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Title : Kevin Hassett v. Nate Silver on What Cause the Great Recession
link : Kevin Hassett v. Nate Silver on What Cause the Great Recession

Kevin Hassett v. Nate Silver on What Cause the Great Recession

A few years ago Nate Silver took on some nonsense written by Kevin Hassett:

It is no wonder that markets are imploding around us. Obama is giving us the War on Business. Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue? He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough, the whole financial sector would be gone before voters could demand action.

Of course the Great Recession was imploding around us well before Obama was elected as President. Nate provides an alternative explanation:

Wall Street needs to get its house in order. A big reason for the financial crisis is because of market failures -- the country had to endure the weight of two consecutive bubbles, first in tech stocks and then in housing. Another big reason is because the Fed kept interest rates much lower than they ought to have been. There were a number of reasons for that, but the fact that the NASDAQ would pitch a fit anytime that Greenspan or Bernanke wouldn't meet their expectations on perpetually low interest rates was probably one of them. There appears to be no acknowledgment of any of this, no attempt whatsoever to come to grips with reality. Instead, all we get is denial and anger. Nobody is going on CBNC and saying: "You know what, our bad. We had a lot of good and honest disagreements with the Bush administration's policy. We have a lot of good and honest disagreements with the Obama administration's policy. There are a lot of things we couldn't have anticipated. We were trying the best we could. But we also gave you a lot of bad advice. And that advice cost you a lot of money. And for that, we're sorry." Why can't anyone on Wall Street man up and do that?

This sounds about right except for the complaint that the Federal Reserve kept interest rates “too low for too long” as former economist John B. Taylor keeps babbling about. But I have another problem with what Nate wrote as he stopped too soon with the nonsense in Hassett’s rant:

Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”… First, one way the economy might finally take off is for some entrepreneur to invent an amazing new product that launches something on the scale of the dot-com boom. If you want to destroy an economy, you have to persuade those innovators not even to try. Second, you need to initiate entitlement programs that are difficult to change once enacted. These programs should transfer assets away from productive areas of the economy as efficiently as possible. Ideally, the government will have no choice but to increase taxes sharply in the future to pay for new entitlements. A leader who pulled off all that might be able to finish off the country…On the tax hike, Obama’s proposed 2010 budget quite ominously signaled that he intends to end or significantly amend the U.S. practice of allowing U.S. multinationals to defer U.S. taxes on income that they earn abroad. Currently, the U.S. has the second-highest corporate tax on Earth. U.S. firms can compete in Europe by opening a subsidiary in a low-tax country and locating the profits there. Since the high U.S. tax applies only when the money is mailed home, and firms can let the money sit abroad for as long as they want, the big disadvantage of the high rate is muted significantly. End that deferral opportunity and U.S. firms will no longer be able to compete, given their huge tax disadvantage. With foreign tax rates so low now, it is even possible that the end of deferral could lead to the extinction of the U.S. corporation. If any firms are to remain, they will be festooned with massive carbon-permit expenses because of Obama’s new cap-and- trade program.

Cap and trade is a bad idea? Even Greg Mankiw disagrees. Hassett also attacks Obamacare, which I guess is the reason Trump made his CEA chair. Of course the notion that Obama was proposing to massively increase taxes is what we know call “alternative facts”. It seems that Hassett’s real complaint was that we still have a repatriation tax and that we do not make it easier for multinationals to shift profits to tax havens.

A few years ago Nate Silver took on some nonsense written by Kevin Hassett:

It is no wonder that markets are imploding around us. Obama is giving us the War on Business. Imagine that some hypothetical enemy state spent years preparing a “Manchurian Candidate” to destroy the U.S. economy once elected. What policies might that leader pursue? He might discourage private capital from entering the financial sector by instructing his Treasury secretary to repeatedly promise a brilliant rescue plan, but never actually have one. Private firms, spooked by the thought of what government might do, would shy away from transactions altogether. If the secretary were smooth and played rope-a-dope long enough, the whole financial sector would be gone before voters could demand action.

Of course the Great Recession was imploding around us well before Obama was elected as President. Nate provides an alternative explanation:

Wall Street needs to get its house in order. A big reason for the financial crisis is because of market failures -- the country had to endure the weight of two consecutive bubbles, first in tech stocks and then in housing. Another big reason is because the Fed kept interest rates much lower than they ought to have been. There were a number of reasons for that, but the fact that the NASDAQ would pitch a fit anytime that Greenspan or Bernanke wouldn't meet their expectations on perpetually low interest rates was probably one of them. There appears to be no acknowledgment of any of this, no attempt whatsoever to come to grips with reality. Instead, all we get is denial and anger. Nobody is going on CBNC and saying: "You know what, our bad. We had a lot of good and honest disagreements with the Bush administration's policy. We have a lot of good and honest disagreements with the Obama administration's policy. There are a lot of things we couldn't have anticipated. We were trying the best we could. But we also gave you a lot of bad advice. And that advice cost you a lot of money. And for that, we're sorry." Why can't anyone on Wall Street man up and do that?

This sounds about right except for the complaint that the Federal Reserve kept interest rates “too low for too long” as former economist John B. Taylor keeps babbling about. But I have another problem with what Nate wrote as he stopped too soon

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with the nonsense in Hassett’s rant:

Another diabolical idea would be to significantly increase taxes on whatever firms are still standing. That would require subterfuge, since increasing tax rates would be too obvious. Our Manchurian Candidate would have plenty of sophisticated ideas on changing the rules to get more revenue without increasing rates, such as auctioning off “permits.”… First, one way the economy might finally take off is for some entrepreneur to invent an amazing new product that launches something on the scale of the dot-com boom. If you want to destroy an economy, you have to persuade those innovators not even to try. Second, you need to initiate entitlement programs that are difficult to change once enacted. These programs should transfer assets away from productive areas of the economy as efficiently as possible. Ideally, the government will have no choice but to increase taxes sharply in the future to pay for new entitlements. A leader who pulled off all that might be able to finish off the country…On the tax hike, Obama’s proposed 2010 budget quite ominously signaled that he intends to end or significantly amend the U.S. practice of allowing U.S. multinationals to defer U.S. taxes on income that they earn abroad. Currently, the U.S. has the second-highest corporate tax on Earth. U.S. firms can compete in Europe by opening a subsidiary in a low-tax country and locating the profits there. Since the high U.S. tax applies only when the money is mailed home, and firms can let the money sit abroad for as long as they want, the big disadvantage of the high rate is muted significantly. End that deferral opportunity and U.S. firms will no longer be able to compete, given their huge tax disadvantage. With foreign tax rates so low now, it is even possible that the end of deferral could lead to the extinction of the U.S. corporation. If any firms are to remain, they will be festooned with massive carbon-permit expenses because of Obama’s new cap-and- trade program.

Cap and trade is a bad idea? Even Greg Mankiw disagrees. Hassett also attacks Obamacare, which I guess is the reason Trump made his CEA chair. Of course the notion that Obama was proposing to massively increase taxes is what we know call “alternative facts”. It seems that Hassett’s real complaint was that we still have a repatriation tax and that we do not make it easier for multinationals to shift profits to tax havens.

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