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You are here: Home / Politics / Domestic Politics / The quiet triumph of sanity

The quiet triumph of sanity

by DougJ|  August 10, 20098:39 am| 72 Comments

This post is in: Domestic Politics, Politics

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Krugman on the economy:

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

[……]

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen. (State and local governments are a different story.) Tax receipts are way down, but Social Security checks are still going out; Medicare is still covering hospital bills; federal employees, from judges to park rangers to soldiers, are still being paid.

All of this has helped support the economy in its time of need, in a way that didn’t happen back in 1930, when federal spending was a much smaller percentage of G.D.P. And yes, this means that budget deficits — which are a bad thing in normal times — are actually a good thing right now.

He goes on to credit the bailout and the stimulus as also helping to avert catastrophe.

Now, let’s be clear, no one did anything particularly brilliant here. The stimulus and the decision not to cut federal spending are straight out of the mainstream Keynesian playbook. (Let’s leave the bailout out of this because all kinds of arguments can be made about how it was implemented and whether or not it would have been necessary at all if Paulson had acted sooner.)

And yet, throughout the Republican party and in most quarters of the media, these decisions are regarded as controversial. Krugman recalls Boehner’s idiotic quote “it’s time for government to tighten their belts and show the American people that we ‘get’ it.”

The attack on economic common sense was two pronged, just as the attacks on health care reform are. With health care, it begins with the crazies talking about euthanizing your grand-parents and then shifts to Chuck Lane wanking about end-of-life counseling. With economics, it begins with Boehner’s bone-headed belt-tightening (if not some even fringier stuff supply-side or Austrian economics) and ends with more high-brow Fama/Mankiw whackadoodle.

And the fact that sane, mainstream economic decisions actually worked won’t help Obama politically as much as they should. There’s no way he can land on aircraft carrier and declare “Mission Accomplished” on the economy. And, no matter what happens with the economy, we’re going to hear a lot of TEH STIMULUS DIDN’t STIMULATE.

This isn’t isolated, of course. Bush I was excoriated for his sane, mainstream tax increases and probably lost the election as a result.

We’re in a place where sanity prevails in practical terms and craziness prevails in political terms.

Update. Per the comments, I do think that Obama will get credit (possibly too much) if and when the economy returns to pre-2008 levels of unemployment, etc. But in the meantime, I don’t think he’ll get much credit for taking what could have been a catastrophe and turning it into merely a bad recession.

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Reader Interactions

72Comments

  1. 1.

    Perry Como

    August 10, 2009 at 8:47 am

    TEH STIMULUS DIDN’t STIMULATE

    That’s because it didn’t involve two wetsuits and a dildo.

  2. 2.

    El Cid

    August 10, 2009 at 8:48 am

    PORKULUS !!

  3. 3.

    4tehlulz

    August 10, 2009 at 8:55 am

    ZOMGS0SHE’LLIZM111000ELEVENTYONE000

  4. 4.

    joe from Lowell

    August 10, 2009 at 8:55 am

    Doug,

    You don’t need to land on an aircraft carrier when the economy is going well. Everybody can see with their own eyes that something good is happening in their own lives, when a bad economy turns around.

    You are almost certainly wrong to say that Obama won’t get the political benefit he deserves from the economy turning around. If history is any guide at all, he will end up getting a great deal more benefit that he probably deserves for being president while the economy grew. See Clinton, Bill.

  5. 5.

    bob

    August 10, 2009 at 8:56 am

    Now, let’s be clear, no one did anything particularly brilliant here. The stimulus and the decision not to cut federal spending are straight out of the mainstream Keynesian playbook. (Let’s leave the bailout out of this because all kinds of arguments can be made about how it was implemented and whether or not it would have been necessary at all if Paulson had acted sooner.)

    This is true as far as it goes, but in the end I think this is really the wrong conclusion to draw from this episode, overall, because it completely ignores the sort of quantitative easing Bernanke has done at the Fed which: (a) has, in fact, been kind of brilliant, and (b) is not really “out of the mainstream Keynesian playbook”.

  6. 6.

    2th&nayle

    August 10, 2009 at 9:09 am

    “We’re in a place where sanity prevails in practical terms and craziness prevails in political terms.”
    Doesn’t this pretty much define the current state of the Democratic and Republican parties, in that order? Well, maybe except for the blue dogs.

  7. 7.

    Kirk Spencer

    August 10, 2009 at 9:16 am

    Now, let’s be clear, no one did anything particularly brilliant here. The stimulus and the decision not to cut federal spending are straight out of the mainstream Keynesian playbook.

    Sorta. Except that there was a cohesive push saying that following the playbook was wrong, and Keynesians are wrong.

    Heck, I could put money down right now that several “serious people” will come out of this saying the Keynesians were wrong and get takers; it’d be a sucker bet, of course.

    It’s worthwhile to go back and look at the whole thing from mid-2007 to the present. There are a lot of people who said we weren’t in a recession, then when it was rubbed in their face said it was going to be a depression and ANYWAY the stimulus wouldn’t work. (The ones who said it would, said it was not enough for a fast recovery, but would at least staunch the bleeding.)

    If it works, it’s not stupid. But those who don’t LIKE that it worked will continue to call it such.

  8. 8.

