Plosser Says Deflation Is No Longer A Concern

See The Fed's Easy Money Skeptic 'Monetary policy can't retrain people. Monetary policy can't fix those problems'. From the WSJ 2-12-11, page A15. Plosser is "the president of Philadelphia's Federal Reserve bank" and "a former dean of the William E. Simon School of Business at Rochester University." Excerpts:

"This mess was caused by over-investment in housing, and bringing down unemployment will be a gradual process. "You can't change the carpenter into a nurse easily, and you can't change the mortgage broker into a computer expert in a manufacturing plant very easily. Eventually that stuff will sort itself out. People will be retrained and they'll find jobs in other industries. But monetary policy can't retrain people. Monetary policy can't fix those problems.""

"Mr. Plosser would like to see a rules-based Fed. "One of the things we have learned about policy is that rules dominate discretion. Limiting discretion— tying the hands of policy makers to only behave in limited dimensions—is usually a good thing."

He adds that the Dodd-Frank banking-reform bill failed to deal with this problem, especially regarding banks considered too big to fail. "There's still lots of discretion in Dodd-Frank," he says. Then he dreams out loud: "It'd be nice if we could get into a debate about what's the best rule to follow."

"His personal pick would be an inflation target. This gets back to credibility, one of his four principles of policy making. "The central bank in a country with a fiat currency is the only entity capable and responsible for ensuring price stability. Nobody else can do it. That's why the central bank exists. So it's got to be that that's job one.""

Boskin: The Time For Spending Cuts Is Now

See The Time for Spending Cuts Is Now: The White House argues that 'draconian' cuts will derail the economy. In fact, cuts are necessary to preserve tax rates that are compatible with economic growth. From the WSJ, 2-11-11, page A13. Excerpts:

"Yes, the president is calling for a freeze on nondefense discretionary spending (18% of the budget). But this would leave that spending more than 20% higher than already- elevated 2008 levels..."

"But government spending generally does little to boost the economy. Exhibit A is the failed 2009 stimulus bill, the president's American Recovery and Reinvestment Act (ARRA).

The strongest case for stimulus is increased military spending during recessions. But infrastructure spending, as the president proposes, is poorly designed for anti-recession job creation. As Harvard economist Edward Glaeser has shown, the ARRA's transportation spending was not directed to areas with the highest unemployment or the largest housing busts..."

"...Indeed, last September Wendy Greuel, the City of Los Angeles controller, shocked the country when she revealed that the $111 million in ARRA infrastructure money her city received created only 55 jobs—that's a whopping $2 million of federal stimulus per job created.

Why is this so? Modern, large-scale public infrastructure projects use heavy equipment and are less labor-intensive than they were historically (WPA workers digging ditches with shovels in the 1930s)."

"The nation certainly has public investment needs, but federal infrastructure spending should be based on rigorous national cost-benefit tests."

"Moreover, how will we pay for all this new spending? The CBO's 10-year projection sees the possibility of the debt-to-GDP ratio rising to an astounding 100%. Several recent studies (detailed on these pages in my "Why the Spending Stimulus Failed," Dec. 1, 2010) conclude that: 1) such high debt would severely damage growth, so fiscal consolidation is essential; 2) fiscal consolidation is likely to be far more effective on the spending than the tax side of the budget; and 3) substantially higher tax rates and spending cause permanent drops in income that are many times larger than the temporary fall caused by the recession."

"In the 1980s and '90s, federal spending was reduced by more than 5% of GDP to 18.4% in 2000—a level sufficient to balance the budget at full employment and allow for lower tax rates."

"I pointed out in 2007 that 42% of federal civilian workers were due to retire in the coming decade. Replacing half of them (with exceptions for national security and public safety) with technology could improve services and save hundreds of billions of dollars."

"Gradually move from wage to price indexing of initial Social Security benefits. This would eliminate the entire projected Social Security deficit without cutting anyone's benefits or raising anyone's taxes. Also, raise the retirement age over several decades..."

Does Creating Green Jobs Make Sense?

From Reason Magazine. Excerpts:

"A new report, "Defining, Measuring, and Predicting Green Jobs," by University of Texas economist Gurcan Gulen, issued by the Copenhagen Consensus Center, takes apart many studies predicting that policies mandating alternative energy production, energy efficiency, and conservation will create a boom in employment.

First, Gulen notes that many such studies fail to define clearly what they mean by green jobs. He points out that many pro-green jobs studies do not distinguish temporary construction jobs from more permanent operation jobs. Many studies also assume that green jobs will pay more than jobs in conventional energy production. But why would a construction job at a wind farm pay more than one at a conventional power plant?

Even more disturbingly, many green job studies have no analyses of job losses. Clean energy costs more than conventional energy, which means consumers and businesses will have less income with which to buy and invest. This reduces their consumption of other goods and services, resulting in job losses in those sectors—one of Bastiat's "unseen" effects. In addition, many studies simultaneously count on protectionist policies to exclude clean energy imports while assuming that domestic companies will be freely exporting to other countries.

As an example of how these pro-green jobs studies go wrong, Gulen analyzes the 2008 green jobs study [PDF] by the consultancy IHS Global Insight. That report found that the U.S. currently has 750,000 green jobs, of which 420,000 are in the engineering, legal, research, and consulting fields. Gulen observes, “Given that there are also categories for renewable generation, manufacturing, construction, and installation, it is likely that the majority of the jobs in the largest category are not directly associated with the generation of a single kWh (kilowatt-hour) of ‘green’ power or a single Btu (British thermal unit) of ‘green’ fuel.” The Global Insight study also reports that government administration generates 72,000 of the current green jobs. Green policies often don't produce power, but do produce more regulators.

