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It’s tempting to think Bill Gross’ perspective on the economy would be taken fairly seriously. After all, he’s the co-founder of investment management giant PIMCO and one of the most influential investors in the world.
And as Brian Beutler reports today, Gross has prepared a prospectus for his clients arguing that the political world’s focus on the debt in the midst of a struggling economy is ridiculous, and what’s needed is another meaningful stimulus package.
“Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, ‘they will come.’ It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth.
“It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate.
“Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.
Gross went on to say that government “must take a leading role in job creation,” adding that agendas that dictate leaving this to the private sector are “simply dazed or perhaps crazed.”
I mention this, not because it’s new, but because it’s amazing that Wall Street giants, economists, and even many in the Fed all agree what the economy needs. And yet, their preferred prescription — significant public investment — is considered so beyond the pale that progressive policymakers don’t bother proposing it, and conservative policymakers scoff at the very idea of considering it.
Americans’ top concern, by far, is job creation and economic growth. The single best way to address the issue isn’t even on the table, thanks in part to Republican dominance of the discourse, progressive timidity, and the public’s conditioning to oppose “spending.”
This is why we can’t have nice things.
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Frank Wilhoit on June 21, 2011 2:20 PM:
How sick would a dog have to be before it could benefit from the advice of a tick? And the worst of it is that he is right.
sjw on June 21, 2011 2:22 PM:
Again, Obama and his administration could make political hay out of this. Given his past listlessness, however, I predict he stays in the farmhouse.
c u n d gulag on June 21, 2011 2:28 PM:
We had nice things.
We've had nicer things.
We still have some nice things.
But they don't want anyone but themselves to have nice things.
So, bye-bye nice things...
Unless you're filthy rich.
This is what happens when you have a feckless Democratic Party and a bought and paid for MSM:
We have to listen about tighting OUR belts from people with expandable pants.
square1 on June 21, 2011 2:41 PM:
It's tempting to think Bill Gross' perspective on the economy would be taken fairly seriously.
Gross is correct that the virus of anti-Keynesian insanity has infected both parties.
What I find odd is who Steve Benen blames for this:
Republican dominance of the discourse, progressive timidity, and the public's conditioning to oppose 'spending.'
Now, to be fair, Benen could be partially referring to Centrist Democrats when he uses the term "progressive". And I suppose that when Benen refers to "the public's conditioning to oppose 'spending.'" he could be including in that "conditioning" things like the Simpson-Bowles Commission.
But, on its face, Benen seems to be blaming everyone for the U.S.'s current anti-Keynesian policies (the GOP, progressives, the public) EXCEPT for the people who have had the most control over U.S. economic policy from 2009 to the present: Centrist Democrats.
In what respect, Charlie? on June 21, 2011 2:46 PM:
If even the U.S. government isn't willing to invest in the U.S.A. (i.e. through stimulating the economy, job creation, etc), then what message does that send? Why should anyone, any business, or any other country be willing to do so?
paul on June 21, 2011 2:49 PM:
Show us the money. Where's the independent expenditure group Gross is forming to throw out all the crazy bums? He could raise a few billion over a weekend if he was really serious. (And yeah, complaints about buying elections, but somehow buying elections is ok if you're a company bound and determined to turn the US into Haiti.)
kevo on June 21, 2011 2:57 PM:
Washington policy-makers, especially of the Republican bent, give a whole new meaning to a particular American icon - The Headless Horseman! -Kevo
June on June 21, 2011 3:08 PM:
I'm getting a little tired of Obama and Democrats being given equal portion of blame for all this economic crap.
Yes, we'd all like nice things, but how do you get Boehner to bring the bills to the floor? How do you get a majority-GOP House to pass such bills?
How do you get Lieberman/ConservaDems in the Senate to vote for it and pass it?
These are the vital details that are largely left out of the discourse. Should Democrats mimic Republicans, who are happy as pigs in poop to waste endless taxpayers' dollars on bills they know they can't win?