    Punchy

    August 10, 2009 at 9:17 am

    I for one would like to know just whom DougJ thinks will be giving credit to Obama. Republicans will invent 1,294 “reasons” other than Obama to explain the recovery. The media will sell those 1,294 reasons as Fact and Truth, Bitches. The talking heads on TV will fret over Obama’s choice of mayo and cheese and discuss how politically damaging it is for Dems that Michelle Obama has great arms.

    So who exactly is going to announce and proffer this meme?

  9. 9.

    Walker

    August 10, 2009 at 9:19 am

    There is no way employment is returning to pre-2008 levels in Obama’s first term (and maybe not even second). The government intervention replaced GD2 with 1990s Japan. Look how long it took them to recover and remember we are in worse shape.

    Wake me after the CRE collapse bottoms.

  10. 10.

    Punchy

    August 10, 2009 at 9:19 am

    As if almost on cue with my hyperbolic description of media banality w/r/t Obama, we now get this.

    Unfuckinreal.

  11. 11.

    The Grand Panjandrum AKA Americans for America

    August 10, 2009 at 9:25 am

    The President (any President) should get credit for herding cats (Congress).

  12. 12.

    wilfred

    August 10, 2009 at 9:26 am

    Where the fuck did the money for the stimulus come from?

    The epic failure here is not the endless wanking about how stupid the Republicans are – and how fucking wearisome is that becoming? – but the failure of the government to address any of the structural problems that created the goddamned problems in the first place. They slapped a huge greenback bandaid and called it a win. It’s not.

    Averted a catastrophe? The way that Wile. E. Coyote does -Congratulations. But the same mechanisms are still in place to produce even bigger failures.

    A courageous decision would have been the one that realized that another generation would come after this one and have to pay off the debt incurred from political panic.

  13. 13.

    joe from Lowell

    August 10, 2009 at 9:32 am

    “Honey, I know we haven’t had any food in the house for a week, but at least public debt is a little bit lower.”

    Is that about it, wilfred?

  14. 14.

    Angela

    August 10, 2009 at 9:32 am

    wilfred – “A courageous decision would have been the one that realized that another generation would come after this one and have to pay off the debt incurred from political panic.”

    I would say the exact same about the Iraq war.

  15. 15.

    joe from Lowell

    August 10, 2009 at 9:33 am

    Punchy,

    Republicans will invent 1,294 “reasons” other than Obama to explain the recovery.

    You mean like they did during the 1990s, to explain why Clinton shouldn’t get credit?

    Or the way the Democrats did in the 1980s, to explain why Reagan shouldn’t get credit?

    How’d that work out for them?

  16. 16.

    joe from Lowell

    August 10, 2009 at 9:37 am

    And, of course, the recognition that we were in the soup in late 2008/early 2009 was not a “political panic.”

    In fact, wilfred, the fundamentals of our economy were not strong. The economic disaster we were facing was not a figment of our imagination. There was an actual panic happening – a financial panic. Recognizing this reality and stopping it was not, itself, panic. It was response to a panic.

    I think we’ve seen what the Obama-bashers are going to say: there never was an economic crisis to avert in the first place. He spent a bunch of money saving us from a problem that he made up for political purposes.

  17. 17.

    Kirk Spencer

    August 10, 2009 at 9:37 am

    @Walker: I’m going to disagree. There were a lot of reasons Japan went through a slow period, some of which we have in duplicate, but there are some critical differences. A point that may crystallize some of those differences is that the peak unemployment in Japan’s “lost decade” was 5.5%. Yes, that was up from a then-normal 2.2%, but it is still worth seeing that point.

    Put simply, we’ve got a lot more depth. I’ve often used a sports analogy where one side plays “ironman” with star players and the other plays “substitution” with very good players. Even though the Ironman has better players on a one to one basis, over time the ability to bring in fresh players makes the difference.

  18. 18.

    wilfred

    August 10, 2009 at 9:39 am

    @joe from Lowell:

    If that’s the argument being made than it only proves the system has failed completely, no?

    It’s this kind of binary thinking that produces the moronic solutions to systemic problems that we have come to call government.

    @Angela:

    You’d be right. It’s still going on by the way.

  19. 19.

    anonevent

    August 10, 2009 at 9:39 am

    Now, let’s be clear, no one did anything particularly brilliant here. The stimulus and the decision not to cut federal spending are straight out of the mainstream Keynesian playbook.

    If there were anything mainstream about Keynes’s views, Republicans wouldn’t have gotten cuts in the stimulus. It was brilliant of Obama to push government spending when a large portion of people were saying to cut back. Especially since he will spend the next two years defending against charages of “the economy was going to recover by itself without the stimulus.”

  20. 20.

    SpotWeld

    August 10, 2009 at 9:40 am

    Obama’s (Or perhaps more correctly the Obama administration’s) handling of the economy is comparable to Cpt. Sullenberger’s handling of the emergency landing on the Hudson.

    In both cases they people in charge were calmly and professionally working though a series of well understood processes to get a desired results. These results were not design to create a “perfect solution”, but rather an optimal one considering the extend of the emergency at hand.

    In both cases the people responcible should be lauded for staying calm and ensuring that they did follow through with those proper staps rather than panicing.

    In both cases the situation would have been nighmarishly worse if a cowboy attitude were taken and a more “daring” approach were taken.

    At the core of things, it was a boring, well displined set of actions that brought things home in both situations.

    “Boring” people.. “boring”! It’s not entertaining, but it freaking gets the job done!!

    (As an aside, this is probably why my favorite house in Harry Potter is Hufflepuff.)

