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Government

United States

Sen. Cornyn Unfairly Maligns Consumer Watchdog Agency

On the third day of Brett Kavanaugh’s Supreme Court confirmation hearing, Senator John Cornyn trotted out what has become a staple GOP criticism of the nation’s consumer watchdog agency, the Consumer Financial Protection Bureau. The agency, Cornyn lamented, has “vast powers to get into the personal financial information of every American… really more authority than we would ever give any of our intelligence agencies.” It’s a charge that has been echoed by several of his compatriots on the right, including Chairman of the Senate Committee on Banking, Housing and Urban Affairs, Mike Crapo.

The Consumer Financial Protection Bureau has drawn the ire of Wall Street executives and their allies on Capitol Hill since its inception. Formed in the wake of the 2007-08 financial crisis as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act, the Bureau is tasked with regulating financial products and services and protecting consumers from abusive practices by financial institutions. This has resulted in the return of nearly $2 billion to customers who were duped by credit card companies and refunds of over $60 million to Americans extorted by debt collectors.

CEPR and Hayley Brown / October 03, 2018

Article Artículo

Getting Serious About Debt and Deficits: The Deficit Hawks Did Enormous Harm to Our Kids

I have pasted below a post from Patreon page. I had planned to wait a little longer, but this NYT piece convinced me to post it now.

Debt and Deficits, Again

With the possibility that the Democrats will retake Congress and press demands for increased spending in areas like health care, education, and child care, the deficit hawks (DH) are getting prepared to awaken from their dormant state. We can expect major news outlets to be filled with stories on how the United States is on its way to becoming the next Greece or Zimbabwe. For this reason, it is worth taking a few moments to reorient ourselves on the topic.

First, we need some basic context. The DH will inevitably point to the fact that deficits are at historically high levels for an economy that is near full employment. They will also point to a rapidly rising debt-to-GDP ratio. Both complaints are correct, the question is whether there is a reason for anyone to care.

Just to remind everyone, the classic story of deficits being bad is that they crowd out investment and net exports, which makes us poorer in the future than we would otherwise be. The reason is that less investment means less productivity growth, which means that people will have lower income five or ten years in the future than if we had smaller budget deficits. Lower net exports mean that foreigners are accumulating US assets, which will give them a claim on our future income.

Debt is bad because it means a larger portion of future income will go to people who own the debt. This means that the government has to use up a larger share of the money it raises in taxes to pay interest on the debt rather than for services like health care and education. Or, to put it in a more Keynesian context, there will be more demand coming from people who own the debt, which means the government would need higher taxesnto support the same level of spending than would otherwise be the case.

There is an important intermediate step in the deficit-crowding out story that is worth stating explicitly. The Federal Reserve Board could opt to keep interest rates low by buying up debt directly. The assumption in the crowding out story is that the Fed allows interest rates to rise or even deliberately raises them, presumably because it is concerned about inflation.

If there is no basis for inflationary concerns, there is no reason that the Fed could not simply keep interest rates low in spite of a large deficit, and therefore prevent any crowding out. The question then is whether a budget deficit is pushing the economy up against its limits, leading to inflationary pressures. When we look at the various sources of demand in the economy, there are two reasons for thinking that a larger budget deficit would be needed today to sustain something close to full employment than would have been true four decades ago.

CEPR / September 26, 2018