Four Reasons Keynesians Keep Getting It Wrong

Concern over future tax rates is one of the main reasons for reduced investor confidence.

By ALLAN H. MELTZER

Those who heaped high praise on Keynesian policies have grown silent as government spending has failed to bring an economic recovery. Except for a few diehards who want still more government spending, and those who make the unverifiable claim that the economy would have collapsed without it, most now recognize that more than a trillion dollars of spending by the Bush and Obama administrations has left the economy in a slump and unemployment hovering above 9%.

Why is the economic response to increased government spending so different from the response predicted by Keynesian models? What is missing from the models that makes their forecasts so inaccurate? Those should be the questions asked by both proponents and opponents of more government spending. Allow me to suggest four major omissions from Keynesian models:

First, big increases in spending and government deficits raise the prospect of future tax increases. Many people understand that increased spending must be paid for sooner or later. Meanwhile, President Obama makes certain that many more will reach that conclusion by continuing to demand permanent tax increases. His demands are a deterrent for those who do most of the saving and investing. Concern over future tax rates is one of the main reasons for heightened uncertainty and reduced confidence. Potential investors hold cash and wait.

Second, most of the government spending programs redistribute income from workers to the unemployed. This, Keynesians argue, increases the welfare of many hurt by the recession. What their models ignore, however, is the reduced productivity that follows a shift of resources toward redistribution and away from productive investment. Keynesian theory argues that each dollar of government spending has a larger effect on output than a dollar of tax reduction. But in reality the reverse has proven true. Permanent tax reduction generates more expansion than increased government spending of the same dollars. I believe that the resulting difference in productivity is a main reason for the difference in results.

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Corbis

Third, Keynesian models totally ignore the negative effects of the stream of costly new regulations that pour out of the Obama bureaucracy. Who can guess the size of the cost increases required by these programs? ObamaCare is not the only source of this uncertainty, though it makes a large contribution. We also have an excessively eager group of environmental regulators, protectors of labor unions, and financial regulators. Their decisions raise future costs and increase uncertainty. How can a corporate staff hope to estimate future return on new investment when tax rates and costs are unknowable? Holding cash and waiting for less uncertainty is the principal response. Thus, the recession drags on.

Fourth, U.S. fiscal and monetary policies are mainly directed at getting a near-term result. The estimated cost of new jobs in President Obama's latest jobs bill is at least $200,000 per job, based on administration estimates of the number of jobs and their cost. How can that appeal to the taxpayers who will pay those costs? Once the subsidies end, the jobs disappear—but the bonds that financed them remain and must be serviced. These medium and long-term effects are ignored in Keynesian models. Perhaps that's why estimates of the additional spending generated by Keynesian stimulus—the "multiplier effect"—have failed to live up to expectations.

The Federal Reserve, too, has long been overly concerned about the next quarter, never more than in the current downturn. Fears of a double-dip recession, fanned by Wall Street, have led to continued easing and seemingly endless near-zero interest rates. Here, too, uncertainty abounds. When will the Fed tell us how and when it is going to sell more than $1 trillion of mortgage-related securities? Will Fannie Mae, for example, have to buy them to hold down mortgage interest rates?

By now even the Fed should understand that we do not have a liquidity shortage. It has done more than enough by adding excess reserves beyond any reasonable amount. Instead of more short-term tinkering, it's time for a coherent program to start gradually reducing excess reserves.

Clearly, a more effective economic policy would aim at restoring the long-term growth rate by reducing uncertainty and restoring investor and consumer confidence. Here are four proposals to help get us there:

First, Congress and the administration should agree on a 10-year program of government spending cuts to reduce the deficit. The Ryan and Simpson-Bowles budget proposals are a constructive start. (Note to Republican presidential candidates: Permanent tax reduction can only be achieved by reducing government spending.)

Second, reduce corporate tax rates and expense capital investment by closing loopholes.

Third, announce a five-year moratorium on new regulations.

Fourth, adopt an enforceable 0%-2% inflation target to allay fears of future high inflation.

Now that the Keynesian euphoria has again faded, perhaps this administration—or more likely the next—will recognize the reasons for the failure and stop asking for more of the same.

