The Eye of the Artist, c. 1898
Victor Dubreuil, born in New York to French emigre parents
The administration of President Grant, who's on the 5 dollar bill along with the mysterious pyramid we stuck on our money, is remembered for its financial corruption.
In mountain light, all sounds
return to silence.
All that remains, the temple
bell.
---Ch'ang Chien
Unexpectedly you find it, welling upwards in the empty tree.
---Rainer Maria Rilke
The meadows were a-drinking at their leisure; the frogs sat meditating, all Sabbath thoughts, summing up their week, with one eye out on the golden sun, and one toe upon a reed, eyeing the wondrous universe in which they act their part; the fishes swam more staid and soberly, as maidens go to church,
---Henry David Thoreau
There is only one rule of economics for me, and that is I pay my bills on time. I prefer to pay for anything at the moment I buy it, but that isn't always possible so I get bills. My wife and I argue about some things, but we seem to agree about politics and money. We don't borrow. There's a car payment and we have a second mortgage for environmental improvements to the house---which already are saving us money on energy costs. Ilona probably is going to college shortly, so we may need someone to make us a loan then. Otherwise we have lived within our means for 27 years---despite rocky times.
I've been broke and down and out in my day. I've had everything I own in my car, with nowhere to go. I've sat on a curb in New York City, without a job, and wept. I've been grateful for government programs. I support them gladly through taxes, now that I have some money. I celebrate economic simplicity in my life, which principles I probably learned through some hardship and a sound upbringing. I learned only the basics of how a capitalist market is supposed to work in theory, in the single required course on the matter in college. Quite frankly, I haven't been able to see that the market---take gasoline for instance---actually works that way. But then maybe, for the last 10 years, the market hasn't really been working at all.
That seems to be the contention of a growing number of economic writers, at least those I can understand---or bear to slog through. Paul Krugman writes well for us uneducated masses, and seems to write from an economic perspective rather than directly to it. He's off into political and foreign policy issues quite often, considering implications and results of Wall Street decisions. He doesn't think much about the smalltown banks and credit unions, I guess, where I've done my saving and investment. I do not "play" the market, and find the term "player" loathsome in this regard. But Krugman's view from Princeton of Wall Street has had some peripheral value to me in this last decade. I think he's a good teacher.
Now Paul Krugman is stepping up to the plate in the clutch. Talking heads I hear on the radio (we don't watch much TV anymore) seem to enjoy all the attention they're getting in this global crisis. They're analyzing the day-to-day ups and downs, but during the last week Krugman has shifted gears and put his cards on the table. He knows with President-elect Obama choosing his team, now is the time to make some influence felt. His regular New York Times column clearly doesn't provide the space he needed to stretch out his thoughts. He wrote his article on November 20th, and sent it to the New York Review Of Books which publishes bi-weekly. The new issue is out and I'm going to buy a copy today.
It's online for free, but that's all the more reason to get some money to them. The whole issue this time is fascinating. Paul Krugman's article starts like this~~~
Volume 55, Number 20 · December 18, 2008
What to Do
By Paul Krugman
What the world needs right now is a rescue operation. The global credit system is in a state of paralysis, and a global slump is building momentum as I write this. Reform of the weaknesses that made this crisis possible is essential, but it can wait a little while. First, we need to deal with the clear and present danger. To do this, policymakers around the world need to do two things: get credit flowing again and prop up spending.
The first task is the harder of the two, but it must be done, and soon. Hardly a day goes by without news of some further disaster wreaked by the freezing up of credit. As I was writing this, for example, reports were coming in of the collapse of letters of credit, the key financing method for world trade. Suddenly, buyers of imports, especially in developing countries, can't carry through on their deals, and ships are standing idle: the Baltic Dry Index, a widely used measure of shipping costs, has fallen 89 percent this year.
What lies behind the credit squeeze is the combination of reduced trust in and decimated capital at financial institutions. People and institutions, including the financial institutions, don't want to deal with anyone unless they have substantial capital to back up their promises, yet the crisis has depleted capital across the board.
The obvious solution is to put in more capital. In fact, that's a standard response in financial crises. In 1933 the Roosevelt administration used the Reconstruction Finance Corporation to recapitalize banks by buying preferred stock - stock that had priority over common stock in terms of its claims on profits. When Sweden experienced a financial crisis in the early 1990s, the government stepped in and provided the banks with additional capital equal to 4 percent of the country's GDP - the equivalent of about $600 billion for the United States today - in return for a partial ownership. When Japan moved to rescue its banks in 1998, it purchased more than $500 billion in preferred stock, the equivalent relative to GDP of around a $2 trillion capital injection in the United States. In each case, the provision of capital helped restore the ability of banks to lend, and unfroze the credit markets.
A financial rescue along similar lines is now underway in the United States and other advanced economies, although it was late in coming, thanks in part to the ideological tilt of the Bush administration. At first, after the fall of Lehman Brothers, the Treasury Department proposed buying up $700 billion in troubled assets from banks and other financial institutions. Yet it was never clear how this was supposed to help the situation. (If the Treasury paid market value, it would do little to help the banks' capital position, while if it paid above-market value it would stand accused of throwing taxpayers' money away.) Never mind: after dithering for three weeks, the United States followed the lead already set, first by Britain and then by continental European countries, and turned the plan into a recapitalization scheme.
http://www.nybooks.com/articles/22151 where his suggestions and explanation continue. His column today takes a look at the tremendous debt the US is incurring with all this, and how much do we have to worry about that. http://www.nytimes.com/2008/12/01/opinion/01krugman.html?ref=opinion
Undoubtedly you've heard things like This is only the beginning. Not only will more cash be needed by the banks, big and small, but the next crunch may be in your mailbox today. There was a time I wouldn't go near credit cards. Cash and checks were good enough for me. But about 30 years ago they began to harden the sell. Various premiums began to show up, at stores, at the pump, wherever I looked. I began to think I'd take the premium, never use the card, and who'd be the wiser? I started to have a pocket full of cards, I thought that was a bad sign, so I limited myself to 2 major ones. Around that time I met a psychologist who was going to another one himself to get therapy for his credit card addiction. He had been made to sit there during a session and cut up all his credit cards, except one, and throw them away. His debt in interest was mounting every month because he couldn't pay them off. Another guy I knew, with even more impressive credentials, had to work 7 years to pay off all the interest...which eventually was more than the principal.