This "it's the Democrats fault, too!" crap is exactly why Republicans are ALWAYS able to get away with borderline traitorous behavior. The mantle of responsibility is rarely placed squarely on their shoulders by pundits.
Stephen Stralka on June 21, 2011 3:08 PM:
I guess what we need now is some NGOs. I just look around and think, over here you've got all these people who need jobs, and over here is all this stuff that desperately needs to be done--rebuilding the entire nation's infrastructure, ending our dependence on fossil fuels, little things like that. Global warming is going to destroy our way of life a lot quicker than any deficit.
But of course corporate America isn't doing anything, and the Republicans won't let the government do anything, so where does that leave you? People who want anything to happen before the next election might just have to take it upon themselves to save the economy and start forming non-profits. You find people who need work, find useful things for them to do, and try to raise some donations to pay for it. People like Michele Bachmann would probably start comparing you to Hamas or the Black Panthers, but that would only add to the fun.
jonas on June 21, 2011 3:10 PM:
@square1: I think what Steve is basically implying is that "centrist" Democrats are bestowed with the coveted mantle of "centrism" if they cop to the Republican discourse on spending (cf. Joe Lieberman, Ben Nelson, Evan Bayh, et al.) The progressive pushback against this has been largely timid/unsuccessful, I think mostly because the public doesn't understand the difference between racking up personal debt -- which we consider "bad" in most cases -- and the government racking up debt to prop up aggregate demand (absolutely necessary in a recession).
Gross will be labeled a DFH and we'll all push on towards the apocalypse like we have been for the past year and a half.
Jesse on June 21, 2011 3:11 PM:
Notice that the need for reform and rebalancing the system never really comes up in the discussion. This is old thinking, and its killing the economy.
I think both 'expansionary austerity' and 'stimulative easing' are missing the point and ineffective, because the economic, financial, and global trade system is broken, corrupted, and badly in need of reform and structuring.
What the Fed is doing is keeping the zombie banks upright at the expense of the long suffering middle class and savers. Michael Hudson has called it 'the endowing of a financial elite to rule in the 21st century.' The monied interests are gorging themselves on malinvestment, public policy failures, and a well financed campaign of economic propaganda such as that which led to the tragic lapses of regulation and the overturn of Glass-Steagall.
The effective tax rates of the super wealthy are less than 15 percent, because they draw a major portion of their annual increase in wealth from capital gains and dividends, and unrecognized entitlements. as well as a wide menu of tax avoiding schemes.
And while they moan about the nominal headline tax rates, paid only by the 'little people' even if they do not know they are little, corporations and the truly wealthy have not enjoyed just low effective tax rates in the post WW II era. And yet it is still not enough.
In light of the severe unemployment problems plaguing a large portion of families, austerity seems like a cruel joke, a coup de grāce delivered by the bankers to the income producing classes who depend on labor in the creation and delivery of real products, and not artificial arbitrage and gaming the system.
But on the other hand, stimulus seems just another excuse for the special interests to put on the feedbag once again to the detriment of the many of the next generation. There is no comparison between the Obama Administration and the New Deal in terms of real change and productive innovation.
There has been a very strong recovery in corporate profits in the non-financial sector, and the financiers barely missed a beat in distributing a healthy chunk of GDP to themselves in bonuses, while the ashes of the financial crises which they caused still glowing. And their behaviour in the mortgage and derivatives markets has been despicable. I am appalled that people put up with this sort of thing, much less defend it out of some mistaken belief in neoliberal 'free markets.'
The people should never have to bailout reckless banks who engaged in speculative self-interest, and particular when they did so with the intent to personally enrich themselves, come what may.
dalloway on June 21, 2011 3:23 PM:
The last thing Republicans want is for the economy to improve before the 2012 elections. They'll block any attempt at stimulus or job creation, period. But the mystery to me is why Obama isn't frying their asses for it with the voters. I dunno. Maybe it's too soon. Maybe he's walking them into a trap he'll spring closer to the election, using statements like Bill Gross's to bite them. Maybe...
rbe1 on June 21, 2011 3:31 PM:
So the political class is useless and clueless. What else is new ?
square1 on June 21, 2011 3:51 PM:
June: It is unfair to lump in all Democrats together. Indeed, some have focused on jobs and pointed out that the stimulus was too small. But the bulk of the Democratic leadership, including the White House, has largely ignored Keynesian policies and has -- suicidally -- chosen to embrace deficit reduction as a serious short-term policy goal.