Mr. Meltzer, a professor of public policy at the Tepper School, Carnegie Mellon University and a visiting scholar at Stanford University's Hoover Institution, is the author most recently of "Why Capitalism?" forthcoming from Oxford University Press.

http://online.wsj.com/article/SB10001424052970204777904576651532721267002.html?mod=WSJ_Opinion_LEADTop

Fidel , Gadafi te esta esperando en el infierno

El Mercosur - Hasta que la muerte nos separe

Gustavo Toledo | Maldonado

@| "Veinte años después de su creación, nadie sabe a ciencia cierta qué es el Mercosur. Ni mucho menos para qué sirve. Si le pregunta a algún gobernante, diplomático o entendido en comercio exterior, seguro que lo pondrá en un brete. Es lógico. Este engendro incalificable se define por la negativa: no es una zona de libre comercio, ni una unión aduanera, ni mucho menos un mercado común. Entonces, ¿qué es? Un puchero de buenas intenciones, acuerdos incumplidos y promesas de amor eterno. Para unos (Brasil y Argentina), equivale a un alambre caído; para otros (Uruguay y Paraguay), una cárcel de lujo.

Del Tratado de Asunción solo queda el papel y las firmas que le dieron origen. Como nadie lo respeta, es como si no existiera. Su artículo primero, que establece la libre circulación de bienes, servicios y personas entre los países miembros, es letra muerte. Cosa que los uruguayos sabemos mejor que nadie.

A las promesas de un proceso de integración basado en el concepto de `regionalismo abierto` que `serviría de plataforma de lanzamiento` para las economías más pequeñas, se las llevó el viento. El comercio entre nosotros sigue supeditado a la buena voluntad de los jerarcas de turno y nuestro vínculo con el resto del mundo sigue basado en el mismo proteccionismo chúcaro que practicamos en el pasado.

Como no podemos comerciar con otros países sin la autorización de nuestros socios, ni logramos que los grandes cumplan con sus obligaciones, sólo nos queda suplicarles `excepciones`, `favorcitos`, `cuotas`. `Diplomacia presidencial`, le dicen. Así no se construye un espacio de integración sino un corral de ramas, de adentro hacia afuera. Por esa vía, no sólo perdemos soberanía sino también mercados, inversiones, oportunidades de negocios. Comprometemos nuestra institucionalidad y seguridad jurídica, las únicas dos ventajas comparativas de las que podemos jactarnos en el vecindario, a cambio de prácticamente nada. Díganme, ¿existe `país productivo` sin mercados a los cuales poder venderles lo que producimos? ¿Hay fuentes de trabajo sin inversión? ¿Podemos asegurarle a un inversionista europeo, norteamericano o japonés que si se radica en nuestro territorio podrá acceder al mercado argentino y brasileño sin inconvenientes? Claramente, no. Sin esa seguridad, ¿qué cree usted? ¿Invertirá aquí o lo hará directamente en Argentina o Brasil? La respuesta es obvia.

Para algunos, el Mercosur es parte de un proyecto político; para otros, una estrategia comercial sujeta a la regla costo-beneficio. Todo tiene un límite. Si no reporta beneficios reales y concretos y, para colmo, compromete nuestra independencia, es una mala opción. Es tan obvio, que rompe los ojos.

`Más y mejor Mercosur`, dicen por ahí. Más de lo mismo, es sobredosis. Y mejor, ¡imposible! ¿Acaso puede un paisito diminuto como el nuestro, con menos del 2% del PBI de la región y una población del tamaño de un barrio de Sao Paulo hacerle cambiar los planes y la manera de ser a nuestros vecinos?

Chile no se abrazó a ningún invento de este tipo y mal no le va. Participa del Mercosur, pero no lo integra. Mira desde afuera. Se saca la foto, pero pone sus huevitos en todas las canastas que tiene a su alcance. No tuvo inconveniente en firmar tratados de libre comercio y acuerdos de asociación económica con medio mundo: EE.UU., China, Unión Europea, México, Australia, India, Centroamérica, Canadá, etc. Resultado: exporta once veces más que nosotros, no depende de la caridad de nadie y posee el PBI per cápita más alto de la región. Ventajas de tener un rumbo claro y hacer de su política exterior una política de Estado alejada de la retórica inconducente del siglo XIX y los atavismos ideológicos de la Guerra Fría.

Según dijo nuestro Presidente, el Mercosur es `hasta que la muerte nos separe`. Su profecía va camino a cumplirse."
http://www.elpais.com.uy/111019/pecos-600644/ecos/mensajes-de-los-lectores/

Pablo Da Silveira - competencia en la educacion publica

Tres caminos

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Pablo Da Silveira

Ahora que todos admitimos que la enseñanza está en crisis, necesitamos encontrar caminos de salida. Y los acontecimientos de las últimas semanas sugieren que de momento sólo tenemos tres.

