Home Ownership This High?

Michael Cohen mike at cns.bu.edu
Mon Oct 26 09:05:17 PST 1998

Brad De Long wrote:

> Re:
> >...went ballistic at a symposium when it was remarked that he [had]
> >cautiously approv[ed] something like the Tobin Tax under certain limited
> >circumstances. As part of the federal bureaucracy in Washington is it
> >worse to
> >propose an action in an early academic paper which threatens the interests of
> >core constituents of a ruling party or group than to write something which
> >potentially undermines the dominant ideology?
> I believe that the key is that the U.S. is now a debtor nation--with a
> national debt of $4 trillion, with a net foreign investment balance of
> somewhere between -$1 and -$1.5 trillion, with our continued economic
> prosperity dependent on something like $200 billion a year of capital
> inflows in order to keep investment at an acceptable level given our
> current relatively anemic savings rate.

This is just what I was going to ask about. I beleve GDP is about 6 or 7 trillionor so. I heard that total national debt ratio of US compares favorably with other developed nations so the fear may unrealistic. The palpable fear is very interesting, you can more or less bet that at some point the spigot will be turned off if advantageous for the foreign investors. There is no hugh love of the US overseas. Given major banks and investment can front 3.5 billion up front to the likes of LTCM $200 billion seems like a trifling sum relative to a federal budget of about 1.5 trillion I believe. Boston University I believe has an operating budget of about a billion, 200 Boston Universities seem to my mind small relative to the size of the US economy. In worst cases the state can raise income taxes on the wealthy and invest the money a la proposals on this list. I'm sure surplus value, i.e. taxes + savings, + corporate profit can rise to raise the shortage of 200 billion or so.

> If that $200 billion a year of capital inflow from foreign investors
> disappeared, the consequences might well be very unpleasant. And if the
> foreign investors who hold any large portion of the $1.5 trillion or so
> decided that they wanted out of the United States, the consequences *would*
> be very unpleasant--would make Thailand in late 1997 look like a ripple on
> a pond caused by a frog making a bad landing.

This seems very overstated but no doubt the problem is real. I doubt the Thai's or Indonesians feel the same way about their crises.

I think it wise for you guys, i.e. government officials to do something about this problem if again its a serious problem. Unless of course you want to face a socialism of scarcity like you see in China or the prior version of the Soviet Union or perhaps a facist alternative like Franco Spain .... Max said once that demand was easy to create. Savings seems like a minor problem minus politics. It would cost much less money to fix this problem than to turn the US into a 1960's version of European social democracy. It would take much less 'class warfare' to use a common 'political' term. Also as Doug documents marketplace investment is less than effiicent. If the state did some of it in some ingenious ways the amount of real capital in the marketplace would probably be less.

> Thus as a result the--how shall I put it?--the relative autonomy of the
> state in this area is low. My take on the subject is that Senior Treasury
> Officials do not believe that they can even think about ideas they thought
> about a decade ago because job #1 is keeping foreigners who make portfolio
> investments in the U.S. calm, happy, and tranquilized. In fact--as has been
> related on this list--Senior Treasury Officials regard mention of ideas
> that they thought about a decade ago as a hostile and aggressive action.
> Brad DeLong

I hope you are not stating this as a generality, i.e. economic pressures are reducing the economics profession to a 'new mandarinate' a la Chomsky in and out of the govenment because of the anemic Savings Rate. Telling the truth on this score I would think would be a far better service to the US if this became a matter of public discussion, than maintaining a position at the US Treasury. It seems by your opting to in effect discuss market irrationality by your own work that you are opting for the latter position. Its on the Web for anybody to see.

What comes to mind here is Louis's comparison of Roosevelt vs. Clinton. Keynes perhaps vs Summers and Fisher. Keynes managed to remain an iconclast and get taken seriously enough to be an architect of Bretton Woods despite his lack of flattery of the elites he was describing and despite the very difficult situation of the British Empire after World War II. Roosevelt managed to get reelected on a progressive platform again and again despite uniform opposition from much of the wealthy and the media and managed to preserve Capitalistic enterprise despite large scale opposition. Evidently the crisis is not severe enough as yet to put a financial premium on an honest appraisal of the economic situation or alternatively the social and political conditions for a largely honest intelligensia is not well met at the current time.


--mike -- Michael Cohen mike at cns.bu.edu Work: 677 Beacon, Street, Rm313 Boston, Mass 02115 Home: 25 Stearns Rd, #3 Brookline, Mass 02146 Tel-Work: 617-353-9484 Tel-Home:617-734-8828 Tel-FAX:617-353-7755

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