Last week I got a notice in the mail about interest rates on my Mastercard, which is sponsored by my union at work. I have this particular one, which is handled by a bank in California, and our Visa card, from an East Coast bank, because they pay me an interest rate on all the purchases I make with them. It's not a lot, but I don't have to pay them anything for the cards except the total every month. This I do religiously, no matter what. I'm glad I have that habit because, as everyone is finding out, the interest rates on accounts that are held over into the next month and beyond are in the double digits. The notice announces this Mastercard is doubling its annual percentage rate to 25% immediately. With the notice comes a little translation pamphlet, which is only slightly less dense than the original announcement. Welcome to the next phase.
What is going on? Those who have a special interest in business and markets may read the columns of Joe Nocera, also in the New York Times. Last week he outlined the credit card crisis...or rather he once again published remarks from an anonymous banking tipster he knows. Why is this banker anonymous? Because he says things critical of his own bank. At the top of his column from Tuesday is a link to another message this guy sent to Joe last month. I suggest you read that too, and some of the hundreds of comments that came in---including a response from Anonymous Banker as well. Here's the new column~~~
The New York Times
November 25, 2008, 9:00 am
The Worst Is Yet To Come: Anonymous Banker Weighs In On The Coming Credit Card Debacle
By Joe Nocera
Today, we are bailing out the banks because of their greedy and deceptive lending practices in the mortgage industry. But this is just the tip of the iceberg. More is coming, I’m sorry to say. Layoffs are being announced nationwide in the tens of thousands. As people begin to lose their jobs, they will not be able to pay their credit card bills either. And the banks will be back for more handouts.
I received a catalog today from Casual Living and in big bold print on the front page, it said “BUY NOW, PAY NOTHING”. Then in significantly smaller print underneath, it said, (until April). That mantra has been sung throughout the credit markets over the last 10 years. The banks waive a carrot in front of the consumer and reel them in and encourage them to go deeper and deeper into debt. They do this by prescreening customers through credit reporting agencies, mailing offers to apply, and to transfer balances at teaser rates or zero percent financing. They base it on credit score and not on capacity to repay. A good credit score does not equate to the ability to repay debt.
Over my career, I have seen thousands of consumers that have credit card lines in excess of their annual salaries. Some are sinking under their burden. Some have been fiscally responsible and have minimal amounts outstanding. My 21-year-old daughter, who’s in college, gets pre-approved offers all the time. She has no ability to repay debt, yet the offers flow in just the same. We all know how these lines are accumulated. The banks, in their infinite stupidity, keep upping credit lines because the customer pays the minimum payments on time. My daughter’s credit line started at $1,000 and has been increased over the last two years to $4,400. She has no increased earnings to support this. But the banks do it without asking. And without being asked. The banks reel in the consumer, charge interest rates higher than those charged by the mob, increase lines without the consumer asking and without their consent, and lure them into overextending. And we can count on the banks to act surprised when they aren’t paid back. Shame on them.
As a banker, let me describe what we do wrong when we accept and review an application for a credit card. First, we don’t verify income. The first ‘C’ of credit: Capacity to repay, is completely ignored by the banks, just as it was in when they approved subprime mortgages. Then we ask for “household income” — as if other parties in the household could be held responsible for that debt. They cannot. And since we don’t ask for any proof of income, the customer can throw out any number they think will work for them. Then we ask if they rent or own and how much they pay. If their name is not on the mortgage, they can state zero. If they pay $1,000 in rent, they can say $500. (Years ago we asked for a copy of the lease to verify this number.) And finally, we don’t ask how much of a credit line the consumer is looking for. The banker can’t even put that amount into the system. There isn’t any place on the application for that information. We simply put unverified information into a mindless computer and the computer gets the person’s credit score and grants them the biggest line that score and income (ha!) qualifies for.
I recently had a client apply for a credit card. She is a homemaker, with no personal income. The house she lives in is in her husband’s name. She would have asked for a $3,000 credit line, just to pay miscellaneous expenses and to establish some credit on her own. So the computer is told that her household income is $150,000; her mortgage/rent payment is zero. The fact is that her husband’s mortgage payment is $7,000 a month (which he got with a no income verification loan). She had a good credit score, but limited credit since she has only lived in this country for the last three years. The system gave her an approval for a $26,000 line of credit!
This has got to stop. People are going to be learning hard lessons over the next years. It would help, though, if the banks could change their behavior now, before things get any worse. Tomorrow is already too late.
In 2003, Congress passed the Fair and Accurate Credit Transactions Act of 2003. This law was implemented through regulations issued by the Federal Trade Commission in consultation with the federal banking and credit union agencies. It requires all credit card and insurance solicitations to include a disclosure for “prescreened offers.” We are all familiar with them. They are the dozens of credit card offers that are sent, unsolicited, to consumers, usually by mail. The law allows the consumer to opt out of receiving prescreened offers by calling an 800-number.
I think Congress did this backwards. Perhaps it could amend the law. The regulation should have required the consumer to opt in, if they so desire, instead of opting out. That would mean that no one would get an unsolicited credit card offer. If a consumer needs a credit card he or she could be given an option to call an 800-number to opt in. Or the consumer could go to their local bank and apply for a credit card in person. Or the consumer could go online and apply for a credit card. The consumer can also view all the best credit cards, nationally, at bankrate.com. Bankrate.com is an invaluable tool for consumers.
I think Congress did this backwards. Perhaps it could amend the law. The regulation should have required the consumer to opt in, if they so desire, instead of opting out. That would mean that no one would get an unsolicited credit card offer. If a consumer needs a credit card he or she could be given an option to call an 800-number to opt in. Or the consumer could go to their local bank and apply for a credit card in person. Or the consumer could go online and apply for a credit card. The consumer can also view all the best credit cards, nationally, at bankrate.com. Bankrate.com is an invaluable tool for consumers.
Some other benefits: (1) It would halt the message being sent that credit is free and perhaps limit irresponsible accumulation of credit lines. (2) It would force the banks to become more competitive in their rates. The consumer is going to need a break and they will need it soon. And credit card rates, which are quite often above 22 percent, is piracy. (3) Eliminating mass mailings would save a lot of trees.
I’ve been reviewing many of the banks annual reports over the last month and there is no question that the default rates are on the rise. If Congress doesn’t act today, the bankers will have their hats in their hand before we know it, and doing another a tap dance before the Senate Banking Committee, and asking to be bailed out once again with our tax dollars. Sad, but true.
Copyright 2008 The New York Times Company http://executivesuite.blogs.nytimes.com/2008/11/25/the-worst-is-yet-to-come-anonymous-banker-weighs-in-on-the-coming-credit-card-debacle/ Five hundred and eight comments so far.
