A low volume, high quality source from the demand side perspective.The podcast is produced weekly. A transcript is posted on the day of.

Saturday, July 25, 2009

Podcast Transcript 07.25.09 Audio perspective -- Martin Wolf, Eliot Spitzer, Dylan Ratigan

Plus Idiot of the Week with Robert Eisenbeis.

Today a little bit of audio and some perspective

Eliot Spitzer and Dylan Ratigan explain the garbage on the Fed's balance sheet and why we paid real money for it. Or maybe they just point out that we paid real money for garbage and take the Fed to task. Stay tuned.

Before that we have Idiot of the week with Robert Eisenbeis. We have Martin Wolf speaking directly to the bad economics of the past thirty years.

First this note, following our podcast relay of a House subcommittee's hearing on High Speed Rail, we hear from The Transport Politic website:

The House Okays Additional $4 Billion for High-Speed Rail

24 July 2009

This Budget provision, if approved by Senate, will increase federal allocations for rail to $12 billion in this year alone.

Yesterday, the U.S. House passed its housing and transportation bill, which will provide funds for fiscal year 2010. Approved mostly by members of the majority Democratic party, the bill would allocate $4 billion to high-speed rail programs — if the Senate’s version, likely to be considered after the August recess, includes the same provision.


.. The President’s Budget released earlier this year asked the Congress to devote $1 billion for the next five years for high-speed rail, in addition to the $8 billion already marked for the program under the stimulus bill. The House’s decision to increase that number to $4 billion is a direct reaction to the huge response from states and the private sphere for stimulus-based federal rail grants. The FRA revealed that forty states had applied for more than $103 billion.

Iowa Congressman Tom Latham (R) attempted to block the inclusion of so much money for rail, arguing that the government shouldn’t embark on what he argued would be a $100 billion endeavor. Yet his amendment was put down by a vote of 136-284, with 40 Republicans voting against his measure — compared to the only 16 members of the GOP voting for the bill as a whole. This indicates strong bipartisan support in Congress for high-speed rail investment and bodes well for similar action in the more conservative Senate.


Demand Side is cheering. The sooner and more aggressive the construction of high speed rail, the cheaper and more productive will be the investment.

Now, On to

Idiot of the Week,

With Robert Eisenbeis, former research director at the Atlanta Fed, talking on the idea of stimulus.


Clearly, once again, proximity to money does not mean competence in economics. We've already had the tax cuts fail twice, not to mention the huge debt hole they drilled in the one time surplus. The consumption function is much more substantial when you add stimulus in the form of a new job than in the form of an additional hundred dollars of discretionary income. The discrete these days save. We'll take up the savings rate in the next podcast.

Elsewhere in this interview with Tom Keene, Eisenbeis quotes the P.T. Barnum of economics, Milton Friedman, as saying, "Monetary policy acts with long and variable lags." Which, I think, speaks to the vagaries of monetary policy. The truth is it is far easier to stall an economy with monetary policy than it is to get one going again. We think you are witnessing that in the current experiment of history.

But, Robert Eisenbeis, Idiot of the Week.

Many of our idiots are fairly competent if they don't stray too far from their base of competence. Here is, for example, Eisenbeis in a clip earlier in that Bloomberg interview.


Let's use this comment on the Fed's balance sheet as a segue into Eliot Spitzer and Dylan Ratigan taking on the blather of the Fed with regard to what they've taken on. I hope the schtick translates to audio. It appeared on Ratigan's MSNBC "Morning Meeting" this week.


Enough of that.

Now to finish the podcast, Financial Times chief economist Martin Wolf gave the best interview of the past week, again on Bloomberg on the Economy with Tom Keene. Wouldn't it be nice to have an audio link capacity? Be that as it may, here is what he had to say with regard to the economic paradigm of the past thirty years.


I never bought it. I never believed in the so-called New Classical Economics, which essentially says "Demand is not a problem. The Market always clears. We're always at full employment. And we don't need to worry at all about the sorts of problems that worried John Maynard Keynes in the Thirties and, indded, worried Milton Friedman. I would argue that that sort of view in economics, which was the dominant paradigm for thirty years, that essentially the economy is in equilibrium all the time. The financial system is always in equilibrium. That seems to me to have been a mistake. A mistake made by brilliant people, but a mistake.

And we're going to ahve to go back to the sort of thinking about macroeconomics there was in the middle of the 20th Century. Yes. There's a big job of intellectual reconstruction to be done.

I must say I'm a bit pessimistic about this. What has struck me most forceably in this crisis is how everybody pretty well, with a few exceptions, have gone back to economic thinkers of the middle of the 20th century. Not new thinkers. Certainly not new, new thinkers. Maybe it's because this crisis has come as a terrible shock. It was not something very many people expected, and so there hasn't been the time for economists to think about what it means

But the truth is .... that we are going to have to go back to the drawing board, and ask ourselves "Is the model of the economy of enlighted rational individuals maximizing their wealth as they see it, one which is consistent with equilibrium, full employment all the time. And it seems to me pretty clear that it isn't, because people make absolutely fundamental and systematic errors. If we have the right macroeconomic environment, or the wrong one, which is what we have been discussing...

So yes, I think this is a matter of starting afresh, and I think that starting afresh has hardly started.

Martin Wolf

One thing, this should cause despair among those who toiled in the field of rational expectations. You grew only thorns. On the other hand, young economists should feel some encouragement. You didn't have to learn the wrong stuff and now with a good, direct view, you can be far more competent -- notice I did not say employable, only competent -- than peers with much more experience.

That brings up the thought. Why not a reading list? Yes. Robert Lekachman's The Age of Keynes, maybe forty years old, is very good as a start. I'll pick some others for the next edition of the podcast.

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