Ruled By Neo-Hooverists

What leaped out of last Friday's pathetic jobs report for a lot of people was the significant drop in employment for government workers, particularly at the state and local level:

The latest jobs numbers from the Labor Department are out. In the past, we’ve noted the protected status of government workers. While private sector payrolls were falling like a stone, government employment at every level was growing. In recent months it had been falling slightly, but still remained above its pre-recession levels.

No more. In September, state and local government payrolls fell below the levels of December 2007, when the recession began. The declines indicate the pain that state and local governments are feeling from severe budget shortfalls, despite the $787 billion stimulus package last winter.

There's a very good reason that the stimulus package failed to avert this drop in state and local government payrolls. During the stimulus debate, Presidents Ben Nelson and Susan Collins decided to drop $40 billion dollars in state-based aid that would have gone directly to saving these jobs. Presumably faced with no choice to clear the 60-vote cloture hurdle, Democrats and the Administration went along, and that state aid vanished. So unsurprisingly, as a result, state worker jobs have vanished right along with it. That translates to hundreds of thousands of jobs all over the country that would have meant hundreds of thousands more consumers with spending money, hundreds of thousands more people off the unemployment insurance rolls and contributing to state budgets rather than taking from them, hundreds of thousands more people providing help and aid to others who have trouble getting it due to scaled-back state workforces.

It was a terrible, terrible idea. Especially because the woes for state budgets are only beginning, and what aid did come with the stimulus will probably run out before state economies recover.

History suggests it could take six or more years for sales and income taxes — which make up roughly two-thirds of states' revenue — to return to pre-recession levels. That augurs deeper cuts to state jobs and services in order to maintain funding for core programs such as public schools and Medicaid.

What's different from the three previous recessions, which took states three to five years to recover from, is that employment and consumer spending aren't expected to bounce back as quickly.

To balance their budgets in the meantime, states are likely to further raise taxes on the money people earn and spend; increase college tuition; reduce funding for the arts and other cultural programs; and push costs into the future by delaying pay raises for employees and repairs of government buildings. Some states, including Massachusetts, Missouri and Arizona, already are making or considering fresh cuts just months after lawmakers agreed on new budgets.

I would say that $40 billion dollars in direct aid could have gone a long way right now and in the future. But instead, we are ruled by neo-Hooverists.

Somewhere, A Village Was Missing Its Idiot

This is weird:

The whereabouts of Gov. Mark Sanford was unknown for nearly four days, and some state leaders question who was in charge of the executive office.

But Sanford’s office told the lieutenant governor’s office Monday afternoon that Sanford has been reached and he is fine, said Frank Adams, head of Lt. Gov. Andre Bauer’s office on aging.

Neither the governor’s office nor the State Law Enforcement Division, which provides security for governors, had been able to reach Sanford after he left the mansion Thursday in a black SLED Suburban SUV, said Sen. Jake Knotts and three others familiar with the situation but declined to be identified.

First lady Jenny Sanford told The Associated Press earlier Monday her husband has been gone for several days and she did not know where.

She said she was not concerned [...] Jenny Sanford said the governor said he needed time away from their children to write something.

So great. He was off typing his awesome campaign book, The Audacity of Nope. But when you're a Governor of a state, can you just go walkabout for four days and not identify anyone of your whereabouts? South Carolina doesn't operate on auto-pilot. There could be a fire, a flood, all sorts of matters requiring executive attention.

Irresponsible selfishness from the chief neo-Hooverist in the GOP.

These People Are Nuts

Dave Weigel:

This amendment to the economic stimulus bill passed by the House and now being considered by the Senate, submitted by conshttp://www.blogger.com/img/blank.gifervative icon-in-the-making Sen. Jim DeMint (R-S.C.), was breathtakingly bold. The , from Sen. DeMint’s Website:

o Permanently repeal the alternative minimum tax once and for all;
o Permanently keep the capital gains and dividends taxes at 15 percent;
o Permanently kill the Death Tax for estates under $5 million, and cut the tax rate to 15 percent for those above;
o Permanently extend the $1,000-per-child tax credit;
o Permanently repeal the marriage tax penalty;
o Permanently simplify itemized deductions to include only home mortgage interest and charitable contributions.
o Lower top marginal income rates from 35 percent to 25 percent.
o Simplify the tax code to include only two other brackets, 15 and 10 percent.
o Lower corporate tax rate as well, from 35 percent to 25 percent.

