[digg-reddit-me]This Wall Street Journal article by Bob Davis accompanied by this graph to the right illustrates just how far from world opinion the Republican right is in it’s rejection of stimulus spending. This is not necessarily a bad thing – but it should give pause to those who are defending the fiscal austerity Republicans are proposing in the middle of this crisis. This issue is not considered a partisan issue for most of the world – and it is mainly Republicans in power today who see stimulus spending during a sharp downturn as something “liberal” or controversial.
The International Monetary Fund – not normally known as a squishy, leftish organization as it promoted free trade and capitalism around the globe – is in favor of large stimulus packages:
The IMF has been urging nations to increase fiscal stimulus by at least 2% of gross domestic product to boost growth. Of the G-20 nations, only the U.S., Spain, Saudi Arabia, China and Australia are expected to reach that goal in 2009, according to the IMF.
More importantly, and more interesting then discrediting an almost powerless political party, is to notice that there seems to be some sort of inverse relationship between a society’s social safety net and the amount of stimulus spending they are proposing.
This makes sense on a number of levels. Automatic stabilizers which should take some of the pressure off a need for a stimulus are not included here. On another level, these nations without a strong safety net must rely more heavily on economic growth for societal stability.
If this is true, China and America would be more reliant on constant economic growth to relieve social and political pressure and would be more likely to have larger stimulus packages. France and Germany with stronger safety nets would feel more insulated and be less likely to push for large stimulus packages. This is exactly how this matter is playing out on the world stage today – with some exceptions due to political leadership.
But both states with strong social safety nets and those without them are dependent on growth over time. But those states without strong safety nets feel the economic bumps more strongly – and downturns end up being more disruptive.
The average sales prices of [single-family]homes [in Detroit] plunged from $46,702 in 2003 to $8,692 last year. Through the first month of 2009, average sales were $6,035.
[digg-reddit-me]Yesterday, I tried to take on some of the opposition to Obama’s handling of the financial crisis. I think I did a fine job – but I’m certainly no Jon Stewart. Pointing out that the stock market tanked after Ronald Reagan became president and after we won World War II, he takes on this farcical idea that the stock market is some sort of rational indicator of economic conditions:
The stock market isn’t a rational creature – it is subject to panics and irrational exuberance and sour moods and churlishness and massive misjudgments. To judge whether an economic plan is working or not requires time and wisdom – neither of which are found in the daily results of the Dow Jones Industrial Average.
Of course, Stewart founds some time to mock Rick Santelli on the way:
Humor makes it all go down so much easier.
There’s no denying the inchoate anger, not fully formed, matured, directed, or realized, that some seek to target Obama with. The problem is that these Santellis and these Limbaughs and the rest of them have no more to offer than the mythical Howard Beale of Network – whose famous rants clearly inspired Santelli’s on-air persona:
Watching this famous clip today is eerie – as it echoes into our own time – and makes Santelli’s performance seem all the more post-modern.
In the end, it comes down to this:
As a nation we have a choice to do nothing, to let Obama implement his plan, or to come up with a better one. In my opinion, Obama’s opponents have yet to offer a serious alternate plan. Which is why I’m sticking with him on this, at least for now.
[digg-reddit-me]Opponents of Obama’s response to the financial crisis have taken a number of approaches their disagreement. As with all political opposition, these approaches begin with a seemingly common-sense question or objection – and use it as a lever to attack their opponents. Governor Bobby Jindal for example used a bit of each of the following approaches to go after Obama – though not quite committing to any of them fully. I’ve paired many of these approaches with the most prominent individuals who have become associated with them – and tried to respond to them. What is common among them all is a desire to tap into the inchoate rage that this crisis is engendering among all Americans – and to try to focus that rage on Barack Obama. What is lacking among these approaches is a compelling or plausible alternative.
I.Do we need to do anything at all? (James K. Glassman)
What Mr. Dow 36,000 failed to account for was that the stability of societies around the world is dependent on economic growth and the opportunity this brings. The opiate of the masses unhappy with their governments is no longer religion – it is the hope that results from economic growth, the miracle and curse of rising expectations.