El primero es el que reclaman los sindicatos y sus aliados políticos: respetar estrictamente los límites de una autonomía entendida en clave maximalista, seguir volcando grandes cantidades de dinero y dejar que el sistema educativo encuentre sus propias soluciones. Esto supone, entre otras cosas, no evaluar resultados "desde afuera" y no presionar con los tiempos. Toda mejora educativa, dicen los defensores de este punto de vista, es un proceso de largo plazo.

Pero, dado el fuerte peso de los intereses corporativos, la ausencia de incentivos de mejora y la inexistencia de mecanismos de rendición de cuentas ante la sociedad, no hay ningún motivo racional para esperar que este camino nos lleve muy lejos. El resultado más probable es que gastemos cada vez más dinero para conseguir resultados iguales o peores.

Los costos de este fracaso casi inevitable los seguirán pagando los uruguayos más débiles en términos económicos y culturales, es decir, aquellos que constituyen el mercado cautivo del sistema.

El segundo camino es el que, de manera intermitente, parecen preferir el presidente Mujica y el ministro Ehrlich: la idea es mantener formalmente el respeto de la autonomía, pero al mismo presionar sobre los bordes del sistema de modo de aumentar el control político sobre la enseñanza. Por esta vía se intentaría reducir el peso de las corporaciones y generar mecanismos de rendición de cuentas ante la sociedad.

Este camino es mejor que el anterior pero también tiene problemas. En primer lugar, supone dejar una inmensa cuota de poder en manos de las corporaciones, de modo que es poco claro que los contrapesos políticos sean suficientes. En segundo lugar, la aplicación de esta estrategia generaría muchas fricciones y desataría una constante lluvia de denuncias sobre presuntas violaciones a la autonomía. El consejero de Secundaria Daniel Guasco y el director general del MEC Pablo Álvarez tienen razón cuando dicen que, si se quiere avanzar decididamente por este camino, más temprano que tarde habrá que proponer una reforma de la Constitución que devuelva el gobierno de la educación al sistema político. Pero todos saben que esa iniciativa conduciría a una batalla campal de difícil pronóstico.

El tercer camino consiste en aceptar las particularidades de nuestro diseño institucional y explorar algunas alternativas que hasta ahora han sido ignoradas: mantengamos la educación pública en manos de consejos autónomos, pero hagamos competir a varias redes de escuelas y liceos públicos en un marco de estricta igualdad de oportunidades. Al ministerio de Educación le correspondería fijar y evaluar los mínimos necesarios a cumplir por todos. Al ministerio de Economía le correspondería distribuir el financiamiento en función de las elecciones de la gente, tal como hace hoy el FONASA. No habría reforma de la Constitución, pero sí una nueva enseñanza pública.

El País Digital

http://www.elpais.com.uy/111018/predit-600490/pablodasilveira/tres-caminos/

Steve Jobs: 'Find What You Love'

en castellano
Steve Jobs, who died Wednesday, reflected on his life, career and mortality in a well-known commencement address at Stanford University in 2005. Here, read the text of of that address:

I am honored to be with you today at your commencement from one of the finest universities in the world. I never graduated from college. Truth be told, this is the closest I've ever gotten to a college graduation. Today I want to tell you three stories from my life. That's it. No big deal. Just three stories.

The first story is about connecting the dots.

I dropped out of Reed College after the first 6 months, but then stayed around as a drop-in for another 18 months or so before I really quit. So why did I drop out?

It started before I was born. My biological mother was a young, unwed college graduate student, and she decided to put me up for adoption. She felt very strongly that I should be adopted by college graduates, so everything was all set for me to be adopted at birth by a lawyer and his wife. Except that when I popped out they decided at the last minute that they really wanted a girl. So my parents, who were on a waiting list, got a call in the middle of the night asking: "We have an unexpected baby boy; do you want him?" They said: "Of course." My biological mother later found out that my mother had never graduated from college and that my father had never graduated from high school. She refused to sign the final adoption papers. She only relented a few months later when my parents promised that I would someday go to college.

