Sunday, July 10, 2011
An anecdote from almost 50 years ago
In 1962 I entered the Harvard Government Department as a graduate student, intending to become a "defense intellectual," as the term was then used. (I had written a senior thesis at Duke about deterrence theory, including the logic of "the rationality of appearing irrational." Richard Nixon, incidentally, made use of this logic, by his own account, when he became President later in the decade.) Among other things, as a firsit-year graduate student, I took a "seminar" (with 90 students!) with Henry Kissinger. By the end of the year, for a variety of reasons, I had migrated to Robert McCloskey, a truly wonderful human being, and a future career studying constitutional law. But that's not the anecdote.
I think there is some similarity between the 2 crises, in that some of the impetus for presidential decisionmaking in each incident, respectively, remains in a below-visibility area.
With respect to the 1962 incident, I know someone 3 years following you in the university, also reportedly fairly unfazed by the public face of the reportages at the time. My sense is ample data remains classified to this day. However, even the extrinsics were readable to the defense cognoscenti in those days, and fairly well align with your equally informed impression. It was bruited that the then president was well read in history, likely informing his temperate response then.
On the current pressures the president is negotiating about the lower chamber's reluctance to cooperate on matters of indebtedness, and that chamber's factional leadership's eagerness for less government, new tax reprieves to 'US multinationals', and the like, it may be instructive to examine the reported outcomes of a recent 2011 effort in congress to revisit the ostensibly one-time tax reduction offer extended to multinationals in 2004. In the latter cf Congressional Research Service report 40178,, entitled Tax Cuts on Repatriation Earnings as Economic Stimulus: An Economic Analysis, Donald J. Marples and Jane G. Gravelle, May 27, 2011. That CRS report also is cited in fn.10 of a report by Center for Budget and Policy Priorities, as updated June 23, 2011, entitled Tax Holiday for Overseas Corporate Profits Would Increase Deficits, Fail to Boost the Economy, and Ultimately Shift more Investment and Jobs Overseas, By Chuck Marr and Brian Highsmith; availablethere.
The latter report appears to depict ample corporate governance resources available within the participating multinationals to reconfigure accounts, alter employment objectives, rollout stock repurchase initiatives and provide windfall dividends, in ways that neutralized the repatriation tax-holiday statute's goals short order.
The politics of supporting the 2004 tax holiiday apparently stirred the displeasure of the Bush-2 administration; so, I am not sure there is much to go on there. Perhaps that balkiness related to the anticipated outcome of the holiday's being windfalls for two sectors which did not include the energy industry at the time.
Still, I think Obama has an interesting bit of spelunking to do in these negotiations; and I think secretary Geithner took a principled, pro forma stance as represented in GC G.Madison's compact letter on July 8, 2011.
In my lifetime that started in 1930, there have been many Chicken Little "The Sky Is Falling" moments. Perhaps some day the sky may actually fall. But not this time. So I shall expect on August 3rd the direct deposit of my next Social Security check. In the meantime, there will be some market panic, with a few winners and many losers.
"They should make an X-Men movie about the debt limit."
may have casting problems, as who are the Super Heroes? Do any elected officials qualify as Super Heroes? Or are they the villains?
Note to the President: When you threaten global financial Armageddon if the GOP does not sign off on your tax increase plan, don't use a punch line like "It's time to eat our peas." Its only slightly less pathetic than using your daughters' homework habits as an analogy.
This is why the markets are unperturbed.
Our yodeler has confidence with:
"This is why the markets are unperturbed."
that the failure of Congress to upgrade the public debt limit will not impact markets? (What's happening in the market today attributable to some of the things in Europe?) Some smart investors will be "short" sighted and perhaps make a bundle. "Oh, the days dwindle down, to a precious few ...."
Query: would it have been okay if Obama said broccoli instead of peas?
Let's see how much more barrel-bottom scraping our yodeler can come up with; of course, our yodeler is well positioned there.
Obama spent January through the beginning of March 2009 very successfully convincing the American people and the markets that we were headed toward a Second Depression when trying to sell his "stimulus." The Dow lost over a quarter of its value, free falling every time Obama spoke about the economy. However, I do not believe that Obama offered any analogies to peas or other green vegetables to make that case.
It appears that Obama is a trying the same tactic again to get his way on the debt ceiling, while gratuitously insulting the American people's intelligence for good measure.
We shall see if Obama still retains the ability to tank the markets for political advantage.
There is too much debt in the world. Since Morning In America credit in all sectors, not just government, and globally not just the US, has exploded.
Here is the famous chart, somewhat outdated, of total US debt in all sectors.
(US government debt is perhaps 20% of this total)
A dollar of credit used to produce nearly a dollar in GDP growth. That relentlessly declined.
(Ignore the below zero part as that was the recession)
The point being ever more debt has been required to get growth. When the financial and non financial credit markets stopped growing and sometimes shrinking after 08 it became an existential systematic necessity for governments to borrow, and spend. So it remains.
Nobody wants to lend to the usual suspect nations so they lend to us, at near zero. The question now is should we borrow at such low rates. From the perspective of keeping the political economy intact the answer is yes, right now. That is what Geither and all the serious people say.
That's what 'liberals' say too. 'Conservatives' say no but both are fighting old wars dating back to 1932. Neither is looking at the big picture painted in those two charts. Those charts say we are damned if we do and damned if we don't. Damned if we do borrow more because it won't be enough to bring growth, only perhaps stave off recession and deflation so we can relive this cycle for years to come, and damned if we don't because then we get deflation. Unlike the Cuban crisis where we were damned if we did and fine if we didn't.
First, our yodeler says:
"This is why the markets are unperturbed."
When called on this, he says:
"We shall see if Obama still retains the ability to tank the markets for political advantage."
Of course we know who tanked the markets in 2008 - hint: Bush/Cheney with the Great Recession.
Since Bush/Cheney, there has been significant recovery in the stock market. If the public blames the GOP in Congress for failure to pass a suitable bill increasing the debt ceiling, it will have good reason. Imagine, the GOP to save millionaires from what may be relatively modest tax rate increases, may cause 55 million Social Security recipients - all voters! - to defer their payments and may cause many 401(k) owners - mostly voters - to suffer market losses. And our yodeler comes in with inconsistent comments, perhaps realizing his first observation was just plain stupid. So he blames Obama, in advance, for his ability to tank the stock market. First, the Congress must pass a bill. Alas, our yodeler's hatred for Obama going back to 1/20/09 demonstrates what clouds his mind.
Dear Prof. Levinson:
Your comments about Krushev's rationality reminds me of Sting's song from the 1980s, "I hope the Russians love their children too," set to music from Prokofiev's Lieutenant Kije Suite."
In a surprisingly sophisticated analysis done in the length of a popular song, Sting postulates that the Russians are most unlikely to start a nuclear war, because they would be killing their own children in such a war.
Since I, though younger than you, vividly remember the cuban missile crisis, I could happily have gone all day without your having to mention just how long ago that was!
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