This got the support of all but five Senate Republicans.

And the ones that didn't support it, like Susan Collins and Ben Nelson, want to kill the bill by 1000 cuts instead of by one. I actually find them more loathsome. At least the neo-Hooverists are open and honest.

This really isn't a game. 626,000 Americans had to go to their unemployment offices and file a claim last week. Tomorrow we're going to learn how many jobs were lost last month, and it'll probably be in the same range. And in response, Republicans are playing out their familiar "Tax Cuts Forevah" fantasies.

There's nobody to negotiate with. They actually think they're insurgents.

Frustrated by a lack of bipartisan outreach from House Democratic leaders, Rep. Pete Sessions (R-TX), chairman of the National Republican Congressional Committee, said House Republicans -- who voted unanimously last week against the economic plan pushed by President Obama and House Speaker Nancy Pelosi -- will pitch a "positive, loyal opposition" to the proposal. The group, he added, should also "understand insurgency" in implementing efforts to offer alternatives.

"Insurgency, we understand perhaps a little bit more because of the Taliban," Sessions said during a meeting yesterday with Hotline editors. "And that is that they went about systematically understanding how to disrupt and change a person's entire processes. And these Taliban -- I'm not trying to say the Republican Party is the Taliban. No, that's not what we're saying. I'm saying an example of how you go about [sic] is to change a person from their messaging to their operations to their frontline message. And we need to understand that insurgency may be required when the other side, the House leadership, does not follow the same commands, which we entered the game with."

You have these war porn fanboys who think they've just got off the set of Red Dawn in the United States Congress. They are COMPARING THEMSELVES POSITIVELY TO THE TALIBAN.

And Fred Hiatt still thinks the problem is a lack of bipartisanship.

This is how empires fall.

...Harry Reid and Chuck Schumer:

Frustrated Senate Democratic leaders dispensed with calls for bipartisanship on the stimulus package Thursday, with Senate Majority Leader Harry Reid saying that he won't let anyone "hold the president of the United States hostage."

President Barack Obama had once hoped to have the package pass with substantial Republican support. But Sen. Chuck Schumer (D-N.Y.) said that's now a “distant memory."

"So far," he said, bipartisanship "isn't working. . . . It takes two to tango, but the Republicans aren’t dancing.”

To paraphrase the immortal Adam Sandler, something I could have informed you of YESTERDAY!

Smart Spending

I never expected a massive Keynesian stimulus to be easy. But the fact that the Obama transition needs to allay fears about the package is worrying. What economy are these neo-Hooverists looking at? Jobless claims keep jumping - expect another half-million to be out of work by next month. The housing market is still crippled with no sign of recovery. And even the lead economist of the IMF, no left-wing liberal, is warning of another Great Depression if governments don't replace consumer spending with massive spending of their own.

Dominique Strauss-Kahn, the head of the IMF, is pushing governments to increase their own spending in order to support growth. The IMF has always been a big enemy of deficits. Why the reversal?

We are facing a crisis of an exceptional breadth, the basis of which is a collapse of demand. The consumer and business confidence numbers have never fallen this much since they've first been recorded. We've NEVER seen this!...

It is imperative to curb the this loss of confidence, to relaunch it and, if necessary, replace private demand, if we want to avoid a recession that turns into a Great Depression. Of course, in normal times, we would recommend that Europe reduce its budget deficits. But these are not normal times.

The fears that the Obama team is responding to are largely about limiting pork-barrel spending in the final bill. I think the nation can survive if a pet project makes its way into a trillion-dollar bill. Somebody has to build that pet project, too, and the whole point is to get money into people's hands in exchange for public works. However, that's not to say that we shouldn't be careful about the spending. On the contrary, I believe that funneling money to build more highways and roads that perpetuate unsustainable suburban sprawl is a bad idea. The opportunity of the stimulus is that we can create new economic opportunities based on building green industries and projects that can reduce our dependence on fossil fuels.

"We've let our infrastructure crumble for a long, long time from water to roads to bridges. It makes sense to invest in them now," Biden said.