  21. 21.

    sparky

    August 10, 2009 at 9:41 am

    the message here seems a bit garbled. it is true that government action braked a runaway collapse. but it is also true that government action underwrote it in the first place. it is also apparent that the net effect of the stimulus/tax/TANF et al plans has been to bolster the banks and keep them from having to perform a writedown. AFAIK, there has been exactly ZERO serious reform of the financial sector, so all we have done is postpone the day of reckoning. is that better? we will have to wait for the next, more serious crash to find out.

  22. 22.

    NonyNony

    August 10, 2009 at 9:43 am

    Bush I was excoriated for his sane, mainstream tax increases and probably lost the election as a result.

    There’s no “probably” about it. Bush the Elder failed to kowtow properly to the anti-tax fundamentalists in the Republican Party and they didn’t bother to vote for him (many actively voted for Ross Perot instead). Didn’t help that he had already failed to kowtow properly to the religious fundamentalists and to the war fundamentalists. The two biggest complaints I heard from Republicans back in ’92 about Bush were about his raising taxes and about his letting Saddam Hussein “get away with it” instead of pushing into Baghdad. (I was a Republican at the time and I thought both of these accusations were fucking stupid – both decisions were sane policy decisions. Part of my drift away from the GOP, I guess.)

    What we have right now is a Republican Party whose “leadership” learned the lessons of 1992 – kowtow to the crazybase and NEVER do anything to oppose them. W learned that lesson quite well and tried to do the opposite of everything his father did. Mission accomplished, I guess.

  23. 23.

    AkaDad

    August 10, 2009 at 9:48 am

    When the economy recovers, we can look at the Wall St. bailout and then thank George Bush. If the economy doesn’t recover soon, we can blame it on Obama and his Liberal economic policies.

  24. 24.

    anonevent

    August 10, 2009 at 9:49 am

    @wilfred:

    A courageous decision would have been the one that realized that another generation would come after this one and have to pay off the debt incurred from political panic.

    The political panic here was the Democrats in Congress couldn’t do their jobs and get the correct sized stimulus through with some restructuring of the economy built in. A good stimulus would have started the recovery and started fixing some of this stuff.

  25. 25.

    Kirk Spencer

    August 10, 2009 at 9:54 am

    @sparky:

    the message here seems a bit garbled. it is true that government action braked a runaway collapse. but it is also true that government action underwrote it in the first place. it is also apparent that the net effect of the stimulus/tax/TANF et al plans has been to bolster the banks and keep them from having to perform a writedown.

    I’d argue it’s more a case of government INaction that underwrote it in the first place. As to the other part, yes, the finance industry got propped up along with everything else by the stimulus. The TANF was specifically aimed at that industry – there’s no reason to be surprised.

    I agree (boy, do I agree) the industry supervision needs some serious improvement. They’re allowed to do some things that have both long- and short-term negative impacts on the nation’s economic health, and those need stopped. HOWEVER, I did and still do think it was better to keep the banks afloat than to let them fail for much the same reason I supported the stimulus. Quite simply, the gain was not guaranteed, and the gain was certainly not worth the pain.

    I’m seeing some indications (professionals working slow and steady instead of OMG PANIC) that revisions and reform are in progress. Control of a nation’s money is basically control of the nation’s scrotum Like or not the banks have a firm grip on our national scrotum, and loosening that grip will take time and effort, and probably short-term bribes (as misdirection, hopefully). I’m averse to yanking off the whole bloody mess when I can hopefully keep the important parts connected instead.

  26. 26.

    Montysano (All Hail Marx & Lennon)

    August 10, 2009 at 9:56 am

    @wilfred:

    The epic failure here is not the endless wanking about how stupid the Republicans are – and how fucking wearisome is that becoming? – but the failure of the government to address any of the structural problems that created the goddamned problems in the first place. They slapped a huge greenback bandaid and called it a win. It’s not.

    Wilfred is right. Have we heard any talk about reinstating Glass-Steagall, or rolling back the Commodity Futures Modernization Act, or outlawing speculation on commodities (esp. oil) or reinstating sane leverage limits on Wall Street? That would be no, no, no, and no. The fact that Obama won the election handily, has a filibuster-proof majority in Congress, and has public opinion strongly behind him only makes me think that he doesn’t want to do any of this. Until then, Wall Street still runs the country, and we’re vulnerable to whatever “innovation” they may dream up next.

  27. 27.

    MBSS

    August 10, 2009 at 9:57 am

    @ wilfred

    were you a fiscal hawk throughout the bush years? did you complain about deficit spending then? and during the reagan years? surely the waste of treasure, blood, and honor on war chaps your hide?

    would you say those presidents are shit due to their reckless economics?

  28. 28.

    Walker

    August 10, 2009 at 9:59 am

    Put simply, we’ve got a lot more depth. I’ve often used a sports analogy where one side plays “ironman” with star players and the other plays “substitution” with very good players.

    Depth in what? Now that the FIRE economy is down, what is doing well outside of government (tax revenues down, more budget cuts coming), health care (unsustainable), or education (either government revenue — see above — or unsustainable tuition costs)?

    Even the cheery people admit this is going to be an L-recession. There are no jobs coming from anywhere. Certainly not without (even more) massive government intervention.

  29. 29.

    wilfred

    August 10, 2009 at 10:00 am

    @MBSS:

    Actually, I’m a Marxist. I don’t care about presidents, I think capitalism is shit.