Mr. Dow 36,000 believes that if our economic heart seems to have stopped beating, the answer is to have faith that our blood will continue to flow. “We don’t need stimulus – we need to calm down,” he says. But the only rational response is to shock the heart back into action, to stimulate it.
II. But do we need to spend all this money?
Yes, if not more. The basic theory of Keynesian stimulus is that when the aggregate market demand for goods and services enters into a decreasing spiral.
Less demand = Lower prices = Less supply = Less jobs = Less demand = Lower Prices = etcetera
When an economy enters this cycle, Keynes believed, the government must step in and increase demand by spending more than it receives in taxes. (If it taxed to make up for it’s increased spending, it would not be adding demand but merely redistributing it.) Projections indicate that the US gross domestic product will fall by $2.1 trillion in the next two years. Which is why some Nobel-prize winning economists were frustrated that Obama’s plan was so small that it will not be able to make up for the drop in demand.
Joe Scarborough pointed out on Meet the Press last Sunday that, as all deficit spending is stimululative, the last eight years of the Bush presidency have been Keynesian stimulus too:
Scarborough uses this point to make out Obama’s stimulus to be more of the same, except with the stimulus directed towards the bottom 95% of Americans instead of the top 2%. He’s not entirely wrong, but to continue the metaphor above – if someone’s lifestyle choices have put enormous pressure on their heart, as they snort cocaine or take speed or otherwise constantly overcharge their heart, the first step to getting them healthy is usually to get them to stop putting so much pressure on their heart. But if their heart beat is dropping rapidly, or their heart has stopped, then the first step is no longer to remove the cocaine from their system but to inject them with someone that will energize their heart. This is a stimulus. And this is the reason Obama’s economic team is increasing our deficit in the short term.
III. What about tax cuts? (Eric Cantor)
The Republicans proposed a $3.1 trillion dollar permanent tax cut as their alternative to Obama’s $780 billion dollar spending/tax cut stimulus. That they continued to criticize Obama for fiscal irresponsibility and accused him of “generational theft” while supporting this bill aptly demonstrates that this was a pure political play. But if nothing else, the sheer size of the Republican alternative stimulus suggests what the reports of the nonpartisan Congressional Research Office concluded: tax cuts work slower and have less stimulative effect than almost any kind of spending measures. This is why more than half of Obama’s bill is spending.
IV. Fine. But even if this works, the deficit will be out of control! (John McCain)
Damn right it will. Hell – after eight years of rapidly decreasing taxes coupled with the largest increase in domestic spending since the War on Poverty and two large and seemingly unending wars, the deficit was already out of control. Even before that, as Bush failed to respect the “lockbox” that Al Gore promised to protect with the extra funds raised by Social Security taxes, we were in trouble. But even if we had saved all of this money paid into the Social Security program which is owed to me and you in a few dozen years (or less) the rapidly escalating cost of health care would leave our government with a deficit of over $60 trillion dollars over the next few decades.
Which is why Obama has been talking about dealing with America’s long-term fiscal problems since he was on the campaign trail – and especially since he was elected. In the weeks before his election, Washington was taken with his idea of a “Grand Bargain.”
But none of this will matter if the economy doesn’t begin growing again. If the first step to recovery is deficit spending to get the economy going again – continuing the above metaphor, using paddles, injections, whatever to get our economic heart functioning again – the next step is to clean up our act and take a fiscally responsible approach to governing and entitlement spending – in other to stop the irresponsible behaviors that helped create the crisis. If our economy is still stagnant, we will need to dismantle a good portion of our federal and state governments. But if the stimulus works, and the economy begins to grow again, adjustments can be made. Another point that Obama and his Director of the Office of Management and Budget Peter Orzag have made clear is that the first step to solving America’s long-term fiscal problems is tackling the problem of our rapidly escalating health care costs – which thanks to their rapid growth make up an ungodly percentage of our unmet future commitments. This is why Obama sees health care reform as one of the first steps that needs to be taken – to stop the rapidly escalating costs of health care.