But environmentalists and their allies view old-fashioned highway construction as encouraging longer commutes and increasing the energy-consumption crisis of the past year. "They're going to put a bunch of money through a broken system to stimulate the economy. That doesn't make sense to me," said Colin Peppard, a transportation expert for Friends of the Earth.

Peppard's group recently began a "Road to Nowhere" campaign, saying that new roads would lead to "new pollution -- keep the economic stimulus clean."

This doesn't mean that existing infrastructure shouldn't be upgraded in the meantime. But projects like rail, smart energy grids, building out broadband, and developing alternative energy need to get their share of the pie. And there are examples of where "old infrastructure" and "green infrastructure" can work together. The best example is in the building trades. The commercial real estate industry wants their own bailout, and they're going to be the next of many industries seeking one. Now, just handing over money to developers who bought high and are underwater, when the default process works perfectly well and wouldn't disrupt the greater economy much at all, makes no sense. However, if we offered developers a deal like the Architecture 2030 proposal, which would save money in energy costs and have a societal good, that would be worthwhile. And it could be extended to ordinary homeowners as well.

An outfit called Architecture 2030, founded by Edward Mazria, suggests that we offer homeowners not just low-interest loans, but a sliding scale of low-interest loans that's conditioned on renovating their homes to increase energy efficiency. Their proposed scale is on the right. The nickel explanation is below:

"Mazria walked me through a hypothetical example that highlighted the huge incentives the plan could unleash. Say you're a homeowner with a $272,000 mortgage at 5.55%, paying about $1550 a month. You decide you want your mortgage rate to drop to 3%. In order to qualify for the reduction, you have to improve the energy efficiency of your home 75% below code, and it's going to cost you a pretty penny: about $40,000.

Existing tax credits would take care of about $10,000 of that cost. The rest would get tacked on to your existing mortgage, bringing it up to $302,000. But, at 3%, you'd be paying only about $1280 — saving almost $300 a month on the mortgage alone, plus another $150 in reduced energy costs. The value of your home rises, you have more disposable income, you've given work to someone to do the upgrades for you — and s/he's now paying federal taxes, and you've reduced your carbon footprint."

The Architecture 2030 folks claim that their program (which has a component for commercial buildings as well) would cost a mere $170 billion over two years, and in return would create over 8 million new jobs, jump start a new $1.6 trillion renovation market, save consumers a boatload of money, and reduce CO2 emission by about half a billion tons. What's not to like?

I think they're being a little sunny about the positive impact, but not very much.

We definitely need to be smart like this, but it's a tough job. There are a lot of competing interests at play, and nobody's going to be totally happy. At the very least, however, this cannot look like a highway bill.

...Matt Stoller has a good piece on the politics of this. The Blue Dogs appear to favor highway and road projects, but the question is whether they have enough clout to get what they want. Also, a bill like this includes Congresscritters seeking money for their districts that split ideological lines. For instance, the major green jobs repositories in California are Bakersfield and Palm Springs, which have Republican members. I don't think the Blue Dogs are going to be able to dictate this so easily.

Health Care "This Year"

In between fielding another pointless round of questions on Rod Blagojevich, Barack Obama used today's press conference to introduce Tom Daschle as the next Health and Human Services Secretary and to signal that he would move early in his term to reform health care.

"Some may ask how, at this moment of economic challenge, we can afford to invest in reforming our health care system. Well, I ask a different question -- I ask how we can afford not to....If we want to overcome our economic challenges, we must also finally address our health care challenge [...] This has to be interwoven into our economic recovery program. This can't be put off because we're in an emergency. This is the emergency!"

It's a very important way to look at the health care crisis, which is destroying both American families and American business with its twin outrages of soaring costs and reduced care. The key point, as Ezra Klein notes, is that Obama said he would seek to reform the system "in my first year." That suggests he is determined to move quickly on health care, which is exactly what is needed to secure passage. There are going to be a lot of neo-Hooverists out there calling for delay, but if Obama sticks with his solid rhetoric, he should parry those calls pretty easily. It's amazing what you can accomplish if you take the long view of the subject. If health care costs continue to expand at their current rate, today's recession will look like a small bump in the road.

Nobody really knew what Obama would spend his political capital on early in his term. If it's health care, I'm very pleased.

By the way, Daschle wasn't the only appointee on stage.