  30. 30.

    Maria

    August 10, 2009 at 10:00 am

    Deficit spending – 1.8 billion in JULY only. Timmy G. asks congress to raise spending caps. The best (or worst) is yet to come.

  31. 31.

    MBSS

    August 10, 2009 at 10:01 am

    @ wilfred and montysano

    i agree about fundamental restructuring. but it’s not an either or with regards to keneysian spending and fundamental restructuring, as wilfred frames it. you can do both.

    we are headed for a double dip, another tanking of the dow. and if we are not, then it is very disturbing how the real economy can tank, while wall st. makes good. the disconnect is jarring and telling. but i fully expect one more big downturn before we hit bottom. there are more shoes to drop.

  32. 32.

    Keith G

    August 10, 2009 at 10:01 am

    I do think that Obama will get credit (possibly too much) if and when the economy returns to pre-2008 levels of unemployment…

    Which may well be quite a while since those levels were based on bubblenomics.

  33. 33.

    Walker

    August 10, 2009 at 10:01 am

    were you a fiscal hawk throughout the bush years? did you complain about deficit spending then? and during the reagan years? surely the waste of treasure, blood, and honor on war chaps your hide?

    Yes, some of us on this board were.

    In fact, Reagan was the start of it all. He began eating the seed-corn, leading the shell of an economy we have now.

  34. 34.

    MBSS

    August 10, 2009 at 10:06 am

    @ wilfred

    hey, we can be friends. captialism is shit.

    obama is changing nothing fundamentally. wall st. is up to its old tricks. mega bonuses not tied to performance. the banks are not fully deleveraged, and are making money the fast and risky way, once again.

    we are headed for another meltdown in a few years at the latest, because all the same players and all the same mechanisms are in place.

  35. 35.

    PeakVT

    August 10, 2009 at 10:07 am

    another generation would come after this one and have to pay off the debt

    I get a little bit frustrated when I see this phrase. (I’m not picking on you in particular.) If leaving the debt to a future generation is so bad why don’t we say that we ought to knuckle down and pay it off in the near future? There’s always this passive attitude: well, this debt suddenly appeared and there is nothing we can do about but punt. (Also, we don’t have to pay it off so much as stop adding to it so the debt falls as a percentage of GDP.)

  36. 36.

    J.A.F. Rusty Shackleford

    August 10, 2009 at 10:08 am

    @SpotWeld:

    Crap. How long before we get a Brick Oven Bigot post on how Capt. Sullenberger should be President?

  37. 37.

    sparky

    August 10, 2009 at 10:09 am

    @Kirk Spencer: fair points, though i would disagree as follows:

    I’d argue it’s more a case of government INaction that underwrote it in the first place.
    well, policy is policy. you can’t argue that government policy can only be good–you have to accept the idea that it was at least in part a foolish government policy that got us here. and my point is that the conceptual underpinnings of that policy are still in place absent some serious rethinking.

    As to the other part, yes, the finance industry got propped up along with everything else by the stimulus. The TANF was specifically aimed at that industry – there’s no reason to be surprised.

    to me this argument conflates the banking support with the stimulus plan. first off, Bush had a stimulus plan too, and it didn’t work. so i’m not sure how much of that can be said to be the return of sanity. second, NOTHING has been propped up like the finance sector, except perhaps paving contractors. the stimulus consists largely of road work and is 50% a tax cut. now, we can talk about whether it’s big enough or not, or whether it is targeted correctly or not (no and no, in my opinion), but to say that the stimulus plan is the same as the financial underwriting is just wrong. but don’t believe me–here’s what Barry Ritholz said in June:
    It includes the total outlay for all the bailouts to date. In just about one short year (March 2008 – March 2009), the bailouts managed to spend far in excess of nearly every major one time expenditure of the USA, including WW1&2 (omitted from graphic), the moon shot, the New Deal, total NASA budgets (omitted from graphic), Iraq, Viet Nam and Korean wars — COMBINED.

    206 years versus 12 months. Total cost: ~$15 trillion and counting . . .

  38. 38.

    MBSS

    August 10, 2009 at 10:13 am

    unemployment is a disaster. those jobs flew the coop and are never returning. our middle class is in shambles. we have tons of over-educated people in service sector jobs, and there is nowhere to go from there, career-wise.

    if layoffs slow to “only” 274,000 or whatever it is, that is still super disturbing. that many of our fellow americans have lost their jobs recently. and i dont think there is any way to put humpty dumpty back together again. we can’t re-inflate the bubble, but i’m sure wall st. is gonna give it the ol’ college try.

  39. 39.

    sparky

    August 10, 2009 at 10:17 am

    my post wasn’t clear–
    what i meant is that Bush and Obama basically threw EVERYTHING into the pot to keep the FIRE sector from collapsing. there are no more reserves. it might be that with real reform that it was worth it. without real reform it is a terrible price to pay because now there’s nothing left. to borrow from the poster above, the government has now cleaned out the American pantry and given it to the bankers. if they had given it to the bankers with a gun to their heads (ie, via nationalization) that would be one thing. but what we did was give them the only asset that hadn’t been looted–FF&C in USTs–and said please go make more magic with it. as of now, i see no reason to think they will do anything different. for better or worse, we are not living in an age where bankers understood how fragile society is.

  40. 40.

    Keith G

    August 10, 2009 at 10:17 am

    …another generation would come after this one….

