(p. A15) Only one in 20 workers needed the government’s permission to pursue their chosen occupation in the 1950s, notes University of Minnesota Prof. Morris Kleiner. Today that figure is nearly one in three.
. . .
The breadth of jobs is remarkable. Travel and tourist guides, funeral attendants, home-entertainment installers, florists, makeup artists, even interpreters for the deaf are all regulated by various states. Want to work as an alarm installer? In 35 states, you will need to earn the government’s permission. Are you skilled in handling animals? You will need more than that skill in the 20 states that require a license for animal training.
There’s usually more to these licenses than filling out some paperwork and paying a small fee. Most come with government-dictated educational requirements, examinations, minimum age and grade levels, and other hurdles.
. . .
Instead of looking to the federal government to create jobs, state legislatures could have a real and immediate effect on unemployment in their states by showing how less truly is more. They can remove the barriers to job creation that their predecessors erected and enjoy the job-generating drive of their states’ aspiring entrepreneurs.
(p. A13) Workers do well only when the economy grows at a healthy and consistent pace. The biggest threat to long-term economic growth is government growth of the magnitude that characterized the past two years and that is forecast for our future.
Our current problems are not a result of acts of nature. They stem from policy choices that dramatically increased the size of the government. In the past two years, the federal budget has grown by a whopping 16%.
. . .
. . . , the price of the stimulus is what appears to be a permanent increase in the size of government that will continue to slow economic growth. Most economists believe that high debt and high taxes each contributes to slow economic growth, which hurts workers both in the short and long run.
(p. A21) . . . we already know what isn’t working: the economic policy of the past two years — and the millions of Americans who should have jobs, but don’t.
“Online critics have scornfully contrasted the difference between government rhetoric about the promise of high-speed rail and the reality of the troubled network. Local residents mourned victims of the train crash in Wenzhou on July 26.” Source of caption and photo: online version of the WSJ article quoted and cited below.
(p. C1) China’s high-speed rail system is an apt metaphor for the country’s hurtling economy over the past decade: a colossal investment project, born of the state, steeped in corruption, built for maximum velocity, and imposed paternalistically on a public that is at once amazed and skeptical. The rail system has married foreign technology with national ambition in a network billed as the biggest and most advanced in the world, in a country whose per capita income ranks below that of Jamaica.
(p. A11) BEIJING-A high-speed train from Beijing is scheduled to glide into Shanghai’s Hongqiao railway station on Thursday after its inaugural run, an event meant to showcase China’s technological prowess but one that lately has become part of a national debate about the pitfalls of megainvestment projects.
. . .
Detractors focus on corruption and safety problems that have lately tarnished the project’s image. Pricey tickets, they say, underscore China’s already huge rich-poor gap–and doom the trains to run half-empty, straining the national budget for years to come.
. . .
“Physically, they are good assets,” says Ding Yuan, an accounting professor at China Europe International Business School in Shanghai. “Financially, they are all black holes.”
More broadly, the high-speed rail problems underscore the shortcomings of a growth strategy that depends ever more heavily on investment in projects whose economic payoffs are uncertain.
. . .
Railways Minister Liu Zhijun proselytized for high-speed rail, telling leaders from Hubei province in January that they needed to “seize the rare opportunity to accelerate the development of the railway,” according to a Railways Ministry report.
. . .
Government spending on rail projects ballooned from 155 billion yuan in 2006 ($24 billion) to a budgeted 745 billion yuan ($115 billion) in 2011, according to state-run Xinhua news agency. The ministry’s debt ballooned to about 5% of GDP in the first quarter of 2011 from about 2% in 2007.
The project’s flaws became painfully clear in February, when Mr. Liu was fired amid allegations that he embezzled around $30 million. Although government investigators didn’t cite criticisms of the railway project, Mr. Liu’s successor, Sheng Guangzu, has scaled back plans to focus on projects already under construction, rather than expansion. Railway consultants say work has been suspended on new lines, including Hubei projects the fired minister was pushing.