He also introduced Jeanne Lambrew's appointment as Daschle's deputy. Lambrew is an incredibly talented and knowledgeable health wonk, and her involvement should cheer liberals. Unlike during the campaign, when Obama's health care team seemed heavy on relatively cautious academics, Lambrew has long White House and executive branch experience, and comes to health care as a crusade as much as a topic of study. As Jon Cohn says, the importance of her presence "goes beyond the fact that she happens to know a heck of a lot about health care. She, too, has a strong commitment to what you might call the 'social justice' side of the debate."

More from Jon Cohn and Robert Pear at the NYT.

...as a side note, one of Obama's core ideas to lower health care costs is electronic medical records. Ezra spells that out pretty nicely here. You wouldn't think that you could achieve as much savings just by putting health records online, but it turns out that the Veteran's Health Administration has gone electronic, and they save $33,000 a year per nurse practitioner, according to this study. That's pretty amazing. And we're finally at a moment where we can swallow the up-front costs:

But the problem is the upfront costs are quite high. Around $50,000 per physician. And that's not to include the time it takes to learn the system, or a doctor's preference for the way he's always done things. Which is why fewer than 20 percent of physicians have adopted the technology. At this point, it's clear you'd need some coordinating authority to help pay some of the upfront cost, and ensure standards and interoperability among systems. An authority like...the government. Even Kevin MD, as free market as they comes, agrees. "The ball is in the government's court. If universal electronic records are the happen, they have the ability to make it so." And now the government, under Obama, is planning to make it so, including real money for health information technology in the stimulus package. This is how the stimulus should be used: To make necessary and needed investments that will have lasting beneifts.

Fantastic.

New Wheels For GM And Chrysler - Or Not

A draft bill has been introduced by the House on an auto recovery plan, which everyone knows will only last until the next Administration (for some reason we had to go big with the financial bailout, though).

The legislation provides up to $14 billion in short-term bridge loans and includes accountability measures banning corporate excesses, including no golden parachutes, no bonuses for the 25 most highly paid employees at each company, and no corporate airplanes, with requirements to sell or end leases on any existing aircraft.

The money's coming from the already-appropriated funds to help automakers build energy-efficient vehicles, which sucks. The new "car czar," who has pretty expansive powers, will be selected by Bush, which sucks. The clause saying that the automakers have to drop their lawsuit against California to regulate greenhouse gas emissions has been stricken, which sucks.

This piece is good:

Each Automobile Manufacturer will analyze the potential use of excess production capacity to manufacture vehicles (including buses and rail cars) for sale to public transit agencies. Also includes provisions to guarantee leases of qualified public transit agencies.

The automakers have giant factories and transit companies, not to mention defense firms, have needs. I have no idea why they hadn't been paired up to this point.

In short, there's not a lot to like about this bill, other than it will at least get the carmakers to January. But that's not good enough for the neo-Hooverist Republicans:

Senate Republicans say they have grave concerns about the agreement between congressional Democrats and the Bush White House to speed billions of dollars to struggling U.S. automakers.

Sen. George V. Voinovich, a Republican from Ohio and a leading supporter of the emergency measure, says it doesn't have the necessary Republican votes to pass Congress.

Voinovich is relatively moderate, so if he's saying that, it's probably true.

I can't believe that we're going to force blue-collar companies into bankruptcy while lavishing hundreds of billions onto Wall Street. And based on convenient lies like "auto workers are richie riches!"

That figure — repeated on television and in newspapers as the average pay of a Big Three autoworker — has become a big symbol in the fight over what should happen to Detroit. To critics, it is a neat encapsulation of everything that’s wrong with bloated car companies and their entitled workers.

To the Big Three’s defenders, meanwhile, the number has become proof positive that autoworkers are being unfairly blamed for Detroit’s decline. “We’ve heard this garbage about 73 bucks an hour,” Senator Bob Casey, a Pennsylvania Democrat, said last week. “It’s a total lie. I think some people have perpetrated that deliberately, in a calculated way, to mislead the American people about what we’re doing here.”

So what is the reality behind the number? Detroit’s defenders are right that the number is basically wrong. Big Three workers aren’t making anything close to $73 an hour (which would translate to about $150,000 a year).

But the defenders are not right to suggest, as many have, that Detroit has solved its wage problem. General Motors, Ford and Chrysler workers make significantly more than their counterparts at Toyota, Honda and Nissan plants in this country. Last year’s concessions by the United Automobile Workers, which mostly apply to new workers, will not change that anytime soon.