10 comments:
"Nice overview from David Brin, here:
In the latest issue of the New York Review of Books, philanthropist, currency trader and international financial expert George Soros offers his own view of the world financial meltdown.
The salient feature of the current financial crisis is that it was not caused by some external shock like OPEC raising the price of oil or a particular country or financial institution defaulting. The crisis was generated by the financial system itself. This fact—that the defect was inherent in the system —contradicts the prevailing theory, which holds that financial markets tend toward equilibrium and that deviations from the equilibrium either occur in a random manner or are caused by some sudden external event to which markets have difficulty adjusting. The severity and amplitude of the crisis provides convincing evidence that there is something fundamentally wrong with this prevailing theory and with the approach to market regulation that has gone with it.
Later in his rumination, Mr. Soros gets to an important point that is routinely, even fetishistically, ignored by those who recite incantations of Faith In Blind Markets.
This remarkable sequence of events can be understood only if we abandon the prevailing theory of market behavior. As a way of explaining financial markets, I propose an alternative paradigm that differs from the current one in two respects. First, financial markets do not reflect prevailing conditions accurately; they provide a picture that is always biased or distorted in one way or another. Second, the distorted views held by market participants and expressed in market prices can, under certain circumstances, affect the so-called fundamentals that market prices are supposed to reflect. This two-way circular connection between market prices and the underlying reality I call reflexivity.
Soros is quite right to focus on human nature -- and our propensity for delusion, in particular -- as a root of the problem. In fact, while markets are wonderful wealth generating machines, that harness competition between individuals and groups in positive-sum ways that benefit us all, they are not mystically simple or perfect. Nor do they arise (as the sun does) out of immutable physical law.
Indeed, if you scan human history, you will find very few examples of market-based systems that escaped meddling and ruination at the hands of the very same elites who stood at the top of the social order -- the owners of nearly all capital, who insisted that they knew what's best, and nearly always squelched competition, rather than let it flow and thrive. In the vast majority of cultures, it was top owners who shut down what we would call open market behavior. A threat far more prevalent than peasant revolts or socialism.
Market Fundamentalists tell themselves a dogma that Adam Smith himself never believed, that markets are rooted in - and organically emerge from - human nature. This is fundamentally wrong. Our natures developed in a Darwinian-tribal context that predated civilization and markets. In order to understand this, simply study the power and economic arrangements in most tribal or pastoral societies. And even later. Try calculating what fraction of the population in most ancient nations must have been descended from the harems of kings. (Recent data show that 8% of the Chinese population, today, is directly descended from Ghengiz Khan.)
While it is true that some deeply human imperatives do work well with markets - e.g. our ability to both cooperate and compete, our embedded notion of fairness and quid-pro-quo, other human drives do not. For example, the propensity to cheat and deceive. And our remarkable tendency to tell ourselves satisfyingly delusional stories that aren't well-based in fact. This latter trait makes us wonderful artists, but also great believers in simplistic dogmas."
The conclusion of David Brin's overview that, "We all need to ponder new ways of looking at old problems," is not only a sound one, but also an urgent one.
The post has drawn the attention of some 60 commenters, so far.
One of them, Dave Rickey says...
Fundamental irrationality, and the "Heinlein Mind" (Man is not a rational creature, but a rationalizing one), is something I've been wrestling with lately as well. Neuropsych is turning up a lot of hard evidence to the effect that none of us is as rational as we think we are, and most of us don't even do a very good job of pretending.
Reminds me of a few networks out there, mostly on the web, but it is also true of various organizations outside of cyberspace, which typically begin with good energy and high hope concentrated around some values, visions, ideas, or some well-meaning notion of one kind or another, only to fall short of their stated expectations or original mission statement. While there is really not just one clear cause to such failings, two of the most common factors usually are the rise of dogmatic sectarianism, and, quite frequently, no small amount of short-sighted wishful thinking and/or neglect on the part of the network administrators.
Sometimes magic happens spontaneously.
And sometimes it doesn't.
Sometimes, it takes some work.
More often, it takes a lot of work.
And it looks like Obama has a lot of work ahead of him.
Daisy Godwin (Times Online) said it well:
It is important... that...Mr Obama is not remembered just for being the first black president. That is hugely significant, of course, but it is not the reason for electing him. He promises a new start. If he fails to deliver, the sense of disillusion will be enormous. He deserves the chance and he has earned it. Mr Obama has the opportunity to bring change. Let us hope he can seize it.
Thank you Food4thought and it's good to meet you...if I haven't already. There is something to be said for being honestly right out here...with an identity and profile and something to relate to beyond a fine comment. I'm old fashioned I guess. Let me assert strongly I never have thought of Obama as a black man...although I resist increasingly trying to identify something as antiquated as race. He is multiracial, multicultural...as I hope are we all more and more.
Sunday's LA Times contained an article on how much cash has to be thrown at this market crisis, and I'm getting referred to it left and right~~~
Economic Rescue Could Cost $8.5 Trillion
Sunday 30 November 2008
by: Jim Puzzanghera, The Los Angeles Times
Washington - With its decision last week to pump an additional $1 trillion into the financial crisis, the government eliminated any doubt that the nation is on a wartime footing in the battle to shore up the economy. The strategy now - and in the coming Obama administration - is essentially the win-at-any-cost approach previously adopted only to wage a major war.
And that means no hesitation in pledging to spend previously almost unimaginable sums of money and running up federal budget deficits on a scale not seen since World War II.
Indeed, analysts warn that the nation's next financial crisis could come from the staggering cost of battling the current one.
http://www.latimes.com/business/la-fi-pricetag30-2008nov30,0,7549258.story?page=1
Objective reason.
Is that just an abstract notion? Can it exist?
The scientific method (circa 18th century?) appears to offer an objective approach to phenomena supported by impersonal verification. And since it produces concrete results it does seem to work.
I'm still scratching my head about E=MC2. The world scratched its head about that too for some time until the theory was "objectively" verified.
Playwrights and philosophers commonly dealt with this overall issue (how we face reality) at the end of the nineteenth century. Eugene O'Neill brought it into his plays. Those of you with more knowledge than I could expand on this.
But we all know that many of us believe what we want to believe. And that fully emerging out of our own subjectivity is very difficult. We have all harbored foolish beliefs and superstitions. Indeed, when we look back at our ancestors we marvel at some of the "foolish" notions they believed.
Jim Crow is receding into history. Though there are still enough of us around to remember how this unbelievable cruelty was once taken for granted in certain parts. Today even a majority of white southerners reject it.
When I was quite young (this was one of my foolish beliefs) I believed we were somehow superior to our ancestors, with all their primitive superstitions.
