Record Number of Americans Seeking Government Help

That the private sector has failed should be obvious but the takeaway that conservatives will draw from the news that one in six Americans, or 17 percent, is now aid-dependent for some or all of their needs is that these Americans are somehow lazy. 

The four government social safety programs most being accessed are Medicaid, Food Stamps, Unemployment Insurance and Welfare. USA Today breaks down the numbers:

More than 50 million Americans are on Medicaid, the federal-state program aimed principally at the poor, a survey of state data by USA TODAY shows. That's up at least 17% since the recession began in December 2007.

The program has grown even before the new health care law adds about 16 million people, beginning in 2014. That has strained doctors. "Private physicians are already indicating that they're at their limit," says Dan Hawkins of the National Association of Community Health Centers.

More than 40 million people get food stamps, an increase of nearly 50% during the economic downturn, according to government data through May. The program has grown steadily for three years.

Caseloads have risen as more people become eligible. The economic stimulus law signed by President Obama last year also boosted benefits.

"This program has proven to be incredibly responsive and effective," says Ellin Vollinger of the Food Research and Action Center.

Close to 10 million receive unemployment insurance, nearly four times the number from 2007. Benefits have been extended by Congress eight times beyond the basic 26-week program, enabling the long-term unemployed to get up to 99 weeks of benefits. Caseloads peaked at nearly 12 million in January — "the highest numbers on record," says Christine Riordan of the National Employment Law Project, which advocates for low-wage workers.

More than 4.4 million people are on welfare, an 18% increase during the recession. The program has grown slower than others, causing Brookings Institution expert Ron Haskins to question its effectiveness in the recession.

As caseloads for all the programs have soared, so have costs. The federal price tag for Medicaid has jumped 36% in two years, to $273 billion. Jobless benefits have soared from $43 billion to $160 billion. The food stamps program has risen 80%, to $70 billion. Welfare is up 24%, to $22 billion. Taken together, they cost more than Medicare.

The necessity of jump-starting the economy should be obvious. Conservatives worry that government programs won't contract after the recession and that we're creating some of sort lasting dependency to government assistance. "They're much harder to unwind in the long term," says Michael Tanner of the Cato Institute, a libertarian think tank. I guess Mr. Tanner and his libertarian ilk would prefer that Americans line up for private charities and soup kitchens. This isn't just the poor that we are talking about. Increasingly those accessing these social safety net programmes are those who formerly comprised the middle classes.

In 2006, the SEIU and the Center for American Progress published a report entitled Middle Class in Turmoil (pdf) that warned that "despite an economic recovery well into its fifth year, middle class families are struggling to pay for a home, health insurance, transportation and their children’s college education due to a weak labor market and sharply higher prices. To pay for these necessary expenditures, middle class families are borrowing record amounts of money, leaving them unable to put away hardly any cash for a rainy day."

Well, guess what that rainy day is here and it's not just a deluge but a monsoon.

Beyond the Efficient Market Hypothesis

I've got to run because I'm volunteering on two political campaigns. The thought of Barbara Boxer losing her Senate seat drives me to despair and I'm also volunteering for a local candidate for the Board of Supervisors.

A quick post on the efficient market hypothesis or EMH. “The Efficient Market Hypothesis is not only dead,” noted the financial blog Minyanville on July 29, 2010. “It’s really, most sincerely dead.” Perhaps, first, a quick definition is in order. From Investopedia:

The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

The EMH is at cornerstone of our economic model because it lies at the Greenspanian (and conservative) notion that financial markets can be self-regulated, even though financial markets operate very distinctly from normal supply and demand economic principles. As The Economist has noted that “Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.”

Financial markets are too often guided by a herd mentality that leads to financial asset bubbles. This was true in the Tulip Mania of the early 17th century in Holland and it was true in the more recent Dot Com Stock Market Crash and US housing bubbles. Irrational exuberance trumps information. The EMH is built on the assumptions of investor rationality. 

John Maynard Keynes, however, argued that the stock market should be seen as a "casino" guided by an "animal spirit". Keynes held that investors are guided by short-run speculative motives. They are not interested in assessing the present value of future dividends and holding an investment for a significant period, but rather in estimating the short-run price movements.

