The Basis for Buying Stocks
Politics and economic activity have a direct connection. The current debate and one that will heat up through the next two elections is and will be about the debate between the Deficit Hawks and the Green Employment Empowerers. My contention before the last election and even more now is that real growth has to come from green energy that reduces our foreign oil needs. So far Washington has got a lot done since the last election. The Stimulus program worked, Health Care Reform is falling into place all be it with a lot of screaming and yelling, and Financial Regulation is coming into the final stages and appears to be a lot stronger than the skeptics imagined, All that is good. However a storm cloud is gathering.
See the following article written by E. J. Dionne which appeared yesterday. It is worth reading, because the only reason to be a buyer of the S&P index at 923 is based on the deficit Hawks being neutralized, if the are not, wait for the S&P index at 333.
In Defense of Two-Handed EconomistsBy E.J. DionneWASHINGTON — Will politics slow our economic recovery? Will world leaders who pulled us back from the brink of a new Great Depression throw in the towel before the global economy gets the unemployed back to work?
These are the moment’s central questions, and I posed them last week to Larry Summers, President Obama’s top economic adviser. Summers is often cast as an economic conservative because he was a serious budget balancer in the Clinton years. In fact, he is a pragmatist who thinks economics involves the art of tailoring policies to actual conditions.
And right now, the pragmatist thinks that the job of getting us out of the economic doldrums is not yet done.“Different economic circumstances require different approaches to economic policy,” Summers said, using a bit of economist-speak. “Today, when interest rates are at nearly zero and the central challenge is a shortfall of demand, the policies of immediate fiscal consolidation that were appropriate to address the crowding-out problems of the 1990s would be harmful, not helpful, to economic growth. That’s true at home and around the world.”It would be nice if Congress and policymakers elsewhere who seem to be racing prematurely to fiscal austerity would give Summers a listen. The last thing we need is to undo much of the good done last year by governments that chose not to repeat the big mistake of the early 1930s. Instead of imposing austerity when the global economy needed a big boost, they opted for stimulus. And the world avoided catastrophe.Summers is nothing if not careful. In the interview and in a speech last month at the Johns Hopkins School of Advanced International Studies, he was clear that long-term deficits can also endanger growth and that the administration intends to contain them. He also emphasized that no single policy could be applied across Europe given the fiscal difficulties of the Mediterranean nations, starting with Greece.But he was plain about this: We will never deal effectively with our deficit problem until we get the economy moving. As Summers put it at Hopkins: “It is not possible to imagine sound budgets in the absence of economic growth and solid economic performance.”If you don’t think growth needs to come first, consider these numbers from Summers: We could cut the debt as a share of GDP by half a percent with $75 billion in either spending cuts or tax increases. But we would achieve exactly the same result with an extra three-quarters of a percent of GDP growth. “Spurring growth, if we can achieve it,” Summers said at Hopkins, “is by far the best way to improve our fiscal position.”That’s why it’s mystifying that a Democratic Congress is having so much trouble passing the most elementary forms of economic stimulus. Assisting the states with extra Medicaid money and helping them avoid massive teacher layoffs could save or add at least 300,000 jobs.Do Democrats honestly think that nickel-and-diming on stimulus now will either have a substantial impact on the long-term deficit or be of greater help to them in this fall’s elections than more robust growth?Make no mistake: Summers has not gone squishy on the deficit. In his careful and unapologetic rendition of the two-handed economist act, he is at pains to make clear that he thinks that long-term fiscal profligacy would endanger growth, both now and later.“Jobs are the top economic priority,” he said in a follow-up e-mail to the interview, “which is why the president is pushing Congress on measures to strengthen small-business hiring, promote clean energy investments, prevent teacher and police layoffs, and support unemployed workers. It’s also why we’re working to double exports.”Then he added: “But for a policy centered around economic growth to be credible in the short term we must show a commitment on returning to a fiscal sustainable path over the medium- and long-term. That’s why the president has taken important steps to bring responsibility back to the federal budget through health care reform and in creating a bipartisan fiscal commission.”OK, those are not exactly ringing sound bites in a political environment that limits economic discussion to cries of “Big Spending!” and “Big Deficits!” And, yes, in the parlance of political consultants, it “muddles the message” to argue that we need to tilt toward growth now and fiscal discipline in the long run.But it happens to be the right policy. Does that matter anymore?
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