Letting The Banksters Off The Hook

If you want to get seriously depressed about the state of the economy, take a look at Martin Wolf's article about how the state of the global economy pretty much mirrors the Depression right now, green shoots notwithstanding.

Robust private sector demand will return only once the balance sheets of over-indebted households, overborrowed businesses and undercapitalised financial sectors are repaired or when countries with high savings rates consume or invest more. None of this is likely to be quick. Indeed, it is far more likely to take years, given the extraordinary debt accumulations of the past decade. Over the past two quarters, for example, US households repaid just 3.1 per cent of their debt. Deleveraging is a lengthy process. Meanwhile, the federal government has become the only significant borrower. Similarly, the Chinese government can swiftly expand investment. But it is harder for policy to raise levels of consumption.

The great likelihood is that the world economy will need aggressive monetary and fiscal policies far longer than many believe. That is going to be make policymakers — and investors — nervous.

We have this great unraveling to undertake, in the midst of record unemployment and still-sick banks. The way to get out of this was to really stand up to the banks, to create a system that rewarded risk but also managed it so that nobody got too big to fail and drained the money out of the system. Instead, we seem to be sustaining all-new bubbles:

Witness the "fierce rally" in the collateralized loan obligation market. CLOs are made up of sliced and diced assets (including high-risk and junk loans) -- and are kissing cousins to the collateralized-debt obligations (i.e. crap) at the heart of the financial meltdown. But according to analysts at Morgan Stanley there has recently been a "remarkable change" in investor sentiment towards these securities, including an "exuberance" for the lowest grade junk being sold.

In other words, we are right back to risky business as usual. No harm, no foul. Let's get back to the fun we were having before this whole worldwide economic collapse thing started happening.

It puts a whole other spin on the audacity of hope.

The new financial regulations proposed by the President seem good in some places, weaker in others, and certainly an advance, but not what is necessary to truly break the strangehold that the banks have over the government, the central cause of this mess.

Three quarters of a century ago, President Franklin Roosevelt earned the undying enmity of Wall Street when he used his enormous popularity to push through a series of radical regulatory reforms that completely changed the norms of the financial industry.

Wall Street hated the reforms, of course, but Roosevelt didn’t care. Wall Street and the financial industry had engaged in practices they shouldn’t have, and had helped lead the country into the Great Depression. Those practices had to be stopped. To the president, that’s all that mattered.

On Wednesday, President Obama unveiled what he described as “a sweeping overhaul of the financial regulatory system, a transformation on a scale not seen since the reforms that followed the Great Depression.”

In terms of the sheer number of proposals, outlined in an 88-page document the administration released on Tuesday, that is undoubtedly true. But in terms of the scope and breadth of the Obama plan — and more important, in terms of its overall effect on Wall Street’s modus operandi — it’s not even close to what Roosevelt accomplished during the Great Depression.

Rather, the Obama plan is little more than an attempt to stick some new regulatory fingers into a very leaky financial dam rather than rebuild the dam itself. Without question, the latter would be more difficult, more contentious and probably more expensive. But it would also have more lasting value.

We'll still have companies allowed to grow too big to fail under this proposal. Banking will not be made more boring, and thus more safe. In effect, there is very little here to "make bankers mad," as Joe Nocera put it. Simon Johnson concurs, although he thinks the model should be Teddy Roosevelt - more trust-busting to break up these huge integrated companies.

And yet, the banksters have grown so audacious that they are, in fact, mad, over the idea to create a Financial Services Products Agency to protect consumers. They found something to shake their stick at, and they're shaking for all its worth. They keep winning because even when they win, they fight. Chris Dodd absolutely blew his stack at this today.

Dodd, who is chairman of the Senate Banking Committee and who will be the chamber's leader on regulatory reform efforts, said he was "upset" by media reports that financial industry groups are gearing up to oppose the Obama administration's proposal to create an agency to protect consumers from abusive financial products.

"The very people who created the damn mess are the ones" now saying they will oppose sensible changes, Dodd, D-Conn., said. "That's not the place to start."

But of course, even a Consumer Financial Products Agency will remain one small island in an alphabet soup that is still wired for the industry to circumvent. We're propping up big banks and not eliminating the huge leverage that allowed the explosion in the derivative market. In short, we're headed for a lost decade, a time of little to no growth and the inability to get out of the crisis.

And if that next bubble bursts... well, start running for cover.

