Short Term vs. Long Term

| Mon Jan. 12, 2009 12:39 PM EST

SHORT TERM vs. LONG TERM....As long as we're talking about the economic long term, here's another question for the economics crowd. Conventional wisdom, after first complaining that TARP was misconceived and what was really needed was bank recapitalization, has quickly swung around to the idea that, in fact, Henry Paulson's capital injections were wasted. After all, banks still aren't lending.

Tax cuts, similarly, are in ill repute because they don't necessarily increase consumption. People are more likely to sock the money away in a savings account or use it to pay down credit card debt. So there's no bang for the buck.

But surely this is short sighted? Stimulus spending can (we hope) help keep the economy afloat over the next couple of years, but then what? When the economy starts to recover, it will certainly be helped along if bank balance sheets are in better shape than they are today. Likewise, it will be helped along if consumers have paid down some of that credit card debt and put a few dollars aside. Right? We can't keep running a negative savings rate forever, after all.

So: what's wrong with government spending to stimulate the economy now, combined with tax cuts and bank recapitalizations to help get the economy in shape for recovery a couple of years down the road? This isn't so much a suggestion as a question. Does this make sense, or is there some fundamental misconception at its core? What say the economists?

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The Stimulus

| Mon Jan. 12, 2009 12:10 PM EST

THE STIMULUS....From the same Washington Post article about the Bush economic record that I quoted below, we also have this:

"The expansion was a continuation of the way the U.S. has grown for too long, which was a consumer-led expansion that was heavily concentrated in housing," said Douglas Holtz-Eakin, a onetime Bush White House staffer and one of Sen. John McCain's top economic advisers for his presidential campaign. "There was very little of the kind of saving and export-led growth that would be more sustainable."

"For a group that claims it wants to be judged by history, there is no evidence on the economic policy front that that was the view," Holtz-Eakin said. "It was all Band-Aids."

Agreed — and this is what continues to niggle at the back of my mind. A big stimulus package is all well and good, but suggestions that it should be even bigger and badder than Obama has proposed make me wonder what the end game is. Paul Krugman, for example, criticizes the $800 billion plan on the grounds that it will only make up for part of the output gap caused by the recession, not all of it. But aside from the practical question of whether we could effectively spend double the amount Obama is proposing anyway, I guess I wonder if we should even be trying to make up the entire output gap with domestic spending. Because there really is some readjustment that needs to happen in the medium term.

For years now the the skyrocketing U.S. trade deficit has been Topic A among economists. The big fear was that the Chinese were shipping us goods and we were shipping them back treasury bills, and this couldn't last forever. Eventually the Chinese would tire of stockpiling treasuries, the dollar would crash, and all hell would break loose. In the end, that's not what happened, but it was still the trade deficit that was at the heart of our problem: American consumers went into deep debt to buy all those Chinese goods, the savings glut from China and elsewhere poured into the American housing market, and eventually the music stopped. The dollar didn't crash, but housing and the American consumer did.

But the dollar could yet crash, because one way or another the books have to balance. Americans have to consume less and export more. Keeping American output high is important, but one way or another American consumption has to fall and Chinese consumption has to grow. If a gigantic stimulus plan keeps output high but also keeps consumption high, then it's just another Band-Aid.

So what's the end game? Hardly anyone wants to talk about it. And I feel sort of stuck. I'm not an economist myself, and virtually every economist I respect is on board with the idea that the Obama stimulus package is, if anything, too modest. It should be twice as big and last twice as long. Better safe than sorry. That's hard to argue with, but I still wonder where it's going to leave us in a few years. With a nice soft landing as the dollar rises but doesn't implode, or at the top of yet another bubble waiting to pop?

Boomers, Meet Cuspers

| Mon Jan. 12, 2009 12:07 PM EST

Looking for a marked-down home in a marked-down country? From CNN:

The real estate market is so awful that buyers are now scooping up homes for as little as $1,000.

There are 18 listings in Flint, Mich., for under $3,000, according to There are 22 in Indianapolis, 46 in Cleveland and a whopping 709 in Detroit. All of these communities have been hit hard by foreclosures, and most of these homes are being sold by the lenders that repossessed them.

"Foreclosures have turned banks into property management companies," said Heather Fernandez, a spokeswoman for, the real estate Web site. "And it's often cheaper for them to give these homes away rather than try to get market value for them."

So, give up lattes, mani-pedis, and Netflix for awhile, and buy a piece of the "greatest nation in the world."

You know, growing up a dispossessed, poor black girl, sharecroppers' fourth of sixth: Even I thought better of America than this. I thought my biggest problem was shoving my way in line. I never thought my kids would find no line at all.

Why am I bitter? Here's why: After the much-vaunted "boomers," it's not 'God bless America,' a la Kate Smith.

It's not, 'God damn America,' a la Jeremiah Wright.

It's 'God save America,' a la every citizen living today and to come.

Perhaps that's why this other CNN article spoke to me so loudly:

Rarely has there been a year when so many things went out of style in such a short time: not just investment bankers, gas-guzzling vehicles, corporate jets, conspicuous consumption and political polarization, but also a whole generation.

After strutting and tub-thumping and preening their way across the high ground of politics, media, culture and finance for 30 years, baby boomers have gone from top dogs to scapegoats in barely a year.

As baby boomers lose their authority and appeal, generational power is shifting one notch down: to cuspers (born roughly 1954-1965), who arrived in style in 2008 with their first truly major figure, Barack Obama (born 1961).

We 'cuspers' missed both the postwar baby boom and 'flower power.' But we do inherit the mess the 'die before I'm 30 crowd' engendered. We've been quiet too long.

