"Depression-era Economics"

[we vs us]

There seems to be more and more talk about how several historical threads are seemingly converging around us.  The economic tailspin is the one demanding the most attention and getting the most press, but the problems at GM and in the auto industry have forced talk of some of the other pressing background issues.  First among them is energy independence/alternative energy infrastructure and what role our domestic industry has been playing to date (consensus: not much at all) and what role it could play in the future (consensus: ?).  At the same time (as Cannon Fodder brought up in another thread) one of the chief liabilities of the American auto industry has to do with pension obligations and benefits negotiated by the UAW and other unions.  That's healthcare and wages to you and me.

Paul Krugman in the NYT recently wrote:

quote: We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy — above all, the Federal Reserve's ability to pump up the economy by cutting interest rates — have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.  

All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.  

So the question becomes, will the Obama people dare to propose something on that scale?  

Let's hope that the answer to that question is yes, that the new administration will indeed be that daring. For we're now in a situation where it would be very dangerous to give in to conventional notions of prudence.    

Though he's a Nobel Prize winning economist, he's also a dangerous lib and a well-known tax-and spender.  Imagine my surprise when I stumbled across Mort Kondracke, one of Fox's Beltway Boys, chiming in with the prescriptions of a fellow conservative:

quote: Feldstein - this is the conservative, mind you - said that the extra spending plan ought to be $300 billion for 2009 and $500 billion over the next two years, above and beyond the $700 billion already committed to the rescue of financial institutions.  

It's worth noting, as Feldstein and other conservatives do, that the United States did not emerge from the Great Depression until World War II, the hugest Keynesian project of all time.  

So, as Feldstein said, "what we need now is to have a major spending program which takes the place of the arms build-up that happened as we went into World War II."  

What seems impressive to me is that there really does seem to be a consensus emerging, and that consensus is for the incoming Obama administration to make BIG plans and to put them in to effect immediately, if not sooner.  

I've wanted to write something about what sort of mandate the nation has seemed to grant Obama since the election, and what those who voted for him really want him to do with his power, but have been a little confused by older members of the D caucus (Harry Reid, I'm looking at you) that seem to resist the idea of sweeping change, and are caught playing the Clintonian game of small nibbling little policy tweaks.  It seems obvious to me that the nation wants things to be different, and by convincing margins -- and it seems that even some conservatives seem to want this to happen.  

As Kondracke notes, "It's an emergency we face, no question. But soon-to-be White House Chief of Staff Rahm Emanuel had it right when he said, "No crisis should be allowed to go to waste." Let's hope he and his boss manage this one well - better, in fact, than FDR."

My guess is that when Obama finally gets into office, he'll combine some stimulus with some of his other major policy prescriptions, either for energy policy or for healthcare.  Either way, it looks like people really DO want a New New Deal.

[Nik]

[we vs us]

quote:Originally posted by Nik

Ok then, maybe I need to renew my subscription to TIME.

[inteller]

oh that really is the cover!  I thought it was just a slick blogger's photochop.  

so BHO goes from Che-esque T-shirts to this.  my my how far we have come in such a short time.

[Hometown]

Obama's campaign was notably devoid of an overarching message other than "change" (without detail).

By looking at his healthcare proposals one could assume he is inclined to take half steps.

And while we may end up with a depression it's not clear now that that is where we are going.

Even with a full blown depression FDR faced a lot of opposition.

I don't see a mandate for sweeping change and I don't see an inclination in Obama to take that on.  But its still early and recent news doesn't look so great.  The recent PBS special on 1929 did present some similarities to our current situation.

If Obama does go for sweeping change he'll need to work overtime to bring us along because his campaign did not outline a specific program for that kind of change.

[USRufnex]

HT, there have been plenty of details on Obama's proposed policies.  But will life in Policywonkland really reflect much on what actually will happen in the White House in the next four years?

Obama will not force 20-somethings into a Mitt Romney Massachusetts-style mandatory system... the mandatory system hasn't lowered costs or achieved universal coverage....



http://www.benweger.com/2008/09/universal-healt.html

http://www.nytimes.com/2008/04/05/us/05doctors.html

Obama's mantra of "change" may be vague, but represents a change of direction, which contrasts to the DLC and the Clintons' 90s mantra of "triangulation" -- the politics of Dick Morris and Mark Penn...

http://www.washingtonpost.com/wp-dyn/content/article/2008/01/02/AR2008010202487.html

I will be more than happy to support Obama's progressive pragmatism over the previous failures of Clintonesque triangulation...

[Hometown]

There may be lots of detail in policy statements but it didn't make it into the speeches I heard.  Talking heads have suggested that the lack of detail was intentional so as not to drive away any potential votes.

Regardless, he will have to get us up to speed if there is going to be sweeping change.

[USRufnex]

The "lack of detail" is not only intentional, it's part of the actual policy...