And 17 years later I did go to college. But I naively chose a college that was almost as expensive as Stanford, and all of my working-class parents' savings were being spent on my college tuition. After six months, I couldn't see the value in it. I had no idea what I wanted to do with my life and no idea how college was going to help me figure it out. And here I was spending all of the money my parents had saved their entire life. So I decided to drop out and trust that it would all work out OK. It was pretty scary at the time, but looking back it was one of the best decisions I ever made. The minute I dropped out I could stop taking the required classes that didn't interest me, and begin dropping in on the ones that looked interesting.

It wasn't all romantic. I didn't have a dorm room, so I slept on the floor in friends' rooms, I returned coke bottles for the 5¢ deposits to buy food with, and I would walk the 7 miles across town every Sunday night to get one good meal a week at the Hare Krishna temple. I loved it. And much of what I stumbled into by following my curiosity and intuition turned out to be priceless later on. Let me give you one example:

Reed College at that time offered perhaps the best calligraphy instruction in the country. Throughout the campus every poster, every label on every drawer, was beautifully hand calligraphed. Because I had dropped out and didn't have to take the normal classes, I decided to take a calligraphy class to learn how to do this. I learned about serif and san serif typefaces, about varying the amount of space between different letter combinations, about what makes great typography great. It was beautiful, historical, artistically subtle in a way that science can't capture, and I found it fascinating.

None of this had even a hope of any practical application in my life. But ten years later, when we were designing the first Macintosh computer, it all came back to me. And we designed it all into the Mac. It was the first computer with beautiful typography. If I had never dropped in on that single course in college, the Mac would have never had multiple typefaces or proportionally spaced fonts. And since Windows just copied the Mac, it's likely that no personal computer would have them. If I had never dropped out, I would have never dropped in on this calligraphy class, and personal computers might not have the wonderful typography that they do. Of course it was impossible to connect the dots looking forward when I was in college. But it was very, very clear looking backwards ten years later.

Again, you can't connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in your future. You have to trust in something — your gut, destiny, life, karma, whatever. This approach has never let me down, and it has made all the difference in my life.

My second story is about love and loss.

I was lucky — I found what I loved to do early in life. Woz and I started Apple in my parents garage when I was 20. We worked hard, and in 10 years Apple had grown from just the two of us in a garage into a $2 billion company with over 4000 employees. We had just released our finest creation — the Macintosh — a year earlier, and I had just turned 30. And then I got fired. How can you get fired from a company you started? Well, as Apple grew we hired someone who I thought was very talented to run the company with me, and for the first year or so things went well. But then our visions of the future began to diverge and eventually we had a falling out. When we did, our Board of Directors sided with him. So at 30 I was out. And very publicly out. What had been the focus of my entire adult life was gone, and it was devastating.

I really didn't know what to do for a few months. I felt that I had let the previous generation of entrepreneurs down - that I had dropped the baton as it was being passed to me. I met with David Packard and Bob Noyce and tried to apologize for screwing up so badly. I was a very public failure, and I even thought about running away from the valley. But something slowly began to dawn on me — I still loved what I did. The turn of events at Apple had not changed that one bit. I had been rejected, but I was still in love. And so I decided to start over.

I didn't see it then, but it turned out that getting fired from Apple was the best thing that could have ever happened to me. The heaviness of being successful was replaced by the lightness of being a beginner again, less sure about everything. It freed me to enter one of the most creative periods of my life.

During the next five years, I started a company named NeXT, another company named Pixar, and fell in love with an amazing woman who would become my wife. Pixar went on to create the worlds first computer animated feature film, Toy Story, and is now the most successful animation studio in the world. In a remarkable turn of events, Apple bought NeXT, I returned to Apple, and the technology we developed at NeXT is at the heart of Apple's current renaissance. And Laurene and I have a wonderful family together.

I'm pretty sure none of this would have happened if I hadn't been fired from Apple. It was awful tasting medicine, but I guess the patient needed it. Sometimes life hits you in the head with a brick. Don't lose faith. I'm convinced that the only thing that kept me going was that I loved what I did. You've got to find what you love. And that is as true for your work as it is for your lovers. Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do. If you haven't found it yet, keep looking. Don't settle. As with all matters of the heart, you'll know when you find it. And, like any great relationship, it just gets better and better as the years roll on. So keep looking until you find it. Don't settle.

My third story is about death.
When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope it's the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Thank you all very much.

Obama - The President of Contempt

To Barack Obama, America is lovable in proportion to the love it gives him in return.

