The infrastructure bill: Better than nothing?

Correction: The spending is for a five-year span, not 10 years as I originally wrote.

Click to enlarge. Source: New York Times.

The bipartisan infrastructure bill is better than nothing.  Whether it will be enough to do the job is another question.

Some news articles call it a $1.2 trillion infrastructure plan, but it only includes some $550 billion.  The rest is money that is normally spent each year for highways and other projects.

All these figures are for a planned five-year span.  If the proponents quoted the annual budget cost, they wouldn’t seem so huge.

More spending is certainly needed.  The latest infrastructure report of the American Society of Civil Engineers gives a dismal picture of frequent water main breaks, un-maintained highways and flood control levees whose location and condition aren’t even known.

It says $2.69 trillion in infrastructure investment is needed over the next 10 years, although not all of that would necessarily have to come from the federal government.

I am sure that figure is based on deterioration continuing at the same rate as it is.  The expected climate-related increase in destructive storms and floods will almost certainly increase the strain on roads, rail systems, water and sewerage systems, dams and levees.

The ASCE gives the U.S. a C-minus grade (mediocre, requires attention) on infrastructure overall, which is up from D-plus (poor, at risk) in its previous report, which was in 2017.

The ASCE attributes the improvement mainly to action by state and local governments.  For what it’s worth, the ASCE is a supporter of the Biden infrastructure bill.

The original idea was to have a omnibus bill that would include infrastructure improvements, climate change mitigation and improvement of the social safety net.

The emergency measure enacted last year—the eviction moratorium, the student debt collection moratorium, extra funding for unemployment insurance, etc.—have run out or will soon run out.

A lot of people are going to be hurting next year, and blaming Democrats for not keeping their promises.

Although increased infrastructure spending will create jobs and help the economy, but it won’t be in time to affect the 2022 election.

I blame Senators Joe Manchin and Krysten Sinema for being spoilers, I blame President Biden, Senate Majority Leader Chuck Schumer and House Speaker Nancy Pelosi for lack of leadership and I blame Senate Minority Leaders Mitch McConnell and Republicans generally for their irresponsible and blindly partisan obstructionism.

But the problem is deeper and more systemic.  Blaming individuals implies that it is by accident of personality that Manchin or McConnell choose to do what they do, and also by accident that people like Manchin or McConnell are in a position to do the damage they do.

We have a political system that prioritizes the wants and needs of monied interests over the public, and makes it nearly impossible to do what’s plainly necessary.  Maybe I’m over-optimistic in sticking in the word “nearly.”

LINKS

American Society of Civil Engineers 2021 Infrastructure Report Card.

What’s in the $1.2 trillion infrastructure package by Heather Long for The Washington Post.

The Infrastructure Plan: What’s In and What’s Out by Actish Batia and Quoctrong Bai for The New York Times.

How Democratic Party Progressives Got Outmaneuvered by Their Corporate Wing by Dr. Jack Rasmus.

Is This the End of the Unreformable Democratic Party? by Michael Hudson.

Adam Tooze on the Biden administration

For some Joe Biden has already exceeded expectations. For others his economic program is nowhere near enough to address the climate crisis and American decline.  While his Covid relief package has seen billions dispensed immediately, the Jobs Plan proposes to invest $35 billion in green R&D over eight years – less than Americans spend annually on pet food. 

So how radical is President Biden? Is there such a thing as ‘Bidenomics’?  And does the new President represent a break with the orthodoxy of Democrat predecessors such as Bill Clinton and Barack Obama?

Discussing all those questions on the UK’s Downstream with Aaron Bastani is Adam Tooze, Professor at Columbia University.

He is the author of The Deluge: The Great War, America and the Remaking of Global Order, 1916-1931; The Wages of Destruction: the Making and Breaking of the Nazi Economy and Crashed: How a Decade of Financial Crises Changed the World —all outstanding books.

The video interview runs about an hour, which is long to watch something on a computer screen, but I think it is worth taking the time.  Tooze has a wide range of information, a powerful analytical mind and a sharp tongue.  He takes a global view rather than an American view.

All this makes him interesting.  He is, possibly, a little more inclined than I am to regard politics as a clash of opinions than a struggle for power or a conflict of interests.

The passing scene: March 26, 2021

Here are links to some articles I found interesting, and maybe you will, too.

The US Intelligence Community, Flouting Laws, Is Increasingly Involving Itself in Domestic Politics by Glenn Greenwald.

“A letter from House Intelligence Committee members demands answers from the DNI about illegal breaches of the wall guarding against CIA and NSA domestic activity.”

When the CIA was chartered in 1947, it was prohibited from spying on Americans, in part because President Truman was afraid it would get involved in politics.  In the 1960s, the CIA was caught spying on U.S. political activists.  Now it is happening again in the name of a “war on domestic terrorism.”

A Biden Appointee’s Troubling Views on the First Amendment by Matt Taibbi for TK News.

“Columbia law professor Timothy Wu wonders if the First Amendment is ‘obsolete’ and believes in ‘returning this country to the kind of media environment that prevailed in the 1950s’.”

There is a contradiction between the view of Timothy Wu, an appointee to the National Economic Council, that anti-trust enforcement should be a priority in the Biden administration, and his view that Facebook, Google and other social media companies have a responsibility to protect the pubic from false statements.  These companies need monopoly power in order to carry out that mission.

If you give a private corporation or government agency the power and mandate to monitor communication to separate truth from lies, what you’re doing is giving that corporation or that agency a monopoly on lying.

Biden Team Prepares $3 Trillion in New Spending for the Economy by Jim Tankersley for the New York Times.  (Hat tip to Steve from Texas.)

“A pair of proposals would invest in infrastructure, education, workforce development and fighting climate change, with the aim of making the economy more productive.”

The consensus in the Biden administration appears to be that President Obama was too cautious in fighting the 2008 recession, and that they will not repeat that mistake.

Good!  But can he overcome Republican opposition in the Senate?  What about monopoly power, financial fraud, international competitiveness and other problems that can’t be solved simply by flooding the economy with money?  Still, it’s early days and a good start.

Does Biden Really Want to End the Forever Wars? by Jack Goldsmith and Samuel Moyn for The New York Times.  (Hat tip to Steve from Texas) 

“If he does, he must work with Congress and go far beyond narrowing old permission slips for conflict.”

Betteridge’s Law of Headlines: If a headline asks a question, the answer is “no.”

