Actual economists comment on the economy

on Mar 04 in Uncategorized tagged by Trevor Hicks

I like to complain about the government and in particular I think both Bush and Obama have been awful these last 6 months, not that I would have expected any better from McCain.  But I’m just some guy with an MBA, today I have some material from real economists.

James Hamilton, perhaps the best economics blogger EVER, notes that $1 trillion dollars is roughly equivalent to the total individual income tax receipts from 2006.  Dig up your old 1040, note what you paid that year.  Now every time Obama, Reid and Peolsi throw around a trillion dollars imagine that you will now have to cough up that sum in addition to whatever you’re paying this year.  Remember, to spend is to tax.  It might be deferred, but it’s coming.  So a $1.75 trillion deficit this year, well, that’s adding to 2006 tax bills to your 2009 tax bill.  Delightful thought isn’t it.

Arnold Kling discusses the Austrian and Keynesian perspective on the crisis and response.  I can’t think of anything to criticize or add, it’s a near perfect summary of what I think about the economy today.  Here’s some juicy bits:

First, we built dotcom businesses that had no viability. Then we built too many houses relative to the increase in households, and we put too many people to work creating phony wealth by trading mortgage paper. All along, we spent too much on medical services with high costs and low benefits.

and 

we need to adjust downward our expectations in light of the fact that a significant amount of the wealth we thought we had a year ago does not in fact exist.

This is why I say we have structural problems in the economy that are simply going to be painful to correct.  Trying to juice demand with massive government spending isn’t going to fix the problem, at best it will ease the pain of the transition some, at worst it’s merely piling more leverage on top of the bad leverage that got us in to this mess in the first place, delaying and worsening the day of reckoning.