V. Do we really need to help all these losers? (Rick Santelli)
Yes, we do. Obama has described his economic team as a bunch of mechanics who are trying to fix the machine that is our economy. When a mechanic sees that a spring or a lever or a cog isn’t functioning properly – and this piece is preventing the machine from working – the mechanic knows the problem will not be fixed by lecturing the piece or letting it fail for not properly doing it’s job. The correct thing to do is to replace it or glue it or do whatever is necessary to make the piece function as it must. Yes, the bankers whose job it was to properly calculate risk and make money instead spectacularly failed to understand the risks they were taking and lost money; and yes, the liars and idiots who took our mortgages they couldn’t afford should be punished too. But while one bank failing is just, a failure of our banking system could paralyze the economy. And while an idiot who took out a loan he couldn’t afford should get his house foreclosed upon, too many foreclosures will take down a neighborhood. Both of these are part of systemic problems which has resulted in downward spirals.
Obama, in taking this approach, seems to be combining some elements of Hayek’s warnings about the limits of the discipline of economics and the failure of the best-laid plans with Keynes’s fierce urgency of now – a kind of trial-and-error, scientific approach to financial crisis management as opposed to a more ideological, morality-driven approach associated with partisans of the left and right.
VI. Obama’s plan sucks. It isn’t working yet!
The stimulus money hasn’t begun to be spent. And the banking and mortgage fixes have yet to be fully implemented – so of course it’s not working yet. Obama recently explained that the ups and downs of the stock market are a flawed indicator – just as the ups and downs of campaign polling is often flawed. Obama bet his campaign on a strategy of ignoring the day to day and conceding the daily media wars and never trying to boost his daily poll numbers. Instead, he focused on the fundamentals. And he won. His economic team’s approach to the financial crisis is similar. The falling stock market is merely a symptom of the crisis. It is a waste of time to treat a symptom when the root cause is not being addressed – but if one is able to treat the root cause, the symptom will be cured as well.
Obama has elected to do what needs to be done to fix the economy as a whole – and this means helping people whose decisions were poor, people who were greedy, people who were stupid, and yes, losers too. No matter how distasteful, the situation bankers and mortgagees must be helped in order to fix the economy.
To reiterate, the Obama plan has several steps:
Fixing the mortgage and banking mess.
Arresting the downward economic spiral touched off by these messes with government spending to stimulate demand.
Put our government on a fiscally sane path by tackling the enormous gap between our spending promises and revenue generation in the area of entitlements – and at the same time, reigning in deficit spending as soon as this crisis has passed. (These steps are necessary to prevent those who we currently owe from panicking.)
VII. I hope he fails! Socialist! Communist! Marxist! Terrorist! Black Hitler! The Antichrist! Nobama! (Rush Limbaugh)
In fairness to Rush, he’s only publicly expressed a few of these sentiments. I’m not sure that he’s called Obama a black Hitler yet – but I’m sure he’s joked about it. This approach presumes that Obama has a quasi-secret agenda he is trying to impose on America – and that this agenda is so awful, it would be better to suffer another Great Depression or worse than to capitulate. Rush has described Obama as acting in bad faith, as being deranged, as having a mental illness (which Rush diagnoses as liberalism), and as all manner of awful and un-conservative things. Rush is a true propagandist and ideologue – and he has become the rallying point for movement conservatives.
His critiques now have power as the anticipatory fear of what Obama might do overwhelms the sense of what Obama is doing – and if Obama fails, Rush will be hailed as a visionary and a leader. But if Obama continues to display the conservative temperament and pragmatism that won him the election, then he will be as little remembered as Father Coughlin with his anti-Roosevelt screeds.
Rush – like proponents of failed ideologies everyone – continues to maintain that the conservative movement did not fail, but rather that it never truly had the power to achieve it’s agenda.
“As we look at 2009, on every issue, with the single exception of Iraq, everything is worse…Pakistan is worse. Afghanistan is worse. Russia is worse. Emerging markets are worse. Everything big out there is worse, and some will be made even worse by the economic crisis.”
There is a geopolitical storm coming, concluded Bremmer, “and it is not priced into the market yet.”