I was watching economists Kenneth Rogoff and Paul Krugman being interviewed by Fareed Xakaria on the CNN show “Fareed Zakaria GPS” in the late morning on Sunday, August 14, 2011. I started laughing when I heard Krugman suggest that a perfectly acceptable Keynesian solution to the economic crisis would be for scientists to pretend that space aliens were invading earth. (We then would pull together and get everyone employed.)
What we actually need is less government deception and less government intervention, so that entrepreneurs can go back to creating new products, new businesses, and new jobs.
Here is a transcript of the relevant part of the interview:
Ken Rogoff: Infrastructure spending, if it were well-spent, that’s great. I’m all for that. I’d borrow for that, assuming we’re not paying Boston Big Dig kind of prices for the infrastructure.
Fareed Zakaria: But even if you were, wouldn’t John Maynard Keynes say that if you could employ people to dig a ditch and then fill it up again, that’s fine, they’re being productively employed, they’ll pay taxes, so maybe Boston’s Big Dig was just fine after all. Paul Krugman: Think about World War II, right? That was actually negative social product spending, and yet it brought us out.
I mean, probably because you want to put these things together, if we say, “Look, we could use some inflation.” Ken and I are both saying that, which is, of course, anathema to a lot of people in Washington but is, in fact, what basic logic says.
It’s very hard to get inflation in a depressed economy. But if you had a program of government spending plus an expansionary policy by the Fed, you could get that. So, if you think about using all of these things together, you could accomplish a great deal.
If we discovered that space aliens were planning to attack and we needed a massive buildup to counter the space alien threat and really inflation and budget deficits took secondary place to that, this slump would be over in 18 months. And then if we discovered, oops, we made a mistake, there aren’t any aliens, we’d be better – Ken Rogoff: And we need Orson Welles, is what you’re saying. Paul Krugman: No, there was a Twilight Zone episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time…we need it in order to get some fiscal stimulus.
(Note: bold in original; the ellipsis in the final paragraph is in the original CNN transcript. Here is a transcipt of the final paragraph without the ellipsis: “KRUGMAN: No, there was a “Twilight Zone” episode like this in which scientists fake an alien threat in order to achieve world peace. Well, this time, we don’t need it, we need it in order to get some fiscal stimulus.” The source of this transcript is the News Busters blog at: http://www.newsbusters.org/blogs/noel-sheppard/2011/08/14/paul-krugman-calls-space-aliens-attack-earth-requiring-massive-defens#ixzz1V1xydNu6 )
(Note: Commenting on the CNN blog entry, “Wild Bill” suggested that the source for Krugman’s policy advice was not an episode in the “Twilight Zone” series, as Krugman had said, but the “Architects of Fear” episode that aired in 1963 on the “Outer Limits” series. In spite of this error, “Wild Bill” maintains that the “dude is still a flippin’ genius.”)
(p. C14) There is no such thing as a free stimulus.
At first sight, China’s response to the financial crisis looked cheap. A fiscal deficit totaling 3.1% of gross domestic product in 2009 and 2.6% in 2010 compares with 12.7% and 10.6% in the U.S. The reality is that it was considerably more expensive than that.
China’s response to the crisis came primarily from bank loans rather than central government debt. With many of those loans now threatening to turn bad, the cost may still end up on the government’s balance sheet.
The heart of the problem is debt taken on by local government financing vehicles in the course of two years of huge infrastructure investment. These are entities created and backed by local governments to get around legal constraints on their borrowing. No one knows how much debt they have.
Source of book image: online version of the NYT review quoted and cited below.
(p. C6) Although the financial crisis of 2008 has left a long trail of casualties, one group has benefited from the cataclysm: financial journalists. Several have already published books shedding light on the unprecedented events that caused investment banks to fail, global stock markets to plummet and borrowers to lose their homes. “Reckless Endangerment,” by Gretchen Morgenson, assistant business and financial editor and a columnist at The New York Times, and the financial analyst Joshua Rosner, is a worthy addition to the genre.