Objective, hard reality. What is it? What is truth? And why do we so often fight so hard for a personal vision and truth, especially if it is thoroughly irrational?
Stupidity. Insanity. At times it is hard to determine the difference. And then there are all those who recognized a truth but were ignored. We were in a minority, remember, when we said Bush was lying to us during the summer of 2002, during the lead up to the war.
What does this tell us?
Keep it simple. Keep your life simple. Passively absorb what is out there, whether it is the beauty of the day or a dramatic landscape. Leave yourself by allowing the greater thing to enter and fill you. And never bludgeon another person for not seeing things the same as you. That is madness.
But most of all, keep it simple. That’s how I see it.
(I don’t think of Obama as “black” either. In a way he transcends all that. But we’ll see..... )
"When I was quite young (this was one of my foolish beliefs) I believed we were somehow superior to our ancestors, with all their primitive superstitions."
---quinty@2:10pm
How foolish, indeed, quinty! Dr. Zaius would no doubt agree with you on that one.
"There is something to be said for being honestly right out here...with an identity and profile and something to relate to beyond a fine comment."
---jazzolog@5:47pm
Hear, hear!
Food4thought, I must say that I can relate 150% with jazzolog on this. And, No smoking in the skull cave, you hear?
If you're not careful the stuff could rot your brain, you know?
Though, to be fair, according to the Alex Shalman definition, brain rot is only when you forcefully stuff too much of the wrong information into your brain, to the point where both your thinking and behavioral patterns become highly disturbed. I am sure, we all know someone like that on one major social network or another. Present company excluded, of course ;-)
Yes well, I guess I asked for that. If I weren't so conscious of somebody pulling my leg, I might notice an anonymous tongue in someone's cheek. Perhaps I should join the group (as the Boy Wonder), abandon my Profile and head for the cave. I'll think on it.
This is an email exchange between sociologist Bob Sheak and myself this week. The Tuesday message contains his review of public works projects in the past and how productive they've been. Since such analysis is a service sociologists provide to us, I found it a valuable resource. All of this was inspired by Paul Krugman's column in the New York Times on Monday. http://www.nytimes.com/2008/12/01/opinion/01krugman.html?_r=1&ref=opinion
----- Original Message -----
From: Robert J. Sheak
To: jazzolog@peoplepc.com
Sent: Monday, December 01, 2008 5:13 PM
Subject: Out of control?
Hey Richard,
Thanks again for your creative take on issues, in this case on the financial/economic crisis. I hope that Krugman is right and that the trillions already spent/guaranteed/loaned/whatever by agencies of the federal government should not be of immediate concern.
As I understand what Krugman has been writing on the financial/economic crisis over the past months, the following points stand out.
First, the government had to put money into the financial sector (big banks) in order to provide it with capital and guarantees to induce banks to start loaning to one another, and to businesses and consumers. Otherwise the economy would have fallen into even deeper recession, if not depression.
Second, Krugman would have carried out this process differently than the government agencies. He would have would have done more in the way of "capital infusions" buying up non-voting stock in the banks receiving money, instead of buying up or "guaranteeing" worthless subprime loans (and derivatives?). He would have attached conditions to the "public" money given out: restricted it to loans and prohibited from being used to buy up other banks or pay for dividends or compensation/bonuses for bank executives. As it has turned out, however, the government has not spent our money wisely.
Third, Krugman is interested in having future government spending focused on the non-financial sectors of the economy. I think that his ideas here are close what Obama and many congressional Democrats have in mind. Extend unemployment and food stamp benefits to more people. Spend money on traditional infra-structural projects, many of which will be carried out at local levels of government. Spend money on the "green economy." Also, help people to stay in their homes by somehow forestalling foreclosures. I think Krugman and the Democrats also support loans to the auto-industry in order to save jobs. But he would add conditions.
Fourth, Krugman argues that we should not worry about deficits. Why? (1) If we don't spend a whole lot of money now, or in the near future, the economy will spiral into a depression, taking the global economy with us. (2) If the spending program works, the economy will "grow," taxes will increase, and the government will be able to pay down some of its huge debt. (3) If we don't spend in the necessary magnitude, then there is no hope of an economic recovery in sight. Better more debt than an economic depression.
I like Krugman's analysis (that is, if I have it right). But I would prefer additional or different conditions, depending on the issue. For example, I think that the government should consider "nationalizing" a big bank or two to insure the public money is spent as intended. I would support more regulation of the financial sector generally (e.g., a separation of commercial and investment banks). I would be interested in hearing more about putting people in the executive positions of the auto companies who have already demonstrated that they can create fuel-efficient cars. I would like to hear more about the "greening" of every federal government building and facility" (this was one of Barry Commoner's ideas way back in 1980). Etc.
In the last analysis, I hope that Krugman and the progressive Democrats have it right. But I worry. One big worry is that the federal government has committed far more money to the bail-out of the big banks and in other questionable ways than Krugman identifies (see following article). Is there a limit to what the government can "spend" without causing irreparable economic devastation? Are we now caught up in a "government spending bubble" (to the financial sector and soon to "the real economy") that will far exceed any previous "bubble" in history?
Bob
Economic Rescue Could Cost $8.5 trillion
Sunday 30 November 2008
by: Jim Puzzanghera, The Los Angeles Times
http://www.latimes.com/business/la-fi-pricetag30-2008nov30,0,7549258.story?page=1
At 05:42 AM 12/2/2008, you wrote:
Thanks for the reply Bob, and great to hear from you again. Yes, I read the LA Times piece earlier. I'm particularly interested in Krugman's assertion of work projects around the country, something we and the unemployed have needed for a long time. The trouble with them is, as Al Gore points out at the Newsweek site http://www.newsweek.com/id/171252 , any industry brought (or bought) into the picture has no commitment to such projects that might continue after government subsidy is weaned away. I was among 500 plus employees of TRW laid off in a single day in my hometown alone the moment Reagan dumped CETA. Most of those guys were Viet Nam vets, newly married with a mortgage and family on the way. Dana was 7 months pregnant with Jeroch.
And what are the banks learning from all this? Why are the credit card divisions doubling interest rates? What will that do and who will be affected? It will be credit card customers who can't read the small print---and who never will be able to pay off their bills in a single month. So then what? What do they have the banks want? More mortgages they can't get rid of? I suppose land is always something very nice for banks to own. Maybe somebody who knows economics can help me understand. Historian Bob Whealey wrote to say he thinks we're already in a depression worse than the 20s and 30s.
Peace,
Richard
----- Original Message -----
From: Robert J. Sheak
To: Richard Carlson
Sent: Tuesday, December 02, 2008 9:58 AM
Subject: Re: Out of control?