    Of course if we do not significantly reform healthcare, campaign spending, and military spending that next generation will rightfully want to euthanize us.

  41. 41.

    tater

    August 10, 2009 at 10:20 am

    I see it this way ,democrats have union support, minority support, low income support and the rich corporations they prop up with our money. Republicans must try to grab their support from the average middle class worker who funds all this foolishness.

  42. 42.

    eric

    August 10, 2009 at 10:20 am

    Wilfred. The problem with your beloved communism is that it failed the USSR. It is godless. Also.

    One could make the argument that structural reform merely delays the inevitable. Thus social security is a mere panacea to avoid some of capitalism’s harsher consequesnces to avoid revolution now.

    Eric

  43. 43.

    wilfred

    August 10, 2009 at 10:23 am

    @eric:

    I didn

  44. 44.

    Anton Sirius

    August 10, 2009 at 10:25 am

    @wilfred:

    the failure of the government to address any of the structural problems that created the goddamned problems in the first place.

    I actually agree with this. A golden opportunity to fix the fundamental problems with how Wall Street does business has gone by the wayside.

    The rest of your post is complete idiocy, though, wilfred. Textbook Keynesian spending was absolutely necessary, unless you were hoping for the entire system to collapse, in which case those future generations you’re so concerned about would have been put through exponentially greater misery than carrying a large debt is going to visit upon them

    In short, shove your hypocrisy up your ass.

  45. 45.

    wilfred

    August 10, 2009 at 10:25 am

    My wife sneaked up behind me and…well.

    Democracy has failed in how many places? Marriages fail, love fades, etc.

    I meant Marxist in the sense of a historical perspective, actually. Socialism would only come after capitalism has failed, as it has in the US. Communism is the imagined, post-socialist state which cannot be imposed, only arrived at.

  46. 46.

    drillfork

    August 10, 2009 at 10:30 am

    I love Krugman, but I don’t understand how a loss of 250K jobs means the Great Turn-Around is here.

    In the past 25 years they’ve taken our pensions and then steered us toward the market. Then most of those savings vanished from late ’07 through ’08.

    Those who threw us into the financial crisis are not only unpunished, but still virtually unregulated.

    And I’ll believe we’ll have meaningful healthcare reform when I see it.

    Do not be fooled by this dead-cat bounce. The Powers That Be continue to merrily chip away at what’s left of the American middle class…

  47. 47.

    wilfred

    August 10, 2009 at 10:31 am

    @Anton Sirius:

    Go fuck yourself. Hypocrisy? Spoken like a fucking banker. What could possibly be more harmful than sticking them with untold trillions in debt and making them forever beholden to other countries. How fucking patriotic.

    This sort of binary thinking: KEYNESIAN METHODS OR DIE, DIE, DIE!!! is the bane of the country.

    Well, don’t worry asshole. We can sit back and see the great success and future that this kind of thinking will no doubt bring.

  48. 48.

    Bill H

    August 10, 2009 at 10:34 am

    @sparky:

    it is true that government action braked a runaway collapse. but it is also true that government action underwrote it in the first place.

    Different governments.

  49. 49.

    MBSS

    August 10, 2009 at 10:40 am

    well there were a couple options.

    we could have had no bank bailout, which i felt was a valid option. in the fall of last year we would have had a massive fiscal seizure, and many banks would have become insolvent, overnight. people would go to their ATM’s and find there is nothing to withdraw. billions of dollars lost for good. and the FDIC wouldnt have had enough to cover it all, and much of it would not be covered anyway.

    then we would have really heard the howls of protest and the pitchforks would have come out. i think this would have been the best way. because then we would have seen some serious fiscal restructuring, i promise you. and we would have seen bankers head on spikes. and we would look at our neoliberal economic system and rethink it, because our wallets were so wounded, and for many americans, the only way to wound them is to wound their wallet.

  50. 50.

    ThatLeftTurnInABQ

    August 10, 2009 at 10:43 am

    A courageous decision would have been the one that realized that another generation would come after this one and have to pay off the debt incurred from political panic.

    This is off the mark. The US public debt is expanding, but private debt is shrinking faster. The net result is that total US indebtedness is shrinking, but not nearly as fast as it would be (which would mean serious deflation, which translates into a true depression) if it weren’t for all that future generation crushing debt. Instead that future generation will get to grow up living in a house or an apartment rather than as Dickensonian street urchins. Meanwhile that crushing debt they will have to pay off will be manageable if they do the same thing we did after WW2, which is to raise taxes. Eisenhower era levels will take care of that problem. Too bad Eisenhower was a commie /snark.

    Wilfred’s other point about Wall St. regulatory reform is correct, but people need to take a look at FDR’s New Deal and uncollapse the timeline. Most of the regulatory reform was passed into law after FDR’s 1st year, after the economy started to stabilize. It just seems to us 8 decades later as if it all happened at once, but it didn’t. In some respects this is like performing major surgery on a shock-trauma patient. First you stablilize the patient, then you go in and start cutting. The 1st six months of this administration have been all about stablizing the patient.

    Next comes the hard part, and that will take lots of grassroots pressure on Congress to get it done. Perhaps if they are reminded that wanting to clip the wings of the titans on Wall St. is one thing that the netroots and the teabaggers have in common, and that anybody who votes against such measures will be hammered from both sides of the political spectrum, then we might get some action. Overall I doubt we will get reforms equivalent to those of the mid 1930s though, just because this time around the crash wasn’t bad enough to motivate deep structural reform. They weren’t scared enough.