. . .
The book begins in 1994 with President Bill Clinton’s kicking off a public-private partnership to extend homeownership to more Americans. . . .
. . .
. . . the institution to which the authors devote the most ink is Fannie Mae, the government-supported enterprise created in 1938 to make home loans more accessible. And the person they hold most accountable is someone whose role in the “mortgage maelstrom” has until now “escaped scrutiny”: James A. Johnson, Fannie Mae’s chief executive from 1991 to 1998. Mr. Johnson was the “anonymous architect of the public-private homeownership drive that almost destroyed the economy in 2008,” the authors assert. “He was especially adept at manipulating lawmakers, eviscerating regulators and leaving taxpayers with the bill.”
The description of Mr. Johnson’s role is damning — and although the account lacks his perspective, it is thoroughly supported through scores of interviews with academics, government officials and industry executives, some of whom are granted anonymity. While Mr. Johnson didn’t respond to interview requests over five months, according to the authors, they overcome this obstacle with impressive use of public records and secondary sources, carefully attributed in the text or described in a two-page “Notes on Sources.”
. . .
A particular strength of this book is the number of doubters the authors unearthed: the unsung government analysts, public lawyers and private researchers who dared to question policy decisions and stand up to the formidable “housers,” as the true believers in government subsidies for home ownership are called.
The reader has a sickening sense of missed opportunity as these prophets are ignored or, worse, vilified, by those in a position to halt the mania. When a Congressional Budget Office researcher in 1995 reveals the multibillion-dollar extent of the government’s subsidy to Fannie Mae and its brother institution, Freddie Mac (and that one-third of these benefits never reached borrowers), he suggests that “Congress may want to revisit the special relationship.” Unable to assail the merits of his analysis, outraged Fannie Mae executives resorted to ad hominem attacks, calling budget office officials “digit-heads” and “economic pencil brains.”
Book being reviewed:
Morgenson, Gretchen, and Joshua Rosner. Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon. New York: Times Books, 2011.
(p. 1A) While the nation’s job growth has limped along since the economic recovery began two years ago, the Lone Star State is enlarging payrolls in Texas-size fashion.
From June 2009 to June 2011 the state added 262,000 jobs, or half the USA’s 524,000 payroll gains, according to the Federal Reserve Bank of Dallas and the Bureau of Labor Statistics. Even by a more conservative estimate that omits states with net job losses, Texas’ advances make up 30% of the 1 million additions in the 34 states with net growth.
(p. A15) Robert Lucas, the 1995 Nobel laureate in economics, has spent his career thinking about why economies grow, and in particular about the effect of policy making on growth. From his office at the University of Chicago, Prof. Lucas has been wondering, like the rest of us, why, if the recession officially ended in the first half of 2009, there hasn’t been more growth in the U.S. economy. He’s also been wondering why this delayed recovery resembles the long non-recovery years of the 1930s. And he has been thinking about the U.S. and Europe.
In May, Bob Lucas pulled his thoughts together and delivered them as the Milliman Lecture at the University of Washington, an exercise he described to me this week as “intelligent speculation.”
Here is the lecture’s provocative final thought: “Is it possible that by imitating European policies on labor markets, welfare and taxes, the U.S. has chosen a new, lower GDP trend? If so, it may be that the weak recovery we have had so far is all the recovery we will get.”
. . .
“If we’re going to move to a European welfare state,” says Prof. Lucas, “we’re going to have to pay a European price.” And that price could be a permanently lower level of GDP per person. The U.S.’s amazing 100-year ride would slow.
Among the many things any such drop in GDP will siphon away is America’s relentless productive vitality. “So much new happens in the United States,” Prof. Lucas says. But will it still?
