And boy is he shrill! Worst case of shrillness this month!
Dr. Mbogo to the Shoggoth Wing, stat!
Nouriel Roubini's Global Economics Blog: December 2004 Archives: In another example of the economic brilliance of our MBA President (who taught him economics and when?) and of his economic team, Dubya just found out today the Holy Grail that will eliminate in an instant our trade deficits.
Bush told reporters that the trade deficit was "easy to resolve. People can buy more United States products if they're worried about the trade deficit."
Very deep and profound concept and idea...and altogether wrong on all matters of economic substance. As any freshman in Economics knows, the current account deficit is, by definition,equal the excess of the country's expenditure relative to its income; so if a country spends more than its income, it will have a current account deficit, regardless of its preferences for domestic or foreign goods. If we spend more than we earn, if we have lower savings (because of the huge budget defitics) than our real investment, the current account will be and remain in a large deficit. Also, the demand for imports depends mostly on relative growth rates across countries and relative prices of foreign goods relative to foreign goods (i.e. exchange rates). So, assuming the trade deficit will disappear will not change it by a iota. And too bad that the masses of red state evangelicals on their way to join the social and economic lumpenproletariat crave and can only afford the good and cheap Chinese goods that made the fortune of Wal Mart.
It is not surprising that Dubya displays a crass ignorance of Economics 101 ("let us assume we import less" is his basic solution to our trade problems). It is a little more shocking that no one in his economic team his giving him any parental guidance on basic economics. But maybe not that surprising. With Lame Duck Cheerleader-in-Chief Melting Snow still kept warm for a little while in sinking Treasury, with his Under Secretary for International Affairs (of "there is no problem with the current account deficit" fame) on the way out (as one would assume as the most lame U/S for Int. Affairs ever), with NEC being headless after stealthy & gagged Friedman kept his mouth shut for two years and finally exited, with CEA also headless as the smart Mankiw may wonder why the hell he risked his stellar academic reputation for becoming associated with such economic buffons at the White House, the Chief Ecomomic Strategists at the White House are now Mr. Rasputin Karl Rove and that Most Eminent Economist called Dick Cheney who, today, opened the White House economic summit by pushing again for making the tax cuts permanent and privatizing Social Security, two policies that will certainly lead us to fiscal bankruptcy in the next decade.
With this Motley Crew running our ecomomic non-policies in a time of falling dollar, massive fiscal and current account deficit, even the most conservative Wall Street Journal op-ed page was begging last week for a strong Treasury Secretary in the Rubin tradition and pleading the White House to dump Snow, only to be rebuffed the next day. As the hapless WSJ editors had to admit and beg under a "Stronger Treasury" headline:
"The larger issue is why the Bush Administration has settled for a weak Treasury...on economic policy he has preferred to run things out of the White House, and sometimes even Karl Rove's hip pocket....The financial world is a far more unsettled place, for starters...Inevitably, when interest rates rise, there are going to be financial casualties to be cleaned up. Mr. Rove knows a lot, but we doubt he knows how to work out the next Long Term Capital Management failure, much less handle a dollar crisis...."
Of course, the next day, the White House reconfirmed lame duck and lame non-leader snow-flaky Snow to the Treas job after letting him hang wet and dry for two weeks; take that WSJ Editorial Board for being real influential in your arch-conservative White House! They told you to get lost the same day you pleaded for a stronger Treasury.
The only solace is that, by the time a year from now these reckless policies - with dumb-wit economic nullities such as Rove and Cheney in charge and Snow cheerleading-in-tow - lead to a hard landing of the dollar, a bond market rout, a LTCM-style meltdwon, and a ugly economic slowdown, Greenspan will step down from his Fed job and may be chosen as Treasury Secretary when Dubya gets desperate enough.
Given that Alan is the smartest guy in town and knows better, one will hope that he will reverse his support of the Bush tax cuts (his worst call in 20 years at the Fed), he will emphasize that fiscal restraint must include not only controls on spending but also reversals of some of the reckless tax cuts on high incomes, dividends, capital gains and estate taxes and that he will suggest to reform Social Security along the lines of what he brilliantly did 20 years ago when he headed the Commission that rescued our Social Security system: i.e. raise a litte the payroll tax, lenghten the retirement age and control modestly benefits. I.e., real reform Social Security that maintains its Security and its Social element rather than the mother of all smoke and mirrors shell-games "privatization" that would create another $5 trillion of transition costs and lead us on the same path as Argentina that similarly bothched its social security privatization and ended up defaulting on its entire public debt.