Just to clarify, Detroit doesn't have a "wage problem." Leonhardt's own chart shows that legacy costs and pensions, which apparently aren't allowed anymore, make up for the entire "problem." Leonhardt does correctly argue that the real problem here is getting Americans to buy American cars. But look. GM and Ford have a business overseas. They have a business in the US. They were getting the message on fuel economy and were on the road to profitability when this disaster struck in the credit markets. That is not of their own doing. And yet, for a pittance of what we're throwing down AIG's gullet, we could get them through this tough time and come out on the other end with a sustainable auto industry. Scott Lemieux has this right.

First of all, is there any other context in which progressives would uncritically use the conserveratrian formulation "wage problem"? Am I supposed to be cheering for Wal-Mart to crush Costco because of the latter's "wage problem" while shopping at the former besides? When he watches American Dream, does Kevin cheer for the Hormel executives? Call me crazy, but I'm inclined to think of the generous wages and benefits accorded to their workers is a point in Detroit's favor. (And if you think that wages at non-union American factories will remain at their current level if Detroit stops competing for labor, I have some beautiful condos in Flint to sell you.)

The devil is in the details, of course. But Ford and GM, at least, are producing some quality cars that people in fact are buying, and it's by no means obvious that they can't be profitable companies after the Bush Depression turns around. Given the stakes involved for the American economy and American labor, government money that permits product line consolidation and development with longer time horizons certainly seems like a good gamble to me.

But not to the neo-Hooverists who are putting us on the road to a completely deindustrialized and unsustainable America.

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.

OK, We'll Stop Printing Money Now

The White House is saying that they may not use all of the bailout money before January 20 and that they will offer about $350 billion of it to President-elect Obama, in a magnanimous gesture, for him to use it as he sees fit. How gracious! The Bush Administration has only drawn $4 TRILLION dollars out of the Treasury and they're letting Obama handle the rest!

Given the speed at which the federal government is throwing money at the financial crisis, the average taxpayer, never mind member of Congress, might not be faulted for losing track.

CNBC, however, has been paying very close attention and keeping a running tally of actual spending as well as the commitments involved.

Try $4.28 trillion dollars. That's $4,284,500,000,000 and more than what was spent on WW II, if adjusted for inflation, based on our computations from a variety of estimates and sources.

Not only is it a astronomical amount of money, it's a complicated cocktail of budgeted dollars, actual spending, guarantees, loans, swaps and other market mechanisms by the Federal Reserve, the Treasury and other offices of government taken over roughly the last year, based on government data and new releases. Strictly speaking, not every cent is directed a result of what's called the financial crisis, but it arguably related to it.

There's a chart at the link if you want to see for yourself everything you've bought this year. By the way it hasn't done the trick yet.

I think at this point, stripping Henry Paulson of his authority to spend more cash, with Ben Bernanke thrown in for good measure, isn't an option but a duty. And Chuck Grassley's call for the newly minted oversight board to investigate conflicts of interest among all the Goldman Sachs execs serving as the ladlers of corporate cash during the bailout is absolutely warranted. However, this oversight is coming at the END of the process, not the beginning. With four trillion already passed out, it's not like putting the brakes on the giveaways is going to make much of a difference today. This is not to say we shouldn't be investigating and scrutinizing what amounts to theft, as well as building a new regulatory structure for the future (yes, listen to Eliot Spitzer on this one - setting aside his personal life he's probably the most knowledgeable person in America about what needs to be done).

And there's, of course, a double-edged sword to all the newfound vigor on the right, from Grassley and James Inhofe and others, to watch the Treasury Department, after leaving the barn door open to the tune of four trillion. This is but a prelude to the wave of fiscal austerity that we're going to be hearing 24-7 from those who will claim we just can't afford health care and investments in alternative energy and infrastructure and early childhood education. We actually need some immediate relief right now, for state and local governments and the unemployed, and my concern is that this retrospective shock at the bailout price tag from Republicans will be used as an excuse to deny that, sending us into the downward spiral we saw in 1930 and 1931, when too much dithering and not enough action created an even bigger economic hole.

