The jobless recovery - yeah right it's all Obama's fault

Over in the digital pages of today's Washington Post, Steven Pearlstein makes the genuine case that, whatever the faults of Mr. Obama's economic policies are (and I think there are more then a few), the lack of job creation isn't one of them:

This week, Princeton's Alan Blinder, a former vice chairman of the Federal Reserve, and Mark Zandi, chief economist at Moody's Analytics and a onetime adviser to John McCain's presidential campaign, released a paper laying out in simple and compelling terms how the government saved the country from another Great Depression. Using a standard econometric model, they backed out everything the government did to tame the financial crisis and stimulate the economy -- the zero interest rates and extraordinary lending by the Fed, the bailouts of the banks and the auto companies, the takeover of Fannie Mae and Freddie Mac, the tax cuts and the infrastructure payments and the money for the states. And what they concluded is that, without these actions, the economy would now be 8 percent smaller, with 8 million fewer jobs and a federal budget deficit this year of $2 trillion rather than $1.4 trillion.

The irony is that this set of bold government initiatives that saved the country from economic catastrophe remain as unpopular today as when they were introduced.

Now I've written before about how the economic crisis, dubbed the Great Recession, isn't all its cracked up to be. I've also written about how the myth that government doesn't create jobs needs to die. Yet here we are still slaved to the idea that if only businesses were free to do what they wanted, they would hire, and the economy would recover.

Its a nice theory, but it doesn't hold water. Yes, GM and Chrysler are adding new employees, thanks to government bailouts. But with the Chevy Volt set to debut at $41,000 one has to wonder if they have really learned anything. To say nothing of the fact that, nearly two years into the supposed recovery:

One would have hoped that, by this point in the recovery, businesses would have begun to use some of that cash to ramp up spending on research and development and to invest in new plants and equipment. But after falling sharply for two years, such spending has only just begun to rebound, and much of it has focused on faster-growing markets outside the United States. Some of the cash has been used to pay down debt or buy back stock. But so far the one thing businesses haven't done is hire back full-time employees, preferring instead to contract for temporary workers or increase the hours of the workers they already have.

The failure of the unemployment rate to back off from ts 9 to 10% "precipice" is not a failure of the White House's economic policy. Its conscious decison by business large and small (but mostly large) to hold profits for short term gain rather then make long term investments. Call me nuts, but didn't that behavior get us into this mess in the first place?

Human garbage in the oceans - two perspectives

First, consider this from CNN about using Stimulus money to remove ghost nets in Puget Sound.



I have along personal interest in this, as this is a project that I was affiliated with while working in Seattle several years ago. Interestingly, the story fails to mention two important factors. First, the stimulus fund in question came from the NOAA Fisheries Service Office of Habitat Conservation, and second, the Army Corps of Engineers has been leading a similar effort for some time.

Second, the 2009 SEAPLEX expedition to the Great Pacific Garbage Patch is now underway. The blog is here. Oh to be young and a grad student again! Seriously, the fate of plastics in the ocean is not to be taken lightly, and as the expedition goes forward, I hope folks will stay tuned.

This just in - Make sure you pay your taxes

If the AP report on MSNBC is correct, firms taking taxpayer funded TARP money owe the U.S. government 0.02% of that fund in back taxes. Yep, you heard that right, TARP recipients owe back taxes. And they all had to sign certifications saying they didn't in order to get their funds in the first place.

Two thoughts spring to mind. First, will the Republicans who have sunk so many Democratic nominees over tax issues holler as loudly about this? Me thinks not. And second, will this be the "smoking gun" that will finally open criminal investigations into the very companies who willfully and gleefully took our economy into the tank in the name of short term profits? After all, Al Capone got sent up for tax issues . . . .

Why Wall Street needs to be put in Time Out.

Say what you will about Wall Street types - at least they are committed to a battle to the end so that they remain "relevent" to modern economic policy. But look at this graph,and ask yourself - how much do we really need to pay attention to these guys?

See, the data (from the work of Robert Shiller who lets you copy his data sets and then do your own graphing) makes the case clearly that 1) we haven't fallen as far as we did before, and 2) once you take all the "noise out" stocks are still likley to see growth in the future. How did I arrive at this conclusion? I just fitted the blue trend line to the graph. And it's the trendline that we all need to keep in mind, not the bounciness around it.

