Get Ready For The Suck

The new kind of trickle-down in the US economy is the trickle of job losses in the shaky manufacturing and construction sectors into scale backs in consumer spending, which will lead to job losses in retail. Which is exactly what's happening. Circuit City, a really crappy store which treats their workers like garbage (they fired a bunch of them a couple years back for making too much money), filed for bankruptcy protection today. DHL in Wilmington, Ohio is pulling up stakes, a move suggested during the Presidential campaign (John McCain and staffers like Rick Davis were instrumental in putting the DHL sale to a German company through, and this was the inevitable result). That's basically a whole city you're about to see go under.

The spiral downward cannot be counteracted without massive stimulus, and soon. Paul Krugman had a good idea over the weekend, to aid state and local governments who might otherwise lay off teachers, cops, firefighters and state employees:

State and local governments operate under fiscal rules that lead to booming spending and tax cuts when the economy is strong and the reverse when the economy is weak. This is bad governance: services are cut precisely when people need them most. It’s also bad macroeconomics: it exacerbates the business cycle.

Right now, we’re seeing a sharp drop in state revenues, which is going to lead to big cutbacks in spending and tax increases at exactly the wrong time.

Obama mentioned aid to state and local governments in his press conference yesterday. Indeed. This is a very quick form of fiscal stimulus, because it’s not about starting new spending, it’s about sustaining current spending. It should be done immediately.

But what if Bush says no? Congress should pass the aid plan anyway, and Obama should promise to sign it as soon as the current tenant vacates the White House. That way states will know that the money is coming, and be able to budget accordingly.

That's pretty urgent, as state budgets get revised and workers either lose their jobs or keep them. A new wave of job loss is not what we need right now.

Krugman also offers a word of warning about how to best understand the Roosevelt era - we didn't have ENOUGH spending at key moments.

The political lesson is that economic missteps can quickly undermine an electoral mandate. Democrats won big last week — but they won even bigger in 1936, only to see their gains evaporate after the recession of 1937-38. Americans don’t expect instant economic results from the incoming administration, but they do expect results, and Democrats’ euphoria will be short-lived if they don’t deliver an economic recovery.

The economic lesson is the importance of doing enough. F.D.R. thought he was being prudent by reining in his spending plans; in reality, he was taking big risks with the economy and with his legacy. My advice to the Obama people is to figure out how much help they think the economy needs, then add 50 percent. It’s much better, in a depressed economy, to err on the side of too much stimulus than on the side of too little.

In short, Mr. Obama’s chances of leading a new New Deal depend largely on whether his short-run economic plans are sufficiently bold. Progressives can only hope that he has the necessary audacity.

Indeed.