Hey Richard,
Michael Harrington used to point to the TVA as an example of a long-term, if not permanent, public enterprise, with an appointed CEO from the government but otherwise operating independently to fulfill its mandate, to provide the Tennessee Valley with electricity. Of course, it has been be affected (infected) by corporate influence and a corporate-influenced federal government, but, given the right political conditions, a TVA model may be a good one.
Also, I am reminded that there are hundreds, maybe thousands, of municipally-owned electric or utility companies around the country. Many have existed for decades. Compared to their corporate counterparts, the municipally-owned utilities offer lower prices, little advertising, little lobbying, and lower executive compensation.
I've just finished a quick read of Antonia Juhasz's The Tyranny of Oil. On p. 97, she refers to an interesting example related to public enterprise. She writes:
"Senator Adlai Stevenson III and Congressman John Moss (the chief sponsor of both the Freedom of Information Act and the Clean Air Act) introduced a bill to create a Federal Oil and Gas Corporation (FOGCO). Had FOGCO become law, it would have established a corporation owned by the federal government that would develop and sell natural gas and oil from federal lands. The company would have exploration and production rights to half of the oil and gas offered by lease by federal authorities, while private companies would have access to the other half. FOGCO would give price, supply, and delivery preferences to state and local governments and to independent refiners."
I'm also reminded that in 1934-1935, the left-wingers in the New Deal favored full-employment legislation, an idea that FDR later included in his "four freedoms" speech in 1942 (not sure about the specific date). Full employment legislation was also actually advanced - but failed - by FDR's administration, in 1944 and then again in the mid-1970s. We got the Employment Act of 1946, instead of the Full Employment Act.
Here is some related information (an outline of sorts) that I wrote up about six years ago. CETA is mentioned.
3) Government job-creation in the public sector
One area of government activity that precipitously declined in the 1980s and that is absent in the 1990s is direct government job creation programs to employ otherwise surplus labor (Levitan and Gallo 1991 and 1992). There was little government job creation in the public sector in the 1980s that was intentionally designed to increase jobs beyond the supply of jobs created in regular private and public labor markets. However, there is a history of such job creation in the U.S. aimed at creating jobs when there is a shortfall of jobs in the regular private and public labor markets, or when regular labor markets don’t reach certain groups of workers, or when there is needed work that otherwise would not be carried out. Johnson (1985) has carefully reviewed this history and reached the conclusion that such job creation has in the past yielded important benefits for society that outweigh the financial costs (1985). Such efforts, he found, have created jobs for disadvantaged and unemployed workers, raised the earnings of the structurally unemployed [whose skills have been made obsolete by technological changes] and enhanced the employability of such workers, responded to community needs, and given youth incentives to stay in school.
CETA
One of the criticisms of job creation programs is that they do not create genuinely useful jobs. Such criticisms were lodged against public service jobs created under the Comprehensive Employment and Training Act in the 1970s. However, research undertaken to evaluate CETA disputes these criticisms. Research by the Brookings Institution on public service jobs financed by CETA found little evidence of "make work," and "a field survey of CETA projects undertaken by the National Academy of Sciences revealed that 95 percent of local officials sampled rated the work of PSE [Public Service Employment] participants' as 'very useful...." (21). Furthermore, Levitan and Gallo (1991) write:
"Two major independent evaluations sponsored by the Labor Department concluded that the overwhelming majority of public service employment activities appeared to be beneficial. In addition, 84% of local officials in 1977 who supervised public service employees rated their performance as equal to or better than regular government workers in similar jobs...." (37).
The Reagan administration ignored the socially beneficial results of government job creation programs of the 1970s, and in 1981 eliminated 750,000 public service jobs from the CETA program. In the following year, the administration replaced CETA with Jobs Partnership and Training Act (JPTA), a program that is largely focused on job training rather than job creation (Levitan and Gallo 1988). Despite the temporary eclipse of federal government job-creation programs, the concept of government job creation continues to have support among progressive thinkers on the left. For example, Rose (1995) takes the following position:
"The federal government would be the employer of last resort, providing jobs when the private sector fails to do so. Participation would be clearly voluntary and wages would be based on labor market rates.... A partial list of projects includes repair of crumbling infrastructure (such as repairing roads and bridges), other construction projects (including low-cost housing and public transportation systems), public-sector projects (for example, teacher's aides in public schools, public health projects, programs for school dropouts, and conservation), and increased public support for the arts" (183).
A Contemporary PWA (or WPA)
Gans (1995) would like to see a Public Work Administration (PWA) for the 1990s that would begin to create the government capacity for permanent job creation with the purpose of assuring full employment. He writes that the PWA "might begin with building or repairing the bridges, roads, parks, and other public facilities sought by the suburbs than now hold the political power in Congress, thereby generating political support for at least some badly needed urban public works programs" (111). He suggests that "public works should be used to undertake experimentation and innovations in products, services, and work methods that can lead to further job creation if and when private enterprise is unable or unwilling to do so" (111). Like Rose (1995), Gans also sees job opportunities of public job creation in such areas as teaching for assistant teachers and teacher-trainees and -aides, which would have the additional benefit of bringing the classroom size down to ten or even less wherever schools are not performing up to standard (111). He writes that: "Enough studies exist now to show that classrooms of that size can be a major aid to teaching and learning, which is why they are often found in private schools serving the rich" (111).
4) Public Enterprises
In the mid-1970s, Michael Harrington (1978) imagined government action in support of "a vast expansion of the non-profit sector" of the economy (130). He advocated the creation of publicly owned industries "with decentralized decision structures including worker participation at all levels," and increased numbers of cooperatives and neighborhood enterprises (130). He justified this proposal in three ways. First, he maintained that a vigorous non-profit sector "is the best way to guarantee that social [tax] funds will actually be put to social use" (131). Trickle down, he held, does not work. The government already provides enormous subsidies to private companies and, in effect, socializes their losses and risks as well as the damage they cause to the environment (Currie and Skolnick 1988, 47-52). This should end. Second, non-profit manufacturing companies could help to free elected officials from "the economic blackmail known as building 'business confidence'" (Harrington 1978, 132). Third, a non-profit sector would ameliorate the business cycle by planning for slack economic times. Referring to the example of Sweden, Harrington would require companies "to pay a tax into a special account in the state bank." The money from this account could then be used during downturns to permit companies either to use funds for job-maintaining or -generating investments or to give it up as a tax (Harrington 1978, p. 132).