Demand-Side Economics

Robert Reich, who I'm glad to have in the room advising President-Elect Obama during the transition, has written a piece about what he calls the "Mini-Depression" and how we can best undo it. The first thing is to understand the nature of the problem.

First, understand that the main problem right now is not the supply of credit. Yes, Wall Street is paralyzed at the moment because the bursting of the housing and other asset bubbles means that lenders are fearful that creditors won't repay loans. But even if credit were flowing, those loans wouldn't save jobs. Businesses want to borrow now only to remain solvent and keep their creditors at bay. If they fail to do so, and creditors push them into reorganization under bankruptcy, they'll cut their payrolls, to be sure. But they're already cutting their payrolls. It's far from clear they'd cut more jobs under bankruptcy reorganization than they're already cutting under pressure to avoid bankruptcy and remain solvent.

This means bailing out Wall Street or the auto industry or the insurance industry or the housing industry may at most help satisfy creditors for a time and put off the day of reckoning, but industry bailouts won't reverse the downward cycle of job losses.

The real problem is on the demand side of the economy.

Consumers won't or can't borrow because they're at the end of their ropes. Their incomes are dropping (one of the most sobering statistics in Friday's jobs report was the continued erosion of real median earnings), they're deeply in debt, and they're afraid of losing their jobs.

Introductory economic courses explain that aggregate demand is made up of four things, expressed as C+I+G+exports. C is consumers. Consumers are cutting back on everything other than necessities. Because their spending accounts for 70 percent of the nation's economic activity and is the flywheel for the rest of the economy, the precipitous drop in consumer spending is causing the rest of the economy to shut down.

I is investment. Absent consumer spending, businesses are not going to invest.

Exports won't help much because the of the rest of the world is sliding into deep recession, too. (And as foreigners -- as well as Americans -- put their savings in dollars for safe keeping, the value of the dollar will likely continue to rise relative to other currencies. That, in turn, makes everything we might sell to the rest of the world more expensive.)

That leaves G, which, of course, is government. Government is the spender of last resort. Government spending lifted America out of the Great Depression. It may be the only instrument we have for lifting America out of the Mini Depression. Even Fed Chair Ben Bernanke is now calling for a sizable government stimulus. He knows that monetary policy won't work if there's inadequate demand.

This doesn't mean we don't bail out the auto companies, but that we focus our efforts on the demand side of the equation for once. If we can use government to create jobs and raise income, consumer spending will rise, and then investment will rise, etc. Now, saving the auto industry might be part of that - after all, the carmakers and their parallel industries employ 3 million people. But to meet the scope of the problem we're going to have to do much more - probably spending up to 4% of GDP. And paradoxically, we're going to have to spend on things that work at cross purposes with selling more inefficient automobiles; things like transportation infrastructure.

The answer to the second question is mostly "infrastructure" -- repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation. Even conservative economists like Harvard's Martin Feldstein are calling for government to stimulate the economy through infrastructure spending. Infrastructure projects like these pack a double-whammy: they create lots of jobs, and they make the economy work better in the future. (Important qualification: To do this correctly and avoid pork, the federal government will need to have a capital budget that lists infrastructure projects in order of priority of public need.)

Government should also spend on health care and child care. These expenditures are also double whammies: they, too, create lots of jobs, and they fulfill vital public needs.

Which is why an auto industry bailout must be tied to fuel economy, because otherwise, you're funding new, fast, efficient means of transport that would reduce greenhouse gas emissions AND the old model of 20 mpg and under gas guzzlers. Chris Dodd said yesterday that the votes aren't there for an auto industry bailout in the lame duck session of Congress. If the guarantees on efficiency are made, I think the votes could be there in January.

But the big emphasis here is on the new energy economy. There can't be a better way to reindustrialize America with jobs that can't be shipped away. I know that some believe industrial output has been rising due to productivity, but if you go into the numbers that only holds among a couple sectors - basically, if it wasn't for the computer we would hardly have any industrial output at all. And so building out a new energy grid that can transmit wind and solar power to anywhere in the United States, building high speed rail that runs on clean electricity, building new renewable facilities, all of these will create jobs that spur demand, and raise wages by giving job-seekers an option outside of the dead-end service sector. The fact that the EPA rightly blocked the new production of coal-fired power plants makes this a practical necessity.