We Need An Unmaking Of The American Consensus

I'm thinking about printing out this paragraph from Digby and putting it above my bathroom mirror like Stallone did when he trained in Siberia in Rocky IV.

The bipartisan elite consensus that governs this country is quite simple. First, deficits and high taxes are always the basic cause of economic stress or the biggest threat facing a recovery, no matter the circumstances. (The corollary is that cutting taxes and spending are the ultimate answer to every economic challenge.) Taxes on the wealthy (excuse me "the most productive") must be kept as low as possible, the military cannot be subject to any budgetary constraint and the national security state cannot be held accountable, business and industry must always be given top priority and all other government expenditures are legislative bargaining chips regardless of their impact on the lives of average Americans. Nobody questions that consensus or even suggests that some other set of priorities might be useful from time to time.

This pretty well describes every single bit of dysfunction that we deal with in making progress, and it's always been there to a certain extent. It's a consensus that serves elites and those in positions of power in Washington, and any defeat of that is always an uphill climb, even in a time of crisis. Paul Krugman posts a very revealing set of polls from back in the mid-1930s, during the Depression, that parallel today's polls showing Americans, after years if not decades of constant conservative dogma, fearing higher deficits just in time for a Democratic President (though not to the level of media hype):

Gallup Poll [December, 1935]

Do you think it necessary at this time to balance the budget and start reducing the national debt?

70% Yes
30 No

Gallup Poll [May, 1936]

Are the acts of the present Administration helping or hindering recovery?

55% Helping
45 Hindering

Gallup Poll (AIPO) [November, 1936]

DO YOU THINK IT NECESSARY FOR THE NEW ADMINISTRATION TO BALANCE THE BUDGET?

65% YES
28 NO
7 NO ANSWER

This was right around the time that Roosevelt tried to balance the budget, leading to a mini-recession inside the Depression, and prolonging the overall slowdown. He learned from that mistake, but the question is whether or not we will today. As Krugman says:

The point here, I think, is that most people don’t know much about macroeconomics. Hey, most members of Congress don’t know much about macroeconomics — and recent discussions suggest the possibility that many macroeconomists don’t know much about macroeconomics. Voters do, however, notice results.

So the moral for Obama is, of course, to ignore this poll, for the sake both of the economy and of Congressional Democrats — Blue Dogs included.

Sadly, I don't think that's how it'll turn out. Look no further than the totally shameful overturning, against the wishes of the Pentagon, of the phasing out of the F-22 program, which nobody in the military wants, which EVEN LOCKHEED MARTIN has agreed not to build anymore, but which is so important to elements of the military industrial complex that Democrats and Republicans in the House couldn't say no:

Yesterday, the House Armed Services Committee “threw a wrench in the Obama administration’s plans to end” the F-22 program, voting 31-30 on a measure marking up the Defense Department spending bill that would “add $369 million in extra funding to keep production of the Air Force’s most advanced jet alive.” Six Democrats — Reps. Jim Marshall (GA), Joe Courtney (CT), Gabrielle Giffords (AZ), Eric Massa (NY), Bobby Bright (AL), and Mike McIntyre (NC) — joined 25 Republicans in voting for the amendment. The Wall Street Journal reports that “the extra money would be a boost for Lockheed [Martin's] Marietta, Ga., production facility” which is in Marshall’s home state.

WTF Eric Massa?

Add to that the money in the war funding supplemental for C-17 planes that the military doesn't want. Clearly what happens is that parochial interests about plants scattered across all 50 states trump the national interest. And in the end, perversely, the people in those districts get screwed.

I recognize that there's a structural problem here as well, with the undemocratic nature of the US Senate and the even more undemocratic filibuster. But the establishment consensus knows no party, and you cannot lay the blame entirely at the feet of process.

If a near-Depression and a triumvirate of Democrats in Washington can shock this loose, I don't really think we ever will.

At What Point Do You Get Your House Speaking Privileges Revoked?

Michelle Bachmann, on the floor of the United States House of Representatives, acting like Mrs. Malaprop.

BACHMANN: The recession FDR had to deal with wasn't as bad as the one Coolidge had to deal with in the early '20s, Yet the prescription that Coolidge put on that, from history, is lower taxes, lower regulatory burden, and we saw the Roaring '20s, where we saw markets and growth in the economy like we've never seen before in the history of the country. FDR applied just the opposite formula. The Hoot-Smalley Act, which was a tremendous burden on tariff restrictions, and of course trade barriers and the regulatory burden and tax barriers. That's what we saw happen under FDR, that took a recession and blew it into a full-scale Depression. The American people suffered for almost ten years under that kind of thinking.