Harrington (1978) gives several examples of how non-profit enterprises could be beneficial. There could be a national rail network created that would produce high revenues, "because it would meet real needs in an environmentally benign, energy-saving way." Furthermore, "National health security, funded through progressive taxation and operated by local units with community representation on all boards, would provide a valuable service at less cost than we pay now" (Harrington 1978, 133). Moreover, from Harrington's perspective, the Tennessee Valley Authority (TVA) is a public enterprise created in the 1930s that has generated many positive gains for the Tennessee Valley region, but has also been "suffused by corporate values.” Harrington wants to eliminate the corporate values and preserve and expand what is socially useful about the TVA, using it as a model for other public enterprises. For example, "the Northeast should be developed, on a non-profit basis, as the solar energy center of the nation. This would mean jobs in an area of heavy unemployment by the development of a solar technology that could be operated at the community level" (Harrington 1978, 133).
Energy and Jobs
There are already a surprising number of public agencies designed to undertake or stimulate a variety of economic activities in the public sector. Shuman (1998) points out that “U.S. state and local governments have established more than 6,300 public authorities to build highways and bridges, run electric and water utilities, dispose of hazardous wastes, operate parks, and perform public services” (87). There are other examples. North Dakota has a state bank. Some local governments “are making money by turning sludge into fertilizer (Milwaukee), extracting and selling methane gas from a waster water treatment plant (Mesa, Arizona), licensing software develop by the police department (St. Louis County) and purchasing an amusement park (Santa Clara, California)” (87). O’Leary (2001) notes that there are hundreds of municipal power facilities and coops that draw their electricity from large federally owned dams, including the Hoover/Boulder Dam on the Colorado River, the Grand Coulee and Booneville dams on the Columbia River in the northwest, and the multiple TVA dams on the Tennessee River in the southeast. This system of municipal utilities and federal dams generates at least 10 percent of the country’s electrical needs. All of these public authorities not only generate electricity for their customers but also generate useful and decent jobs in the public sector.
There are also other municipally-owned electric utilities that are connected to the various privately-owned electrical grids and who purchase electricity for their customers at wholesale and discounted rates. Other municipalities have their own electrical generators and use the private electrical grid to distribute the electricity generated from their own power source. Some of the utilities are providing incentives to citizens to citizens to purchase photovoltaic, or solar, panels for their homes, the purpose of which is to reduce their dependence on the privately owned electrical grids. Shuman (1998) gives this example.
“the Sacramento Municipal Utilities District (SMUD) launched a ‘green pricing’ program in 1994 in which residential users were invited to pay a surcharge of $6 per month to have a 4-kiolwatt photovoltaic array attached to their roof and plugged into the commercial grid. More than 2000 customers thus far [by the end of 1998] have volunteered” (187).
There are opportunities for a federal, state, or local agency to accelerate the development of renewable energy sources and in the process generate a large number of jobs – and also reduce pollution and some of the sources of global warming. Even without government involvement, the Solar Energy Industries Association (SEIA) projects that by 2010, the development and utilization of renewable sources of energy, including geothermal, hydropower, biomass, solar, and wind will generate “more than 350,000 net jobs,” a number “equal to the employment provided by the largest U.S. care manufacturer (Renner 2000a, 45). With government support, renewable sources of energy and related jobs would grow even more than this projection. Many of the jobs in manufacturing, installing, and servicing solar and wind energy systems would not required advanced education and could represent a significant addition to the supply of domestic jobs.
Government job creation to achieve full employment is affordable
Harvey (1995) is optimistic that a comprehensive and permanent government job-creation program is affordable as well as contributing to social justice and stability. He argues that while job creation cost money, "it doesn't necessarily cost more than what we spend coping with joblessness" (22; also see Harvey 1989). On the cost-side of joblessness, Harvey makes five points. "First," he writes, "governments lose the additional taxes that jobless individuals would pay if they were working" (22). The unhappy consequence, then, is that public expenditures have to be financed from a smaller tax base, resulting in either higher taxes or reduced production of goods and services. Second, he maintains that joblessness also pushes the costs of government up "to pay for the income-assistance benefits jobless individuals receive because of their joblessness or reduced income." Third, the society at large loses "the goods and services that jobless individuals would produce if they were employed." Fourth, there are "myriad of indirect costs attributable to the social problems that joblessness aggravate - from increased criminal-justice costs to increased health-care expenditures." And fifth and finally, "we suffer deeper recessions because of the negative-feedback effect rising unemployment engenders in economic downturns" (Harvey 1995, 22-23).
What would such a job-creation program cost? If average wages were $8.50 (or $17,500 a year), and free child-care and health care were included, Harvey (1995) estimates that $200 billion would employ 17 million unemployed or underemployed workers. Some or all of the costs of child care could be "internalized" in the programs as some of the newly created jobs would be for child-care workers. He adds that:
"The same is true of administrative costs and most other support services offered to program participants. Even the cost of purchased goods and services (e.g. building materials) would be partly internalized, since jobs created in the private sector to produce these goods and services would substitute for jobs the program otherwise would have to create."
Thus, twenty percent of the program's total cost would never leave the government's coffers. An additional 60 percent of the program's total cost would, he writes, "have been covered by funds actually spent between 1977 and 1986 on unemployment compensation and means-tested income assistance provided to able-bodied adults of working age and their dependents." Leaving 20 percent, or $40 billion, of the total program cost of $200 billion (26). There are a host of beneficial social outcomes. If such a job creation program had been in effect between 1977 and 1986 (years for which Harvey has in-depth evidence), then:
"the program would have produced an average of $200 billion dollars worth of goods and services a year (expressed in 1995 dollars). This could include child care not only for program participants, but for every other working parent in the country. It could include low-cost housing for homeless families, additional maintenance and recreational staff to work in our parks, additional classroom and lunchroom aides for our schools, home-care aides for the elderly, conservation workers, and so forth" (26-27).
Furthermore, a jobs program that "offered employment to all job-seekers unable to find work in the regular labor market would," Harvey (1995) contends, "be a powerful automatic stabilizer." It would have moderated the deep recessions of the early 1980s and have helped to maintain aggregate demand at a much higher level than was achieved. In 1981 and 1982, the nation's Gross Domestic Product fell by $111 billion (in 1995 dollars). An on-going job-creation program would have sustained a rising rather than falling GDP (28). Additionally, there would have been far fewer individual, family, and social problems with fewer unemployed and underemployed workers (e.g. physical and mental health problems) (28).