It wasn't the GOP that made Democrats water down the original stimulus bill and include 1/3 of the "stimulus" as tax cuts.
It wasn't the GOP that spent much of 2009 and 2010 talking about "green shoots" instead of more stimulus spending.
It wasn't the GOP that mismanaged the HAMP program and forced the White House to oppose cramdown; throwing millions of Americans into foreclosure and further depressing the housing market.
It wasn't the GOP that refused to twist ConservaDems arms in the Senate by telling the ConservaDems that they could vote up or down as they chose but filibustering key party legislation would result in serious repercussions.
It wasn't the GOP that proposed a 5-year spending freeze during the SOTU.
It wasn't the GOP that declared a freeze in Federal workers' pay.
And it wasn't the GOP that created the Simpson-Bowles commission.
Yes, the GOP has terrible economic ideas. But many of the economic views held by Democratic leaders are terrible as well. These fools have stood in the way of using Keynesian policy to boost the economy and lower unemployment. Not because the GOP has prevented them from doing anything. But because they do not believe that government spending is the solution.
It is high time that the Democratic cheerleading squad stopped asking the rest of us to simply accept on faith that Democratic leaders are advocates of policies that they actively oppose.
Joe Friday on June 21, 2011 4:24 PM:
The advice Gross proffered isn't wrong, but understand he has a vested interest.
Thinking the economy would recover and interest rates would then rise, Gross sold $8 BILLION of government bonds SHORT and also got on the wrong side of another $15.2 BILLION in interest-rate swaps.
That's almost ten percent of the $243 billion in PIMCO's 'Total Return Fund' that is going South on a Northbound freeway.
bdop4 on June 21, 2011 4:37 PM:
Thank you, Square1.
I might add that to the inevitable rejoinder of "but nothing would have passed!," I say that that moment is where you place the blame squarely on the opposition. If you present your argument strongly enough, the MSM will not be able to ignore it and hopefully public opinion will come around to bring pressure to bear on the opposition.
You can't forcefully advocate an alternative solution when you spend half your time agreeing with the opposition on deficit reduction.
Tommy Two Ton on June 21, 2011 4:38 PM:
It's called "PIMPCO" for a reason. Just sayin'
Charles Hugh Smith on June 21, 2011 4:42 PM:
Keynesians claim more debt will goose "demand;" they're wrong. Boosting debt has distorted the economy for 40 years, and the end-game is finally approaching.
Keynesians are constantly demanding more debt be taken on to spark "demand" for more stuff. What if debt-fueled demand is dead, expired of natural causes? If so, then the Keynesians are pushing on a string.
The truth is the U.S. has long been a post-consumer economy. Everybody already had a TV, phone, car, etc. 40 years ago, which is coincidentally when wages began their 40-year stagnation and the nation's public and private debts began exploding higher as the forces of financialization took over.
In other words, the only way to get people to buy more crap was to give them vast quantities of debt.
Now that debts exceed 350% of the nation's GDP, we've reached the end of the financialization process: we can't afford any more debt unless the interest rate is near-zero.
Hey, isn't that the Federal Reserve's policy now, forever and ever, near-zero interest rates? No wonder. If the nation had to pay a historically average rate of interest on its debts, the economy would quickly implode like a supernova star.
This meant that more of the nation's income was diverted to servicing the rising debt, which also meant that wages stagnated and profits to the financial sector skyrocketed. As those profits grew to dominate the profits of Corporate America (roughly, the S&P 500), then the political power of the financial sector and wall Street rose proportionately.
