Monday, August 8, 2011

Econ Made Simple

I studied economics for two years, until the math got me.  I like it when someone can make the dismal science
understandable and useful.

Robert Frank of Cornell does a good job of this.  The following is from transcribed videos and written articles:

“The problem is that there is not enough demand to put people to work.  Businesses aren’t spending and consumers aren’t.  There is more production capacity than needed.  People fear losing jobs and hold back on spending.  Businesses and consumers won’t lead the way.  Only government is left.

“Government can invest in public works; the workers are there.  Markets are eager to lend to our government [Does this surprise anyone?]  The US has always been a good investment.  [If we say we are going to build for the future, the bonds will sell.]

“The cost of government debt compared with the cost of continued or worsening unemployment is very low.  A trillion dollar deficit costs us $25 billion a year to pay the interest on that. If we have an extra ten million people unemployed that’s $250 billion lost forever each year, so it’s a 10 to 1 tradeoff. [This replaces incorrect figures posted earlier.]

"Two things we can do: Declare a payroll tax holiday and exempt employers from payroll taxes for the first year of new hires’ employment.

“If we could put just half of the people who are either unemployed or underemployed back to work, national income would be larger by more than ten times the interest we’re paying on the 2011 deficit.

“The extra income tax revenue alone would be enough to cover the interest on last year’s debt.  Extra spending right now will not impoverish our grandchildren.

"According to the Nevada Department of Transportation, repairing a damaged 10-mile stretch of Interstate 80 would cost $6 million if we did the work today.  But if we postpone repairs, weather and traffic will continue to damage the roadbed.  If we wait just two years, the cost of bringing that same stretch of road up to par rises to $30 million.  There are thousands of similar projects crying out to be done.

“The Nevada cost inflation estimates, by the way, take no account of the special circumstances associated with the current downturn.  There are idle machines and workers who could do the work today, for example, but if we wait a few years, we’ll have to bid them away from other useful tasks.  Materials are cheap in world markets now, but if we wait, their prices will rise as the global economy recovers.

"Interest rates on 10-year T-bills are near record lows.  [Even if rates go up, they will be low by historical standards.]  They’ll be higher if we wait.

"No one proposes to allow the interstate highways to deteriorate back to gravel.  We either fix them now or we fix them later.  Fixing them now is MUCH cheaper, AND it will put unemployed workers back on the job.  If we REALLY wanted to impoverish our grandchildren, it would be hard to come up with a better strategy than failing to undertake these projects right away.”

"The unemployment problem is much more important than the deficit problem.  Deficits need to be reduced, yes, but not in the midst of a deep downturn."

No comments: