freeman2 wrote:I read RJ's post about his concern about the deficit in perhaps not voting for Obaba (for the record, that’s your name calling, and not mine]) and Purple's response. There are three questions that I have that have not been addressed in this campaign:

I realize that these are largely rhetorical questions, but I’m going to try to answer them.

(1) Given that prior to the 2008 collapse our economy was driven by consumer spending and consumer spending was dependent on loans (whether from credit cards or from loans based on equity in a home) and now those loans are much less available, how are we going to get a robust economy?;

We've talked about this before. A long term robust economy can no longer come from the demand side; we’ve had 12 years now of stimulus and we still do not have sufficient demand from a Keynesian perspective. If we want long term robust growth, it has to come from productivity. Technological improvement, increased trade, and government getting out of the way as it relates to taxation and regulation are the best ways to have robust growth.

(2) What steps are you going to take to maintain US wages in a global marketplace, given that US workers are competing against workers in China, India and elsewhere who willl work for a fraction of US wages;

Some manufacturing is coming back to the US since energy costs are so much lower here. Romeny will help make them even lower. I've heard that oil workers can make over $100,000 a year in North Dakota. Solar panel installers were making a good living until Obama made it difficult for the Chinese to sell panels in the US, hurting the industry. Other than the items that I mention in #1, there's really very little that the government can do. Obama is pretending to have answers here, but none of them work since these trends continue.
By the way, you make more money in designing, developing an App, or having a marketing strategy related to Apple than actually making an i-phone which is not fun. I suggest that’s where we put our efforts.

(3)What steps are you going to reduce a disproportionate amount of wealth going to Wall Street and upper--level management, which has not occurred because they work harder or are more innovative than their predecessors, but due to increased due to accessibility to low-wage labor

Most of the stuff that the government will do here will backfire with unintended consequences. Figuring out how to make the same product for less by using lower cost wages is what upper level management should do. If those savings get passed on to the consumer, then the consumer has more purchasing power.

I don't know why we would expect Romney to come in and for the economy to magically get the economy going.

Maybe, maybe not. Reforming the tax code will create growth. Making sure that government regulation is not too onerous will help. Enabling more drilling will create growth. But your right, the headwinds are very strong.

Government intervention was important during the Financial Crisis and fortunately it did intervene.

We've talked about this before. Government intervention caused the financial crisis. By "encouraging" home ownership government caused us to misallocate resources. Then it made things worse by a lot of temporary programs with unintended consequences. I think that the initial bailout by Bush and Paulson when the economy was in free fall was necessary. I also think that Obama’s auto bailout may have been right. But after that they were just pretending to solve problems to award their donors and make you think they were helping you. The temporary real estate tax credits, cash for clunkers, bizarre stimulus measures, and loans to now failing clean energy companies have all been terribly wasteful and debilitating short term measure that have added to our deficits without creating any value.

Now we just need a steward, not radically tinkering with the tax code and increased military spending (Rj has yet to explain how Romney's tax cuts and increased military spending are going to cause lower deficits than Obama would have)

Frankly, I’m not saying that Romney is up to the task. Even if one agrees that we need military spending because of one’s view on the world, one have to acknowledge that it reduces productivity. By the way, Romney is now emphasizing reducing tax rates and not tax cuts, which is the right answer. In any case, my central point is that Obama is pretending that he is working on the problem, but that his recently released 20 page plan shows he either has contempt for my view that deficits matter, or he doesn't understand the extent of the problem. All of the evidence suggests that we would have 4 more years of Obama kicking the can down the road. Then the problems will be even worse and even harder to solve. I think that our Republic is at stake. Did you know that every day as a nation we incur $3 to $4 billion more in debt? I find that to be astounding.

Now Obama has focused a bit on addressing the three questions that I listed above. He talked about increasing manufacturing jobs, important when you cannot rely as much on a consumer economy. He talked about making sure education and training, important when US workers are going to have to get more productive for their wages to rise. He has also talked about more spending on infrastructure, which help Us businesses to compete. His investments in new technologies should help Us companies to gain an edge and hopefully produce high-paying jobs.

It seems to me that you should be a lot more cynical about all of this. I don’t think that Obama has done anything on these items. Is there any evidence that any of this stuff that Obama has done (talking about manufacturing jobs, making sure about education and training, spending on infrastructure, and his investments in new technologies) has done any good? It’s all very nice and high minded, but I haven’t seen any evidence that Obama has been successful with this stuff.

Rj has also says we should negotiate more trade agreements and allow more skilled immigrants

Did you know that Obama has not negotiated one free trade agreement while he has been in office. He’s signed (finally) 3 agreements negotiated by Bush, but he hasn’t done one himself. Google how many free trade agreements China has signed over the last four years?

Very good post, Rj. I don't agree with you on some of the things you stated (well of course), but this is the type of discussion congress and the president should be having. We are getting a dumbed down economic analysis in this campaign that is not helpful

Indeed, a very good post by RJ.

A few separate comments, then I'll address a point or two RJ made.

When the Stimulus passed, I was dubious. I thought it was poorly thought out and Keynesian in the extreme. It is one thing to spend money to stimulate the economy; it is another to do it in a way that leaves a lasting footprint.

For example: I have no idea what it would take to improve (dollar-wise) the power grid and put more (eventually most or all) power lines underground, but every time things get windy on the east coast, we spend millions (or billions) putting the same lines in the same places--often even running them through the same tree branches. That is idiotic.

There ought to be a plan to put those lines underground. When a street gets torn apart for a sewer line, etc., the power lines also should be replaced.

In weather-related tragedies, the #1 problem is lost electricity. Moving the lines underground won't stop every problem, but it would minimize them.

Ray Jay wrote:Most of the stuff that the government will do here will backfire with unintended consequences. Figuring out how to make the same product for less by using lower cost wages is what upper level management should do. If those savings get passed on to the consumer, then the consumer has more purchasing power.

And, instead of this, Obama has focused on policies that have raised prices on energy and food. How has the EPA's War on Coal, increased regulation across the board, and the Administration's stubborn insistence that "green energy" is worthy of "investment" now helped the economy? (rhetorical)

The only government expenditures that can help NOW are those that start a permanent job/jobs with a one-time "investment." That is not what the President has done.

I don't know why we would expect Romney to come in and for the economy to magically get the economy going.

Maybe, maybe not. Reforming the tax code will create growth. Making sure that government regulation is not too onerous will help. Enabling more drilling will create growth. But your right, the headwinds are very strong.

I think it will improve overnight--but not due to magic. There is more than $2T on the sidelines, waiting for a friendly environment for investment. If Romney is elected, a good portion of that money will be put to work--that will have an instant effect and cost us nothing. The confidence of having a businessman in the White House should not be underestimated.

Note well: I'm not saying it will be an instant cure. What I am saying is we will see a recovery that looks more like an historical recovery--instead of limping along, the economy will start jogging.

Government intervention was important during the Financial Crisis and fortunately it did intervene.

We've talked about this before. Government intervention caused the financial crisis. By "encouraging" home ownership government caused us to misallocate resources. Then it made things worse by a lot of temporary programs with unintended consequences. I think that the initial bailout by Bush and Paulson when the economy was in free fall was necessary. I also think that Obama’s auto bailout may have been right.[/quote]

Don't forget: Bush started it. The main contribution of Obama was to violate many decades of bankruptcy laws in favor of his union allies.

All of the evidence suggests that we would have 4 more years of Obama kicking the can down the road. Then the problems will be even worse and even harder to solve. I think that our Republic is at stake. Did you know that every day as a nation we incur $3 to $4 billion more in debt? I find that to be astounding.

If you believe what you write here, no matter your reluctance about Romney, you cannot vote for the man who has promised nothing but the status quo or worse.

Now Obama has focused a bit on addressing the three questions that I listed above. He talked about increasing manufacturing jobs, important when you cannot rely as much on a consumer economy. He talked about making sure education and training, important when US workers are going to have to get more productive for their wages to rise. He has also talked about more spending on infrastructure, which help Us businesses to compete. His investments in new technologies should help Us companies to gain an edge and hopefully produce high-paying jobs.

It seems to me that you should be a lot more cynical about all of this. I don’t think that Obama has done anything on these items. Is there any evidence that any of this stuff that Obama has done (talking about manufacturing jobs, making sure about education and training, spending on infrastructure, and his investments in new technologies) has done any good? It’s all very nice and high minded, but I haven’t seen any evidence that Obama has been successful with this stuff.

As but one example, think education.

What has Obama done? Saved some short-term money by consolidating loaning power with the government. The problem is that, in the long-term, it will waste money. The government is not efficient and doesn't care about ROI. Furthermore, Obama keeps talking about making students pay back less of their loans. That means . . . more government money.

