Bubble Economics

| Wed Dec. 17, 2008 2:34 PM EST

BUBBLE ECONOMICS....Does the economy need a $600 billion stimulus? Think bigger:

A number of economists, including former advisers to Republican presidential candidate John McCain, have suggested to Obama's team that the economy needs a much bigger cash infusion, possibly up to a $1 trillion over two years.

....Obama's economic team believes that to put unemployment on a downward trajectory with a goal of 7.5 percent or less over two years would require a stimulus package of about $850 billion. That would generate about 3.2 million jobs by the first quarter of 2011.

....Among those whose opinions Obama advisers sought were Lawrence B. Lindsey, a top economic adviser to President George W. Bush during his first term, and Harvard professor Martin Feldstein, an informal McCain adviser and former chairman of the Council of Economic Advisors under President Ronald Reagan.

Over at RBC, Jonathan Zasloff poses a few good questions about how to spend this dough. On this very narrow issue, I think my first question would be, how much of this program should be spending and how much should be tax cuts? Can we really spend this much money quickly even if we want to? Would a payroll tax holiday make sense as part of this package?

More broadly — and I know I'm being a bit Chicken Little-ish here — I continue to wonder if a massive stimulus package that spurs domestic consumption means that just as we propped up the economy in 2002 by replacing the dotcom bubble with a housing bubble, we're now propping up the economy in 2008 by replacing the housing bubble with continuing support for our ever-ballooning trade deficit bubble. See Tim Duy for more on this. I don't know if he's right, but I don't feel too bad for bringing this up since no one else really seems to know either.

In any case, I do know that pretty much every economist in the country agrees, in general, that eventually U.S. consumption has to go down, savings have to go up, and we have to start exporting more than we import. It's just a question of whether we can afford to worry about that with the economy collapsing around our heads. Still, here's a thought: if this is a serious long-term concern, shouldn't we at least try to construct a stimulus package that stimulates export industries more than other sectors of the economy? If so, how would we go about doing that? And what else should we be doing to prepare for the day when the current panic subsides, the great T-bill bubble bursts, and the rest of the world decides that 0% yields on treasuries suck and they don't want to buy any more of them? And what they'd really like instead are some tangible goods and services, thankyouverymuch?

I don't know. Maybe we really can't worry too much about this at the moment. But the trade deficit bubble is going to pop eventually just like the dotcom bubble and the housing bubble. We at least ought to be thinking about this a little bit.

Advertise on

Chart of the Day - 12.17.2008

| Wed Dec. 17, 2008 1:52 PM EST

CHART OF THE DAY....From "Spatial patterns of natural hazards mortality in the United States," this map shows where you're most likely to die from natural disasters. (Data is from 1970-2004.) As you can see, my hometown of Orange County is one of the safest places in the country, despite its worryingly close proximity to the San Andreas fault. You see, although you may think that earthquakes are dangerous, it turns out they are a mere rounding error when it comes to dying at the hands of nature's awesome wrath. By far the biggest causes of death by natural disaster are cold weather, hot weather, lightning, flooding, and tornadoes. Earthquake deaths are so microscopic they don't even get a category or their own.

On the other hand, we're still waiting for the Big One out here. This map could change color at any time.

(By the way, just eyeballing this, it looks to me like Massachusetts is the safest state in the union. Connecticut and Rhode Island are pretty good too. Who knew?)

Public Works

| Wed Dec. 17, 2008 12:21 PM EST

PUBLIC WORKS....California is on the verge of cancelling hundreds of public works projects because it can't sell the revenue anticipation bonds needed to continue financing them:

Road, levee, school and housing construction projects throughout California are on the verge of being halted or delayed, as state officials prepare to shut off their financing in the most drastic fallout yet from California's cash crisis.

Officials plan to meet today to freeze financing on these projects and about 2,000 others, including park improvements, environmental restoration and repairs to state prisons.

....Lockyer told legislators last week that halting public-works projects would have a ripple effect through California's economy, costing private companies $12.5 billion and eliminating 200,000 jobs.

Let me just say up front that California's problems are largely of our own making. If the rest of the country has zero sympathy for us, I don't really blame them.

Still, this is a national problem, not just a local one. And if infrastructure spending is good stimulus, but the problem is that it takes a long time to get it up and running, then surely, at a minimum, you wouldn't want to lose a single dollar of infrastructure spending that's already in progress. Especially when the immediate problem has been caused by the freezing of the credit markets more than by California's fiscal recklessness. TARP to the rescue?

Examining the New Secretary of Agriculture, Former Iowa Gov. Tom Vilsack

| Wed Dec. 17, 2008 11:44 AM EST

tom-vilsack.jpg It is easy to groan at the selection of former Iowa Governor Tom Vilsack as Barack Obama's Secretary of Agriculture. Ezra Klein over at the Prospect notes that the pick signals two important things that are sure to disappoint food policy reformers. (1) Politicians from agricultural states are enmeshed in the politics of farm subsidies, and Iowa, as the number one corn-producing state in the country, can likely count on a continued flow of poisonous corn subsidies under Vilsack. (2) USDA will continue to be a department for food producers instead of one for food consumers, meaning that food policy decisions will be made with the needs of agribusiness first and the needs of low-income kids with little access to healthy food options second. (If you don't know why those two things are at odds, you haven't been listening to Michael Pollan.) It is because a conventional pick like Vilsack likely means the continuation of policies that harm both eaters and small farmers that food activists were passing around a petition to get a reformer the job. Alas, it didn't happen.