The Biden administration begins

Joe BIden is sworn in as President

Joe Biden would be a reasonably good President for a nation enjoying peace and prosperity.

He is a nice person who doesn’t want to upset anybody’s apple cart. Like Warren G. Harding a century ago, he represents the human desire for “a return to normalcy.”

His predecessor’s administration was one long series of self-created crises, until last year, when the COVID-19 pandemic hit.

I don’t know how well a Biden administration will deal with the pandemic, but, unlike Donald Trump, Biden won’t be actively against doing reasonable things (like masking) to deal with the crisis. 

He has said he’ll bring the United States back into the World Health Organization, mandate masks on federal property and interstate travel and push for a huge $1.9 trillion COVID relief package (which may or may not get through Congress).  He’ll extend restrictions on evictions and foreclosures and continue the pause in student loan payments.

This could be good.  But he is not going to push for any overhaul of the U.S. health insurance or public health systems.  And the restrictions on evictions, foreclosures and student loan payments are not sustainable long term.  BIden assumes a quick return to normal, which may not happen.

Biden, unlike Trump, is not actively opposed to action on climate change.  He will rejoin the Paris climate accords, push for a “climate world summit” and order the drawing-up of a plan for 100 percent clean energy and zero net emissions by the year 2050—that is, 30 years from now.

We Americans have made progress in reducing emissions.  But to accomplish the goals that Biden has set forth would require shutting down the coal, oil and natural gas industries, and the industries that burn these fossil fuels, and replacing them with new industries that provide just as many jobs and, hopefully, just as much business profit.

There is a name for such a transition.  It is called a Green New Deal.  It would be a big change, bigger than the original New Deal.  I don’t know if Biden would be up for so big a change or not.

Biden promised to end the “Muslim ban,” which restricts travel and immigration to the U.S. from Syria, Iraq, Iran, Sudan, Libya, Somalia and Yemen, plus five non-Muslim countries added in 2020.  But he has not to my knowledge said anything about ending military intervention in those countries, which has resulted in hundreds of thousands of deaths and millions being made refugees.

The USA needs to end our forever wars if we are to regain our self-respect and the respect of the world.  But it would be no easy task.  A peace economy would mean shutting down a big part of the U.S. economy.  I don’t know whether Biden has even thought about this.

Lastly a large part of the U.S. population regards the present administration as illegitimate.  Biden has to deal with rioters and insurrectionists, while trying to unite the American people as a whole.

The new President faces challenges that would task the ability of an Abraham Lincoln or Franklin Roosevelt.  I don’t expect greatness of Joe Biden.  I expect him to be better than Donald Trump, which is a low bar.

LINKS

Joe Biden’s Inaugural Address.

What Joe Biden has promised to do on Day One and his first 100 days as president by Ed Erickson for CBS News.

Hard Times: Will America recover under Biden? by Andrew Cockburn for Harper’s magazine.

Biden’s American Rescue Plan and Its Opponents by Jack Rasmus.

The CDC’s Mission Impossible by “Yves Smith” for Naked Capitalism.  The pandemic crisis.

The New Domestic War on Terror Is Coming by Glenn Greenwald on Substack.

Image via Chicago Tribune.

Larry Summers says $2,000 is too much.

Larry Summers

Larry Summers is one of the USA’s most renowned economists.

He has been chief economist for the World Bank, Secretary of the Treasury in the Clinton administration, president of Harvard University and director of the National Economic Council in the Obama administration.

As Matt Taibbi points out, Summers has consistently advocated for bailouts for failed financial institutions and consistently opposed help for individuals in distress. 

Currently he opposes sending $2,000 stimulus checks to Americans to offset the COVID recession because it would “overheat the economy.”

LINKS

Trump-Pelosi $2,000 Stimulus Checks Are a Big Mistake by Lawrence H. Summers for Bloomberg Opinion.  [Added 12/30/2020]

Neoliberal Champion Larry Summers Opens Mouth, Inserts Both Feet by Matt Taibbi for TK News.

Why Larry Summers MUST Believe $2,000 Checks Are a Bad Idea by Ian Welsh [Added 12/30/2020]

Nearly half of Americans blame GOP for lack of $2,000 stimulus checks by Business Insider [1/3/2021]

Homes of Nancy Pelosi, Mitch McConnell Are Vandalized by CNN Politics.  [Added1/3/2021]

The irrelevance of old-time Keynesianism

John Maynard Keynes was one of the great economists of the 20th century,  Maybe he was the greatest.  He is the father of the idea of economic stimulus.

His insight was that, in a capitalist free-enterprise economy, economic growth depends on a growing mass consumer market, which depends on masses of the public having money in their pockets.

So when the economy stalls and people are out of work, the best way to stimulate the economy is to give the people more purchasing power.

J.M. Keynes

Once they started buying things, businesses would hire more people, and there would be a multiplier effect that spread through the entire economy.

The important thing, according to Keynes, was to get people back to work and earning money—no matter how.  He famously said that hiring workers to dig holes and fill them up again would be better than nothing.

In the pandemic lockdown, governments are doing exactly the opposite of what Keynes recommended.  The government is actively trying to prevent millions of Americans from going to work.  By staying at home, they help limit the spread of the virus.

Congress recently voted an economic bailout that was called a “stimulus” bill.   But economic stimulus was not, and is not, needed.  What is needed is an economic sedative, combined with an economic life support system.

We do not need employment for the sake of employment.  We need to have virtually necessary jobs get done, less necessary jobs put on hold and useless jobs not to be done at all.  We Americans as a nation have not yet figured out how to do this.

The progressives surrender to the plutocracy

Over the weekend Matt Stoller gave a blistering interview on the Jimmy Dore show blasting Bernie Sanders and other so-called progressive Democrats for voting for the so-called coronavirus economic stimulus bill.

In reality, it is a corporate bailout which gives only token assistance to ordinary Americans.  He went on to talk about the failure of the Democratic Party and the progressive movement to resist the plutocracy and the failure of the American political system as a whole.

The two of them had a lot to say that I haven’t seen or heard elsewhere.

The whole interview runs 42 minutes, which is long.  I strongly recommend you watch at least the first 10 or 15 minutes.  You may find Stoller’s impassioned, but well-informed, rant so compelling you will watch the whole thing.

Matt Stoller is a former analyst for the Senate budget committee, a fellow of something called the Open Markets Institute and author of a new book, GOLIATH: the 100-year war between monopoly power and democracy.  He has a deep understanding of economics and the legislative process.

