Quote from piezoe:
Ben Bernanke, mainly. The Fed and Treasury are Following a Keynesian like approach to first preventing depression, and secondly to push the U.S. economy slowly out of recession. This is why the market is going up and it is likely to continue as long as there is plenty of money available at low rates. It's working as planned so far, and the Housing Market is showing signs of recovery. Prices are starting to move up slowly. There is still the problem of excess inventory. It will take a number of years to work through that.
It will be essential for the Fed to tighten at the appropriate time, but that is a long way off. The Fed needs to keep a close watch on the market and not let "Greenspan irrational exuberance" rear its ugly head. This hasn't happened so far, as gains are mostly nominal, but could happen easily enough. And then it will be up to the Fed not to repeat the error of the supply siders who held the misconception that markets would return to equilibrium on their own.
By adjusting margin and capital requirements --two things Greenspan refused to do when it was suggested to him-- the Fed can prevent market bubbles. Small bubbles are inevitable, giant bubbles are entirely avoidable. One has to be willing to reject failed economic theory such as the Efficient Market Hypothesis --what a joke that is!, spontaneous equilibrium, rational expectations, and other non-sensical, mumbo jumbo, and go to what will work in the real market.
It is amazing to realize that there are so many good ways to increase government revenue and hold deficits in check that would be of tremendous help to the economy in the long run, while we extricate ourselves from this horrendous mess the supply siders have dropped on us; yet we haven't done a one of them!
For example, it is critical that the Bush tax cuts on those making >250K be reversed. Reversing these cuts will have very little negative effect on jobs, but a large effect on revenue.
Prisons and drug policy are a source of 100's of billions of sorely needed revenue at the State level. Some states now spend 1/5 of their budget on ever swelling prison populations. This is a consequence of three gargantuan mistakes: the first being to privatize prisons, and in so doing create an incentive to swell the prison population; the second being mandatory sentencing that followed on the heels of privatizing --that accomplishes the prison entrepreneur's goal of keeping these criminals we created locked up as long as possible; the third being to criminalize drug use thus creating millions of criminals-- or hapless human profit centers if you prefer.
All three of these mistakes must be reversed as quickly as possible. This won't make drug use any less or any greater, but more than a trillion dollars will be saved annually as the rate of petty crimes drops to what it is in other industrialized countries. There will be savings in policing, criminal prosecution, court costs, insurance, undertaking, and of course prisons. The petty crime rate will plummet. Fifteen to 20% of the saving realized can be diverted to drug treatment and recovery, and social services. The rest will be available for job stimulus programs in the economy.
Cutting defense spending is also essential, and a no brainer. (Disabuse yourself right now of any thought that war is good for an economy-- don't use WWII as the model, that's a special case. Use Vietnam, Iraq, and Afghanistan --there are your models.) But of course you have to cut military spending in a way that does not throw hundreds of thousands out of work. Money should be moved from weapons to infrastructure and the same contractors and people now making weapons must convert over time to engineering projects in the private sector.
There is nearly an endless list of worthwhile private and state-level public sector jobs that can be created with federal seed money. The seed money spent will be an investment that can be repaid via higher revenues going forward as the economy continues to recover. Here are just a very few suggestions: Intercity High speed rail -- a comprehensive 12 year program; intracity rapid transit; wind and solar power development; a new network of both prescribing pharmacists and small retail, for profit clinics throughout the U.S. (Some states have both already.); smaller classroom size in primary and secondary public education and addition of six years of foreign language training to all grade school curricula could easily add 1-2 million new jobs.
Workers who lose their jobs when drug use is decriminalized will find new jobs in social work, drug rehab, education, and building infrastructure.
All of these things are doable, but it might require that the Republican party disappear for about 20 years. That's a sacrifice I am prepared to make. What about you?