None of this is right, but "Hoot-Smalley" deserves some kind of medal. Hoover signed Smoot-Hawley into law, by the way.

Bachmann is like a college student who skimmed the entire history book the night before the test, and knows a couple dates and places, and just connects dots randomly, making sense only to her.

Now I know where the people who think Stephen Colbert is a closet conservative come from - MN-06. Because clearly they elected one of their own to represent them.

Resolution Finance Corp. Redux

The President is trying to put out this AIG fire that laps at his broader agenda.

Obama just took questions from reporters, and made a major bid to take control of this story. He placed responsibility for the fiasco squarely on his own shoulders, uncorked a populist blast against “greed” on Wall Street and strongly implied that Republicans blasting the big bonuses are hypocrites.

Asked if he wished he’d known about the bonuses sooner, Obama said, in the course of answering: “Ultimately, I’m responsible. I’m the President of the United States…The buck stops with me.”

“My goal is to make sure that we never put ourselves in this kind of position again,” he said, adding that the AIG story was “consuming” the public, and “rightfully so.”

Obama also moved to acknowledge public anger about the AIG saga, but said that the proper response was to place the AIG story in a larger context.

“People are right to be angry,” he said. “I’m angry. What I want us to do, though, is channel our anger in a constructive way.” Obama touted his plan for a “resolution authority” that would have power over financial firms similar to the FDIC’s over banks, and promised to “fast track” it with Congress.

The "resolution authority" could be similar to the Resolution Finance Corporation created by Roosevelt during the Depression. I think he needs to offer more information about that, because that model seems like it could work:

Jesse Jones often toyed with the salaries of corporate management, especially if they were, in his mind, “over-paid” Wall Streeters. Jones and Roosevelt knew that RFC loans always had the potential of political trouble—stirring up liberal Democrats and progressive Republicans who were blaming businessmen for getting the country into such an economic mess. Salary reductions were one way of showing that RFC, even while it was pouring billions into private business, was not enriching corporate management. Amendments to the RFC Act in 1933 required Jones to certify the appropriateness of the salaries paid by every corporation accepting loans and investment money. Jones devised a declining scale of salary reductions. Corporate management receiving annual salaries of $150,000 or more would be cut to $60,000, $100,000 or more to $50,000, and other reductions accordingly.

Clearly this would be met with outcry from Republican leaders as well as pliant hem-sniffers to the elites. The imagery of pitchforks gets used by those defending AIG to characterize the public as a mob. But a Resolution Finance Corporation charged with overseeing the winding down of insolvent companies wholly dependent on taxpayer funding would be pitchfork-free. In fact, reducing salaries and ending the bonus culture on Wall Street PRESERVES the Obama agenda, rather than wreck it for the future, as Ruth Marcus seems to be saying.

Rather than piecemeal tax provisions targeted at individual firms (though they are politically inevitable in this case), I support a wider net to deal with resolved companies. It would calm the roiling waters in the country, if explained well.

Party Of No Clue

I briefly alluded to Mark Sanford rejecting stimulus funds that will result in up to 7,500 teachers being laid off. South Carolina legislators are trying to outflank him on that. But he's not the only one. Governor Goodhair of Texas is denying his citizens stimulus funds, too:

Gov. Rick Perry will announce today that he is blocking the state from accepting $550 million for expanded unemployment benefits as part of the federal stimulus package.

With an upscale Houston hardware store as his backdrop, he will paint the expansion as a burden on small business.

The Legislature still could move to change state law to draw down the money, but those changes would be subject to a Perry veto.

To be eligible for all the money, Texas must enact legislation that would change how the state’s calculates a worker’s eligibility and extend benefits to more workers, including those looking for part-time work.

Arnold Schwarznegger is trying the same thing in California, with the same argument that the changes in eligibility would impose an "unnecessary burden" on state businesses. Actually, what would impose a burden on them is them having to file for bankruptcy because nobody's buying goods because their unemployment ran out.

There's no real argument for this obstinacy from a policy perspective, just shopworn and outdated ideology. Sanford compared the stimulus to the policies of Zimbabwe, saying all this federal spending will lead to hyper-inflation. I wish! Right now we're in a deflationary spiral, and the only thing the Fed has the monetary tools to combat is inflation at this point. If we were experiencing any inflation at all, it would mean that the economy is at least sort of working again.