Every time one of the Wall Street brokerages, or their friends in the MSM or cable, gets on TV and talks about the market, keep this in mind - PE ratios (one o fthe best measures of the stock market's soundness) have not yet fallen as low as they did in the 1980's rcession under Ronald Reagan. In fact, by the time the Great Depression started in 1929, they were on a substantial climb from their earlier collapse. PE also hasn't fallen that low yet, and the trend line tells us even if it does, the rebound is likely to keep us on a slow but steady upward climb.

given that, why don't we let a few banks go into receivership and start the auctions? If history is our guide, the stock market will do just fine, and so will the economy.

Let's get it over, already!

It probably somes as no surprise, but Paul Krugman is one of my favorite economists. His column today about the continued failure of the Obama Administration's financial rescue package is spot on.

See, being a mere oceanographer, I see it this way. the BUsh Administration started out to buy up the toxic derivative investment packages from the banks to free up the capitol markets and restart lending. then they realozed that meant something other thenthe market would be putting certain banks, investment banks and insurance companies out of business (plus it might well create a run on helathy banks). And they didn't want that. So they shifted to bank recapitolization. Mr. Obama hired Mr. Geithner to essentially continue that policy while they looked for something else that might work. After all, no one wants to bring down the economy and be blamed for a second Great Depression.

All that said, it's time to bring in the army of federal program analysts, budget formulators, and accountants, and take apart the banks books. We have to figure out who has what in order to sell it, and we have to sell it so banks will start lending to each other again (as well as to other business). Otherwise, AIG will still have to be on the public dole, GM won't be able to be liquidated in bankruptcy, and Cerebus won't put more money into Chrysler. Painful to watch - perhaps, but only if the government and media focus on the "losers" and not the healthy and solvent banks.

And yes Martha, there should be losers here - they mad bad, risky decisions driven by short term profit. they contributed to the downturn of the U.S. economy. They do not deserveto be rewarded fo rthose decisions by being allowed to continue to pretned they don't hold anything that's bad.

The Real Stimulus Package

Over at Think Progress, Matt Yglesias has a good piece on what the final stimulus actually looks like. While some commenters got the colors wrong - I think there could have been a yellow in there instead of two greys - the basic idea is this. For all the howling by Republicans about the stimulus, the single biggest piece at approximately 32% is made up of . . . wait for it . . . tax cuts! Yes Sir, step right up, because Democrats are actually adopting Republican economic ideas, even after those ideas have been debunked by history. So, when they whine as they will about eing shut out, send them this graph and ask them to have Michale Steele apologize for their hystrionics.

And while we're at it, ponder this from teh Center fro American Progress study Matt cites:

"While Keynesian hasn’t been disproven, supply-side economics has. President Bush’s economic advisors assured the American public in the early 2000s that the president’s massive tax cuts would generate economic growth and create jobs. This classic supply-side policy intervention did no such thing. The 2000s economic recovery was the weakest of all post-World War II recoveries in terms of growth in investment, GDP, and job creation."

As I've said before, supply side responses to demand side issues just don't work.

Ecomigration - the next Climate Change Impact?

It's not often that real consequences from Climate Change get real press coverage. Today's Washington Post story about ecomigrants is the exception, rather then the rule. That said, it's an important story.

As I see it, ecomigration has the potential to seriously undermine economic recovery. Our economy (and our stimulus attempts) are built on the assumption that the economy needs to go back into a shpae or systems that looks like it did a few years ago. The problem is, if there are more Dust Bowl like migrations in the next decade, that assumption will likely fall apart. You can't for instance, stimulate an economy when large numbers of workers are on the move between regions. Major manufacturing plants for things like cars don't just up and walk from Tennessee to NorthD akota in search of more hospitable climates.

And finally, what is the world to do about places like Kiribati? As highlghted in the article, this island nation of 100,000 is facing a real threat from sea level rise. These people deseve the world's help -but I fear they won't get it because then we'd have to admit something is really wrong.

Can we all DEMAND some change now?

