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Today on the podcast, we hear from Barry Ritholtz on the markets, James K. Galbraith on the economy and Ben Bernanke and get a taste of Hyman Minsky on real versus actual prices. In the middle there is a short report from the AEA, American Economics Association, meetings in Atlanta, mentioning Feldstein, Galbraith, Stiglitz and the IMF's Olivier Blanchard.
Here, first, Barry Ritholtz. We offer it for perspective. Our view is the current market is floating on zero cost positions owned by casino players. The new values are not more accurate than the Armegeddon values.
And there we would say that activity in the form of speculators buying up foreclosed properties to rent out is not the healthy activity required to keep neighborhoods vital. The real action should have been and should still be in a renegotiation of the principle between lender and borrower. A much greater loss is being realized in foreclosure and destruction of general home values.
But now to James K. Galbraith, whom we will not second guess, beginning with his capsule on why the Bernanke-Summers-Geithner approach did not work.
Report from AEA
Feldstein was also worried about the longer run U.S. fiscal situation, which contains a rising and worrisome tide of U.S. debt. But his worry was countered by James Galbraith, of the University of Texas-Austin. The academic agreed with Feldstein that the fiscal stimulus had underdelivered, but said the remedy to that was to do even more government stimulus. Galbraith downplayed the budget implications of this new borrowing. “You pay too much attention to those voices” who worry about rising debt-to-GDP ratios. “Those numbers are financial artifacts,” and “the problem to focus on is the 14 million unemployed,” Galbraith said. He noted that the debt-to-GDP ratio hit 100% of GDP after World War II, and that period was followed by a huge period of U.S. economic growth. In a later session, Joseph Stiglitz, the Nobel laureate. warned against “deficit fetiishism,” and said government spending could go to productivity-improvement investments, such as environmental technology. But Olivier Blanchard, chief economist of the International Monetary Fund, countered that prospective investments in green projects were too small to have a macro-economic impact.
Again, the Demand Side point of view is largely along the lines of Galbraith and Stiglitz. A quarter of our economy is idle. We need to put it to work for all our sakes and create the public goods we will all need in the future. The financial arrangements needed to make this happen will sort themselves out in full employment. These ARE financial artifacts that ought to be SERVING the full utilization of labor and capital, not restraining or reducing it. Were it not for right wing hysteria, we believe the deficit problem could be resolved by simply raising taxes on the rich, the economically costly practices of Wall Street, and things like energy whose price does not include enormous environmental costs. It is hard for us to see the rationale for continuing to favor the elites when they led us not into prosperity, but disaster.
We do nod to Martin Feldstein for his agreement with us that the economy has not gone into recovery, in spite of the consensus. Olivier Blanchard continues the tradition at the IMF of being behind the curve and underinformed. "Green projects" sounds like a composting party. Huge rail, road, utility -- including a high voltage DC grid, energy retrofitting and development projects can easily rival the residential housing boom in scale. Of course, residential housing had the fail-safe financing of .... oh, government backstops and bailouts.