Then there's the argument that all this fiscal policy is like what FDR did during the Depression. Yes, they use that as a negative. The Bible for this revisionist history is a book by Amity Shlaes, and Jon Chait fairly well demolishes it.

Now here is the extremely strange thing about The Forgotten Man: it does not really argue that the New Deal failed. In fact, Shlaes does not make any actual argument at all, though she does venture some bold claims, which she both fails to substantiate and contradicts elsewhere. Reviewing her book in The New York Times, David Leonhardt noted that Shlaes makes her arguments "mostly by implication." This is putting it kindly. Shlaes introduces the book by asserting her thesis, but she barely even tries to demonstrate it. Instead she chooses to fill nearly four hundred pages with stories that mostly go nowhere. The experience of reading The Forgotten Man is more like talking to an old person who lived through the Depression than it is like reading an actual history of the Depression. Major events get cursory treatment while minor characters, such as an idiosyncratic black preacher or the founder of Alcoholics Anonymous, receive lengthy portraits. Having been prepared for a revisionist argument against the New Deal, I kept wondering if I had picked up the wrong book [...]

Shlaes begins every chapter with a date (say, December 1936), an unemployment percentage (15.3) and a Dow Jones Industrial Average. The tick-tick-tick of statistics is meant to show that conditions did not improve throughout the course of Roosevelt's presidency. Yet her statistics are highly selective. As those of us who get our economic information from sources other than the CNBC ticker know, the stock market is not a broad representative of living standards. Meanwhile, as the historian Eric Rauchway has pointed out, her unemployment figures exclude those employed by the Works Progress Administration and other workrelief agencies. Shlaes has explained in an op-ed piece that she did this because "to count a short-term, make-work project as a real job was to mask the anxiety of one who really didn't have regular work with long-term prospects." So, if you worked twelve hours per day in a coal mine hoping not to contract black lung or suffer an injury that would render you useless, you were employed. But if you constructed the Lincoln Tunnel, you had an anxiety-inducing make-work job.

In response to this criticism, Shlaes has retreated to the defense that unemployment was still high anyway. "Even if you add in all the work relief jobs, as some economists do," she has contended, "Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice--as a nightmare." But Roosevelt inherited unemployment that was over 20 percent! Sure, the level to which it fell was high by absolute standards, but it is certainly pertinent that he cut that level by more than half. By Shlaes's method of reckoning, Thomas Jefferson rates poorly on the scale of territorial acquisition, because on his watch the United States had less than half the square mileage it has today.

This is the intellectual heft on the right. And it manifests itself into policy with things like the "no-cost stimulus" - really - which would create two million jobs by, um, drill baby drilling, I guess. Never mind that oil prices are down, auto mileage is down and it takes ten years to get a drop of oil out of a new platform. That's going to be the "timely, targeted" stimulus to save our souls.

I'm beginning to think that, by trying to talk himself out of the RNC Chairmanship, Michael Steele is the SMART one.

"Is There Anything Wrong With Saying Yes?"

New York Times reporters had a conversation with Barack Obama on his plane, where they actually asked him if he were a socialist. Obama answered no, explained the thought process behind his budget, and later, after pondering it, actually called the reporters back and said, "It was hard for me to believe that you were entirely serious about that socialist question."

As a statement of empirical reality, this is true. As Daniel Gross pretty expertly explained, the Bush tax cuts that Obama is allowing to expire would result in about 3-4 percentage-point increases in the two top marginal tax rates, which is about $4 a day for someone making $300,000 a year. And despite the media insanity around the issue, the other 98% that doesn't make over $250,000 would see a tax cut, making it hard to understand how you can call this an overall increase. People in that top 2% can whine about how they are being persecuted for their genius and talk about going Galt all they want - and I hope they do instead of just talking about it, we need elites that don't have a track record of breaking the global economy - but the kind of "burden" placed on the wealthy, who have it better in America than any other country on Earth, isn't even the burden their patron saint placed upon them in the 1980s, which they also whined about incessantly.

According to a recent Treasury Department study, Ronald Reagan proposed the largest peacetime tax increase in American history as part of a budget deal to get the federal deficit under control. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 was signed into law on Sept. 3, and most of its provisions took effect on Jan. 1, 1983.