He wants everyone to go to college, no qualification with regard to field of study. So, a master's degree in GLBT Studies is just as valuable as a master's in computer science or electrical engineering?

That's just dumb--not to mention not particularly helpful in gearing us up to have "an economy that is built to last."

Did you know that Obama has not negotiated one free trade agreement while he has been in office. He’s signed (finally) 3 agreements negotiated by Bush, but he hasn’t done one himself. Google how many free trade agreements China has signed over the last four years?

But, he takes FULL credit for them!

Why is that? He blames Bush for many things . . . how many things has he credited him for?

I really do not believe that there are 2 trillion dollars 'sitting on the sidelines'. People and organisations with money to invest do not leave it around waiting for a government to change. If they are not investing it in the US private sector, they will be investing it elsewhere. Which means that the prospects would not just need to improve, they'd need to be more than marginally better than the alternative. And some of that will be invested long term so not easily moved anyway.

I don't debate that there is not some measure of people waiting to see on the outcome ov next week's election, but that doesn't mean they won't invest regardless of who wins (they may just put into different places or on different terms). I regard a lot of this on the same lines as Romney's campaign being assisted by company bosses issuing 'dire warnings' to employees on the effect of an Obama victory.

Besides, there's one issue arising from Sandy that will affect the economy - insurers are going to get hit. Some worse than others. If there are some already in a shaky financial position there could be another set of shocks coming.

danivon wrote:I really do not believe that there are 2 trillion dollars 'sitting on the sidelines'. People and organisations with money to invest do not leave it around waiting for a government to change.

Businesses accumulate cash in excess of routine turnover needs via the making of profits. This cash can then go in different directions. It can be sent to stockholders as dividends. It can be invested in new capital improvements (i.e. machinery). It can be invested in long-term or short-term vehicles. It can be placed in a non-interest-bearing bank account and just sit there. Your comment as I quoted amounts to an observation that the last option is never pursued, and that's quite correct. However, corporations who are uncertain regarding the future value of capital investments may well place cash in short-term ("liquid") investments pending a clarification of the environment. I can't attest to the numbers, but there has been a lot of reporting that unprecedented sums that might usually go into capital investments (growing a business) have instead been "sitting and waiting". That doesn't mean it's not invested in interest-bearing accounts, or even in bonds and equities. It does mean that instead of directly contributing to business expansion it's comparatively idle. I say "comparatively" because money sitting in an investment account is theoretically available, via a third party like a bank, to be lent to some business that's cash-poor but has expansion plans. Unfortunately, not a lot of commercial lending is taking place these days. If there was a great demand for cash for lending, banks would be paying depositors much higher interest rates.

Ergo, cash can indeed "sit on the sidelines", and despite your incredulity it seems that lots of it has been doing just that. What might be simplistic is to suggest that it's all been waiting for some simple change in the environment, such as the outcome of an election or the repeal of a single piece of legislation. That might be true for some bits of it here and there, but chances are that the decision-making that goes into most business reinvestment is more complex.

Purple wrote:Ergo, cash can indeed "sit on the sidelines", and despite your incredulity it seems that lots of it has been doing just that. What might be simplistic is to suggest that it's all been waiting for some simple change in the environment, such as the outcome of an election or the repeal of a single piece of legislation. That might be true for some bits of it here and there, but chances are that the decision-making that goes into most business reinvestment is more complex.

Well, my point was really that I doubt $2T is sitting around waiting for Romney to win. I can see that potential investors would wait to see how the land lies after Nov 6, in terms of not just the Presidency but also Congress, but as you say, it is much more complex than DF was suggesting.

Which means that there may well be $2T of fairly liquid investment that could be released soon, but some of it will likely be moved whoever wins (as I said, where it goes may vary), and some may not move regardless of who wins - perhaps they are waiting to see how the change-over of the CPC leadership works in China, or they are waiting to see what happens to the Eurozone, or they are looking at all kinds of different factors in the US that are not going to be affected directly by who is in residence at 1600 Penn Ave.

The reason that this recovery is sluggish is relatively simple - it's the deepest recession for generations, and it's one that has not only had a major impact on the core sector of the economy (banking and investments), but has also been far more international in scope.

