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Saturday, March 14, 2009

happy pi day

Laura D'Andrea Tyson provides a defense of 'Obamanomics' in the WSJ:

If leadership is defined as recognizing a crisis, addressing its challenges, and setting new directions while remaining true to one's values, then Barack Obama is already demonstrating his strengths as a leader. He has inherited an economic crisis worse than any the nation has experienced since the Great Depression. Within fewer than 50 days in office he has signed a historic stimulus package to bolster demand and create 3.5 million jobs. Governors, business leaders and economists from both the left and the right have applauded the stimulus. Friday's distressing employment numbers indicate that much more may be needed.

President Obama has also proposed a 10-year budget that is faithful to the progressive vision he articulated during his campaign. His budget includes significant investments in health care, energy, the environment and education, and a tax cut for the middle class. It also calls for higher taxes on the top 3% of income earners to finance his priorities and reduce the deficit. Not surprisingly, a budget plan this ambitious is triggering strong and well-organized opposition on numerous fronts.

Michael Lind thinks Obama is being too timid:

Once upon a time in the United States, public goods -- from retirement security and energy research to public roads -- were provided by the government and paid for by taxes. As late as the Nixon administration, the provision of public goods by government was considered perfectly compatible with a robust market economy by so-called Modern Republicans like Eisenhower and Nixon as well as New Deal Democrats like Roosevelt, Truman, Kennedy and Johnson. In the intervening 40 years, however, free-market fundamentalists of the Chicago School have managed to change the debate, redefining "socialism" to mean not only public ownership of the means of production, but also public provision of public goods.

Rather than fight back, most Democrats in the last generation adapted to this hostile conservative political climate by jettisoning New Deal "big government" liberalism for "market-friendly" neoliberalism. Neoliberals shared the right's enthusiasm for deregulating industries that New Deal Democrats had regulated in the public interest. Jimmy Carter and Ted Kennedy supported the deregulation of trucking and airlines, while Bill Clinton presided over the dismantling of the New Deal era's banking regulations and declared: "The era of big government is over." Neoliberals and conservatives agreed that public goods should be provided by private, for-profit or nonprofit entities, rather than government agencies. If private corporations or universities had no motivation to provide public goods, well, then, they would be bribed with tax credits or other government subsidies.

Neoliberals are liberals in one sense -- they fret about unequal outcomes. But rather than help middle- and low-income Americans by regulating the prices of privately provided public goods, as the crude and direct New Dealers would have done, neoliberal Democrats have argued for allowing the "market" (translation: the publicly subsidized entities) to set prices and then promised to provide tax subsidies or grants to help middle- and low-income Americans pay for the expensive, privately provided public goods.

You might have thought that the Crash of 2008 would have led Democrats to reconsider this neoliberal approach to providing public goods by private means. But to judge from President Obama's budget, the White House is still living back in the neoliberal era, when the diminutive Milton Friedman cast a giant shadow.

We've been hearing a lot from Republicans about how we don't want to be like Europe... um, actually we could learn a lot from our friends across the pond.

Michael Hirsh:

The New Deal is shrouded in myth—and considerable controversy—but there is little doubt that FDR swiftly restored confidence after he took office on March 4, 1933. He immediately announced a "bank holiday" and began a series of fireside chats. As Liaquat Ahamed writes in his wonderful new history, "Lords of Finance," the nation's mood shifted almost overnight: People were still lined up outside the banks, but they'd gone from running to returning as depositors. When the banks opened a week later, the Dow Jones average rose 15 percent in the first day of trading. It soared 75 percent (granted, from rock bottom) in the first 100 days of FDR's presidency. The problem today, 50 days into the Obama administration, is that despite the fitful market jumps this week, no dramatic change of mood has occurred. The bottom-line issue across the landscape—on Wall Street, on Main Street, in boardrooms and households—remains a lack of confidence. The entire financial system has failed, and until people start believing in the system again, credit will only dribble out, not flow freely.

Of course FDR took charge three full years into the Depression. Yes the market was ever descending, but by then we could understand why: as the economy worsened companies went out of business or had to downsize, which meant there was less spending money to go around, which meant further declining revenues for companies, and the cycle repeats itself. Presently we are starting to see the same dynamic take hold, but we haven't yet been able to even assess the integrity of our financial institutions. It appears that the major banks are insolvent (bankrupt), but we don't even really know that. (that the banks are talking about returning gov't loans is grounds for optimism... unless they're just whining and full of shit, which is also a distinct possibility) And it will be difficult to determine because the bank records are intentionally hard to interpret, as bad assets were "buried" in ways that would be hard to find. So it's hard to inspire confidence when it's open secret that nobody really knows the true status of anything. Imagine FDR had taken over at the start of 1930, when the scope of what was happening was not yet understood, and you would have a better analogy. But the good news is, of course, that we are dealing with this crisis at the beginning rather than after it has whipped our collective asses, so hopefully we will be able to keep things from unraveling so dramatically.

Robert Kuttner says if we don't get a handle on this crisis we could end up with a situation even worse than the Great Depression.

All of these economic calamities have solutions, but each is more radical that what's currently on offer. The government will have to temporarily nationalize major banks, sort out good assets from bad ones, and then return banks to responsible private ownership. To cure the housing collapse, government should directly refinance mortgages, rather than trying to bribe banks to ease terms.

Deficits will have to be a lot larger before they can get smaller.