    So 1990s Japan it is. Domo arigato, Mr. Roboto.

  51. 51.

    sparky

    August 10, 2009 at 10:44 am

    @Bill H: Sigh.

    From Wikipedia:
    Ben Bernanke is the Chairman of the Board of Governors of the United States Federal Reserve. Bernanke succeeded Alan Greenspan on February 1, 2006.

    In 2009, [L. Summers] was tapped by President Obama to be the director of the White House National Economic Council. He has emerged as a key economic decision-maker in the Obama administration, where he has attracted both praise and criticism.

    Upon the death of libertarian economist Milton Friedman, Summers wrote an Op-Ed in The New York Times entitled “The Great Liberator” arguing that “any honest Democrat will admit that we are now all Friedmanites.”

  52. 52.

    joes527

    August 10, 2009 at 11:09 am

    @Montysano (All Hail Marx & Lennon):

    The fact that Obama won the election handily, has a filibuster-proof majority in Congress, and has public opinion strongly behind him only makes me think that he doesn’t want to do any of this.

    Obama won handily against a candidate that half of his own party hated, and who chose a running mate who the other half of his own party hated.

    Filibuster-proof majority in Congress??? On what vote? The idea that the Obama Administration can snap its fingers at the senate and say “Pass this bitches” is so removed from reality … completely delusional.

    The Democratic majority in the senate is pretty solid (probably). The supermajority is composed of blue dogs and opportunists. None of these will get in line unless they each individually think that they are getting the better part of the deal.

    Public opinion behind him? That’s a nebulous thing. Unlike when W. rode the wave of no-one-daring-to-speak-aginst-him, Obama has tea baggers, birthers and now deathers screaming to the rafters whenever he does anything. Are they louder than their numbers justify? Sure. But the advantage of having public opinion behind you is that everything you do doesn’t get derailed by folks trying to score political points, and the anti-obamites make up for in volume what they lack in number.

    Add to that your Lou Dobbs’s and your Joe Scarboroughs (no point in even mentioning Faux Noise) and you get a picture of a President that is more under fire from all directions during his “honeymoon” period than the last one was during the time when he was starting wars and shredding the constitution.

    I too, am worried that Obama is being too cautious. I worry that he is not pushing hard enough in the right directions. And maybe that is because he feels he can’t, and maybe that’s because he doesn’t want to. Maybe he was a plant from big pharma all along.

    But I don’t imagine that he is the king who could do whatever he wanted with a snap of his fingers.

    Last August, Andrew Bacevich wrote an opinion piece called The next president will disappoint you He had (has) a point.

  53. 53.

    joes527

    August 10, 2009 at 11:21 am

    Now going back to agree with wilfred :-)

    It really looks like the goal of the “recovery” has been to put things back the way they were before anyone noticed that there was a problem.

    I don’t know if this is short sightedness, “the best that can be done,” or Obama’s evil plan. But if in the end, all that happens is that humpty dumpty gets put back up on the wall, then we are all well and totally screwed.

    I’m hoping that we are propping up the economy in order to get by while the systematic brokenness of the markets gets fixed, but only time will tell on that one.

  54. 54.

    jwb

    August 10, 2009 at 11:32 am

    @drillfork:”I love Krugman, but I don’t understand how a loss of 250K jobs means the Great Turn-Around is here.”

    He’s comparing it to the equivalent point in the Great Depression and saying that whereas then job losses continued at a great rate, now the job losses are slowing, comparatively speaking. And I don’t think he’s saying the Great Turn-Around is here; he’s simply saying that at the moment we are no longer staring into the abyss of another Great Depression. In any case, the point of his article was that government spending has had a useful effect, and he’s continually warned against repeating Roosevelt’s decision to cut spending in 1937, which resulted in yet another nasty downturn.

  55. 55.

    jwb

    August 10, 2009 at 11:35 am

    @MBSS

    Structural change, perhaps. But the misery of getting there would have been horrendous, and we could just as easily have ended up being ruled by the crazies as not.

  56. 56.

    joe from Lowell

    August 10, 2009 at 11:40 am

    Have we heard any talk about reinstating Glass-Steagall, or rolling back the Commodity Futures Modernization Act, or outlawing speculation on commodities (esp. oil) or reinstating sane leverage limits on Wall Street? That would be no, no, no, and no.

    You may not have heard about it, but in fact, significant re-regulation of the financial sector is working its way through Congress as a we speak, mainly coming out of Barney Frank’s committee.

    It’s not as sexy as the Beer Summit, or Sarah Palin’s string of idiocies, so it doesn’t lead the news, but that doesn’t mean it’s not happening.

  57. 57.

    jwb

    August 10, 2009 at 11:56 am

    @joe from Lowell: “It’s not as sexy as the Beer Summit, or Sarah Palin’s string of idiocies, so it doesn’t lead the news, but that doesn’t mean it’s not happening.”

    Given the crazy that seems to appear when something gets media attention these days, media disinterest is probably a good thing in terms of getting effective regulation in place. On the other hand, the fact that the banks haven’t unleashed their own zombie brigade of crazy, unfortunately probably means that the regulation will be more or less to the banks’ liking.

  58. 58.

    Obama Death Panel Chairman (formerly glocksman)

    August 10, 2009 at 12:27 pm

    @jwb:

    The banks would also find it harder to ‘astroturf’ a campaign to defend Wall St. than the health industry has WRT reform.