But before we throw our foodie/organic-only/locavore selves into complete despair, let's take a closer look at Vilsack. For a former governor of a corn behemoth, he's actually has the right instincts.

Person of the Year

| Wed Dec. 17, 2008 11:41 AM EST

PERSON OF THE YEAR....In a shocking surprise, Time has named Barack Obama their person of the year. Yawn. I would have voted for one of those cheesy group picks, in this case "America's mortgage bankers and Wall Street rocket scientists." I mean, if touching off the 21st century version of the Great Depression doesn't make you person of the year, what the hell does it take?

Runners up were Henry Paulson, Nicolas Sarkozy, Zhang Yimou, and, in a tremendous diss to poor old John McCain, Sarah Palin. Feh. Tina Fey would have been a more deserving choice.

Arne Duncan on the Court

| Wed Dec. 17, 2008 11:15 AM EST

ARNE DUNCAN ON THE COURT....I don't know anything about Arne Duncan's actual views on education, but what you're really thirsting for is some insight into his hoops skills, right? So here you go, courtesty of reader JT, who was friendly with the basketball coach at University High three decades ago and ended up played pickup games with the 16-year-old Duncan in the University High gym:

On Sunday afternoons, John would open the UHigh gym to his friends and his team....It was there that I ended up playing against and with Arne Duncan and then watching him play in UHigh games.

Arne was a very intelligent (Doh!) and very unselfish basketball player. If I recall rightly, he was the tallest player on the team, but he was also the best ball-handler. He had a good jump shot, but he was slow and not extremely quick. What he did have, however, was outstanding court vision. If you were going to be open off a cut, or a break out, he would see it before it occurred and get you the ball in position to do something with it.

Indeed, I recall John complaining that Arne was TOO unselfish. He was by far the best shooter on the team, and most of his teammates could not do enough with the ball when they got it.

I have no idea what, if anything, this means. Does outstanding court vision translate into awesome bureaucratic infighting skills? Does great ball handling mean he knows how to handle the teachers unions? Speculate away!

Advertise on

Which State Is the Most Corrupt?

| Wed Dec. 17, 2008 11:00 AM EST

In the wake of the Blagojevich scandal, we've heard a lot about how corrupt "Chicago politics" are. But what's the real story? A pretty graph tells the tale:


Turns out that while Illinois is more corrupt than most states, it's not Blagojevich but another allegedly-criminal Democrat, now-former Rep. William Jefferson, who comes from the most corrupt state in the union. That's Louisiana, home to sometime GOP presidential aspirant Bobby Jindal. All four of the most corrupt states in the union are red states, and three are in the deep south. And the third-most corrupt state just reelected the Republicans' leader in the senate, Mitch McConnell. Can we stop the ridiculous guilt-by-association game now? Just because a politician's home state has a reputation (deserved or undeserved) for corruption doesn't mean he or she is therefore also corrupt. Even if a sitting governor from the politician's own party has just been arrested.

(Via Matt Yglesias)

Corn on Hardball: Watching Matthews Eviscerate an Iraq War Hawk (Video)

| Wed Dec. 17, 2008 10:23 AM EST

I don't know if Hardball host Chris Matthews will run for the U.S. Senate in Pennsylvania and challenge incumbent Republican Arlen Specter. I do know that it would be refreshing to have a fellow in the Senate with as much passion as Matthews. Sure, he peeved a number of people with his comments on Hillary Clinton during the recent presidential campaign. But last night, I was a guest on his show and watched Matthews eviscerate former Reagan administration aide Frank Gaffney on the question of whether the Iraq war had been justified. I had been booked to debate Gaffney on the subject. But Matthews tore into him more than I could.

I give Matthews plenty of credit--not just for being right on this issue but for devoting the first quarter of his show to the matter. He shoved aside Blago and Caroline Kennedy to discuss a war that the mainstream media does not sufficiently cover. There aren't many television talk show hosts who still greatly care about whether George W. Bush, Dick Cheney and the rest of that crew hoodwinked the country into war. But Matthews does. He wants to win the fight over the history and make sure that the public does not forget how the soon-to-be-gone Bush administration misled the nation. I'm not urging Matthews to run--I enjoy appearing on his show and would be sad to see it disappear--but it would be heartening to see in the Senate a man who displays so much zeal on this front.

I have a feeling that in the coming years the Bush-backers and neocons will not give up the fight; they will relentlessly argue that the war was right and just. Even though the majority of the American public doesn't buy that, the foes of the war will have to push back and do combat over and over on this point. Whether Matthews is on TV or in the Senate, he could be a valuable participant in that (alas) never-ending debate.

The Rich and Corporations Carry the Tax Burden? Yeah, Right

| Wed Dec. 17, 2008 10:01 AM EST

Kevin helped drive a stake through the heart of a favorite conservative trope yesterday when he put up a chart illustrating the effective tax rate on the rich and superrich. (Hint: It's only slightly higher than the middle and upper middle classes.) This article should finish it off. Guess what the effective tax rate on Goldman Sachs, which made $2.8 billion in 2008, will be this year? One percent.

Out of Iraq

| Wed Dec. 17, 2008 1:55 AM EST

OUT OF IRAQ....Barack Obama visited an elementary school today and chatted with the children. From the pool report:

Then he told the kids he was opening the floor to questions, and proceeded to take more than double the number of questions than he took at his press conference....One child ask him about iraq and he said he plans to have troops home in.a year and a half.

This is good to hear. Obama wouldn't lie to a bunch of fourth graders, would he?