And yes, health care is a part of this. There was hastily dismissed talk of adding health care to the stimulus package yesterday. As Reich says, it's a double whammy - you create jobs, and fulfill public needs.

Reich finishes by pre-empting the neo-Hooverist argument:

Expect two sorts of arguments against this. The first will come from fiscal hawks who claim that the government is already spending way too much. Even without a new stimulus package, next year's budget deficit could run over a trillion dollars, given the amounts to be spent bailing out Wall Street and perhaps the auto industry, and providing extended unemployment insurance and other measures to help those in direct need. The hawks will argue that the nation can't afford giant deficits, especially when baby boomers are only a few years away from retiring and claiming Social Security and Medicare.

They're wrong. Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now. Deficit numbers themselves have no significance. The pertinent issue is how much underutilized capacity exists in the economy. When there's lots of idle capacity, deficit spending is entirely appropriate, as John Maynard Keynes taught us. Moving the economy to fuller capacity will of itself shrink future deficits.

The second argument will come from conservative supply-siders who will call for income-tax cuts rather than spending increases. They'll claim that individuals with more money in their pockets will get the economy moving again more readily than can government. They're wrong, for three reasons. First, income-tax cuts go mainly to upper-income people who tend to save rather than spend. Most Americans pay more in payroll taxes than in income taxes. Second, even if a rebate could be fashioned, people tend to use those extra dollars to pay off their debts rather than buy new goods and services, as we witnessed a few months ago when the government sent out rebate checks. Third, even when individuals purchase goods and services, those purchases tend not to generate as many American jobs as government spending on the same total scale because much of what consumers buy comes from abroad.

We have had 28 years of supply-side economics, and it has gotten us precisely to this crisis. Shifting this to job creation and wage increases, demand-side economics, would be maybe a quiet revolution for the cable news gasbags who focus on personality, but a revolution nonetheless. And to quote Dick Cheney, not a noted economic scholar but in this case appropriate, "This is our due."

It Must Be Homes And Investment

We are in a world of hurt right now economically. Job losses are increasing, and I predict we'll go an entire calendar year without one month of gains. This will likely lead to more foreclosures in the year ahead, as restructuring and refinancing isn't going to help the unemployed. Consumer spending will plummet and the holiday shopping season is probably going to be bleak, though some disagree. Most unnerving is the looming crisis in credit card defaults, because that's really all that workers who can't take equity out of their home and whose wages are flat have left to keep up with rising costs.

The question is what we do about this. Perhaps this plan from the FDIC chair will help.

Sheila Bair, chairman of the Federal Deposit Insurance Corp., told the same Senate panel that the government needs to do more to help tens of thousands of home borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them.

"Loan guarantees could be used as an incentive for servicers to modify loans," Bair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."

The FDIC is working "closely and creatively" with the Treasury Department on such a plan, she said.

As I said, recently unemployed folks aren't going to be able to refinance. And the loans have been so securitized that you'd have to negotiate on multiple fronts just to cover every piece of the mortgage. But if they can make it work, this is very desirable. The cost to the greater economy of a foreclosure, both in upkeep and falling home prices in the immediate area et al, is close to $250,000. If there are likely to be a million foreclosures next year, you're talking about a number approaching that of the bailout package. We have to do something to get homes under control. Keeping people inside them, too, is both an economic and a moral imperative.

The other thing we must do is public investment, in infrastructure and job-creating engines. The neo-Hooverites in the media who are proscribing belt-tightening during a recession are writing up a recipe for disaster. Republican allies to such a "head in the sand" approach include Saxby Chambliss and Norm Coleman:

“I would be very cautious if a stimulus plan becomes another excuse to simply spending more dollars,” the Republican senator said in an interview after a campaign rally Tuesday in Bemidji.

These two need to be defeated. It's totally absurd to advocate for austerity budgeting at this time. It threatens a longer and deeper recession than we've ever seen in our lifetimes. The government has the ability to step in where private investment can't to provide stimulus that CREATES, whether it's jobs or infrastructure or a move to a green economy. Speaker Pelosi is talking about freezing Bush out of the measure and waiting for a new President, and she should. But immediately thereafter, we need a serious stimulus (more than she's willing to admit, actually).