Listening to Michael Steele, newly minted Republican National Committee Chair on ABC’s This Week with George Stephanopolous, I started having really bad 1980’s flashbacks. As the interview unfolded, it became clear why all the House Republicans and many of the Senate Republicans were so opposed to the Democratic stimulus bill then in the Senate for debate. Here’s the exchange that really got me going, from the ABC website transcript (emphasis mine):


“ STEPHANOPOULOS: He suggests that you and Republican Party leaders here in Washington are on the wrong side of the biggest issue, jobs.

STEELE: Well, no -- you know, with all due respect to the governor, I understand where he's coming from. Having been a state official, I know what it means to get those dollars when you're in tight times. But you've got to look at the entire package. You've got to look at what's going to create sustainable jobs. What this administration is talking about is making work. It is creating work.

STEPHANOPOULOS: But that's a job.

STEELE: No, it's not a job. A job is something that -- that a business owner creates. It's going to be long term. What he's creating...

STEPHANOPOULOS: So a job doesn't count if it's a government job?
(CROSSTALK)

STEELE: Hold on. No, let me -- let me -- let me finish. That is a contract. It ends at a certain point, George. You know that. These road projects that we're talking about have an end point. As a small-business owner, I'm looking to grow my business, expand my business. I want to reach further. I want to be international. I want to be national. It's a whole different perspective on how you create a job versus how you create work. And I'm -- either way, the bottom line is...

STEPHANOPOULOS: I guess I don't really understand that distinction.

STEELE: Well, the difference -- the distinction is this. If a government -- if you've got a government contract that is a fixed period of time, it goes away. The work may go away. That's -- there's no guarantee that that -- that there's going to be more work when you're done in that job.

STEPHANOPOULOS: Yes, but we've seen millions and millions of jobs going away in the private sector just in the last year.

STEELE: But they come -- yes, they -- and they come back, though, George. That's the point. When they go -- they've gone away before, and they come back. And the point is that the small-business owners take the risks. They're the ones that are out there in the morning putting that second mortgage on the house, taking the risks that are necessary so that they can employ your -- your kids and my kids and future generations. That's sustainable, long-term growth. Otherwise, then why do we need the small-business community? Why don't we all just get a government job and call it a day? “


What’s so remarkable here is that Mr. Steele has all but admitted that, in spite of the current economic state, including the recent loss of over 500,000 jobs in a single month, the Republican Party still believes that the government can not create jobs. It can only make work. So, opposition to the stimulus, even sweetened as it is with a variety of tax cuts, incentives and reductions, is all about sticking to a deeply held political and economic principle, no matter what the facts on the ground or the truth in evidence.

I'd love to see MR. Steele, who is no moderate, try to make that distinction to a family now living in a homeless shelter because they have lost their house to foreclosure after loosing their jobs inthe last year. He'd fail miserably, since to many unemployeed, the distinction is meaningless. Sure, as my colleague Mike at the Big Stick points out, it would be better to have high demand for high skilled labor created by the stimulus package. It would be ideal. We're way past ideal.

So why are Republicans clinging so tightly to this line of reasoning? Several thoughts come to mind. First, the Republican Party is still a Social Darwinist, supply side economics, monetarist policy party. They firmly believe that markets can indeed solve economic crises, and that market failures of any type should not ever be addressed through government action – which is welfare in their world view. Second, any economic action taken by government must be directed at businesses, not workers, because it is businesses that create jobs, and supply. And finally, Republicans still believe in supply side economics, no matter what the evidence of the last 30 years shows.

The biggest problem with this world view, however, is that if we follow their reasoning we’ll spend an aweful lot of time, and money (yours and mine incidentally) trying to fix what is now a demand side problem with supply side glue. As unemployment continues to rise, and the economy continues to contract, demand drops like a stone. President Obama said as much last night in his first Prime Time press conference:


“Question: Thank you, Mr. President. Earlier today in Indiana, you said something striking. You said that this nation could end up in a crisis without action that we would be unable to reverse.
Can you talk about what you know or what you're hearing that would lead you to say that our recession might be permanent when others in our history have not? And do you think that you risk losing some credibility or even talking down the economy by using dire language like that?