Jimmy Dore is a stand-up comedian with no special expertise, but a willingness to make up his own mind about issues.  He ignores consensus opinion and points out obvious facts that the consensus opinion ignores.

Stoller is right to criticize the cult of personality that has grown up around Sanders.  I don’t think he gives Sanders enough credit for the movement he helped inspire, but I do think he is right to say that Sanders has been more interesting in gaining acceptance for himself and his ideas than wielding political power himself.

And I also think he is right about not pinning hopes on charismatic leaders.

Stollar thinks the Democratic Party is un-reformable as is the Republican Party.   But American election law is structured to discourage new political parties and, in any case, the greens, libertarians and other minor parties don’t have mass followings.

The only remaining option is to build a progressive movement, uniting grass-roots labor, community and civil rights groups, that will be so powerful that Democrats and Republicans will be forced to heed it.

But this could be the work of a generation, and the economic crisis, the climate crisis and the danger of nuclear war are already upon us.

So the outlook is grim.  But the future is unknowable and despair is a self-fulfilling prophecy.

As always, I invite comments, but I hope readers will watch the video before commenting.  What Matt Stoller and Jimmy Dore had to say is more interesting than my words.

LINKS

The Jimmy Dore Show – YouTube.

BIG by Matt Stoller.  His blog.

Bailouts for the Rich, the Virus for the Rest of Us by Rob Urie for Counterpunch.

The Coronavirus Stimulus Bill Is a $2 Trillion Slush Fund for Washington Cronies by Marshall Auerbach for the Independent Media Institute (via Naked Capitalism)

Adam Tooze on the global financial crisis

The great economic historian Adam Tooze, in his just-published book, CRASHED: How a Decade of Financial Crises Changed the World, showed me things I hadn’t known, and made me rethink things I thought I understood.

Above all, he jolted me out of thinking of the 2008 financial crisis as primarily an American crisis.  It was global in nature, its consequences are still rippling through the world economy and its basic causes have not been dealt with

It is a kind of bookend to his earlier book, THE DELUGE: The Great War, America and the Remaking of Global Order, 1916-1931. 

In the earlier book, Tooze described the continuing debt crisis following World War One, with Germans unable to pay reparations and the Allies unable to pay their war loans, and how the ongoing debt crisis shaped international relations and governmental policy in that era.

The United States, as the world’s top industrial power and top creditor nation, dominated the world financial system, but American leaders lacked both the understanding and the political means to resolve the crisis.  All the United States could think to do was lend money to Germany to keep the system from crashing.  In the end the financial system crashed anyhow..

Prior to the 2008 crash, the United States was in the opposite situation.   U.S. industrial power had been hollowed out and the United States was the world’s top debtor nation.  Economists feared the “twin deficits”—the U.S. trade deficit and government budget deficit—would cause runaway inflation.

This didn’t happen.  The U.S. dollar continues to be the medium of world trade, and the financial markets continue to consider U.S. Treasury bonds the world’s safest financial asset.

American financial leaders such as Ben Bernanke, Timothy Geithner and Larry Summers acted boldly to meet the crisis. They bailed out banks, stabilized the financial system and averted a 1930s-type great depression, which was a real possibility.

That was no small achievement.  What they failed to do was to reform the system so as to reduce the possibility of a second crash.

∞∞∞

I had put the blame for the crash on Clinton-era deregulation, which gave free rein to speculation and to unethical and illegal (but unprosecuted) manipulation of the subprime mortgage market.   Financial markets have always been subject to cycles of expansion and recession, but removing the brakes made the crash a disaster instead of just a problem.

What I learned from Crashed is that deregulation was international.  Prime Minister Margaret Thatcher’s government completely deregulated British financial markets in 1986, in what was called the “Big Bang.”  Her hope was to make the City of London, the British equivalent of Wall Street, the world financial center, and she succeeded.  American, European and Asian banks all made London their major hub, even though they did business in dollars.   The purpose of Clinton-era regulation was to enable Wall Street to catch up with the City of London.

Rural America invests in high-speed Internet

Graphic from YES! magazine

Small American cities and rural communities are developing high-speed Internet service for themselves, following failures of President Obama’s plan to finance such service under his stimulus plan.

I read two articles on-line this morning—an old one in POLITICO about the mismanagement of the stimulus plan by the Rural Utilities Service (successor to the Rural Electrification Administration) and a recent one in YES! magazine about how local governments are acting on their own initiative to provide these services for themselves.

The two articles fit in with a long-held belief of mine—that role of government is to provide public services, such as public roads, public schools and law enforcement, under neutral rules, and not to divide up the public into worthy claimants and unworthy claimants.

I’m sure federal grants have made possible some worthy local projects that otherwise wouldn’t have taken place.  Certainly the original Rural Electrification Administration did a lot to improve the lives of American farm families.

But very often grantsmanship becomes disconnected from actual needs.  There is a cost in going through the grant approval process, maybe with the help of a professional grant application writer, and in documenting compliance with the requirements for the grant, which may have nothing to do with local priorities.

LINKS

Wired to fail by Tony Romm for POLTICO (2015)

Tired of Waiting for Corporate High-Speed Internet, Minnesota Farm Towns Build Them on Their Own by Ben DeJarnette for YES! magazine.

Why the economic recovery is so slow

Current job losses and recovery compared with previous recessions

The chart shows how slow the current U.S. economic recovery is compared to recoveries from  previous recessions.  When and if the number of U.S. jobs returns to the pre-recession level (the 0.0% line on the chart), the jobs recovery will not be complete because the number of working-age Americans will have increased in the meantime.

Why is the current economic recovery so slow?  Here is what I think:

• Almost all the benefits of economic growth during the past 20 or 30 years have been flowing to a tiny minority of the population — the upper 1% or 0.1% of the population.
• These segment of the population spends less of their income than most Americans do.  Instead they save their money so that they can become even richer.
• Contrary to what “supply-side” economists hoped in the 1980s, they have not been investing their money in enterprises that create American jobs.  People don’t invest money just because they have money or just in order to create jobs.  They invest money in a business because they have reason to think there is a market for that business’s products and services.
• Prior to the 2008 crash, U.S. economic growth depended on the willingness and ability of the American middle class to take on debt in order to maintain their spending power.
• Since the 2008 crash, banks, wisely, have tightened their requirements for lending.
• Since the 2008 crash, middle class Americans, wisely, have been paying down their debts rather than taking on more.