Up and coming conservative (and big Jindal fan) Ross Douthat’s snap judgment from Tuesday night of Bobby Jindal’s response to Obama’s not quite State of the Union:
If that’s the best the Right has to offer as a rebuttal to Obama, American liberalism is going to be running untouched down the field for years to come.
States that accept the stimulus money aimed at the unemployed are required to abide by new federal rules that extend unemployment protections to low-income workers and others who were often shorted or shut out of compensation. This law did not just materialize out of nowhere. It codified positive changes that have already taken place in at least half the states.
To qualify for the first one-third of federal aid, the states need to fix arcane eligibility requirements that exclude far too many low-income workers. To qualify for the rest of the aid, states have to choose from a menu of options that include extending benefits to part-time workers or those who leave their jobs for urgent family reasons, like domestic violence or gravely ill children.
[digg-reddit-me]Those in power are clearly nervous about what will happen if this crisis continues to deepen. British police are predicting that 2009 will be a “summer of rage” as middle-class anger at the economic crisis erupts into violence on the streets of Great Britain. Protest organizers are claiming that the police are merely trying to prepare the public for more brutal put-downs of protests by the police – but even this in itself indicates a nervousness on the part of the police, a fear that protests will get out of control.
At the same time, Zbigniew Brzezinski, the powerful inside player in Washington since he was National Security Advisor under Jimmy Carter, warned on MSNBC that this recession could lead to riots in America:
[T]here is public awareness of this extraordinary wealth that was transferred to a few individuals at levels without historical precedent in America . . . And you sort of say to yourself: what’s going to happen in this society when these people are without jobs, when their families hurt, when they lose their homes, and so forth?
…[T]here’s going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots.
It was often said that China’s government was only able to remain in power and maintain stability if the economy was growing at a fast enough rate. It’s beginning to be clear that this is true for most of the world’s governments. As I wrote before:
As long as American citizens have their basic needs met and a reasonable opportunity to succeed, they will accept a polarized distribution of wealth, corruption of various sorts, and sundry other injustices. And as long as the Chinese citizens are moving towards having their basic needs met and have a reasonable opportunity to succeed, they will accept a single-party state, restrictions on freedom of speech and assembly, and other restrictions.
Any state’s constitutional structure is legitimated by whether it provides for the needs of it’s people. In another age, the state merely provided security against hostile invasions and criminals; later, it provided an identity as well; by the middle of the 20th century, a state was legitimated by the extent to which it could provide for the basic needs of it’s citizens. The Cold War was, to a large degree, a competition between the capitalist states and the Communists states to see which could provide more ably for the needs of it’s citizens. Today, the state is evolving from providing for the needs of it’s citizens to providing opportunities for it’s citizens.
We are now facing the spectre of rapidly increasing unemployment and diminished opportunities for millions accustomed to a rising standard of living. A prolonged depression, or even a slowing in growth, in a market-state undermines the government’s legitimacy and society’s stability, perhaps to the breaking point.
Many of the world’s societies are only peaceful and stable to the extent that their people believe they can improve their lot in life, or their children’s lot. The opiate of the masses is no longer religion – it is hope, the expectation of better things to come grounded in expanding individual opportunity. This financial crisis may test what happens when this opiate is removed.
[digg-reddit-me]I thought this was the most interesting moment in yesterday’s speech – as the partisan feelings of the Republicans erupted, and then were responded to by the Democrats.
Throughout the speech, Obama seemed to want to talk through partisan lines, trying to minimize the applause. But here the Republicans took the first half of an Obama antimonic device and interrupted his speech – their only real excitement of the night. They seemed to relish in the fact that Obama was “admitting” that the deficit was a worthy issue, jeering. Of course, Obama has planned to pivot to the deficit and entitlement spending all along – speaking of a forthcoming Grand Bargain even before he took office. In the end, this demonstration made the Republicans look rather petty. But then, as Obama completed his antimonic device, stating that the enormous deficit was “inherited,” the Democrats took advantage of their opportunity to pettily respond to the Republican jeering.
This exchange captures the dynamic of Obama’s Washington so far – as Republicans and Democrats jeer each other and posture against one another while Obama tries to explain what he’s doing and to get a serious response.