During debate on TEFRA, many conservatives predicted economic disaster. They argued that raising taxes in the midst of a severe recession was exactly the wrong thing to do. "Every school child knows you don't raise taxes in a recession unless you want to make it worse," The Wall Street Journal's editorial page warned. Said Rep. Newt Gingrich, "I think it will make the economy sicker." The Chamber of Commerce of the U.S. said it had "no doubt that it will curb the economic recovery everyone wants."

Looking at the data, however, it is very hard to see any evidence that TEFRA had a negative effect on growth. Indeed, one could easily make a case that its enactment stimulated growth. As one can see, the economy's growth rates after TEFRA took effect were among the fastest in history.

I know that Paul Volcker's monetary policy at the Fed, a luxury we pretty much don't have right now, had a lot more to do with this, but the point is that the same defenders of the rich and powerful made the same statements about taxes then that they are making now.

But beyond the debates over opinions which are obviously ridiculous, there's a larger point that was touched upon in the follow-up question about socialism by the Times.

Q. Is there anything wrong with saying yes?

Only in a country where the balance of acceptable discourse has been so tainted and distorted that reasonable social democratic policies are completely forbidden from the conversation. And so you have Obama's advisers running to David Brooks to prove that they aren't crazy socialist radicals, but pragmatists. Which makes a certain political sense, but isn't actually true. In fact, the debate over the stimulus package was quite instructive in this regard. Obama released an initial bill that was too small for the task, perhaps assuming that the package would get bigger, as most spending bills do, as it made its way through Congress. Therefore they would not be saddled with the impression that they were expanding government as much as Congressional Democrats would. That's not what happened, and as a result, the stimulus is looking too small for the task.

Analysts increasingly view the administration's actions so far as insufficient given the scope of the problem. The stimulus package was designed to "save or create" 3.5 million jobs, according to the administration. But the nation has already lost 4.4 million jobs since the start of the recession. Many banks and other financial institutions, whose health is critical to the economy, are teetering, and the Treasury Department has yet to finalize the details of its plans to remove from their balance sheets the toxic assets dragging them down.

"It's premature to say we need another stimulus, but the economy is performing much worse than when [the law] was signed, and the odds are increasing that we'll need a bigger policy response," said Mark Zandi of Moody's Economy.com, who has advised Democratic lawmakers. "What we've learned is policy has been a step behind this whole downturn. It's important to get a step ahead."

It was well-known among economists that the size of the stimulus may have been too small, but that perspective was kept off the news. It was surely known to the Administration, however, which preferred a more cautious route.

The subsequent release of the budget, along with moving forward on long-sought initiatives on health care and energy, does seem bolder, and there are signs that Obama is learning from what may have been an initial negotiating mistake. But even this
"boldness" is being carried out along narrow technocratic liberal lines that becomes very clear from a look at the past:

Barack Obama's bold, ambitious budget plan proves that he is the true heir of Franklin Roosevelt and the New Deal. Consider Obama's Rooseveltian energy plan. In 1939, President Roosevelt decided to mobilize Americans to create a new source of energy: atomic power. Although he was urged to focus on government-funded R&D, FDR chose a different route. He wisely encouraged private capital to invest in atomic energy research by a variety of tax incentives. To make atomic power investment more palatable to private capital, FDR boldly chose to make all other forms of energy in the U.S. uneconomical, by slapping high taxes on kerosene and coal. With the money from the new federal Kerosene Cap and Trade system, President Roosevelt and Congress funded a small-scale federal research program, in the hope of attracting much greater private investment ...

Wait. What's that you say? FDR didn't do that? He poured federal money into the all-public Manhattan Project and created the first atomic bomb in a couple of years? He didn't tax kerosene to make it uneconomical and to encourage private investment in atomic power? [...]

All right, then, forget FDR. He was a socialist, anyway. Let Dwight Eisenhower serve as a model for the Obama administration. President Eisenhower authorized the biggest infrastructure program in American history, when he signed the National Interstate and Defense Highways Act of 1956. The interstate highway act created an elaborate system of private tax incentives and public-private partnerships (PPPs) to encourage private corporations to build national highways. To begin with, all U.S. highways were leased to domestic and foreign corporations for a period of decades. Second, all U.S. highways were set up with toll booths, so that American drivers would be forced to repay the corporate owners of the national highways every few dozen miles. Finally, a system of high-speed lanes with higher tolls was created, so that the rich could whiz down the road while middle-class and poor Americans were stuck in traffic jams ...