• These leaves us with the situation that John Maynard Keynes wrote about — an economy that does not grow because people have no money to spend, and people without money to spend because the economy is not growing.

I don’t believe in government spending money for the sake of spending money, but there are a lot of things that need to be done that in the long run will add to US economic strength, and this would be a good time to start.  One useful way to increase jobs is for governments at all levels to start to repair our deteriorating bridges, water mains and other physical infrastructure.

LINKS

FORGET THE 1% by J.D. Alt for New Economic Perspectives.

Inequality and the Weak Recovery by Joe Weisenthal for Business Insider.

Americans Shut Out of Home Market Threaten Recovery by Pashant Gopal and John Gittelsohn for Bloomberg Business News.

Bridges in danger of falling down

Double click to enlarge.

A good way to stimulate the United States economy would be to put people to work fixing the nation’s bridges.  After that they could be put to work on dams, levees and water and sewerage systems.   It’s at least as likely to stimulate the economy as Quantitative Easing – buying up bad investments of the Wall Street banks – and, even if it doesn’t, we at least have safer bridges.

Obama and the economic recovery

The October jobs report shows the U.S. economy continues to recovery, but, as this chart from the Calculated Risk web log shows, at a much slower rate than previous post-war economic recoveries.

Since the 1970s, each economic recovery has been weaker than the previous one, with slower growth in jobs and hourly wages at a lower rate than in the previous recovery.   But in my opinion, the reason the 2007 recession is so much worse is the 2008 Wall Street crash, signaling the unsustainability of an economy based on debt and speculation rather than borrowing.

Here are some more charts, also from Calculated Risk, which show the state of the U.S. economy in the light of the latest job report.

The lower chart, which shows the proportion of the population in the labor force and the proportion with jobs is probably a better measure of the employment situation than the unemployment rate, which is the percentage of the population looking for jobs who can’t find jobs.   You should notice that the bottom line on the chart is not zero, which means that the variation at first glance seems greater than it really is.

The job losses in the recession were mainly well-paying, middle-class jobs, and the job gains are mainly low-paying, less desirable jobs.   And while any increase in jobs is good news, the rate of job growth is barely enough to keep up with growth in the population.

I think President Obama deserves some credit for the fact that things are not even worse than they are.  I think his stimulus program helped, and, while I disagree with the way the bank bailout was handled, I think the recession would have been far worse if the administration had stood idly by and let nature take its course.   Here is another Calculated Risk chart, which compares the current U.S. recovery with the Great Depression of the 1930s in the United States and with other nations which have gone through financial crises in the past few decades.

What this chart shows is that the financial crisis in the United States could easily have been much worse than it was.

Unfortunately, the Obama administration failed to take action to prevent a future financial crash.  It declined to prosecute for financial fraud nor to restructure failed financial institutions, as was done in the aftermath of the savings-and-loan crisis.  Obama’s administration worked pro-actively to prevent legislation that would break up the too-big-to-fail banks or to take meaningful action to limit speculation with federally-insured bank deposits.  As a result, the Wall Street financiers who were responsible for the financial crash, except for the executives of Lehman Brothers, wound up better off than they way before.

The predictable result of this will be another financial crash, a bigger and worse one than the 2008 crash.  I am not smart enough, or foolish enough, to say when this will be, but when it happens, it will be a political disaster for whatever political party happens to be in power at the time.

The broader problem is that the United States has slower economic growth than in the 1950s and 1960s, and an increasing share of the benefits of that growth are going to a tiny minority of the population.  I think both trends are the result of the globalization of the national economy.   To some extent, slower economic growth and wage stagnation are the result of the leveling of the playing field between American workers and workers in Latin American and eastern Asia.  I don’t complain about this.  It would be shameful to try to maintain my high material standard of living by trying to keep people in other nations poor.

The other aspect of globalization is that the world’s economic elite have the means to escape regulation and taxation, and that international economic institutions—the World Trade Organization, the International Monetary Fund, the European central bank—operate to protect the interests of financial institutions and the economic elite from national governments.  I can imagine an alternate globalization in which international institutions work to raise labor and environmental standards, but at present workers and scientists are not in charge.

I wouldn’t expect Barack Obama to be able to change the situation all by himself, although I think a President is in a good position to raise awareness of the problem.  Nor do I think that Mitt Romney offers a better alternative.   His Bain Capital is part of the problem.  Change, if it comes, will have to come from an aroused public opinion.

Click on Calculated Risk: October Employment Report for a more complete analysis of the latest Bureau of Labor Statistics report.

Click on Modest Jobs Growth in Latest Economic Report for a more readable and less technical analysis by the New York Times.

I don’t see how this can possibly end well

The Federal Reserve System has the power to create money, which it puts into the U.S. economy by buying Treasury bonds or other financial assets.   The chart above, which comes from the Federal Reserve Bank of St. Louis, shows how the money supply has more than tripled since Barack Obama was sworn in as President.

Recently Ben Bernanke, the chair of the Federal Reserve Board, announced that the Fed will spend $40 billion a month to buy mortgage-backed securities (aka toxic assets) until employment is back to normal.

The theory behind this is that putting more money into circulation will stimulate economic activity, because banks will increase their lending to American small businesses and consumers.  As economist Michael Hudson (shown in the video in my previous post) pointed out, this hasn’t happened.  The big Wall Street banks have more profitable things to do with their money.  What the Fed’s action does is to relieve the big Wall Street banks of the consequences of the 2001-2007 house price bubble and set the stage for a new bubble.

Another of the Fed’s policies has been to hold down interest rates to virtually zero.  The theory behind this is that Americans will borrow more and this will stimulate economic activity.  The actual result has been to artificially stimulate the stock market by driving money out of bank savings accounts.

Taking myself as an example, I get virtually no interest on my bank account.  This means that as a result of inflation, which is low but not zero, my savings are worth less in real terms than they were at the beginning.  This creates an incentive to venture out into the financial markets.  But since stock prices are being lifted by something other than the perceived value of the companies issuing the stock, there is bound to be a fall.

One cause (or definition) of inflation is too much money chasing too few goods.  During the past three years, the Federal Reserve System has more than tripled the amount of U.S. dollars, but this has not gone into increased production of U.S. goods.  Inflation is low in historic terms, but there is no guarantee this will continue.  I don’t see how this can possibly end well.