The Global lnsight study further asserts that pursuing green energy will increase economic productivity. “When compared to conventional technologies on unit of energy output, due to intermittency and low capacity factors, wind and solar are likely to be more labor intensive (hence less productive),” notes Gulen. In fact, Gulen adds that other studies are counting on the fact that green energy technologies are more labor intensive as a way to generate more jobs."

"Gulen is not alone in his concerns about overblown claims for green jobs. A 2009 report [PDF], by Hillard Huntington, executive director of the Energy Modeling Forum at Stanford University, also found that promoting green energy is not a jobs generator. Huntington calculated the number of jobs per million dollars invested in various types of electricity generation. A million dollars invested in solar power produces three to five jobs; wind 1.6 to 6.5 jobs; biomass 1.8 to 6.5 jobs; coal 3.7 jobs; and natural gas two jobs. It looks like renewables are often winners at job creation until Huntington points out that on average an investment of a million dollars produces about 10 jobs.

“Electricity generation across all sources creates far fewer jobs than other activities in the economy; the estimates in the figure suggest that they range between 17-67 percent of the average job-creation in the economy,” reports Huntington. “These net job losses mean that subsidies to either green or conventional sources will detract rather than expand the economy’s job base, because they will shift investments from other sectors that will create more employment.”

Another way to look at it is that in the worst cases, investing in solar power destroys seven jobs, wind eight jobs, biomass eight jobs, coal six jobs, and natural gas eight jobs, each compared to the 10 jobs generally created per million dollars of investment. All subsidies to the electric power sector divert money that would otherwise be invested in higher value wealth and job-creating activities.

Huntington concludes, “Policymakers and government agencies should look askance at the claimed additional job benefits from green energy.” Gulen agrees, “Adding ‘net’ jobs cannot be defended as another benefit of investing in these [green] technologies.” In other words, President Obama and other proponents of green energy like Next 10 are seeing only what their policies produce, and ignoring what their policies destroy."

The Central Planning Version of Capitalism

From Libertarianism from A to Z the blog of Harvard economics professor Jeffrey Miron.

"MARQUETTE, Mich. — Declaring that “we can’t expect tomorrow’s economy to take root using yesterday’s infrastructure,” President Obama traveled to this snowbound town in a remote corner of Michigan on Thursday to make the case that expanding wireless access is critical to the nation’s economic recovery.

This is a perfect example of what politicians don’t understand (or prefer to ignore) about capitalism.

The fact that the private sector has productively invested in wireless infrastructure in the past does not mean that government subsidy for more such infrastructure will be similarly productive in future.

The crucial difference is that private sector decisions reflect market demand and the subtleties of when, where, and how much.

Government just asserts that, if some is good, more must be better, so spend away."

The 1993 Clinton Tax Increase Did Not Lead to the Budget Surpluses of the Late 1990s

This was a post by Daniel J. Mitchell The Cato Institue. Here are some excerpts:

"Proponents of higher taxes are fond of claiming that Bill Clinton's 1993 tax increase was a big success because of budget surpluses that began in 1998.

That's certainly a plausible hypothesis, and I'm already on record arguing that Clinton's economic record was much better than Bush's performance.

But this specific assertion it is not supported by the data. In February of 1995, 18 months after the tax increase was signed into law, President Clinton's Office of Management and Budget issued projections of deficits for the next five years if existing policy was maintained (a "baseline" forecast). As the chart illustrates, OMB estimated that future deficits would be about $200 billion and would slightly increase over the five-year period.

In other words, even the Clinton Administration, which presumably had a big incentive to claim that the tax increase would be successful, admitted 18 months after the law was approved that there was no expectation of a budget surplus. For what it's worth, the Congressional Budget Office forecast, issued about the same time, showed very similar numbers."

"Since the Clinton Administration's own numbers reveal that the 1993 tax increase was a failure, we have to find a different reason to explain why the budget shifted to surplus in the late 1990s.

Fortunately, there's no need for an exhaustive investigation. The Historical Tables on OMB's website reveal that good budget numbers were the result of genuine fiscal restraint. Total government spending increased by an average of just 2.9 percent over a four-year period in the mid-1990s. This is the reason why projections of $200 billion-plus deficits turned into the reality of big budget surpluses."

How the FDA Kills

This is from Libertarianism from A to Z, the blog of Harvard economics professor Jeffrey Miron.

""Late last year, Biosensors International, a medical device company, shut down its operation in Southern California, which had once housed 90 people, including the company’s top executives and researchers.

The reason, executives say, was that it would take too long to get its new cardiac stent approved by the Food and Drug Administration.

“It’s available all over the world, including Mexico and Canada, but not in the United States,” said the chief executive, Jeffrey B. Jump, an American who runs the company from Switzerland. “We decided, let’s spend our money in China, Brazil, India, Europe.”

In partial defense of the FDA, I suppose one could argue that we should let the residents of other countries be the guinea pigs for new medicines and devices, and then take advantage of what they learn.

But that approach still suggests we should approve things quickly here, once they have passed muster abroad, rather than requiring a whole new costly and time-consuming testing process."

Brad Schiller: "Stimulus Ineffective"

See Doing the Math on a Jobless Recovery: President Obama has urged us to be patient, but must we wait until 2018 to get back to full employment? From the WSJ, 2-9-11, page A15. He is a professor of economics at the University of Nevada, Reno. The main thing he talks about is how long it will take to get back to full employment at the current rate of job growth given how many people are unemployed and how many enter the labor force each year. He concluded with "The math of joblessness is exceedingly bad news for American workers. It's also a sobering reminder of how ineffective stimulus policies have been."