All right, what now, wise guy? So that's wrong, too? Eisenhower's national highway system wasn't based on tolls, leases to foreign companies, income-based pricing, and tax credits for private corporations? It used gasoline taxes to fund free public highways?

Free highways without toll booths, owned by the public, paid for out of taxes? My God. So the John Birch Society was right after all. Dwight Eisenhower was as much of a socialist as Franklin Delano Roosevelt!

The point here is that conservatives have so demonized the concept of the public commons, particularly inside the Beltway, that what is now considered a bold and socialistic policy shift - raising the top marginal tax rates 3-4%, investing in infrastructure with a mix of public and private money, using an individual mandate to keep insurance companies in the health care game, cap and trade - is actually a pre-compromised, market-friendly, neoliberal jumble that fits squarely in the center of the ideological divide. And this is essentially why the Army of Galts screams about socialism, to force the debate further to the right from the center where it is now situated.

I'm not totally blaming Obama for this. As a pragmatist, he is more interested in what is politically possible, and 50 years of conservative demonization has battered the ability to make anything that's not "market-friendly." In addition, members of his own party are even more cautious than he is and thus even more unwilling to do anything truly paradigm-shifting. But we have to understand the historical reality.

But a lot has changed since Wall Street imploded last fall. The great investment banks are gone, the U.S. has nationalized much of the financial system, and appears to be on the way to effectively nationalizing the automobile and housing sectors as well. In this environment, we need to consider some heresies, like the idea that the best way to provide a public good is not necessarily to pour subsidies on middlemen, and then bail them out with more subsidies when they fail at their public function.

The fundamental barrier today is the way that the issues are framed, by Democrats and Republicans alike. Thus the problem is defined not as making credit available for individuals and businesses, but as saving the banks and the shadow banking system. The goal is not to provide healthcare to all citizens, but to enable all citizens to purchase private health insurance. The objective is not to ensure universal access to higher education; it is to insure universal access to colleges and universities. In these and other cases, the means is confused with the end. The ultimate goal -- providing credit, healthcare or education -- is identified with the interests of non-governmental for-profit or nonprofit providers of that service. If these private institutions fail to provide the public service in a low-cost, effective and equitable way, then they must be subsidized even more. The idea of achieving the same public goals through simpler, more direct and efficient means that would cut out the middleman appears to be heresy to the Obama administration.

By the way, this is a centrist, Michael Lind, writing this. But one who is mindful of the past.

I grow fairly tired of the defense that "the President isn't a socialist; he isn't even doing anything that radical" used as a defense, when we're in a position with unemployment and the overall economic meltdown where we actually, um, NEED something radical done. And I think the country is prepared for that more than Beltway insiders think. So while I agree with the empirical assessment that Obama's positions are squarely in the center, and that the cult of Galtism is absurd, I don't believe that Obama's team is made up of pragmatists. Because pragmatists would look at reality and do exactly what's necessary, regardless of ideological concerns.

No Economists On The Teevee

Turns out that the traditional media doesn't put a premium on informing the public. Over the last month, which has been dominated by debate about the stimulus package, the experts most likely to be able to actually perform the debate in a credible and intelligent manner, economists, haven't been on the scene.

In the hour following President Obama's February 9 press conference -- during which he gave a brief address about the economic recovery legislation currently moving through Congress -- cable news programs featured guests and panelists to discuss Obama's remarks. But CNN, Fox News, and MSNBC did not bring on a single economist to discuss the plan. The absence of economists in the post-press conference discussion was consistent with the observation made by Crooksandliars.com founder John Amato in a February 4 article on The Huffington Post: "I'm sure you've heard about the hundreds of economists that are either for or against President Obama's stimulus plan. My question to the media is: Where are they?" Indeed, a Media Matters for America review of the Sunday talk shows and 12 cable news programs from January 25 through February 8 found that during 139 1/2 hours of programming on Sunday mornings and weekday afternoons and evenings, of 460 total guest appearances in discussions about the economic recovery legislation and debate in Congress, only 25 were made by economists -- a mere 5 percent.

Economists actually differed wildly on the stimulus, and had their own biases that they brought to the debate. But surely that would be a debate grounded more in facts than what we currently see on the teevee. Of course, economists aren't adept at determining whether Obama flipped the bird to Hillary Clinton when he was scratching his nose, or how Obama's body language signifies his belief in civil rights, so they are kind of useless on cable. John Amato and Digby have more.

