Tuesday, December 30, 2008

IMF on Fiscal Policy

Report of Dec 29, 2008

The current crisis calls for two main sets of policy measures. First, measures to repair the financial system. Second, measures to increase demand and restore confidence. While some
of these measures overlap, the focus of this note is on the second set of policies, and more specifically, given the limited room for monetary policy, on fiscal policy.
The optimal fiscal package should be timely, large, lasting, diversified, contingent, collective, and sustainable: timely, because the need for action is immediate; large, because the current and expected decrease in private demand is exceptionally large; lasting because the downturn will last for some time; diversified because of the unusual degree of uncertainty associated with any single measure; contingent, because the need to reduce the perceived probability of another “Great Depression” requires a commitment to do more, if needed; collective, since each country that has fiscal space should contribute; and sustainable, so as not to lead to a debt explosion and adverse reactions of financial markets. Looking at the content of the fiscal package, in the current circumstances, spending increases, and targeted tax cuts and transfers, are likely to have the highest multipliers. General tax cuts or subsidies, either for consumers or for firms, are likely to have lower multipliers.

Monday, December 29, 2008

Keynes vs 50 Hoovers

Krugman speaks up for the problems of states' spending cut, which echos what I posted previously. Alas,50 little Hoovers... Thank God that the Federal goverment is no Hoover.

Keynes, father of macroeconomics, is regaining the spotlight on the stage of the world economy.

Tuesday, December 23, 2008

China Growth Fantasy

Yasheng Huang wrote a good article about the China's growth fantasy.

Friday, December 12, 2008

About State Budget

Minnesota State just released his budget forecast for 08-09 and 10-11, total $5.2 Billion shortfall. The governor then wants to cut the spending. I will say it is the right thing on the wrong time. So it is still the worng thing to do. So I wrote a letter to a person regarding this issue:

As an economist, I would like to express my personal opinion regarding the state budget crisis to you. I think the last thing our governor (as well as other state governors) should do right now is cut the spending. In normal times, it is good to keep your budget balanced. But now is not. We are in a deep recession causing from the decline of aggregate demand, private sectors are laying off employees and cutting back. As a part of MnSCU, we should be responsible for the economy and be countercyclical. If we cut the spending now to match the projected revenue, we might find further lower realized revenue in the future. In other words, we might enter a vicious cycle.
I think our governor should not focus on what programs to cut but should work hard to get the federal funding to gap the shortfall. President-elect Obama had announced a at least $500 billion stimulus package.
Here I summarized several economists and professionals sharing the same idea with mine from New York Times.

We had learned lessons from the Great Depression in the 1930s and the “Lost Decade” in the 1990s in Japan. So we can and should avoid the same mistake this time. Facing the severe economy slump, President-elect Obama is smart to stop talking raising tax on the rich after he got elected. After we totally recover from the recession in the future, we could then think about spending cut or tax raising. Believe it or not, I predict that the forthcoming federal stimulus package will include helping with states’ deficits. So my hope is that we and our governor could hang in there for a while until federal stimulus money kicks in. If Governor Pawlenty really wants to cut the spending, he could cut his own salary to $1 like some CEOs.

Wednesday, December 3, 2008

My Solution to Current Recession - Gym Boom

When people are talking about what the government should do to save our economy, most economists say to increase government spending on infrastructure. But what exactly are these infrastructures? Do we need to build more interstate highways? Do you need to repave the bridge if it is just fine? Besides the projects on transportation, schools, alternative energy R&D, etc, we need another new infrastructure to pave the way of 21st centry like Eisenhower did the interstate highways system in the 1950s. I call it the health infrastruture. Let's spend lots of money to build the state-of-the-art gyms (like treadmill with TV, indoor track, pool, sauna, etc) in every towns and every universities across the country.
First, save the economy in the short run. Second, develope Americans' health in the long run to reduce the rising health cost.
Becuase of its externalties, government should provide us the free acess to these health facilities like libraries, parks, etc. We should not pay to the fitness centers to get healthy.