We've seen what happens to a sluggish recovery when the government announces deep cuts and intent to 'stand aside' - in the UK we went from sluggish recovery to a second recession. We've just got back into growth again, but it could be largely a statisical blip (the effect of an extra bank holiday) and special events (the Olympics), and projections are for sluggish growth next year at best. The Euro crisis can't be blamed for our double-dip either, as it hasn't been replicated in Eurozone countries which are far more deeply connected (France and Germany).

A blog from the radical Wall Street Journal says the two trillion dollars on the sidelines story is basically a myth. http://blogs.wsj.com/economics/2012/06/ ... ding-cash/

And another story on this: http://www.ritholtz.com/blog/2012/06/th ... ised-away/

freeman2 wrote:A blog from the radical Wall Street Journal says the two trillion dollars on the sidelines story is basically a myth. http://blogs.wsj.com/economics/2012/06/ ... ding-cash/

From that link:

Others are more skeptical. Howard Silverblatt, senior index analyst for S&P, has looked at securities filings for the non-financial members of the S&P 500 and found that cash holdings are still rising, although he said they likely ticked down in the first quarter for the first time in three and a half years. Like the Fed data, however, the S&P data shows cash holdings accelerating out of the financial crisis, then returning to their prior trend line.

And another story on this: http://www.ritholtz.com/blog/2012/06/th ... ised-away/

Quoting the same guy . . . what a coincidence!

From that story:

Last Thursday the Federal Reserve released its quarterly Flow of Funds data, current through March 31. One of the more popular headlines from this data concerns the record amount of “cash on the sidelines.” As the story above points out, the Federal Reserve has revised estimates of how much cash companies are holding. The blue line in the chart below shows the latest release while the red lines shows the previous estimates. Through Q1 2012, nonfarm nonfinancial corporate businesses held $1.74 trillion in liquid assets on their balance sheets. In the latest revision, nearly half a trillion dollars of cash disappeared.
Where did the cash go? It disappeared as the Federal Reserve is now saying it never existed in the first place.

Okay, so let's say it's only $1.25T.

I'd take that in my allowance.

The point is that since this is a long-term trend of companies keeping large amounts of cash in hand and actually as a percentage of overall assets it is dropping , there is almost no chance you are going to see companies reducing their cash reserves and investing that money because Romney is elected. The trend has been going on for 30 years. It certainly will not go down by 1.25 trillion. If companies started getting particularly bullis maybe they will reduce cash reserves from 1.7 trillion to 1.4 trillion, what it was before the recovery. The aggregate cash reserves also do not seem to be related to any government policies--they rose sharply after the Financial Crisis but then returned to a trend line that has been going on in Republicsn and Democratic presidencies. I don' know who came with this meme of cash waiting on the sidelines but it is just made-up.

freeman2 wrote:The point is that since this is a long-term trend of companies keeping large amounts of cash in hand and actually as a percentage of overall assets it is dropping , there is almost no chance you are going to see companies reducing their cash reserves and investing that money because Romney is elected.

No, the point is that without Obamacare and Obama's hyperactive EPA, NLRB, and Justice Department, businesses might actually be willing to risk a bit here or there. Right now, all they have to look forward to are more taxes and more regulation.

Just spit-balling here, but I'd guess that to the extent that cash is sitting idle awaiting developments, what it's waiting for are signs of a recovery. For instance, if a company that makes roof shingles has been considering investing in more shingle-making machines, signs that the construction sector is picking up might spur them to spend the money. This of course leads to the observation that in economics perception often is reality; if enough businessmen think the economy will grow, they'll invest in growth and it will grow.

Economics is really stupid, but sometimes it works in exactly that way. And while I think it would be stupid, it might actually be the case that if Romney gets elected, the first few decent economic signs that pop up after he's inaugurated (or even before), signs such as those Republicans have lately been trying to ignore or downplay , could create a tipping point. Once over this tipping point a cascading effect from one investment incentivizing the next could just possibly add up to a big recovery.

Romney, of course, would deserve zero credit for this but he'd inevitably get loads. It would be amazing and ironic if he could cure our economic woes just by being not-Obama and winning, but it's not impossible. I'm not saying this is likely. It's not impossible. I don't know much about economics but I know about the jump-on-the-bandwagon effect, and I know that most capitalists are hoping that Romney wins. It's not impossible that his win alone, or combined with just a little spurt of random good-news noise, could have an effect completely unjustified by his policies, abilities, promises, or fine Presidential profile.