When you have a debate about the economy without the economists, you end up having a debate featuring this guy.

U.S. Rep. Steve Austria said he supports a scaled-down federal economic-stimulus proposal, but the Beavercreek Republican told The Dispatch editorial board that the huge influx of money into the economy could have a negative effect.

"When (President Franklin) Roosevelt did this, he put our country into a Great Depression," Austria said. "He tried to borrow and spend, he tried to use the Keynesian approach, and our country ended up in a Great Depression. That's just history."

That is just history, with the added invention of a time machine so that Roosevelt could return to the 1920s and be President when the stock market crashed. Now, this was such a stupid statement that Austria had to walk it back, but there are hundreds more little white lies that come up from the know-nothings, which the media turns into a debate worthy of broadcast entertainment. But it lacks one thing - precise information.

In fact, for most of the New Deal era, the economy grew quickly -- an annual rate of about 13 percent from 1933 to 1937 and more than 10 percent from 1938 to 1941, Commerce Department data show.

Many liberal economists say that shows the virtue of boosting spending. Dean Baker, co-director of the Center for Economic and Policy Research, said that "when Roosevelt came in, he started spending money, and from 1933 to 1937 the economy grew at a double-digit annual rate. It was soaring, and the unemployment rate fell at 4 percentage points a year."

But in 1937, the economy started tumbling backward again. Drawing an analogy to today's fiscally conservative Democrats in Congress, Baker said Roosevelt "listened to the Blue Dogs of his day and cut spending, and the unemployment rate rose again."

Here's a handy chart:



I got that from Rachel Maddow's show, the oasis in the cable desert.

Neo-Hooverism Quashed

Barack Obama was pretty unequivocal last night making the case for Keynesian deficit spending to lift us out of the recession.

STEVE KROFT: Where is all the money going to come from to do all of these things? And is there a point where just going to the Treasury Department and printing more of it ceases to be an option?

PRESIDENT-ELECT BARACK OBAMA: Well, look, I think what's interesting about the time that we're in right now is that you actually have a consensus among conservative Republican-leaning economists and liberal left-leaning economists.

And the consensus is this:

That we have to do whatever it takes to get this economy moving again. That we're gonna have to spend money now to stimulate the economy. And that we shouldn't worry about the deficit next year or even the year after. That, short term, the most important thing is that we avoid a deepening recession.

Very good news. It doesn't mean that journalists like Kroft are going to stop asking these know-nothing types of questions, or that the Beltway chattering class isn't going to rend their garments over it. But Obama has the right perspective. Government is the spender of last resort in an economic downturn.

And good on Paul Krugman for knocking down the revisionist nonsense that George Will was spewing on ABC's This Week.



In essence, private investment was already bottomed out before FDR came into power. He didn't discourage it at all. After the New Deal was working well for a few years, he tried to go back to balancing budgets and the economy was too fragile to take it. FDR's problem, then, was that he was TOO CONSERVATIVE at a time that led to a new recession. This chart is instructive.



I think there's a subset of official Washington that believes the economy runs like their checkbook, and that in a downturn you have to cut back, but I think the public is waiting to be sold on that idea, and what they're really looking for is effective government. Should they get that with the new Administration, they'd be immune to Republican fearmongering.

The exception is that moderates remain far more skeptical about government -- and government spending -- than liberals do. Conservative misrule has given them every reason to believe that large portions of their taxes are wasted. Not surprisingly, Republicans and conservatives have already been trying to paint Obama as a tax-and-spend liberal, while bemoaning the fact that Bush ran up deficits at the same time he increased spending across the board.

But progressives needn't be defensive about the majority that is dubious about government spending. Making government work effectively is at the heart, not the capillaries of the progressive agenda. This test doesn't distract; it focuses us on our task. No progressive majority can ever be consolidated for long if it doesn't demonstrate that government can be an effective ally for everyone.

And that is all moderates are looking for. They aren't skeptical about the need for government. By large margins, they think regulation does more good than harm. They want investments made in education and training. They favor a concerted government-led drive for energy independence. They far prefer a health-care plan with a choice between their current insurance and a public plan like Medicare, rather than one that would give them a tax credit to negotiate with insurance companies on their own. Their concern is less that government will do too much and more that government will fail to do what it must and waste their money in the process.

Obama has a moment to change that conversation and show how government can effectively respond to challenges. It may only be a moment, but it's better than nothing.