Click on QE Forever for analysis by Robert P. Murphy in The American Conservative.

Click on QE3: Another Fed Giveaway to the Banks for analysis on the naked capitalism web log.

The “monetary base” is spendable money, including cash and coins, bank accounts and money market funds.  There are other measures of the money supply, which include bank savings certificates, Treasury bonds and certain other kinds of financial assets.

Benchmarking the U.S. employment recovery

Double click to enlarge.

Double click to enlarge.

I’ve posted a number of charts like the one at top showing how much worse the current employment recovery is than the recoveries following previous recessions since World War Two.   But the second chart provides another and maybe more meaningful comparison—the U.S. recovery versus employment recoveries in foreign nations following financial crises.  The current U.S. recovery is not out of line with the experience of foreign nations.

The most significant comparison, though, is with the current U.S. recovery, shown by the thick red line, with the aftermath of the 1929 stock market crash, shown by the dotted black line.  What it indicates to me was that the United States was on a slide toward another Great Depression, like that of the 1930s, but that the slide was prevented by the bank bailouts and the Obama stimulus plan.

I’ve criticized the Obama administration for failing—really, not seriously attempting—to put anything in place that would prevent a repetition of the recent financial crash.  The Obama administration has blocked prosecution of financial fraud and meaningful legislation to regulate or break up the “too big to fail” banks, while the Federal Reserve Board, through its Qualitative Easing programs, has given money to the big Wall Street banks at near-zero interest rates without any requirement that the money be lent in the real American economy.  I think the United States is on track for a bigger crash and a bigger bailout, if indeed a bailout is possible the next time around.

But give credit where credit is due.  The swift action of the Bush administration, the teamwork of the Bush and Obama administrations during the transition, and Obama administration’s follow-through prevented a collapse of the financial system, and the Obama stimulus plan also helped shore up the economy.   I can’t prove this.  There is no way to turn back the calendar and see what would have happened with no bailout and no stimulus, but I think the Hoover administration’s experience after 1929 provides a good indication of what would have happened.   But now that the collapse has been averted, the U.S. government and banking system is busy recreating the circumstances that led to the collapse in the first place.

Click on Does this graph prove the recovery has been impressive, after all? for the thoughts of Ezra Klein on the Washington Post’s Wonkblog.

Click on Checking In on Financial Crisis Recoveries for the source of the chart in a report by Josh Lehner of the Oregon Office of Economic Analysis.

Obama’s stimulus: a new New Deal?

While I’m critical of President Obama’s overall record, and do not intend to vote for him, I do think he deserves credit for the economic stimulus program he pushed through Congress in the early days of his administration.

While the economic recovery is strong in the stock market and weak in the jobs market, the United States averted the complete economic collapse which seemed to be imminent in early 2009.  I think the Obama stimulus program helped stop the downward spiral, and also put in place some things that will be important for the economic future.

I don’t think a President Hillary Clinton would have done better, and I think a President George W. Bush, John McCain or Mitt Romney would have done a whole lot worse.

I just got finished reading The New New Deal: The Hidden History of Change in the Obama Era. by Time reporter Michael Grunwald.  He told me things about Barack Obama’s stimulus program that I hadn’t known and that hadn’t fully registered.  He left me with a better opinion of the President and the stimulus program than I’d had.

Grunwald argued that the stimulus prevented the Great Recession from becoming much worse that it was, and that it put in place efforts, especially the DARPA-E program for green energy, that are important to the long-term economic growth of the United States.  He also argued that, given the political realities, what President Obama did was probably as much as could reasonably be expected.

He said the the Obama stimulus program in itself pumped more money into the U.S. economy, in inflation-adjusted dollars, than President Franklin Roosevelt’s entire New Deal.  It is true that the United States is a much richer country, in inflation-adjusted dollars, than in the 1930s, but Grunwald also said that Obama’s stimulus program absorbed a greater fraction of the U.S. gross domestic product than the New Deal in any one year.  This is astonishing.  I hadn’t known this.

Given that fact, I agree that it is not reasonable to complain that the stimulus was not even bigger than it was.  My criticisms of President Obama’s economic policies are on other grounds—his administration’s failure to address the causes of the financial crash, his shielding of Wall Street speculators from prosecution for financial fraud, his willingness to use Social Security and Medicare as bargaining chips.

Obama has in some ways a tougher challenge than FDR.  The New Deal of the 1930s was intended to restart a stalled economy.  With the hollowing out of U.S. manufacturing during the past few decades, it is necessary not only to restart but to repair.

The American renewable energy industry was on the verge of collapse when Obama took office, Grunwald wrote.  The Obama administration has revived it by investing in innovative companies, by creating a market for renewable energy by starting to convert the government to green energy and by grants for energy research through the new Advanced Research Projects Agency for energy.

Not all the investments turned out well.  The Solyndra solar panel company is an example of a failed investment (not of corruption), but other initiatives are turning out well, according to Grunwald.  The use of renewable energy in government buildings and vehicles creates a market for green energy, in which the same way that military purchases of semiconductors or granting of air mail contracts in past eras helped the U.S. develop a semiconductor and aviation industry.

ARPA-E is modeled on the successful Defense Advanced Research Projects Agency which promoted innovation with military applications.  It actually was formed during the George W. Bush administration, but greatly expanded after Obama took office.   Gov. Mitt Romney supports ARPA-E, so this is one innovation not likely to be rescinded.

Grunwald wrote a good bit about the struggle to create high-speed passenger trains in the United States.  As a matter of national pride, this would be nice to have, but as a matter of economic benefit, I think we should recognize that, in the United States, the rail system is mainly for moving freight and people travel mainly by highway and by air.  As part of the stimulus program, the Obama administration started a program for replacing track, straightening out curves and eliminating bottlenecks on the rail system.  I think that was the right priority.  For highway transportation, the administration gave priority to maintenance and repair over new construction, and I think that was the right priority, too.

Grunwald pointed out other nuggets in the program—use of information technology for medical records, for example, and extension of broad-band Internet to under-served rural areas, in the spirit of the New Deal’s rural electrification program.

I don’t agree with the Obama administration’s Race to the Top education program, which was part of the stimulus bill.  Grunwald thinks Race to the Top is a program to encourage educational innovation.  Until somebody can show me an example of successful innovation that has come out of the program, I will continue to think that it is a plan to scapegoat school teachers and impose on them a dysfunctional corporate management philosophy.