    The more rational protesters are simply of the ‘I’ve got mine and don’t you dare endanger it’ types who don’t see anything wrong because they have care.

    Even they can see what’s going on and have protested the bailouts.

    The ‘free market above all’ dupes who’d be easy meat for the bankers to manipulate are a small minority even among the teabaggers.

    I don’t worry so much about the Tea Party types supporting the banksters as much as I do the disinformation campaigns you’d see in almost every news media outlet.

    Shit, my local paper regularly runs ‘news articles’ that are merely thinly disguised advertisements for businesses*, so I shudder to think what they’d print if the largest banks in town said ‘we need this’.

    *Was it really a 15 paragraph news story that Old Navy was opening a store in the local mega-mall??

    A one paragraph notice in the ‘briefs’ section I can see, but a huge article??

  59. 59.

    Jay in Oregon

    August 10, 2009 at 12:28 pm

    “I don’t think he’ll get much credit for taking what could have been a catastrophe and turning it into merely a bad recession.”

    It’s kinda like the flap over the year 2000 bug; a lot of people spent a lot of time auditing code to try to minimize problems, and what happens when 2000 rolls around? No techno-collapse of civilization. I don’t remember hearing of a single large-scale failure of a computer system.

    People felt like Y2K was made out to be bigger deal than it was, but was that because there was no crisis to fear, or because all of the aforementioned issues were corrected in the flurry of activity leading up to 2000?

  60. 60.

    Comrade Darkness

    August 10, 2009 at 12:38 pm

    @wilfred: Where the fuck did the money for the stimulus come from?

    Presumably, the same place the 5 trillion bush II borrowed and the 2 trillion reagan borrowed (4 trillion in today’s dollars) and the 1 trillion bush I borrowed (1.7 trillion in today’s dollars).

    You want Carter back, that’s what your saying? Awfully open minded of you…

  61. 61.

    wilfred

    August 10, 2009 at 12:45 pm

    @Comrade Darkness:

    What I want is another way of thinking., not a rubber stamp defense of the current administration. Better safe than sorry makes sense if those are the only two choices you have.

    We had others – they were ignored as fast as single payer was.

  62. 62.

    Bender

    August 10, 2009 at 12:45 pm

    So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

    Take off the kneepads and wipe your chin, Krugman. Obama says he’s finished with you for now.

    There was never going to be a Great Depression in 2009 — even Krugman has admitted that in past articles (he thinks that modern deficits insulate us from a Great Depression scenario). Back in January, some estimates said that even without stimulus, the economy would recover in 2010. But now Krugman wants The Zero to get credit for saving a guy from drowning in the kiddie pool that he himself described.

    Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.

    Anyone who buys this line is as dumb as a box of hammers.

    “Reasonable estimates” from whom, Rahm Emmanuel? Funny, you’d think Krugs would spill the beans on who had made those estimates, you know, if it weren’t clearly full of shit. (By the way, this editorial couldn’t even pass the Wiki “weasel words” standard — “a significant role,” “free fall?”)

    Remember, Obama said Congress had to pass Stimulus NOW! to keep unemployment from going over 8%. Now, approaching 10% unemployment, Krugman wants to pretend that Obama has saved jobs? Hey, as long as your pulling numbers out of imaginary projections, why not say that Obama has saved the promised 3.5 million jobs, and it’s MISSION ACCOMPLISHED for the stimulus?

    It’s easy to spot the bullshit. Just listen to Obama and Biden.

    When you have a made-up stat like jobs “created or saved,” it’s pretty easy to make up how effective you’ve been. In May, Biden said stimulus had saved 150K jobs in 77 days, then on June 9, Obama said it had saved 150K jobs in 100 days, and boldly predicted that the stimulus would save 600K jobs in the next 100 days. So that would make 750K jobs “saved” by mid-September. Now Krugs claims in early August it’s already saved 1M jobs — about a third of the overall promise, while only 12% of the stimulus money allocated has been spent! Miracle Unicorn! All the while, the unemployment rolls grow every month by hundreds of thousands.

    Surely even you guys are too smart to buy this one, right? No, apparently not.

  63. 63.

    kay

    August 10, 2009 at 12:56 pm

    I think for Obama to get credit for stabilizing the financial system the folks in those sectors who benefited would probably have to give him (or government) some credit.
    And they won’t. Never. Ever.
    Do you watch financial news? The whole thing is already down the memory hole. You know, the part about how they blew up their own sector due to idiotic decisions and incredible greed, and nearly destroyed the world economy, and had to be bailed out by taxpayers?
    They’re back to crowing about how wonderful they are, bitching incessantly about taxes, and denigrating government.
    They’re not big on humility, or gratefulness, that crowd. Don’t expect a thank you. You’re not getting one.

  64. 64.

    Ash Can

    August 10, 2009 at 1:06 pm

    Much shorter Bender: “I disagree with it, so it must be wrong!”

  65. 65.

    kay

    August 10, 2009 at 1:14 pm

    @Ash Can:

    This is why I still like Paul Krugman, and find him credible:

    “In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.”

    This was his big argument. That the banks wouldn’t recover without nationalization, and he lost that one. He’s willing to admit that the path the administration chose did ENOUGH, however, despite having lost that battle.

    In other words, he’s not too stupidly stubborn to ignore what’s in front of his nose. Find me a person of his stature on the Right, in economic circles, who would do that. Good luck.