Today, Joseph Stiglitz in the Financial Times writes on the need for a new economic paradigm of moving beyond the efficient market hypothesis.

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient. Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking.

Stiglitz also points to the work at the George Soros funded Institute for New Economic Thinking (INET) that was founded in October 2009. Its mission is to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change. Two of my favorite economists are associated with the Institute: Simon Johnson of MIT and Richard Koo of Nomura Securities whose book on Japan's lost decade The Balance Sheet Recession has been my guide for looking at our economic situation.

Here's a short video on the INET:

There's more...

Beyond the Efficient Market Hypothesis

I've got to run because I'm volunteering on two political campaigns. The thought of Barbara Boxer losing her Senate seat drives me to despair and I'm also volunteering for a local candidate for the Board of Supervisors.

A quick post on the efficient market hypothesis or EMH. “The Efficient Market Hypothesis is not only dead,” noted the financial blog Minyanville on July 29, 2010. “It’s really, most sincerely dead.” Perhaps, first, a quick definition is in order. From Investopedia:

The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

The EMH is at cornerstone of our economic model because it lies at the Greenspanian (and conservative) notion that financial markets can be self-regulated, even though financial markets operate very distinctly from normal supply and demand economic principles. As The Economist has noted that “Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.”

Financial markets are too often guided by a herd mentality that leads to financial asset bubbles. This was true in the Tulip Mania of the early 17th century in Holland and it was true in the more recent Dot Com Stock Market Crash and US housing bubbles. Irrational exuberance trumps information. The EMH is built on the assumptions of investor rationality. 

John Maynard Keynes, however, argued that the stock market should be seen as a "casino" guided by an "animal spirit". Keynes held that investors are guided by short-run speculative motives. They are not interested in assessing the present value of future dividends and holding an investment for a significant period, but rather in estimating the short-run price movements.

Today, Joseph Stiglitz in the Financial Times writes on the need for a new economic paradigm of moving beyond the efficient market hypothesis.

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient. Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking.

Stiglitz also points to the work at the George Soros funded Institute for New Economic Thinking (INET) that was founded in October 2009. Its mission is to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change. Two of my favorite economists are associated with the Institute: Simon Johnson of MIT and Richard Koo of Nomura Securities whose book on Japan's lost decade The Balance Sheet Recession has been my guide for looking at our economic situation.

Here's a short video on the INET:

There's more...

Beyond the Efficient Market Hypothesis

I've got to run because I'm volunteering on two political campaigns. The thought of Barbara Boxer losing her Senate seat drives me to despair and I'm also volunteering for a local candidate for the Board of Supervisors.

A quick post on the efficient market hypothesis or EMH. “The Efficient Market Hypothesis is not only dead,” noted the financial blog Minyanville on July 29, 2010. “It’s really, most sincerely dead.” Perhaps, first, a quick definition is in order. From Investopedia:

The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

The EMH is at cornerstone of our economic model because it lies at the Greenspanian (and conservative) notion that financial markets can be self-regulated, even though financial markets operate very distinctly from normal supply and demand economic principles. As The Economist has noted that “Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.”

Financial markets are too often guided by a herd mentality that leads to financial asset bubbles. This was true in the Tulip Mania of the early 17th century in Holland and it was true in the more recent Dot Com Stock Market Crash and US housing bubbles. Irrational exuberance trumps information. The EMH is built on the assumptions of investor rationality. 

John Maynard Keynes, however, argued that the stock market should be seen as a "casino" guided by an "animal spirit". Keynes held that investors are guided by short-run speculative motives. They are not interested in assessing the present value of future dividends and holding an investment for a significant period, but rather in estimating the short-run price movements.

Today, Joseph Stiglitz in the Financial Times writes on the need for a new economic paradigm of moving beyond the efficient market hypothesis.

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient. Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking.

Stiglitz also points to the work at the George Soros funded Institute for New Economic Thinking (INET) that was founded in October 2009. Its mission is to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change. Two of my favorite economists are associated with the Institute: Simon Johnson of MIT and Richard Koo of Nomura Securities whose book on Japan's lost decade The Balance Sheet Recession has been my guide for looking at our economic situation.

Here's a short video on the INET:

There's more...

