It was a waste of my time to listen to the first two hours of Neale Godfrey, so I won't cause you to waste your time reading a summary of it. However, the third hour guest was interesting, even though there will be some who do not agree with him.
Guest-writer, FrankJ's summary and editorial comments:
Special Guest Peter Diamond,
Jan 6th 2013
Peter Diamond is an economist, and Institute Professor at MIT, where he has been on the faculty since 1966. Professor Diamond received the Nobel prize in economics, in 2010 (along with two associates, Dale T. Mortensen and Christopher A Pissarides.) The guest authored a book on saving Social Security with Peter Orszag, former Obama administration official. See below. The host, Neale Godfrey pointed out that the current Fed Chair, Ben Bernanke was once a student of Professor Diamond.
Frankj’s editorial comments are in italics: I have listened to many, many teases and introductions to third hour guests on MoneyTalk, and Neale Godfrey’s build up to Peter Diamond’s appearance has to be one of the most lavish.
Neale said the (Nobel) prize is “considered the most important prize in the world,” and the guest is “amazingly cool” because he threw out the first pitch at a Boston Redsox game. With regard to the former, the guest acknowledged Neale’s mention of the Nobel prize, but did not mention either of his two co-winners.
We do not know if his pitch was thrown from the pitcher’s mound, nor if it bounced before it reached the catcher. When a politician, celebrity or now, a college professor, throws out the first pitch anywhere, we want only two things: if it is a guy, we want him to throw the ball in a coordinated way, i.e., not like a girl. And we want the ball to reach the catcher without going into the dirt. I hope Prof. Diamond qualified on both counts.
She opened the interview by saying she wanted to hear his comments on unemployment, Social Security and the government as a whole.
Peter Diamond’s answer to Neale’s somewhat awkward opening was to define the difference between a crisis and a problem. A “problem” is something that can turn into a crisis, and he said, unemployment is a crisis, something that has to be dealt with, now. The guest said that federal government debt is a problem.
She opened the interview by saying she wanted to hear his comments on unemployment, Social Security and the government as a whole.
Peter Diamond’s answer to Neale’s somewhat awkward opening was to define the difference between a crisis and a problem. A “problem” is something that can turn into a crisis, and he said, unemployment is a crisis, something that has to be dealt with, now. The guest said that federal government debt is a problem.
Neale jumped in and began to ramble, then seemed to realize she was rambling and clammed up.
Diamond continued with his point about unemployment: young people just starting out are especially affected because their wage growth is held back in their early, critical earning years. Paraphrasing: “in a garden variety recession, this effect can last over a decade – but we are not in a garden variety recession, it is referred to as the Great Recession.” Farther up the age spectrum, the older, long-term unemployed become less valuable to the economy and sometimes end up earning lower wages if they do find jobs.
Diamond then changed the subject to debt, and continued with the “problem vs. crisis” theme. Greece, Italy and Spain are examples of economies in crisis, because people are only willing to lend to them at higher and higher interest rates. He thinks the US is not (yet) in that same fix. We still enjoy low interest rates because the bond market has not concluded that we are incapable of repaying our debts. The downgrade in 2011 was more due to “bad politics” than about the nature of the economy.
He allowed as how our debt trajectory is “unsustainable,” and we need to phase in changes, but cautioned against cutting or raising taxes significantly right away, such sudden changes would hurt the economy. We have a decade or more to address this problem.
Neale said that makes her sleep at night.
The guest then discussed Social Security, saying the professional staff of non-political actuaries have said that the trust fund will run out in 20 years, and there could be a 25% benefit cut from one month to the next. This, he said, would be a crisis. He said that there is time to address this with tax increases and benefit reductions for those who can afford it. She asked whether they are listening to you, meaning those in Washington, DC. Peter Diamond said “hearing and listening are not the same thing.”
Just before the break at 3:30, Neale paraphrased the late Milton Friedman’s notion that Social Security is a mechanism that transfers wealth from the poor to the rich – citing the differences in life expectancies between rich and poor. She wondered aloud “are the poor and middle class bearing the brunt?” Diamond jumped in with the statement that “all that is wrong,” adding that he thought it was important to get the word in, in case people tune out during the commercial break, he didn’t want them tuning out thinking that Friedman, as quoted by Godfrey, was right. Neale Godfrey said, she has been told she was wrong before – but he wasn’t referring to her.
After the break Neale re-iterated Prof. Diamond’s accomplishments. But instead of getting back to him on his thoughts about Social Security – which is probably what he expected, and what everyone listening expected, she took four calls. I won’t summarize these in the interest of space.
As the hour wound down, Neale asked Prof. Diamond for his solution to unemployment.
Diamond said we need to continue aggregate spending and boost growth. He cited education spending, basic research and infrastructure. Spending in these areas as a percent of GDP has shrunk over 30 years. With regard to education, “throwing money at the problem hasn’t worked, but taking money away doesn’t work either.” With the idle labor and equipment available, and the low cost of borrowing now is the time to spend the money on these programs.
(If Paul Krugman, another Nobel prize winner, was listening, he was probably pounding the table in agreement because all through this meltdown and recession, he has been pounding out column after column calling for more spending, more deficit, more debt).