Call It a Trend

| Mon Jan. 12, 2009 11:48 AM EST

George Voinovich is retiring. Kit Bond is retiring. Sam Brownback is retiring. Mel Martinez is retiring. Republican senators are heading to greener pastures, folks. A difficult 2010 map for the GOP is getting harder and harder.

George W. Bush's Non-Mea-Culpa Tour 2009

| Mon Jan. 12, 2009 11:41 AM EST

George W. Bush the wise and somber presidential veteran.

Spare me. But as Bush prepares to leave office, he's trying to strike that sort of tone. I suppose it's easier to pontificate about the office of the presidency than to say, "Boy, did I screw up, I'm outta here." So at a press conference on Monday morning--probably his final as president--Bush discussed the burdens of presidential leadership and noted there will come a moment next Tuesday when Barack Obama, after taking the oath of office and watching the parade, settles into the Oval Office and says to himself, "Oh, my." (Maybe he will add, "Is this my beautiful house?")

But being president is really not that bad, Bush said. According to Fox News, he remarked: "Disappointments will be clearly a minority irritant." (Was that a Freudian slip? Or just another Bushism? According to the official transcript of the press conference, Bush actually said, "minor irritant.")

But the most surprising (I suppose) element of his non-mea-culpa is his insistence that he is unpopular because he did the right thing. For instance, he said that it would have been wrong for him to back the Kyoto global warming treaty just to be popular. Of course. But that doesn't mean trashing it was the correct thing to do. Bush seems to believe that popular disgust with some of his actions is a signal that he made the hard and right choice. See Iraq.

On Fox News Sunday, Bush had this telling exchange with Brit Hume:

Quote of the Day - 01.12.09

| Mon Jan. 12, 2009 11:40 AM EST

QUOTE OF THE DAY....From Edward Lazear, chairman of George Bush's Council of Economic Advisers, on the administration's economic track record:

"It does look like a great eight years, aside from the last quarter, unfortunately."

Actually, he's wrong: it wasn't a great eight years, regardless of whether or not you count the final quarter. But this was still too good a quote not to memorialize.

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Freedom Declines For Third Consecutive Year, Report Says

| Mon Jan. 12, 2009 11:34 AM EST

Freedom House, a Washington, DC-based NGO, today released its annual assessment of the state of democracy worldwide. The bottom line: freedom is in retreat for the third year in a row, with most reversals having occurred in Sub-Saharan Africa and the former Soviet Union. The study looks at the world's 193 countries and 16 strategic territories, classifying them as Free, Partly Free, or Not Free. Overall, 34 countries fell in the rankings, while only 14 advanced.

Key findings from the study after the jump...


| Mon Jan. 12, 2009 11:32 AM EST

24....So I watched the 24 premiere last night, and it's obvious that the show is going to deal head on with the subject of torture this season. Episode 1 opens with Jack testifying before a Senate committee about his past transgressions, which he wearily but defiantly confesses to, and then rolls through two hours of FBI agents wondering "how far he'll go" — because, you see, Jack's exploits with the dark arts are apparently the thing of legend in the hallways of the Bureau.

Is there any way for this end other than badly? After all, here in the blogosphere we opponents of torture like to argue that we don't live in the world of 24, guys. And we don't. But Jack Bauer, needless to say, does live in the world of 24. And in that world, there are well-heeled terrorists around every corner, ticking time bombs aplenty, and torture routinely saves thousands of lives. What are the odds that it won't do so again this season — except this time after lots of talk about the rule of law blah blah liberals blah blah it's your call blah blah? Pretty low, I'd guess. Hopefully the writers will surprise me.

Chris Dodd Is Putting His Foot Down on TARP. Kinda

| Mon Jan. 12, 2009 11:19 AM EST

Chris Dodd must have woken up this morning and finally realized he is the chairman of the Senate Banking Committee. He announced today that he is blocking the release of any further TARP funds ($350 billion remains in federal coffers) until the limits on executive pay and the help for struggling homeowners that were promised around the time of TARP's passage are made into a reality. (A rough paraphrase of Hank Paulson from October 2008: "Yeah, yeah, whatever you say. No golden parachutes. Money for families in foreclosure. Fine. Just please give us the damn money.")

Dodd's a little late to this party. After all, half the TARP funds have been distributed and it's not clear that any oversight was used, any limitation on executive pay was enacted, or any help has trickled down to the folks who are actually losing their homes. And, to be honest, he's a little weak in the spine. Barney Frank, Dodd's equivalent in the House, is standing behind legislation that would improve the bailout program while Dodd is reportedly ready to let the process move forward unchanged following a stern letter to the Obama people. Presumably Dodd would hold a press conference and say that the transition office has given him all the assurances he needs. Which is ridiculous, of course, because Paulson snowed him in exactly the same way.

By the way, is TARP working for you? It's working for us.

The Harry Potter Effect

| Mon Jan. 12, 2009 10:54 AM EST

THE HARRY POTTER EFFECT....Via Dan Drezner, the NEA has released its latest survey of reading habits, and the news is good. Fiction reading among young adults is way up, and overall reading is up too. More than 50% of adults read a piece of literature last year. Huzzah!

The highest rate of reading is among 55-64 year-olds. Poetry reading continued to decline: only 8% of adults read a poem last year, compared to 12% in 2002. And in other unsurprising news, internet reading is concentrated among the young. About half of 18-44 year-olds read an article or essay online last year, with the number plummeting quickly above that. Less than 10% of 70-year-olds read anything online in 2008.