Conclusion
The thrust of this chapter is that an adequate welfare state would require a number of crucial government programs to keep wages and the supply of jobs at levels that would ensure that all able and willing workers had access to decent jobs and have earnings that keep them out of poverty. I focused on measures that have the potential to make existing jobs “pay,” namely a living wage standard and the Earned Income Tax Credit (EITC), along with other proposals to improve part-time and contingency jobs, reform labor law and increase the opportunities for workers to join unions, improve parental leave legislation, and promote accessible and affordable child care. Together these proposals would move the incomes of recipient families close to, if not above, the official poverty line, introduce some family-friendly flexibility into their jobs, and help with the major expense of child care for a working parent or parents with young children. Additionally, I argued that there is also a need to augment the supply of jobs in existing labor markets through additional federal government programs. In this regard, the federal government could help the society to realize the goal of full-employment at adequate or living wages through progressive industrial policies, support for job sharing, a government job creation in a contemporary “PWA” or “WPA” to make-up for short-falls in regular labor markets, government enterprises, and support for employee- and community-owned enterprises. Such governmental involvement is necessary in a capitalist society dominated by large corporations; otherwise, there will be too few adequate jobs - and poverty will, consequently, remain at high levels and will rise periodically when the economy slows or declines. The missing ingredient in this discussion is whether there is now or potentially a political force capable of challenging corporate power and the conservative interests allied with it to make progressive proposals for reform more than just theoretical possibilities.
The idea of public enterprises has some history behind it.
Roosevelt, unfortunately, wasn’t a Keynesian. I don’t know what Roosevelt thought when World War Two primed the economy and proved him wrong. For he was actually quite conservative when he took office in ‘33. But a “pragmatist” he nevertheless put millions to work with his various projects, some of which I wish we still had. Such as the WPA.
A theory which has been going around for quite some time, which I think convincing, is that the far right, the Grover Nordquists and the like, have attempted to wreck government through (a) reckless over spending and (b) not allowing government to work. Ie, by making government programs and services ineffectual, wasteful, and by disgracing government. So that it can finally drain out of Nordquist’s proverbial bathtub.
With Bush, however, it is hard to tell if this macro approach to big government was actually contrived or if it just came naturally to him reflecting his own enormous incompetence and limitations.
But the enormous deficits Bush created I think are important. For when new cash is injected into the economy can’t that cause inflation? Due to Bush’s recklessness we may lack the foundation for massive government spending. Which spending would not have been possible a few years ago due to “ideological” opposition, even though there existed a widespread understanding that the national infrastructure was falling apart, and that we needed green technology.
All that though may be possible today. One theory circulating about regarding Obama’s strange choices for top positions is that it will be easier to set in motion a progressive agenda if many “”old schoolers” participate. Wasn’t Obama’s economic team universally pro deregulation? And when Obama announced his choices the stock market immediately went up.
Obama is a pragmatist. In the era of Bush we have lived pretty much within a rightwing ideological mist, strongly nuanced by the Christian right. Abortion is more important to them than the environment. Indeed, they even deny there is a manmade environmental crisis. Obama, hopefully, will bring stability and sanity again to our country. And he may do that while bowing to the right and allowing his own nonpartisan pragmatism to prevail.
Trillions of bucks in new deficits sound scary. But such a kick start may be the job creating infusion we need. I’m no economist, though I go with Keynes, who had a very practical approach, one which actually preserves Capitalism. Not that anyone cares about that today.
This yesterday from a friend and colleague here. The column she links was written in 2004, but provides statistics on what differences exist for you living in a Red state compared to a Blue state~~~
Here's an incredible article about some eye-popping statistics in Red & Blue states. They were compiled by techie and opinion columnist Russ Belville. In the article, Belville is actually reflecting on the complexion of our country at the time of the 2004 election, but my guess is that the statistics he sites are similar if not worse today at the end of the Bush administration's tenure. Here's the link.
http://oregonherald.com/n/radicalruss/20041212_red-state-moral-values.html
It's well worth a full read, but here are some highlights/ low lights which touch on high poverty, less support, low standard of living, high level of reliance on religious belief as opposed to education, poor health, high stress resulting in high mortality rates and fewer healthful days lived.
Red states lead by overwhelming margins in some predictable but also surprising areas which include:
highest % of fatalities per 100,000 miles driven
highest infant mortality rates by far
highest obesity rates
lowest % college educated residents
highest % of people living in trailers (1 in 5 homes are mobile/ most vulnerable to nature's wrath )
Red states have highest divorce rates (by way of contrast, Massachusetts, 1st State to allow Gay Marriage, has the lowest divorce rate)
highest # of BTUs consumed per capita
There's so much more, including the fact that Red states constitute the worst states in which to try to survive as a child or elder (determined by studies on the quality of health and well being, as well as poverty levels and return of services delivered for each tax dollar levied )
This article shines a light on the discrepancy between the Red state rhetoric and what is actually delivered to the perhaps, unwitting citizenry. Yes, it's from the 2004 election, but the fact remains, that it took over 8 yrs of catastrophic, dishonest policy for dyed-in-the-wool Reddies to begin to grasp the fact that the people they were supporting were selling them out in a big way and laughing behind their backs all the way to the bank. Sadder still regardless of the Obama win, an astounding percentage of these constituents voted to return these offending scoundrels to power?! Please take a look. I thought you'd find this of real interest on a humanitarian level. We need to keep the fire in the belly.
Christine
Roy Blount Jr. continues among my very favorites~~~
Op-Ed Contributor
Put Your Money Where Your Mouth Is
By ROY BLOUNT Jr.
Published: December 23, 2008
IT is at this special time of the year, and especially of this extra-special year in particular, that we realize how urgent is our need to foster love and faith and brotherhood and... at any rate, faith, and by that I mean consumer confidence. When Americans, of all people, are afflicted with what the singer-songwriter Roger Miller called “shellout falter” — a reluctance to spend — then the whole world is liable, as Miller put it so well in his song “Dang Me,” to “lack $14 having 27 cents.”
Are we going to let it be said that all we had this Christmas to cheer was cheer itself? No! Let’s put the holly back in shopaholic, let’s get jingle-bullish. We owe it to ourselves, to the world and to future generations. The more presents we spring for now, the lighter the tax burden will be down the line.
You notice how much more merrily that last sentence bounced along because I chose “spring” to express spending, instead of, say, “plunge,” and “lighter” instead of, say, “less staggering.” Words are important. So let’s say “bah, humbug” to b-words like bailout and bankrupt. Let’s digress from anything ending in -ession. Let’s entertain some new, upbeat holiday words.