Big picture, this reliance on debt for "growth" has led to the banks owning the government and the economy. This is the Dark Side of Keynesism. The "borrow more, we need more demand!" thumpings of "liberal" economists like Krugman and Reich are completely blind to the fact that the borrowing they demand is precisely what has sold the nation down the river and handed control to the banks and Wall Street.
These structural changes are why the naive bleatings of these same Keynesians to "control the banks" are failing: by making the economy totally dependent on ever more borrowing and debt, the Keynesians created the financialization monster. Now that it controls the economy, they're whining, please Mister Too Big to Fail Bank, please hand back control to us nice economists.
It doesn't work that way. Having sold your soul to the debt monster, the monster now controls you.
June on June 21, 2011 5:22 PM:
@square1 - It was and is primarily the GOP that legislatively stood/stands in the way of achieving the opposite of every item you listed. It all looks so clear-cut on paper, but how do you get the bills passed? Because nothing happens without legislation.
I do agree the Democrats are genetically impotent when it comes to messaging, and if there's anything about this WH that makes me tear my hear out, it's the WH Communications team, but I'm not totally ready to buy into the current popular lament that Democrats have bought wholesale into the *Republicans'* idea of deficit reduction. Why? Because we often see a lot of "blog panic" over what Dems may or may not be doing, only to find out that the GOP has largely been punked over whatever victory they're claiming.
Further, deficit reduction is not a new item for Democrats, e.g. PAYGO, streamlining line-by-line the FY 2010, 2011 and 2012 budgets, etc. Also, Obama, during his 2008 campaign, made a pledge to halve the deficit by the end of his first term, so deficit reduction is not a new topic for either him or the Democratic leadership.
But to return to the main sticking point - HOW do you get another outright stimulus passed in this political environment? That's the $64,000 Question.
max on June 21, 2011 5:33 PM:
"Centrist" Democrats are no longer in the center, they are right of center because the GOP has been taken over by lunatics. Gross is right and he is saying what most of us who invest know to be true, but will the corporate media report it? Let the drumbeat continue.
Reality Bites on June 21, 2011 5:35 PM:
June,
You don't. Even if you believed in the original stimulus, it was so riddled with unproductive spending and initiatives that the majority of Americans lost faith in the idea. if our President actually took Congress to task related to all the misatkes in spending the first time around, then we might have a chance. Now, no way.
It is True that Bill Gross has a vested interest in seeing Treasury prices decline, and the best way that woild happen is a healthy dose of unfunded spending by the US Governement.
June on June 21, 2011 5:42 PM:
@Reality Bites - having followed the stimulus stats at Recovery.gov since it's inception, I can't agree that the stimulus was "riddled with unproductive spending and initiatives" or "that the majority of Americans lost faith in the idea." I would encourage all those reading this to go and spend some serious time at recovery.gov - especially at their "Track the Money" link. I've been pretty impressed with the transparency and the plain English data that's been made available on the Recovery Act.
Joe Friday on June 21, 2011 5:49 PM:
Charles Hugh Smith,
Keynesians claim more debt will goose "demand"
That's a false depiction of "Keynesians".
~
The truth is the U.S. has long been a post-consumer economy.
Actually, Consumer Spending is about 72% of the national economy now.
~
Now that debts exceed 350% of the nation's GDP
Last time I checked it was about 95% of GDP, which isn't even close to historic.
~
This meant that more of the nation's income was diverted to servicing the rising debt, which also meant that wages stagnated
By what possible correlation ?
~
THERE IS NO DEBT CRISIS.
THERE IS AN UNEMPLOYMENT CRISIS.
IOKIYAR on June 21, 2011 6:00 PM:
Charles Hugh Smith: Keynesian stimulus isn't "accumulate debt", it's "use debt in a recession to offset weakness in the private sector, and surpluses to pay off that debt when the private sector booms." (False premise and straw man, undermines the entire rest of the attempt at an argument.)