Obama: No, no, no, no. I think that what I've said is what other economists have said across the political spectrum, which is that, if you delay acting on an economy of this severity, then you potentially create a negative spiral that becomes much more difficult for us to get out of.
We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough and, as a consequence, they suffered what was called the lost decade, where essentially, for the entire '90s, they did not see any significant economic growth.
So what I'm trying to underscore is what the people in Elkhart already understand, that this is not your ordinary, run-of-the-mill recession. We are going through the worst economic crisis since the Great Depression.
We've lost now 3.6 million jobs, but what's perhaps even more disturbing is that almost half of that job loss has taken place over the last three months, which means that the problems are accelerating instead of getting better.
Now, what I said in Elkhart today is what I repeat this evening, which is, I'm absolutely confident that we can solve this problem, but it's going to require us to take some significant, important steps.
Step number one: We have to pass an economic recovery and reinvestment plan. And we've made progress. There was a vote this evening that moved the process forward in the Senate. We already have a House bill that's passed. I'm hoping, over the next several days, that the House and the Senate can reconcile their differences and get that bill on my desk.
There have been criticisms from a bunch of different directions about this bill, so let me just address a few of them.
Some of the criticisms really are with the basic idea that government should intervene at all in this moment of crisis. Now, you have some people, very sincere, who philosophically just think the government has no business interfering in the marketplace. And, in fact, there are several who've suggested that FDR [President Roosevelt] was wrong to interfere back in the New Deal. They're fighting battles that I thought were resolved a pretty long time ago.
Most economists almost unanimously recognize that, even if philosophically you're -- you're wary of government intervening in the economy, when you have the kind of problem we have right now -- what started on Wall Street, goes to Main Street, suddenly businesses can't get credit, they start paring back their investment, they start laying off workers, workers start pulling back in terms of spending -- that, when you have that situation, that government is an important element of introducing some additional demand into the economy.
We stand to lose about $1 trillion worth of demand this year and another trillion next year. And what that means is you've got this gaping hole in the economy.
That's why the figure that we initially came up with of approximately $800 billion was put forward. That wasn't just some random number that I plucked out of -- out of a hat. That was Republican and Democratic, conservative and liberal economists that I spoke to who indicated that, given the magnitude of the crisis and the fact that it's happening worldwide, it's important for us to have a bill of sufficient size and scope that we can save or create 4 million jobs.
That still means that you're going to have some net job loss, but at least we can start slowing the trend and moving it in the right direction.
Now, the recovery and reinvestment package is not the only thing we have to do. It's one leg of the stool. We are still going to have to make sure that we are attracting private capital, get the credit markets flowing again, because that's the lifeblood of the economy.
And so tomorrow my treasury secretary, Tim Geithner, will be announcing some very clear and specific plans for how we are going to start loosening up credit once again.
And that means having some transparency and oversight in the system. It means that we correct some of the mistakes with TARP [Troubled Asset Relief Program] that were made earlier, the lack of consistency, the lack of clarity, in terms of how the program was going to move forward.
It means that we condition taxpayer dollars that are being provided to banks on them showing some restraint when it comes to executive compensation, not using the money to charter corporate jets when they're not necessary.
It means that we focus on housing and how are we going to help homeowners that are suffering foreclosure or homeowners who are still making their mortgage payments, but are seeing their property values decline.
So there are going to be a whole range of approaches that we have to take for dealing with the economy. My bottom line is to make sure that we are saving or creating 4 million jobs, we are making sure that the financial system is working again, that homeowners are getting some relief.
And I'm happy to get good ideas from across the political spectrum, from Democrats and Republicans. What I won't do is return to the failed theories of the last eight years that got us into this fix in the first place, because those theories have been tested, and they have failed. And that's what part of the election in November was all about.”


Stop and think about that for a second. $ 1 Trillion in DEMAND lost each year for two years. DEMAND. How do you stem that with supply side approaches like tax cuts? How does a machinery reinvestment tax credit address this? And what good would a two year payroll tax holiday (that’s Social Security, Medi-care and Medi-cade, BTW) do to increase DEMAND? The only way I know of to increase demand is this – put people to work, and make sure they can work for long periods of time. Get the credit markets flowing again (Hello TARP, the people are still waiting) so people can borrow again, and then let them DEMAND so that supply can again be ramped up.

Of course, to make Republicans happy, we’ll probably have to use another term besides DEMAND to describe our position. It sounds too personal, too much like something an individual might control, rather then a business. And we’ll especially have to make sure we don’t “make work” while we do it.