Why not wake up tomorrow morning feeling consumptious? Rhymes with scrumptious, and approaches sumptuous. When we’re consumptious we’ve got that fire in the belly that’s burning a hole in our pocket. We’re going to be pumping bucks today, we’re going to open our hearts to goods and services, we’re going to take it upon ourselves to help America, and consequently the world, re-conomize. In so doing, we can personalize what is just about the only appealing phrase regarding the economy that has emerged this year: each of us can be his or her own stimulus package.
The season of giving is upon us. Need that sound like such a threat? Let’s see if we can spruce up that venerable old word generous, which can be so cringe-inducing when we hear it spoken over the phone by a stranger calling on behalf of a charity. “I hope you will be as generous this year as last” puts us on the spot, so let’s spread generous out. I don’t think we want to go to heterogenerous, because people might think we’re talking about sex, and there will be plenty of time for that after we get our mercantile heat back on. (For this reason, even businesses whose appeal is essentially spicy should resist, for now, the temptation to send their customers illicitations.)
But autogenerous, as in autobiographical, might remind us that giving unto others is also giving unto ourselves, especially if others give back unto us and therefore unto themselves, and we buy our presents at their store and vice versa. Does auto- strike an ominous note? Let me just say that if each of us becomes a cargiver this Christmas, there will be a lot more shining faces this New Year in Detroit. And Japan.
Let’s not shrink from taking a look at the word Christmas. It’s a fine old word and I for one would be loath to suggest that it has lost its edge entirely. But it doesn’t exactly sing. The only thing it rhymes with is isthmus, and that but loosely. How do you like the sound of Jingle Day? Says bells and sunshine, says catchy marketing, says plenty of change. The rhymes sell themselves: mingle, tingle, Kringle, Pringles, bling’ll, and hey, sleigh, pray, pay, hooray. We might even go a little more on-the-nose: Ka-chingleday.
And incidentally, when you take your tree down and put your ornaments away for next year (yes, of course there will be a next year, don’t even ask such a question), do you know the best way to protect those ornaments? By wrapping them in newspaper. Several sheets per ornament. Maybe a whole newspaper section per ornament. And magazines and books are good to put between wrapped ornaments for further protection.
Not to knock the tissue-paper industry, but what has it ever done for, say, people who support themselves and their families (not to mention the Jingle Day puppies their families have been promised) by thinking up words?
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
Roy Blount Jr. is the author of “Alphabet Juice: The Energies, Gists and Spirits of Letters, Words and Combinations Thereof; Their Roots, Bones, Innards, Piths, Pips and Secret Parts ... With Examples of Their Usage Foul and Savory.”
http://www.nytimes.com/2008/12/23/opinion/23blount.html?_r=1&th&emc=th
They hesitated a year before calling this thing a "recession." Paul Krugman ain't waiting around~~~
The New York Times
January 5, 2009
Op-Ed Columnist
Fighting Off Depression
By PAUL KRUGMAN
“If we don’t act swiftly and boldly,” declared President-elect Barack Obama in his latest weekly address, “we could see a much deeper economic downturn that could lead to double-digit unemployment.” If you ask me, he was understating the case.
The fact is that recent economic numbers have been terrifying, not just in the United States but around the world. Manufacturing, in particular, is plunging everywhere. Banks aren’t lending; businesses and consumers aren’t spending. Let’s not mince words: This looks an awful lot like the beginning of a second Great Depression.
So will we “act swiftly and boldly” enough to stop that from happening? We’ll soon find out.
We weren’t supposed to find ourselves in this situation. For many years most economists believed that preventing another Great Depression would be easy. In 2003, Robert Lucas of the University of Chicago, in his presidential address to the American Economic Association, declared that the “central problem of depression-prevention has been solved, for all practical purposes, and has in fact been solved for many decades.”
Milton Friedman, in particular, persuaded many economists that the Federal Reserve could have stopped the Depression in its tracks simply by providing banks with more liquidity, which would have prevented a sharp fall in the money supply. Ben Bernanke, the Federal Reserve chairman, famously apologized to Friedman on his institution’s behalf: “You’re right. We did it. We’re very sorry. But thanks to you, we won’t do it again.”
It turns out, however, that preventing depressions isn’t that easy after all. Under Mr. Bernanke’s leadership, the Fed has been supplying liquidity like an engine crew trying to put out a five-alarm fire, and the money supply has been rising rapidly. Yet credit remains scarce, and the economy is still in free fall.
Friedman’s claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of John Maynard Keynes, who argued that monetary policy is ineffective under depression conditions and that fiscal policy — large-scale deficit spending by the government — is needed to fight mass unemployment. The failure of monetary policy in the current crisis shows that Keynes had it right the first time. And Keynesian thinking lies behind Mr. Obama’s plans to rescue the economy.
But these plans may turn out to be a hard sell.
News reports say that Democrats hope to pass an economic plan with broad bipartisan support. Good luck with that.
In reality, the political posturing has already started, with Republican leaders setting up roadblocks to stimulus legislation while posing as the champions of careful Congressional deliberation — which is pretty rich considering their party’s behavior over the past eight years.
More broadly, after decades of declaring that government is the problem, not the solution, not to mention reviling both Keynesian economics and the New Deal, most Republicans aren’t going to accept the need for a big-spending, F.D.R.-type solution to the economic crisis.
The biggest problem facing the Obama plan, however, is likely to be the demand of many politicians for proof that the benefits of the proposed public spending justify its costs — a burden of proof never imposed on proposals for tax cuts.
This is a problem with which Keynes was familiar: giving money away, he pointed out, tends to be met with fewer objections than plans for public investment “which, because they are not wholly wasteful, tend to be judged on strict ‘business’ principles.” What gets lost in such discussions is the key argument for economic stimulus — namely, that under current conditions, a surge in public spending would employ Americans who would otherwise be unemployed and money that would otherwise be sitting idle, and put both to work producing something useful.
All of this leaves me concerned about the prospects for the Obama plan. I’m sure that Congress will pass a stimulus plan, but I worry that the plan may be delayed and/or downsized. And Mr. Obama is right: We really do need swift, bold action.
Here’s my nightmare scenario: It takes Congress months to pass a stimulus plan, and the legislation that actually emerges is too cautious. As a result, the economy plunges for most of 2009, and when the plan finally starts to kick in, it’s only enough to slow the descent, not stop it. Meanwhile, deflation is setting in, while businesses and consumers start to base their spending plans on the expectation of a permanently depressed economy — well, you can see where this is going.
So this is our moment of truth. Will we in fact do what’s necessary to prevent Great Depression II?
Copyright 2009 The New York Times Company
http://www.nytimes.com/2009/01/05/opinion/05krugman.html?_r=1
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