While I largely agree with Grunwald’s favorable view of the stimulus program, I don’t think the Obama administration overall record reflects the spirit of the New Deal.  President Obama, like President Franklin Roosevelt, is an inspirational leader who can touch the idealism of the American people.  But his record does not match FDR’s.

A real new New Deal would (1) defend Social Security and Medicare instead of making them bargaining chips in a tax deal, (2) break up the too-big-to-fail banks and restore the Glass-Steagal act, (3) prosecute financial fraud and (4) enact the Employee Free Choice Act (aka “card check”) to protect the right of workers to join unions.

Grunwald wrote that Obama achieved as much as can be expected, given the requirement of 60 votes to get a bill through the Senate.  Someone like me who wants more is a “whiner.”  But the 60-vote requirement is simply a procedural rule which can be changed.

The important difference between Obama’s situation and FDR’s is that there is no aroused public opinion forcing the President to do more, as there was in the 1930s.  Until that changes, President Obama’s policies will be the limits of the possible.

Click on The New New Deal for an interview with Grunwald about his book by David Plotz of Slate.

Click on “Everything People Think They Know About the Stimulus Is Wrong” for an interview of Grunwald by Ezra Klein of the Washington Post.

Click on The ‘Silent Green Revolution’ Underway at the Department of Energy for an interview of Grunwald by Ross Anderson of The Atlantic.

Click on Don’t Tell Anyone, But the Stimulus worked for a New York Times report.

Click on Obama’s Green Revolution for an article by Grunwald on President Obama’s energy program.

Click on Michael Grunwald | TIME.com for an archive of his recent articles.

Hat tip to Bill Elwell for suggesting Grunwald’s book.

Recession over? Not for working people

The Economic Policy Institute, a non-profit research organization which studies trends in wages and employment, has just issued its latest State of Working America.  Its facts and figures show that conditions were not good for wage-earners even before the Great Recession, and that, even though the recession is officially over, the United States has a long way to go before working people recover lost ground.

The Great Recession was by far the worst in the United States since the end of World War Two.

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And while there has been recovery in economic output, and in the financial markets, the United States is a long way from getting back to a full employment economy.

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There has been some improvement in jobs, perhaps partly because of President Obama’s stimulus program, maybe partly because of the natural turn of the economic cycle, but not to pre-recession levels.

I believe that the reason the Great Recession was so bad and the recovery is so weak is that it is more than a routine downturn in the economic cycle.  I believe the United States has reached the limits of creating spending power by substituting credit for income, and we Americans need to somehow recreate an economy based on production rather than finance.

I think President Obama’s economic stimulus program kept things from being worse than they otherwise would have been.  I don’t think Mitt Romney’s and Paul Ryan’s economic philosophy, which is essentially make rich people richer and poor people poorer, would help.  But I do criticize Obama for giving free rein to the too-big-to-fail banks whose fraud and follies were the immediate cause of the crash, and thereby setting the stage for a new and bigger crash.

Click on Economic Policy Institute for the EPI home page.  Click on The State of Working America to read the digital edition of the EPI report.  A print edition is scheduled for publication in November.

Click on Did the stimulus work? for summaries of 15 economic studies by Dylan Matthews of the Washington Post’s Wonkblog.  Matthews’ scorecard is that 12 studies said the stimulus was beneficial, two said it was useless and one said the effect is uncertain.

Click on Obama, Romney and the Low-Wage Future of America for an article by Dan Froomkin for Huffington Post Nieman Reports on the lack of a plan from either candidate for a full-employment, high-wage economy.

Is the recession the fault of people like me?

Why hasn’t the government of the United States done more to end the recession?  According to an economist named Steve Randy Waldman, it is my fault—or rather the fault of people like me, old retired people who’ve saved their money and don’t want anything to happen that would affect the value of our savings.

We are in a depression, but not because we don’t know how to remedy the problem. We are in a depression because it is our revealed preference, as a polity, not to remedy the problem. We are choosing continued depression because we prefer it to the alternatives. … …

But the preferences of developed, aging polities — first Japan, now the United States and Europe — are obvious to a dispassionate observer.  Their overwhelming priority is to protect the purchasing power of incumbent creditors.  That’s it.  That’s everything.  All other considerations are secondary.  These preferences are reflected in what the polities do, how they behave.  They swoop in with incredible speed and force to bail out the financial sectors in which creditors are invested, trampling over prior norms and laws as necessary.  The same preferences are reflected in what the polities omit to do.  They do not pursue monetary policy with sufficient force to ensure expenditure growth even at risk of inflation.  They do not purse fiscal policy with sufficient force to ensure employment even at risk of inflation. They remain forever vigilant that neither monetary ease nor fiscal profligacy engender inflation.  The tepid policy experiments that are occasionally embarked upon they sabotage at the very first hint of inflation.  The purchasing power of holders of nominal debt must not be put at risk.  That is the overriding preference, in context of which observed behavior is rational.

via interfluidity.

I don’t see it.  I am fortune enough to have savings, which I have invested conservatively, and I don’t think that either the federal government or Wall Street is acting in my financial interest.  If it were, I would be able to earn interest on my bank account or my money market fund.  No, the U.S. government, the German government and the international financial institutions are operating in the interests of the big banks and investment firms.  They are acting to preserve the value of their assets, not my savings.

True, many Tea Party members are in my economic class, and they are much more worried about inflation and government debt than they are about unemployment and public services.  But the Tea Party rank and file don’t run things.  The average Tea Party supporter is as opposed to the Wall Street bailouts as I am.

True, economic policy is tilted toward averting inflation, which isn’t a serious problem at present, rather than bringing down unemployment, which is.  I think that reflects the policies which serve the interests of financial institutions, whose priority is to maintain the value of currencies and financial assets, and over the interests of the producers of tangible goods and services, whose priority is to maintain the level economic activity.

I don’t think governments should intentionally adopt a policy of inflation, but I do think they need to recognize that inflation is not the main concern right now.  Right now continued recession, with the strong possibility of another financial markets crash, is a greater threat to my savings than inflation is.

Click on Depression is a choice for Steve Randy Waldman’s full comment.

