trillions of dollars in assets (believe it or not there has never been an inventory or valuation). This is land, buildings, parks, equipment, etc. These are, without a shred of a doubt, horribly managed.
If we can sell them to private companies for well over the NPV we might be able to right the Federal financial ship, as well as put the resources to better use. That’s the direction you should be looking Robert.
sammy: “But sometimes a bad idea leads to a good one: asset sales.”
What good do asset sales do? In terms of the real economy, they add nothing. The assets merely change hands. However, selling assets drains money from the economy, which makes recovery more difficult.
“So I claim I have a simple proposal to eliminate the national debt and reduce the magnitude of the business cycle and reduce the obscene profits of financiers.”
Why eliminate the national debt?
Doing so did not seem to work out too well in the 1830s. (And, sammy, a lot of assets in the form of gov’t land were sold off in the process.)
Eli’s idea is to sell all the gold in Fort Knox to cover debts if the Repulicans won’t raise the debt limit. if nothing else we could sell tickets to watiching Ron Paul’s head explode. Prisoner’s dilemma is a two handed game.
Why should the taxpayer pay for the priviledge of using its own currency. Why enrich those who are causing all the pain to the nation.
Some have their eye on fort Knox gold in public statements.
Min,
The assets merely change hands
Yes, that is the point. The government gets cash to reduce the deficit instead of raising taxes.
In terms of the real economy, they add nothing.
No, if you presume, as I have, that the assets are badly managed, putting them to more productive use adds to the supply of goods. Think of an unplowed field.
sammy: “if you presume, as I have, that the assets are badly managed, putting them to more productive use adds to the supply of goods. Think of an unplowed field.”
The problem we face now is that the private sector is not making use of the assets that are currently available. Banks are not lending as they normally would, and corporations are not putting their ready cash to use. If someone bought a fallow field, there is no indication that they would do anything with it now.
Treasury bureaucrats would have to be really incompetent to beat the geniuses at Citigroup. Or B of A. etc.
I’m sorry, but I’ve grown to the point where I simply STOP READING whenever I find a grammar error like “it’s” instead of “its.” There really is no excuse for this.
Are you proposing that SSA buy junk bonds? Bonds from Greece/Ireland? Common stocks? I hope you’re joking.
The SSA would be solvent and then many trillions to spare if it were allowed to invest the way all other entities with trust funds invest. Why not ?
Because SSA’s “investment” in treasuries isn’t an investment at all – it’s a way of disguising the regressive nature of federal taxation. If the SSA starts investing in something other than treasuries, the shortfall will have to come from other sources of taxation – ones that tax incomes over $105,000 or even tax non-wage income.
In other words, taxes that fall on people who matter.