  66. 66.

    DBrown

    August 10, 2009 at 1:17 pm

    @eric: What? Sorry but like most people (and experts, too!) you voice the common and totally incorrect belief that the USSR was using communism. There has never been a modern (post 1800) communist government in existence anywhere and no economic system has even come close – communism is NO government at all (Libertarian dream?) The USSR was a dictatorship by an elite group that controlled all means of production. @joes527: Couldn’t agree more
    @Bender: Some proof of your statements might help your rant. As for the 8% -get real, all projections by the best and brighest are like war; after contact with the enemy, all bets are off. I assume you have an advanced degree in economic and can create better models. Why aren’t you?

  67. 67.

    sparky

    August 10, 2009 at 2:27 pm

    @kay: whoa. banks have NOT recovered. turning a profit on gov’t given money and refusing to write off losses is not a recovery.

    proof?
    http://www.nytimes.com/2009/04/21/business/21sorkin.html?_r=1&dbk

  68. 68.

    Bender

    August 10, 2009 at 2:42 pm

    Some proof of your statements might help your rant.

    Sure, what do you need proved? By the way, it’s HIGH-larious that you guys require more proof from a commenter on a blog than you do from Paul Freaking Krugman, who gives you no proof of anything in that whole NYT piece.

    As for the 8% -get real, all projections by the best and brighest are like war; after contact with the enemy, all bets are off

    Man, I bet Bush would’ve loved some of these “projections aren’t ever right” and “governing is hard” explanations from you guys. I don’t recall much understanding when he was the one in the big chair. Funny, that…

  69. 69.

    barstoolcadaver

    August 10, 2009 at 2:53 pm

    “…I don’t recall much understanding…” -the gist of the post.

  70. 70.

    Bender

    August 10, 2009 at 3:07 pm

    “…I don’t recall much understanding…” -the gist of the post.

    Ouch. That was an embarrassing effort. No one’s forcing you to post, you know. You could just be quiet, and we’d never know…

  71. 71.

    Kirk Spencer

    August 10, 2009 at 4:37 pm

    @sparky: While you’ve a few points worth discussion, I’d ask you to make one correction that is by implication largely incorrect.

    206 years versus 12 months. Total cost: ~$15 trillion and counting

    Several rather important points.

    1) The current gross debt is a bit under $13 Trillion, not $15 Trillion. Under current estimates it will reach $15 Trillion by the end of 2010, but it’s not “in 12 months”.

    2) At the START of your 12 month window (March 2008) the debt was a bit over $9.5T. The “total cost” is (adjusting to $13T) true but disingenuous – it “only” racked up $3.5T. (Yes, I acknowledge the irony of that “only”.)

    3) Approximately $1.5T of that amount was an accounting trick. Obama’s team moved that from off-books to on-books. If the same accounting methods were being used, the “under $13T” of point 1 would be “over $11T”. As a consequence the ironic “only” of point two is really “only” about $2T. Is that a lot? Yes. But it’s still a bit less than $15T.

    With those points out of the way, I will note that the total GDP now is significantly greater than it was during other Great Expenses you mention. It’s a point to keep in mind. On a percentage basis, the spending for WWI and WWII (as a proportion of GDP) was larger. Heck, as a proportion of federal expenditures the deficit spending of WWII was significantly greater than the deficit spending against this recession.

    Was it a lot? Yes. Was it extraordinary? That depends on the measures you use.

  72. 72.

    Kirk Spencer

    August 10, 2009 at 4:48 pm

    @Walker:

    Depth in what? Now that the FIRE economy is down, what is doing well outside of government (tax revenues down, more budget cuts coming), health care (unsustainable), or education (either government revenue—see above—or unsustainable tuition costs)?

    Even the cheery people admit this is going to be an L-recession. There are no jobs coming from anywhere. Certainly not without (even more) massive government intervention.

    Depth in several places compared to Japan. As one example, the US is still the largest manufacturer in the world by dollar measure. Yeah, we import more than we sell, but we still make and sell more than any other nation. We also still produce more food than we eat. Again, we do import a lot. We also have quite a bit of food where we export the raw and import the processed to and from the same nation. But the net is our way – we make plenty of food.

    We’re surprisingly open to new business compared to a lot of other nations and in this specific case Japan. It does not take a lot to start a business of one’s own. Frankly, if and when health care gets finished and on the books I expect to see a renaissance in small business as people who currently stick to old jobs to keep THAT benefit are freed to ‘take the risk’. Even so we see more new businesses started per capita every year than Japan and most of Europe. We’ve a cultural background (red AND blue) of picking up and carrying on – very, very little feudal history with the baggage that carries.

    Yes, we’ve some weaknesses. And yes the end of the FIRE (if it’s really happening – I’ve some qualms in that regard, Janszen’s excellent articles to the contrary) is going to be disruptive. I just don’t buy into the apocalyptic premises that others seem to feel accompany it.

    As to the “L shaped” recession, I want to point out that many of those folk are not saying “L” in perpetuity. Just six to 12 months, depending on pundit. Most were expecting the decline to last through the end of this quarter, too – Krugman was one of them. If we did indeed bottom out sometime in the last three months then maybe the flat will be shorter as well. Maybe not, but I tend to think so.

    On that point I think it worth noting I’ve been job hunting for 13 months now – for me this is a depression. I’m on the bottom looking at it and still think so. Just as a point of reference.

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