Medicine for an economy sick with debt

Ratio of total U.S. debt to U.S. economic output

Our great recession is due to the bursting of a debt bubble, and not just the normal ups and downs of the economic cycle.  We had an economy in which many and maybe most Americans were unable increase their earning power, but maintained their material standard of living by going deeper into debt.  As long as the real estate bubble and the stock market bubble lasted, they were able to keep on borrowing.  Now that the bubble has burst, and it is time to pay up.

The old Keynesian medicine doesn’t seem to work.  As long as the government pumps money into the economy, there is some recovery, but noy enough to keep going when the government stimulus ends.  Paul Krugman proposes a stronger stimulus.  If deficit spending can spark sustained economic growth, he says, that growth will make it possible to pay down the debt in the long run.  Very true, but what if it doesn’t?  What if deficit spending just adds to the deficit and nothing more?

“Austerity” doesn’t work either.  Cutting necessary government services — schools, road maintenance, public health — just creates a different kind of deficit, if you look at things that way.   This “saving” is going to have to be made up by much more spending in the future.

Meanwhile we’re stuck.  As Sarah Jaffe of AlterNet put —

The student loan debt alone is going to be a trillion dollars sometime in the next couple of months. That’s a trillion dollars that we’re all paying in interest to Sallie Mae, to Citibank—mine was with Citibank for several years—to Wells Fargo, to Discover Card Services, which bought a bunch of student loan debt recently, and to the federal government. But we’re not paying that into our local businesses. We’re not paying this into the corner store. We’re not paying this to the farmer’s market. We’re not paying this to anything. We’re not buying a home because we have student loans or we’re not going back to school because we have a home loan.

Debt has been a substitute for wage increases in this country for about the last thirty years, give or take.  Real wages haven’t gone up in a really long time.  We’re mortgaging our future on credit cards and home equity.  And when the housing bubble popped, and the credit markets froze, we suddenly realized exactly how little we had that wasn’t promised to somebody else already.  It becomes a drain on the future. 

via n + 1: Debt.

Inflation is one historic method by which nations have made their debts go away.  We don’t want to go that route.

The other historic way to address the debt problem is to “restructure” the debt—have people pay what they can afford, so much on the dollar, and chalk it up to experience.  The creditors learn to be more careful in the future when they lend money.  The debtors find that it is much more difficult to borrow money.  Both are able to move on to new things.

During the 2008 election campaign, there was talk of something called “cramdown”—giving federal bankruptcy judges the authority to restructure mortgages in hardship or legally cloudy cases.  Various proposals have been advanced for giving relief on student debt.  Internationally, government debt crises almost always result in a restructuring of debt, but usually after a period of “austerity” in which the public is subjected to higher prices, lower wages, higher taxes and denial of essential government services.

I think that when you borrow money, you have a moral obligation to make a good-faith effort to pay back the money.  But when a borrower is honestly unable to repay a loan, it means both the borrower and the lender have acted unwisely (or are the victims of bad luck), and they both should suffer.  The lender suffers by taking a loss; the borrower suffers by having to pay up to the limit of what they can and by not being able to borrow in the future.  But you cut short the agony.  You make it possible to start fresh.

Click on n + 1: Debt for a panel discussion of debt by David Graeber, author of Debt: the First 5,000 Years; Mike Konczal of the Roosevelt Institute; Brian Kaltenbrenner of Occupy Student Debt; and Sarah Jaffe of AlterNet.

Click on Okay, Folks, Let’s Put Aside Politics and Look at the Facts for useful charts and information from Henry Blodget of Business Insider.   Blodget is a Wall Street guy who thinks the answer to the federal budget deficit is a combination of tax increases and cuts in Social Security, Medicare and Medicaid.  My problem with this is that Social Security (contrary to the propaganda) is solvent and Medicare delivers health insurance more efficiently and at lower cost than for-profit health insurance systems.  It is true that Medicaid spending is a problem, but I think a solution needs to be something other than denying essential medical care to poor people.  That said, Blodget provides a great deal of good information.

Click on Hubbert’s Third Prophecy for more useful charts and information from ClubOrlov.  The post concludes with an argument against banking as such, which I don’t understand and with which I probably would disagree if I did understand it.  That said, there is a lot of good information, as well as food for thought about exponentially increasing debt in a world that cannot sustain exponentially increasing economic output.

Click on Parsing the Data and Ideology of We Are the 99% for an analysis by Mike Konczal of the demands of the people on the “We Are the 99 Percent” Tumblr page.  His conclusion was that their basic demands were debt relief and the means of basic economic survival.

The success and limits of economic stimulus

New unemployment insurance claims

It is a fact that economic recovery began after President Obama took office.  I believe that the recovery was helped by his economic stimulus program and by programs already in place such as food stamps and unemployment insurance.  These helped cushion the effects of the recession and allow recovery to take place.  I can’t prove this.  There is no way to go back in time and run another scenario in which the government stood aside and allowed events to take their course.

The problem is that the recovery is so slow, and that even when and if economic conditions get back to the way they were before.  During the supposed expansion preceding the 2007 recession, wages were declining (in terms of buying power), American manufacturing was being eroded and poverty was increasing.

Below are some charts which illustrate the weakness of the current economic recovery.

Stimulus without nourishment

What little I know about Starbucks leads me to believe that its managers are ethical people who treat their employees well and provide a good product.  But I avoided Starbucks coffee because I don’t want to acquire an expensive new habit.

The other day at lunchtime, I went with a friend of mine to a Starbucks, and my friend bought me a grande java-chip frappuccino, which was something like a heavily caffeinated vanilla milkshake.  It was delicious!  I was surprised by how energized I felt.  The feeling lasted all afternoon.  I didn’t eat lunch.  I saw why people like Starbucks’ concoctions so much.

That evening my energy ran out.  I felt more tired than I usually do, and I slept later the following morning that I usually do.  I realized that I needed to eat real food for lunch, and that the Starbucks frappuccino was not food, but a food substitute.  The frappuccino gave me stimulus without nourishment, energy without strength.  If I had done this on a regular basis, I would have had the energy to keep going through the day, but in the long run I would have depleted my strength.

Stimulation and pleasure are good things, not bad things.  But they are no substitutes for nourishment.  When I worked on newspapers, I needed a cup of coffee and maybe a sugared pastry each morning and afternoon to work at peak efficiency, but I didn’t skip lunch.  The caffeine and sugar gave me the energy to stay alert, but I needed actual food for health and strength.  Now that I am retired, I usually (not always) limit myself to a single cup of coffee in the morning.