Not part of the interview was the fact that Peter Diamond was nominated to the Board of Governors of the Federal Reserve, 3 different times beginning in 2010. Ultimately, he withdrew himself from consideration in June of 2011. His op-ed piece on his decision to withdraw can be accessed here:
When a Nobel Prize Isn't Enough NYTimes
I quote one paragraph from it because it is in line with something that Bob Brinker has mentioned repeatedly with regard to the need for the independent Federal Reserve.
Diamond continued with his point about unemployment: young people just starting out are especially affected because their wage growth is held back in their early, critical earning years. Paraphrasing: “in a garden variety recession, this effect can last over a decade – but we are not in a garden variety recession, it is referred to as the Great Recession.” Farther up the age spectrum, the older, long-term unemployed become less valuable to the economy and sometimes end up earning lower wages if they do find jobs.
Diamond then changed the subject to debt, and continued with the “problem vs. crisis” theme. Greece, Italy and Spain are examples of economies in crisis, because people are only willing to lend to them at higher and higher interest rates. He thinks the US is not (yet) in that same fix. We still enjoy low interest rates because the bond market has not concluded that we are incapable of repaying our debts. The downgrade in 2011 was more due to “bad politics” than about the nature of the economy.
He allowed as how our debt trajectory is “unsustainable,” and we need to phase in changes, but cautioned against cutting or raising taxes significantly right away, such sudden changes would hurt the economy. We have a decade or more to address this problem.
Neale said that makes her sleep at night.
The guest then discussed Social Security, saying the professional staff of non-political actuaries have said that the trust fund will run out in 20 years, and there could be a 25% benefit cut from one month to the next. This, he said, would be a crisis. He said that there is time to address this with tax increases and benefit reductions for those who can afford it. She asked whether they are listening to you, meaning those in Washington, DC. Peter Diamond said “hearing and listening are not the same thing.”
Just before the break at 3:30, Neale paraphrased the late Milton Friedman’s notion that Social Security is a mechanism that transfers wealth from the poor to the rich – citing the differences in life expectancies between rich and poor. She wondered aloud “are the poor and middle class bearing the brunt?” Diamond jumped in with the statement that “all that is wrong,” adding that he thought it was important to get the word in, in case people tune out during the commercial break, he didn’t want them tuning out thinking that Friedman, as quoted by Godfrey, was right. Neale Godfrey said, she has been told she was wrong before – but he wasn’t referring to her.
After the break Neale re-iterated Prof. Diamond’s accomplishments. But instead of getting back to him on his thoughts about Social Security – which is probably what he expected, and what everyone listening expected, she took four calls. I won’t summarize these in the interest of space.
As the hour wound down, Neale asked Prof. Diamond for his solution to unemployment.
Diamond said we need to continue aggregate spending and boost growth. He cited education spending, basic research and infrastructure. Spending in these areas as a percent of GDP has shrunk over 30 years. With regard to education, “throwing money at the problem hasn’t worked, but taking money away doesn’t work either.” With the idle labor and equipment available, and the low cost of borrowing now is the time to spend the money on these programs.
(If Paul Krugman, another Nobel prize winner, was listening, he was probably pounding the table in agreement because all through this meltdown and recession, he has been pounding out column after column calling for more spending, more deficit, more debt).
Not part of the interview was the fact that Peter Diamond was nominated to the Board of Governors of the Federal Reserve, 3 different times beginning in 2010. Ultimately, he withdrew himself from consideration in June of 2011. His op-ed piece on his decision to withdraw can be accessed here:
When a Nobel Prize Isn't Enough NYTimes
I quote one paragraph from it because it is in line with something that Bob Brinker has mentioned repeatedly with regard to the need for the independent Federal Reserve.
“But we should all worry about how distorted the confirmation process has become, and how little understanding of monetary policy there is among some of those responsible for its Congressional oversight. We need to preserve the independence of the Fed from efforts to politicize monetary policy and to limit the Fed’s ability to regulate financial firms.”Here is a link to a summary of the Diamond-Orszag for saving Social Security.
Saving Social Security: The Diamond-Orszag Plan, Brookings Institute
Honey here: Thank you so much FrankJ -- great summary. I would like to add just a few personal comments:
Honey here: Thank you so much FrankJ -- great summary. I would like to add just a few personal comments:
Today, Peter Diamond did a first on Moneytalk. He interrupted Godfrey (who was paraphrasing Milton Friedman) and said, "Let me just jump in and say it's all wrong. But we'll get back to that, just in case some listener turns off and goes elsewhere or somebody in a car...." At that point, Godfrey interrupted Diamond and tried to make light of it by saying that he wasn't the first person to say that she is wrong, and went to a break. As FrankJ said, Diamond was referring to her citing Milton Friedman. When the break was over, Godfrey again sang Diamond's praises and immediately went to callers. Diamond never got a chance to defend his assertion. Did they discuss it during the break and decide to drop it?
I happen to believe that Milton Friedman was an economic genius and would trust his judgment over Diamond's regardless of the awards Diamond sports.
Jeffchristie's Moneytalk Final Exam Question:
Neale Godfrey's stepson is Josh Savaino. He played Paul Pfeiffer Kevin Arnold's best friend on the TV series The Wonder Years. He was the inspiration for which of the following characters on the Simpsons.
A) Apu
B) Krusty the Clown
C) Millhouse Van Houten
D) Sideshow Bob
ANSWER
San Francisco, Ca. KSFO 560: 1-4pm (KSFO archives Moneytalk Free on Demand for seven days after broadcast. You can download and listen on the go.)