Note in particular that Keynesian stimulus isn't involved in: massive spending in elective wars (all put on the charge card), massive tax cuts on the wealthy when the budget does produce a surplus (which would have paid off the entire national debt by now without the tax cuts and wars), and a massive new, unfunded Medicare benefit -- the three things which are the majority of the current national debt.
The Keynesian economic model you rail against has nothing to do with private debt, which you have arbitrarily conflated with national debt in an apparent attempt to make debt seem Extra Scary(tm). Debt as investment can be smart, debt with no return is not.
Joe Friday on June 21, 2011 6:05 PM:
Reality Bites,
Even if you believed in the original stimulus, it was so riddled with unproductive spending and initiatives
Untrue.
* Before the stimulus bill was enacted, the GDP in the 4TH QTR of '08 was -6.8%. After the stimulus bill was enacted, 1ST QTR '09: -4.9% > 2ND QTR '09: -0.7% > 3RD QTR '09: +1.6% > 4TH QTR '09: +5.0%.
* The almost 750,000 a month job losses during the previous administration prior to the stimulus was replaced by an average of almost 200,000 a month job gains.
That's about a 12% reversal in GDP, and a reversal approaching a million jobs a month.
The stimulus worked like a charm, despite the fact that more than half of it was tax cuts, and tax cuts have NEVER stimulated the national economy. What remained was just too damned small.
square1 on June 21, 2011 6:12 PM:
June: What stimulative policies do you believe that the White House wants that they haven't gotten? I'm not talking about your personal fantasies of what you hope Obama wants. I'm talking about policies that the White House has actually proposed.
I'm sorry, but you are not the spokesperson for the White House. If the White House proposes a $800B stimulus package, 1/3 as tax cuts, and then goes on to propose a 5 year spending freeze, I'm sorry but I don't want to hear any bullshit about how the White House really truly, in its heart of hearts, wanted a $1.5T stimulus. Or that the White House still wants more spending but the GOP won't let them have it.
Goldilocks on June 21, 2011 6:38 PM:
Charles Hugh Smith
shows courage stepping in here with a Keynesian debunkfest.
Apparently he has exaggerated. I'm not qualified to judge.
Something in there rings true, though.
The contrast is illuminating.
What I come away with is a sense that there is tons of capital sloshing around in the economy - in which demand is satiated? - but it's not distributed. In other words, I feel there is merit in observing that we are in a post-consumer phase since the big bucks accrued in the financial industry far outweigh what is generated by material production. OK, someone will knock that down with facts and figures. I'm talking seat-of-the-pants here. It's my impression that all the profit is accumulated in the financial world. This makes sense in the light of evolving digital technology and the global financial market. The guys who are stinking rich are the guys at the top who are playing in these markets.
Which brings me to the point prompted by Charles Hugh Smith's contribution. The issue - the paramount issue - for the current state of the economy is the sharing of the wealth. The bods on the Hill are fiddling while Rome burns. They're twiddling around with irrelevancies. The solution - the only solution at this epoch - is redistribution.
Anyone get that?
MEL on June 21, 2011 6:42 PM:
A short, relevant, satirical YouTube animation: Jobs, Jobs, Jobs.
zeitgeist on June 21, 2011 7:54 PM:
Goldilocks, Charles' head must be exploding that you read his conservative rant and concluded that the solution to what he identifies is massive redistribution.
I do think there is some degree of post-consumer problem. When the only way to keep employment up and keep investments profitable is to have constant growth of more than 5% a year, that starts to look a lot like a Ponzi scheme. If everyone has a house, why do we keep building new ones? Because if we don't, a lot of companies in supplies, equipment, construction, durable goods, big box stores, lawn goods, mortgage banks, appraisers and realtors shut down. In other words, we have to create demand even if it does not organically exist. I'll agree with Charles that this is a Bad Thing. My critique is from the left, however: we've become a decadently consumerist society.
That theoretical point made, in practice I don't think this is an inevitable structural crisis today. There would be plenty of demand if corporations -- and it isn't limited to just the financial sector -- would quit hording revenues (or, worse yet, paying it all out at the top of the food chain). They could use that cash they are sitting on at record levels to lower prices of their goods and services. They could use it to raise wages, which would stimulate demand at the bottom. They could convert temps to full-time employees.