I thought about the other things in life that give stimulus without nourishment.   Watching the circus-like presidential candidates’ debates on TV is stimulating, but it doesn’t make me a better-informed voter.  I need to read intelligent newspaper and magazine articles to do that.

I stay away from role-playing computer games precisely because I fear I might find them so engrossing I would give up things which I care about.  If I am alive 10 years from now, I don’t think I will regret never having played World of Warcraft, but I would regret not having read some of the great classic novels I intend to read when I get around to it.  That’s one definition of a good life–doing things you can look back on with justified satisfaction.

On a societal level, we Americans talk about economic stimulus when what we really need is to rebuild our nation’s economic strength.  The two things are not the same.  Congress seems more resistant to doing things of lasting value, such as infrastructure improvement and investing in green energy, than to things that will give a temporary boost, such as “cash for clunkers” or temporarily cutting the payroll tax.  The latter will not sustain us in the long run.

Do you agree with this distinction?  What other things give stimulus without nourishment?

The spirit of Christmas economic stimulus

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Click on Candorville for more like this.

Obama’s jobs plan: is it enough?

President Obama surprised his progressive critics by proposing a $450 billion stimulus plan—about $150 billion larger than what most had predicted.  And he surprised and pleased them once again today by announcing that he proposes to pay for the plan by raising taxes on people with incomes over $200,000 a year.

The proposed American Jobs Act appears to have something for everybody.  Kevin Drum of Mother Jones gave this useful breakdown of what’s in the President’s proposal.

• $250 billion in tax breaks.  Most of this is a payroll tax cut, but the plan also includes 100% expensing of business investment, tax credits for hiring unemployed workers, and a few other things.

• $100 billion in infrastructure spending.  About half of this is for new projects, and the other half goes to an infrastructure bank, a program to fix up vacant and foreclosed homes and businesses, and a program to fix schools.
• $100 billion in other stuff, including extension of unemployment benefits, direct state assistance to hire cops and firefighters, a mortgage refinancing program, and a few other smaller items.

via Mother Jones.

The consensus of economists is that President Obama’s jobs plan, if enacted as proposed, would lower the unemployment rate would fall by a percentage point or so, and increase the economic growth rate by a percentage point or so.

We don’t know what would happen after the stimulus runs out.  Would employment and economic activity start to rise on their own?  Or would they stop growing, as happened after the original stimulus program was enacted?  In a normal economic cycle, a stimulus of this size would be enough to boost the economy into growth.  I think the current economic crisis is much more than that.

Devoting more than half the stimulus to tax cuts is not good policy, and may not even be good politics.  Most Americans are so deep in debt that, if they get a little extra money, they will pay their current bills rather than increase their spending.  Tax credits aren’t going to spark business activity unless there is demand for the goods and services that businesses provide.

Much of the original stimulus consisted of tax cuts, but many Americans don’t check their withholding taxes, and don’t believe that President Obama reduced taxes.  It is doubtful that he would get any more political benefit from a second round of tax cuts.

Cutting payroll taxes for Social Security is a bad idea, even though the difference would be made up out of general revenue, because it breaks down the barrier between the Social Security trust fund and the general government budget and weakens the taboo against tampering with Social Security.

I’m glad to see provision in the plan for repair of bridges, dams and other infrastructure, but any meaningful project will take years.  There are very few meaningful “shovel ready” infrastructure products except repaving roads.  Unfortunately I think the economy still will be in the doldrums when the bigger infrastructure projects are underway.

One thing that would help the economy would be to give Americans debt relief.  Some have proposed a “cramdown” plan, to give federal bankruptcy judges the authority to restructure mortgage debt so that the property-owner could pay.  I would favor something similar with student loans.

How much did the economic stimulus help?

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The economic stimulus plan enacted with the leadership of President Barack Obama, Senate Majority Leader Harry Reid and then-House Speaker Nancy Pelosi did not end the Great Recession, but, as the following charts show, it did do some good.

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While the jobs recovery is encouraging, economists believe that it is necessary to create 90,000 to 260,000 new jobs per month just to keep up with the population increase.  That is why the unemployment rate hasn’t gone down.

Can we do without military Keynesianism?

It is interesting how some people who disbelieve in the power of government to do anything about unemployment also believe there is such a thing as “war prosperity.”  During my life I’ve heard many people say that it was World War Two, not the New Deal, that ended the Great Depression.  To the extent that this is true, all it means is that the level of government spending in the 1930s was too modest.

Here’s a quote from Judson Phillips, a Tennessee lawyer who heads Tea Party Nation.

If we decided to build a couple of new carriers, thousands of workers would be hired for the shipyards. Thousands of employees would be hired for the steel mills that would provide the steel for the hull and various sub contractors would hire thousands. Do you know what that means?

It means they would receive paychecks and go out and spend that money. That would help a recovery. That is a shovel ready project!

Increasing spending for the military does a couple of things. It not only not only stimulates the economy, it protects our nation. That is a better investment than say spending money on teaching Chinese prostitutes how to drink responsibly.

via The Economist.

But there are those on the opposite side of the political fence who are just as inconsistent.  Many advocates of economic stimulus programs believe it is possible to make deep reductions in the armed forces and military spending without any adverse effect on employment and the economy generally.

If Judson Phillips favors military spending as a job-creating measure, and opposes spending on infrastructure construction to create jobs, that is inconsistent.  But many members of the Tea Party movement do in fact want to cut military as well as civilian spending.

The Obama administration is more in line with Judson Phillips than some of his fellow Tea Partiers are.  Defense Secretary Leon Panetta has warned against any real cuts in military spending (he favors only a slowing in the rate of growth) and says cuts should be concentrated on discretionary non-military spending as well as Social Security, Medicare and other entitlements.

I do not think the declining U.S. economy can sustain military bases and military operations all over the world.  I think the size and mission of the U.S. armed forces are excessive compared to what is needed for defense of the homeland.  But if the armed forces and military spending were shrunk to what is necessary, and nothing is else changed, this is going to raise the unemployment rate.   We need a change in priorities, not just cuts in spending.

What a real socialist sounds like

Senator Bernie Sanders, an independent from Vermont, is the only avowed socialist in the U.S. Senate.  He gave an 8.5-hour speech on Dec. 10 on the agreement between President Obama and the Republican leadership on tax legislation.  Some parts of the speech are on the YouTube videos below.  If you think President Obama is a socialist, listen to what a real socialist sounds like.