Beyond the Efficient Market Hypothesis

I've got to run because I'm volunteering on two political campaigns. The thought of Barbara Boxer losing her Senate seat drives me to despair and I'm also volunteering for a local candidate for the Board of Supervisors.

A quick post on the efficient market hypothesis or EMH. “The Efficient Market Hypothesis is not only dead,” noted the financial blog Minyanville on July 29, 2010. “It’s really, most sincerely dead.” Perhaps, first, a quick definition is in order. From Investopedia:

The Efficient Market Hypothesis (EMH) is an investment theory that states it is impossible to "beat the market" because stock market efficiency causes existing share prices to always incorporate and reflect all relevant information. According to the EMH, stocks always trade at their fair value on stock exchanges, making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices. As such, it should be impossible to outperform the overall market through expert stock selection or market timing, and that the only way an investor can possibly obtain higher returns is by purchasing riskier investments.

The EMH is at cornerstone of our economic model because it lies at the Greenspanian (and conservative) notion that financial markets can be self-regulated, even though financial markets operate very distinctly from normal supply and demand economic principles. As The Economist has noted that “Financial markets do not operate the same way as those for other goods and services. When the price of a television set or software package goes up, demand for it generally falls. When the prices of a financial asset rises, demand generally rises.”

Financial markets are too often guided by a herd mentality that leads to financial asset bubbles. This was true in the Tulip Mania of the early 17th century in Holland and it was true in the more recent Dot Com Stock Market Crash and US housing bubbles. Irrational exuberance trumps information. The EMH is built on the assumptions of investor rationality. 

John Maynard Keynes, however, argued that the stock market should be seen as a "casino" guided by an "animal spirit". Keynes held that investors are guided by short-run speculative motives. They are not interested in assessing the present value of future dividends and holding an investment for a significant period, but rather in estimating the short-run price movements.

Today, Joseph Stiglitz in the Financial Times writes on the need for a new economic paradigm of moving beyond the efficient market hypothesis.

The blame game continues over who is responsible for the worst recession since the Great Depression – the financiers who did such a bad job of managing risk or the regulators who failed to stop them. But the economics profession bears more than a little culpability. It provided the models that gave comfort to regulators that markets could be self-regulated; that they were efficient and self-correcting. The efficient markets hypothesis – the notion that market prices fully revealed all the relevant information – ruled the day. Today, not only is our economy in a shambles but so too is the economic paradigm that predominated in the years before the crisis – or at least it should be.

It is hard for non-economists to understand how peculiar the predominant macroeconomic models were. Many assumed demand had to equal supply – and that meant there could be no unemployment. (Right now a lot of people are just enjoying an extra dose of leisure; why they are unhappy is a matter for psychiatry, not economics.) Many used “representative agent models” – all individuals were assumed to be identical, and this meant there could be no meaningful financial markets (who would be lending money to whom?). Information asymmetries, the cornerstone of modern economics, also had no place: they could arise only if individuals suffered from acute schizophrenia, an assumption incompatible with another of the favoured assumptions, full rationality.

Bad models lead to bad policy: central banks, for instance, focused on the small economic inefficiencies arising from inflation, to the exclusion of the far, far greater inefficiencies arising from dysfunctional financial markets and asset price bubbles. After all, their models said that financial markets were always efficient. Remarkably, standard macroeconomic models did not even incorporate adequate analyses of banks. No wonder former Federal Reserve chairman Alan Greenspan, in his famous mea culpa, could express his surprise that banks did not do a better job at risk management. The real surprise was his surprise: even a cursory look at the perverse incentives confronting banks and their managers would have predicted short-sighted behaviour with excessive risk-taking.

Stiglitz also points to the work at the George Soros funded Institute for New Economic Thinking (INET) that was founded in October 2009. Its mission is to create an environment nourished by open discourse and critical thinking where the next generation of scholars has the support to go beyond our prevailing economic paradigms and advance the culture of change. Two of my favorite economists are associated with the Institute: Simon Johnson of MIT and Richard Koo of Nomura Securities whose book on Japan's lost decade The Balance Sheet Recession has been my guide for looking at our economic situation.

Here's a short video on the INET:

There's more...

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