Nixon was tricky. Ford was clumsy. Carter was dour. Reagan was sunny. Bush 41 was prudent. Clinton felt your pain. Bush 43 was stubborn. And Barack Obama is . . .

Early in America's acquaintance with the man who would become the 44th president, the word that typically sprang from media lips to describe him was "cool."

Cool as a matter of fashion sense—"Who does he think he is, George Clooney?" burbled the blogger Wonkette in April 2008. Cool as a matter of political temperament—"Maybe after eight years of George W. Bush stubbornness, on the heels of eight years of Clinton emotiveness, we need to send out for ice," approved USA Today's Ruben Navarrette that October. Cool as a matter of upbringing—Indonesia, apparently, is "where Barack learned to be cool," according to a family friend quoted in a biography of his mother.

The Obama cool made for a reassuring contrast with his campaign's warm-and-fuzzy appeals to hope, change and being the ones we've been waiting for. But as the American writer Minna Antrim observed long ago, "between flattery and admiration there often flows a river of contempt." When it comes to Mr. Obama, boy does it ever.

We caught flashes of the contempt during the campaign. There were those small-town Midwesterners who, as he put it at a San Francisco fund-raiser, "cling to guns or religion or antipathy to people who are not like them." There were those racist Republicans who, as he put it at a Jacksonville fund-raiser, would campaign against him by asking, "Did I mention he's black?" There was the "you're likable enough, Hillary," line during a New Hampshire debate. But these were unscripted digressions and could be written off as such.

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Bloomberg

Only after Mr. Obama came to office did it start to become clear that contempt would be both a style and method of his governance. Take the "mess we have inherited" line, which became the administration's ring tone for its first two years.

"I have never seen anything like the mess we have inherited," said the late Richard Holbrooke—a man with memories of what Nixon inherited in Vietnam from Johnson—about Afghanistan in February 2009. "We are cleaning up something that is—quite simply—a mess," said the president the following month about Guantanamo. "Let's face it, we inherited a mess," said Valerie Jarrett about the economy in March 2010.

For presidential candidates to rail against incumbents from an opposing party is normal; for a president to rail for years against a predecessor of any party is crass—and something to which neither Reagan nor Lincoln, each of them inheritors of much bigger messes, stooped.

Then again, the contempt Mr. Obama felt for the Bush administration was merely of a piece with the broader ambit of his disdain. Examples? Here's a quick list:

The gratuitous return of the Churchill bust to Britain. The slam of the Boston police officer who arrested Henry Louis Gates. The high-profile rebuke of the members of the Supreme Court at his 2010 State of the Union speech. The diplomatic snubs, petty as well as serious, of Gordon Brown, Benjamin Netanyahu and Nicolas Sarkozy. The verbal assaults on Wall Street "fat cats" who "caused the problem" of "10% unemployment." The never-ending baiting of millionaires and billionaires and jet owners and everyone else who, as Black Entertainment Television's Robert Johnson memorably put it on Sunday, "tried rich and tried poor and like rich better."

Now we come to the last few days, in which Mr. Obama first admonished the Congressional Black Caucus to "stop complainin', stop grumblin', stop cryin'," and later told a Florida TV station that America was losing its competitive edge because it "had gotten a little soft." The first comment earned a rebuke from none other than Rep. Maxine Waters, while the second elicited instant comparisons to Jimmy Carter's "malaise" speech. They tell us something about the president's political IQ. They tell us more about his world view.

What is it that Mr. Obama doesn't like about the United States—a country that sent him hurtling like an American Idol contestant from the obscurity of an Illinois Senate seat to the presidency in a mere four years?

I suspect it's the same thing that so many run-of-the-mill liberals dislike: Americans typically believe that happiness is an individual pursuit; we bridle at other people setting limits on what's "enough"; we enjoy wealth and want to keep as much of it as we can; we don't like trading in our own freedom for someone else's idea of virtue, much less a fabricated concept of the collective good.

When a good history of anti-Americanism is someday written, it will note that it's mainly a story of disenchantment—of the obdurate and sometimes vulgar reality of the country falling short of the lover's ideal. Listening to Mr. Obama, especially now as the country turns against him, one senses in him a similar disenchantment: America is lovable exactly in proportion to the love it gives him in return.

Hence his increasingly ill-concealed expressions of contempt. Hence the increasingly widespread counter-contempt.

Write to bstephens@wsj.com