What is our biggest problem?

The two chairs of the Commission appointed to develop a plan for reducing the Federal deficit agreed that the debt was the nation's biggest problem and unsustainable. We have to cut defense, social security and medical care they say. But, they know it won't happen.

This has become conventional wisdom. Why does not anyone raise the question of what the real economy of people and factories is capable of producing. Have we lost the knowledge needed to produce? Have the factories rusted?

No. This is an institutional failure, not a physical problem. There is an alternative to borrowing more money in the market. The Treasury could borrow from the nation's own bank,the Federal Reserve. Tell me why it is OK to create money every time a private corporation borrows money from a bank, but not OK if the government does the same thing??

Stock market and the economy

Fed chief Bernanke said that deep problems remain in the labor market. So the S&P hit its highest close in 4 years. Go figure! Of course behavior in a gambling casino doesn't have to make sense.

Good news? Layoffs in January were 154,000 fewer then than in December, 2007. Bad news: firms hired 778,000 fewer workers then they did in December, 2007.

"the fact that labor demand appears weak in most industries appears weak in most industries and locations is suggestion of a general shortfall of aggregate demand, rather than a worsening mismatch of skills and jobs." WSJ March 27, 2012.
This problem will not be fixed by tax cuts and austerity.

Afghanistan--go slow or get out

Karzai has asked us to go slow, how about real slow as in Get Out?

British Colonial Failures

The Brits “retained significant control (over Iraq) … until the late 1950s. Yet by repeatedly putting its faith in unpopular rulers who could be depended upon to ensure a steady supply of oil, London inadvertently set off several nationalist explosions. A string of army coups, starting in 1958, eventually led to Saddam Hussein.”

In Nigeria, Britain distrusted educated natives “and decided to grant resources and autonomy to more traditional tribal chieftains, who were intent on pursuing local, not national interests. Britain’s decision to join the Islamic north of the country with non-Muslim settlements in the south fed tribal conflicts and insurgencies that have lasted to this day.”

In the Sudan, “British authorities ruled the north and south separately, ultimately to calamitous effect. Southern Sudan has recently become a separate country after decades of bloodshed, and the last 10 years have seen unconscionable war and genocide in the Darfur region, which was mindlessly tacked on to Sudan during World War I.”

Quotes from Isaac Chotiner’s review of Kwasi Kurateng, Ghosts of Empire in the New York Times, March 4, 2012.

Oil subsidies

Obama proposes an end to government subsidies of oil companies. It's about time.

Going to the dogs

Consumer spending for pets was $51 billion last year. Economists are fond of saying that non disputum de gustabus, or in matters of tasted there can be no dispute. But, surely some critique of spending is as important as improving the efficiency of production of questionable value. The content of GNP is important as well as the quantity.

Romney on Taxes

Romney proposes more tax breaks for the rich. He would eliminate taxation of investment income, reduce corporate taxes, and eliminate estate taxes. After seeing the steadily increasing share of national income going to the top one percent, Romney wants to make it worse.
Reducing corporate taxes as a stimulus for investment is a myth. Corporations have a record amount of accumulated savings that they don't want to invest now. The problem is inadequate consumer demand, not corporate profits.