Business in the US used to do things like that, back in a more patriotic, less plutocratic time. Now it is all about greed at the top, and using cash to make political statements in service of the plutocratic party. Heck, if the US fails, they can just move the business to China, right? I mean, it isn't like they really care about their country.
jonas on June 22, 2011 1:31 AM:
@charles hugh smith: WTF? You have absolutely no clue what classic Keynesian economics is about. First, you're conflating consumer debt and government debt. Second, running perennial deficits and racking up huge, long-term debt is never something Keynes would have thought was good -- for individuals or governments. Huge peacetime deficits were introduced by Reagan as a result of tax cuts he misguidedly believed would boost revenue and growth (the old "tax cuts pay for themselves" canard). What Keynes called for was cyclical debt to offset drops in aggregate demand. During times of robust growth, government should ideally run a balanced budget and pay down debt incurred during times where more spending was called for.
The Austrian school gets it precisely the wrong way around: easy money and low interest rates -- and the bubbles they produce -- are, ironically, the predictable result of the very unregulated markets and neoliberal economic policies championed by libertarians. Every time. Look at Iceland. Look at Ireland. Look at America in the 20s and 00s. That's why countries with relatively more regulated economies -- Canada and Germany, e.g. -- emerged from the most recent crisis relatively unscathed. They were able to maintain a conservative monetary policy *because* their broader fiscal houses were in order.
JeromeFJ on June 22, 2011 11:13 AM:
Gross is a self-serving parasite (who called him a "tick"?) who is desperately trying to keep the dog well enough to keep bleeding so Gross can keep sucking blood.
What sort of parasite is Benen that he cheers for ticks?
Their combined economic brainpower wouldn't keep a lemonade stand in the black.
Cas on June 22, 2011 11:51 AM:
You do realize that Gross is shorting Treasuries, yes? So it benefits his position to have a flood of them. He is talking his book.
ertdfg on June 22, 2011 2:27 PM:
Step 1, 14 trillion in debt - done.
Step 2, another 16 trillion in debt over the next decade... proposed with current spending, and you want more.
Step 3, 5% interest on debt, which we've owed not that long ago.
Result, 1.5 trillion owed in interest a year, in a year when projected revenues are 2.7 trillion. 56% of revenue going to debt is a good thing? that is what will bring jobs? Spending a majority of your money on interest and not being able to afford basic services is fine?
Or do we keep borrowing to pay interest for another decade so we can spend 100% of government revenue on interest? Think anyone will loan us a dollar then?
Can you explain why economic collapse = economic growth in your eyes, or at least why spending most if not all of your income on interest with no productive benefit is something to be desired?
Don't worry, nobody expects you to be able to explain this... just do an appeal to vague authority "many economists" and gloss over the first-order effects of your actions. I'm sure nobody will notice.
ertdfg on June 22, 2011 2:33 PM:
"Joe Friday on June 21, 2011 6:05 PM:
Untrue.
* Before the stimulus bill was enacted, the GDP in the 4TH QTR of '08 was -6.8%. After the stimulus bill was enacted, 1ST QTR '09: -4.9% > 2ND QTR '09: -0.7% > 3RD QTR '09: +1.6% > 4TH QTR '09: +5.0%."
Right Joe, I mean the downturn ended before th government spent even 10% of the stimulus; so clearly only spending the entire stimulus 0which we didn't do) stopped the downturn (which slowed before we spent a dollar) and avoid a crash (that wouldn't have happened based on the curve when we'd only spent 55 of the stimulus).
Claiming you fixed a problem by throwing money at it doesn't generally persuade people when the problem stopped before you really got to throwing money.
How often do people look for a cause that occurred mostly after the effect they're looking to explain?
I mean, people besides you and other Keynesians looking to see if they can find any support for their theories regardless of the logical basis of the arguments.