Democrats: More Than Health Care
By DAVID LEONHARDT
Published: January 2, 2008
http://www.nytimes.com/2008/01/02/business/02leonhardt.html?_r=2&oref=slogin&oref=slogin

Compared with all the other candidates — Democrat and Republican — Mrs. Clinton and Mr. Obama occupy roughly the same place on the ideological spectrum. They're both somewhat to the right of John Edwards, who favors a more muscular brand of government intervention to help the middle class. And they are well to the left of every Republican.

But the differences between Mrs. Clinton and Mr. Obama can't be neatly captured with the standard language of right and left.

The easiest way to describe Senator Clinton's philosophy is to say that she believes in the promise of narrowly tailored government policies, like focused tax cuts. She has more faith that government can do what it sets out to do, which is a traditionally liberal view. Yet she also subscribes to the conservative idea that people respond rationally to financial incentives.

Senator Obama's ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program — one less likely to confuse people — is often a smarter program.

------------------------------------------------

She has proposed new tax credits for savings, tuition, health care, elder care and renewable energy use. Her retirement tax credit, for example, would match the first $1,000 saved by couples making less than $60,000. For those making from $60,000 to $100,000, the match would be 50 cents on the dollar. To Mrs. Clinton, these policies are more efficient than old-style bureaucracy and less expensive than across-the-board tax cuts.

"Her view is that it makes more sense to have government focus on specific needs and concerns," Neera Tanden, the campaign's policy director, says. "And her experience in the government informs that view."

Mr. Obama — the onetime community organizer — tends to look at economic policy more like a foreign-policy realist looks at the world. He will sometimes remind aides that policies that look good on paper don't necessarily work in the real world. "That's his thing," says Austan Goolsbee, Mr. Obama's top economic adviser.

The problem with Mrs. Clinton's savings plan, according to the Obama view, is that many people won't save even when they are offered subsidies to do so. After all, many workers who are eligible for 401(k) matching funds don't take advantage of them now.

So Mr. Obama would instead require companies to deduct money automatically from their employees' paychecks and place it in a savings account the employee owned. Employees could opt out of the program. But if they did nothing, they would end up saving money. It's an idea that comes directly from academic research showing that savings rates have jumped when individual companies have adopted such plans.

[nathanm]

quote:Originally posted by we vs us

Feldstein - this is the conservative, mind you - said that the extra spending plan ought to be $300 billion for 2009 and $500 billion over the next two years, above and beyond the $700 billion already committed to the rescue of financial institutions.  

I have a strong feeling of two things here.

First, there's an ulterior motive behind their support of massive spending.

Second, the government is running out of credit. CDS spreads are rising on US government debt.

Part of me thinks "Good, these people can finally admit that there are times when the government needs to spend a bunch on infrastructure to move the economy along." (although that's missing the whole example of WWII where the lasting gains were from the rebuilding, not the war or the spending prior to it)

Another part of me thinks "these cynical bastards are trying to goad Obama into bankrupting the nation so they can impose radical reforms and finally pull a Norquist and drown the government in the bathtub." (Or at least make sure there's no money for social programs)

[we vs us]

quote:Originally posted by nathanm

quote:Originally posted by we vs us

Feldstein - this is the conservative, mind you - said that the extra spending plan ought to be $300 billion for 2009 and $500 billion over the next two years, above and beyond the $700 billion already committed to the rescue of financial institutions.  

I have a strong feeling of two things here.

First, there's an ulterior motive behind their support of massive spending.

Second, the government is running out of credit. CDS spreads are rising on US government debt.

Part of me thinks "Good, these people can finally admit that there are times when the government needs to spend a bunch on infrastructure to move the economy along." (although that's missing the whole example of WWII where the lasting gains were from the rebuilding, not the war or the spending prior to it)

Another part of me thinks "these cynical bastards are trying to goad Obama into bankrupting the nation so they can impose radical reforms and finally pull a Norquist and drown the government in the bathtub." (Or at least make sure there's no money for social programs)

I like the cut of your jib, nathanm.  I'm likewise of two minds about this, but you hit the nail on the head with part one.  If this little episode doesn't give lie to some of the underpinnings of Friedmanesque economic theory, I don't know what does.  Government doesn't just have a role to play in a functioning economy; sometimes it's THE pivotal role.  

[shadows]

Since I was a teenager during the depression, effecting a large part of the world, the thing I remember was we were a rural nation and looking back at the conditions which started in the 1930 and ended in 1938.  Only a few roads were paved as most were dirt or graveled.  Then we had the great dust storms that slowed the overproduction along with laws that subsidized the farmer by reducing his planting, The over production of food and livestock brought prices down.  The industrializing of the gasoline engine created  industries which were a contributor to the WW11.   When president Roosevelt {d} (1932) took office he was able to create several laws which baled out the common people in need.  He made the banks and mortgage companies responsible for the money the working poor was depositing.

All the things are present today except the ghost of the Federal and other government have become a entity of elitist who control and show favorism to groups who are taking away through deficiencies the American Way of security.  

[rhymnrzn]

here's a decent sermon by a Northern Ireland minister:

Credit Crunch
http://www.sermonaudio.com/sermoninfo.asp?SID=1031081724427

aiming for a righteous exchange, and a secure storeage....