Indeed the problem with the New Deal is that it did not go far enough:

Roosevelt was said to be a big spender, but his biggest peacetime deficit was only about 6 percent of gross domestic product. This year, the deficit will exceed 11 percent, and the recession will deepen all year. It took the truly massive deficits of World War II -- nearly 30 percent of GDP -- to finally end the Great Depression.

Hopefully it won't require a world war for us to spend our way out of our current mess

If foreign borrowing dries up, we may need to sell massive amounts of recovery bonds to Americans, just as we relied on war bonds rather than borrowing from abroad during World War II.

If government is spending upward of a trillion dollars to stimulate demand, those dollars can be used for social investments that we should have had all along -- things like decent early childhood education and comprehensive health insurance and clean energy. The government needs to view these investments not as a one-shot but as an ongoing commitment to a just society.

President Obama needs to grasp just how radical a set of solutions we need. Then he needs to use his gifts as teacher-in-chief to persuade the public and the Congress to follow his lead.

Meanwhile, we have to deal with this nonsense:

The House Republican leaders' pre-recession mindset is so overwhelming, their ignorance isn't just embarrassing, it's frightening.

House Republican Leader John Boehner of Ohio, appearing after Orszag on "Face the Nation," replied: "American families are tightening their belt, but they don't see government tightening its belt. And I think we can get through this year and lead by example, and show the American people that the government can go on a diet as well." [...]

On CNN, House Republican Whip Eric Cantor of Virginia said: "Director Orszag and others say, look, we've inherited these trillions dollars of deficits. Well, if you've got a situation like that, how in the world should you be going and make it worse? Families are not doing that."

I know there are people who take these guys seriously. I just don't know why. When it comes to economic policy, two of the top Republican policymakers in the federal government are not only in flat-earth territory, they can't imagine why anyone would have the audacity to think the planet is round.

They have literally regressed into Herbert Hoover Republicans. Jonathan Chait, reviewing the recent revisionist histories that argue the New Deal didn't work, provides some perspective:

When they say that the New Deal "didn't work," conservatives almost always mean New Deal fiscal stimulus. (Other policies, such as Social Security or clearing the way for unions, clearly succeeded on their own terms, whatever their ideological merits.) And then, in turn, they confuse New Deal fiscal stimulus with Keynesian economics, which is also not exactly the same thing. So let me step back and briefly explain for the uninitiated what Keynesian economics means. We may not all be Keynesians now, but we would all benefit from knowing what a Keynesian actually is.

Prior to Keynes, the economy was held to be self-correcting. The only cure for a recession was to let wages and prices fall to their natural level. The prevailing attitude, as Paul Krugman writes in his recently re-issued book The Return of Depression Economics, was "a sort of moralistic fatalism." Keynes upended the orthodoxy in a way that was every bit as dramatic as Galileo challenging geocentrism. He insisted that recessions are not a natural process, or the invisible hand's righteous judgment against our sins, but a simple failure of consumer demand.

When people worry about losing their jobs, they sensibly cut back on their spending. But that decision, in turn, reduces demand for goods and services, which results in reduced income or lost jobs for other workers. Keynes called this phenomenon "the paradox of thrift": what makes sense for individuals turns into a disaster for society as a whole. The recession was therefore a failure of collective action that required government action. Government needed to encourage spending by reducing interest rates or, failing that, to inject spending into the economy directly by deliberately running temporary budget deficits.

At the time, orthodox economists deemed this diagnosis heretical and dangerous, but, in the decades that followed, it became a consensus view. Today economists disagree sharply about how to apply Keynes's insights, with many conservative economists questioning the practicality of large-scale government spending to combat recessions; but the essential framework constructed by Keynes--that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse--is no longer in dispute. Even a right-wing Republican economist such as Gregory Mankiw, a former Bush advisor, writes that "if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes."

But everywhere you look, conservative pundits and elected officials have embraced the pre-Keynesian nostrums.

Moreover, the classic right-wing critique fails to explain how the economy recovered at all. In one of his columns touting Shlaes, George Will observed that "the war, not the New Deal, defeated the Depression." Why, though, did the war defeat the Depression? Because it entailed a massive expansion of government spending. The Republicans who have been endlessly making the anti-stimulus case seem not to realize that, if you believe that the war ended the Depression, then you are a Keynesian.

After 1932, generations of Democrats continued to paint Republicans as neo-Hooverites. This was mostly a calumny. Though Hoover himself continued to assail the New Deal as calamitous socialism right up to his death in 1964, from 1936 on the party remained in the hands of men who understood that the New Deal had built an enduring base of support and could not be directly assailed.

But now we have come to a time when leading Republicans and conservatives--not just cranks, but the leadership of the party and the movement--once again sound exactly like Herbert Hoover. "Prosperity cannot be restored by raids upon the public Treasury," said President Hoover in 1930. "Our plan is rooted in the philosophy that we cannot borrow and spend our way back to prosperity," said House Minority Leader Boehner in 2009. They have come to this point by preferring theology to history, by wiping Hoover's record from their memories and replacing it with something very close to its opposite.

I haven't actually watched Jon Stewart's dismantling of Jim Cramer yet, but from what I've read it was pretty brutal. Personally I'm worried that I'll feel sorry for the guy, so I'll wait 'till the next time I'm feeling vengeful to watch it.

I never really get this dude's cartoons, but they seem 'deep' so whatever:


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