What did Keynes really say? He argued that governments able to run deficits, because they can print money, should run deficits in weak economic times - and run surpluses in good economic times.
What Bush 43 did was run deficits in good (low unemployment) economic times. By putting the winter woodpile in the stove in late summer, he stirred up the anti-deficit forces so that Obama had a hard time getting enough wood together for the stimulus he needed after the crisis of 2008.
This is the central message Paul Krugman has been hammering home in his New York Times column for months or years and in his excellent piece with his wife Robin Wells in the latest July 12 New York Review of Books. The NYRB article reviews the relative roles of Larry Summers, CEA Chair Christina Romer, Timothy Geithner et al. in the Bush 43 response to the financial crises of 2008 and then the Obama response to the spreading economic crisis of 2009.
The "starve the beast" thesis of the Reagan era (cut taxes and create a deficit crisis that will inhibit spending) turned the United States from the largest creditor nation in the world to the largest debtor nation. Under Bush 41 and 43, the Federal Government continued to run deficits even through unemployment was very low by historical standards. Only Bill Clinton, during the Democratic interregnum, ran surpluses. I commented on this in September 2008.
At precisely the point where all the anti-deficit armory was assembled, the financial crisis hit and its size and psychological impact had a huge economic impact on the U.S. and world economy. Just as the anti-deficit forces went to work, the need for stimulative spending suddenly became acute. As Krugman has argued at length, Obama's response fell short because of growing GOP opposition in the Congress. One reason is that state and local government revenues fell with the economic decline (they can't print money) and this offset the national stimulus. So states and localities have been faced with huge deficits in FY09-FY11 and more deficits face most of them in FY12 and FY 13, with no stimulus money left to help.
Now Steve Malanga of the Manhattan Institute castigates states and localities for spending too much in good times and not putting away money for bad times. He quotes Keynes. He tells us he asked then-Mayor Koch to put money into a rainy-day fund. Koch correctly responded that elected officials find this difficult to do. So far, rainy-day funds tend to be spent at the first hint of dewfall.
Here are my comments:
1. Keynes was focused on the national level. Counter-cyclical fiscal and monetary policy is meant to be applied at the money-printing level. States and localities just don't have that power. When Greece and Spain gave up the drachma and peseta, they gave up their ability to pursue a counter-cyclical policy for very long - that power has gone to the European Union and the European Central Bank.
2. States and localities have to balance their budgets. Balanced budgets are the law in many states and it's reality in the rest of them. When states and localities talk about deficits they are talking about gaps that must be faced. These gaps must be closed through borrowing or other gap-closing measures.
3. Some counter-cyclical mechanisms work well. Revenue-sharing with states and localities was a good idea. New York City's averaging of assessed values over five years is a hugely successful mechanism that evens out property-tax revenues over the business cycle.
Saturday, June 23, 2012
Thursday, June 7, 2012
The best talk I heard the last two days at the BlogWorld and BookExpo shows was by Russ Henneberry. The title of his talk was "Defuse the Time Bomb: How to Generate Income from the Blog When Time Is Running Out."
|Russ compares a startup to a time bomb.|
If you can't finance the startup period, it blows up.
He starts with some images of ticking time bombs and their use in movies to create urgency and excitement. He relates this to his own situation when he lost his 9-5 job and suddenly was forced to look at his blog as his livelihood, as his daughter was born and he had a family to support.
He compares the wire at the left (the "red" wire) to passive income such as royalties from books or licenses for software. Many founder of startups want to rush into that phase so they can retire quick. The wire at right (the "green" wire) is active income, trading time for money, as in teaching a course, training, coaching or consulting with a client.
Russ's argument is that the best course of action when there is no time to lose is to focus on the "green" wire, the active income. Trading time for money is more reliable, for three reasons:
- While you are developing your ideas, people pay you for your time.
- You get to listen to your clients and improve your ability to address their problems.
- You deepen and broaden your expertise. The best teachers are people who do what they teach.
The key to active income is public speaking because each speech is an opportunity to get business. The rest is a focus on pricing, terms, contracts to gets paid, and business cards to solicit clients.
He gave three books as references for the consulting part of the startup: Fred Miller, The Referral Engine (very practical), No Sweat Public Speaking, and Seth Godin's The Dip - When to Quit.
A blog can help grow up a consulting business because it can mention other people and make them part of your community. It establishes trust and authority. It should also educate prospects so that when a client calls they understand what you do and the terms under which you work.
Once the "green wire" business is under way, it is time to go back to the "red wire" - the passive income. The problem with selling one's time for money is that it is hard to scale up a business that is built on this platform. One can hire staff to make better use of one's time but the principal will be the person the client wants to see. To scale up, one needs passive income from royalties and licensing.
Passive income requires time to build a reputation and a large audience because the revenue tends to be small per item. He uses the example of Katie's Frozen Custard, which had many buyers, but not enough to keep its doors open. "You have to sell a lot of custard to make a living."
SEO Moz started by selling services to Fortune 500 companies. Then it went into the software business to make their system available more widely. A Career Academy became a membership-based community.
The new problem here is how to sell a $30 product via computer. That leads to the need for copywriting skills. Why do people say "yes" to a request via computer? The promotion can be outsourced. The next requirement will be to build a list - attract names to the site, retain them, share them.
For this phase, Russ cited three more books that were useful to him:
Cialfin, The Psychology of Persuasion; Ash, Landing Page Optimization; and Joe Sugarman, Advertising Secrets of the Written Word.
Wrapping up, Russ stressed three points from his remarks:
1. You have to sell a lot of cups of custard to make a living. Selling lots of something inexpensive takes time.
2. Learn how to make money directly with one's skill - then work on getting it in shape to sell online.
3. Start with active income, then use passive income to buy your life back.
As a final recommendation he cited authorityblogger.com and guestblogging.com.
|That's Russ (L) and CityEconomist Blogger John (R)|
at BlogWorld 2012, Javits Center, NYC, June 8, 2012
Saturday, June 2, 2012
One of the problems that emergency planners have in New York City is that people don't believe that a natural disaster could damage the City. After all, hurricanes that come up the East Coast are supposed to peel off and head out to sea before they reach New York City. But that's not the way it happened in 1938, when the hurricane slammed in to Long Island. It's not the way it may happen in 2012, when hurricane patterns have been affected by global climate change. There was a story in the New York Press in 2005 about the problem the City might face if a hurricane is headed to New York City. Bob Trentlyon, former publisher of the Chelsea-Clinton News and other papers has recommended it to my attention as a timely article. I agree with him. It's worth reading. Ask not to whom the hurricane may be heading. If you assume it's not heading for you, by the time that you find out that it is, it may be too late to move.