That’s what the Fed is pledging to “rescue the financial system,” according to Bloomberg.com. That’s 50% of 2007 GDP, or 288% of 2007 federal tax revenues. Makes my prior post sound look like a praise of good budgeting.
That’s what the so-called “financial crisis” of 2008 has cost the federal government directly… so far.* Wonder how that stacks up to other crises? CNBC has a slideshow showing the costs (inflation-adjusted) of some of the biggest government projects ever.
You may bring your eyebrows back to earth now.
* Some of this money is in the form of loans. Many of these loans are to companies hemorrhaging cash faster than they can borrow it and are explicitly designed as relief against bad assets, however, and the crisis is hardly over. So, counting this money as lost is only wise.
It’s the best one-image summary of why the Detroit Three are in such hot water, and it’s on Michigan economist Mark Perry’s blog.
Let’s all hope this, at least, does not repeat. It’s a miracle the American Dream has survived this long.
I’ve been doing a lot of thinking – far too much, actually – about this election. I am not going to blog here about the relative merits of each candidate – anyone undecided between these two extremely different candidates at this point hasn’t been paying attention. In fact, this will probably be my last election-related blog prior to the first results coming in. There are a few things bothering me, however, that I have to get off my chest:
1. Smoke and mirrors
2. Media spin
3. One party rule by super-majority: threat to checks and balances, or just another day in D.C.?
4. Who really pays
As a math major, law school grad, and economic policy wonk, I’m not sure which aspect of this stupidity by the New York Times horrifies me most. Is it: that people think we do tax at those rates, that some people think we should, that no editor caught the logical flaws before publication, or that this kind of thing happens all the time in other circumstances and goes undetected more often than not?
I think this puts it clearly.
Economics professor Greg Mankiw shares some interesting thoughts, citing Paul Krugman, on why Bush’s tax cuts may result in smaller government in the next administration than we would get otherwise. This is likely true, no matter which candidate wins. Krugman, however, calls this a “poison pill,” a way of sabotaging a takeover or transfer of control, lamenting that, “looking at the tax proposals of the two presidential candidates, it’s remarkable and disheartening to see how effective President Bush’s fiscal poison pill has been in restricting the terms of debate.”
As Mankiw points out, though, the situation is not “entirely negative.” Indeed, for those of us who are classical liberals or – gasp – conservatives, a restricted debate in terms of how and how much the federal government can spend is not necessarily a bad thing. Tax increases of the type Obama plans will not cure deficit spending. This is true both because of something called a Laffer curve (higher tax rates do not always equal proportionally higher tax revenues, since capital often goes elsewhere or stops working) and because governments are greedy beasts – the more food you give them to cure their shortages, the bigger they get. This is why despite tripling tax revenues between 1932 and 1940, that period saw not a reduced deficit, but a 33% deficit growth.
Thankfully, the Republican party, for all its failings in the last few years, has still some concept of fundamental principles of economics. The Senate blocked a windfall profits tax on oil companies, a tax much like many of the taxes that prolonged the Great Depression in America long past its end elsewhere. Thank goodness for small blessings.