Clinton Smacks Down The Creeping Neo-Hooverism

I see that Donna Brazile signed up for neo-Hooverism on the Sunday chat shows this morning, seeking to constrain a potential Democratic Administration by suggesting we have to tighten our belts in the middle of a recession, which is nothing short of economic suicide. I can tell you that this is not a unanimous view inside the Democratic inner circle, based on what I experienced yesterday.

I was fortunate enough to see Bill Clinton at a small-group discussion in Century City for a group of entertainment industry professionals. This was not a campaign event, and indeed the President was somewhat constrained by campaign finance laws to really advocate for any candidate. But aside from Clinton announcing his preference for Gray's Anatomy and Boston Legal, what was most notable was his discussion of the hypothetical "first 100 days" for a new President. This is from my notes:

The next President is going to face much different challenges than what I faced in 1993, and he can't do the same things... he shouldn't try to fix the deficit right away, but he's going to have to stimulate the economy by paying for things that are useful... we have had too much risk and not enough legislation... we need a government strong enough to prevent the market from devouring itself... I was happy to see Senator Obama call for a moratorium on foreclosures, and we also need to do what we did in the 1930s by buying up these mortgages and giving homeowners the ability to stay in their homes, to minimize disruption and maximize confidence... so let's stimulate the economy, and give birth to a new economy based on old-fashioned financing and modern products. It cannot be based on finance.

Obviously Clinton is part of a different side of the Democratic Party than Senator Obama. But there's a significant amount of overlap, and to hear the President who ushered in deficit reduction and fiscal responsibility in the 1990s recognize very clearly the need for stimulus, in the areas of infrastructure, job creation and the new energy economy, makes me very much reassured and hopeful. And indeed, in the last debate Obama pushed back on the idea of reinstituting PAYGO during a time of recession. This idea of helping state and local governments, putting money into infrastructure and green energy and jobs is very much a part of Obama's stimulus policies. They need to be bigger, but there's no trace of neo-Hooverism there.

Obviously we have to get the surrogates back on the reservation (thanks Donna Brazile). I suggest that everyone gets put into a room with James Galbraith and they memorize this entire passage:

An amazing debate at National Journal. The journal asked, is there room for fiscal stimulus to respond to the crisis caused by the mortgage mess. David Walker, who’s been preaching the need to rein in entitlements, treated the crisis as a chance to push his favorite line:

My concern is, when will Washington wake up and start doing something to defuse the potential “super sub-prime crisis” associated with the federal government’s deteriorating finances and imprudent fiscal path?

And Jamie (Galbraith) let loose:

What is Mr. Walker’s approach to subprime crisis today? His comment above makes his approach clear. It is to use the crisis as a rhetorical springboard, in order to divert the conversation back to what he calls the “super sub-prime crisis associated with the federal government’s deteriorating finances…”

But the fact is, the subprime crisis is real. The collapse of interbank lending is real. The collapsing stock market is real. The disintegration of the financial system is real. The collapse of the housing sector is real. The credit crunch and the recession are real. You can see this in the interest rate spreads and in the credit that is unavailable at any price.

Mr. Walker’s “super subprime crisis” of the federal government is not real. It is a pure figment of the imagination. It is something Mr. Walker sees in his mind’s eye. He sees it in his budget projections. He sees it in his balance sheets, which are the oddest balance sheets I’ve ever seen, because they have all liabilities and no assets.

We have a progressive infrastructure now that wasn't there in the past, able and willing to help drown out the neo-Hooverists as long as our leaders are on the same side. You can look no further to what the Wall Street Journal considers the nightmare of a new Democratic Administration than to see that this moment is entirely possible. And also, of course, necessary.

Voters will be registered. Workers organized. Banks regulated. Health care provided for all. Government investment will drive a green revolution that generates millions of jobs. The wealthy will pay more in taxes. Guantanamo will be shut down; torture will end. Net neutrality will be mandated. Citizens may even be able to sue corporations that negligently do them harm. They don’t even mention the war in Iraq ending.

The horror of it all. Can the Republic survive? The editors hold out one slim hope. Perhaps Democrats will divide. Perhaps he entrenched lobbies, the interest of the corporations and the wealthy will buy enough support to stand in the way of the tumbrels.

And that defines our job pretty clearly: to organize engaged citizens to hold Democrats accountable to the promises that have been made and the agenda the country needs.

We work now until Election Day. But on November 5, the real work begins.