The Great Recession

Justin Fox posted this chart yesterday showing job losses (so far) during the current recession compared to job losses during the Great Depression.  It's a pretty good panic corrective, showing just how far away we are from the problems of the 30s.

It's also, I think, a tribute to how much more we know about the economy these days than we did back then.  Sure, it often seems as if we're still so far in the dark we can barely see our own hands in front of our faces, but the fact is that we're doing pretty well despite the fact that our underlying problems are probably every bit as severe as the imbalances that caused the Great Depression.

Consider, after all, that our response to the Depression appears to have been 180 degrees wrong.  We literally did almost everything possible to make it worse: we tightened the money supply, balanced the budget, raised interest rates, passed protectionist legislation, and allowed banks to fail by the hundreds.  It escalated a panic into a Depression.

And this time around?  Just the opposite: interest rates are close to zero, we're running an enormous budget deficit, protectionism has largely been kept at bay, money is being pumped into the economy prodigiously, and with the notable exception of Lehman Brothers banks are being saved right and left.  These actions have reduced a panic to a severe recession.

If we had taken the same policy actions that Hoover and Mellon took in the 30s, does anyone doubt that the results would have been another Great Depression?  I don't.  We may still be doing a lot of dumb things, but we're an awful lot smarter than we were 80 years ago.

More on Crises

This subject is admittedly a little arcane, but here's Matt Yglesias arguing, contra Ezra Klein and me, that the United States is indeed unsuited to dealing with short-term crises:

The U.S. political system, with its high number of veto points, is arguably unsuited to taking decisive action in response to a crisis compared to alternative models, such as the Westminster system in play in the United Kingdom and Canada or to the multiparty coalition systems of northern Europe. It’s hard to know how to evaluate that claim. There is, however, a political science literature indicating that American-style systems are more prone to total constitutional breakdown in a crisis.

I can't comment on the political science literature, but it seems to me that the U.S. doesn't do any worse than other developed countries on this score.  You can argue about whether our historical responses to immediate crises have been correct, but they certainly seem to have been as decisive as anyone else.  To pick the example of our current economic meltdown, which countries have done better?  Japan?  Germany?  China?  Iceland?

There's a pretty good case to be made that these countries have all acted both more slowly and with less sense of genuine urgency than the U.S.  At the very least, it's safe to say that almost no one has done demonstrably better.  We do indeed have a large number of veto points in our political system, but in practice it's not clear that this has prevented decisive action during a genuine emergency.

The inadequacy of the Federal Elections Commission is an old hobby-horse around here. Today, CREW has some wise things to say on the subject:

Come May 1, President Barack Obama will face a first test of whether he will make good on his promise to change the way Washington works. The test will come at an agency that most Americans have never even heard of — the Federal Election Commission — where there could be three vacancies that day.

...the FEC has long been made up of commissioners hand-picked from the ranks of the political party faithful, and its interpretation of the nation’s campaign finance laws has consistently been to the benefit of the parties rather than the people.

CREW then spends some time providing examples of the FEC's failings, which you should check out if you're not well-versed on the subject. Then it lays out Obama's options:

Muscled men in dark sunglasses speeding down Iraqi roads in armored SUVs, guns at the ready and looking for trouble, have been a regular fixture in Iraq since 2003. But with Blackwater's State Department contract set to expire in May, many of its highly skilled (if sometimes reckless) security contractors will soon find themselves on the unemployment line. But according to the Washington Post, the lucky ones could be snatched up by Triple Canopy and DynCorps, the two security companies to which the State Department has turned to pick up the slack. "One or both of the firms are likely to undertake the task of rehiring some personnel now working for Blackwater," the Post's Karen DeYoung reports.

Still, there will inevitably be fewer high-paying private security jobs available than there are free agents looking for work (welcome to the recession, guys). General Ray Odierno, the US commander in Iraq, has ordered his forces to begin shedding private contractor jobs at a rate of 5 percent per quarter in favor of hiring more local Iraqis to do the work for less money.

When all is said and done, it may be Secretary of Defense Robert Gates, a Republican, who is seen as Barack Obama's most revolutionary cabinet pick. The Boston Globe reported Tuesday morning that Gates is poised to make "the most far-reaching changes in the Pentagon's weapons portfolio since the end of the Cold War," and plans to cancel as many as six major weapons programs this month, including the F-22, the Navy's Zumwalt-class destroyer, and new Army ground transports.

Cutting these programs won't be easy. When Dick Cheney was Secretary of Defense, the Globe notes, he tried to cancel the V-22 Osprey four times. Each time Congress resurrected the program. Big weapons programs mean jobs for states, and members of Congress don't want to be blamed for their cancellation, especially in a recession. Besides, if this was easy, it would already have been done: the F-22, for example, has not even been used in the wars in Afghanistan and Iraq. But that hasn't stopped it from being built. Andrew Exum (a.k.a. abu muqawama), a fellow at the Center for a New American Security and a top counterinsurgency blogger, writes: "Prepare to fight three wars at once: one in Afghanistan, one in Iraq, and one in Washington against the bi-partisan coalition of lobbyists, congressmen, and industry leaders who will fight Robert Gates tooth and nail on this. It is going to be awesome to watch, that's for sure."

Rep. Barney Frank (D-Mass.) has been campaigning against out-of-control military spending and "Cold War-era weapons" like the F-22 for a quarter-century now. Last month, he and other liberal Democrats hosted a forum on Capitol Hill demanding Obama cut the Pentagon budget and shutter programs like the ones Gates plans to kill later this month. Obama's budget increase for the Pentagon, announced just a few days later, was a setback for Frank and his allies. But now it looks like Frank may have a friend in the Pentagon after all. The next few weeks should give us a better sense of exactly what kind of change Gates can push through.

In light of today's news that Steelers owner Dan Rooney will be the next US Ambassador to Ireland, it's only appropriate to ask the most pressing question in Steeler Nation (or at least the little corner of Steeler Nation that works at Mother Jones): when are the Pittsburgh Steelers, who won Super Bowl 43 on February 1, getting their customary visit to the White House? Rooney and head coach Mike Tomlin are both huge Obama fans, and before the Super Bowl various Steelers players cited a visit to Barack Obama's White House as extra motivation. Obama himself professes to have been a Steelers fan growing up in Hawaii, and admitted before the Super Bowl that he was rooting for the Steelers over the Cardinals.

Yet six weeks have passed since the Steelers won their NFL-leading sixth ring and no mention of a visit. I called the White House press office this morning to ask for an explanation and received a beleaguered "I don't know" that had strong hints of "please stop bothering us." I understand the White House is busy, put c'mon folks. We're going to have a March Madness champion soon, and NHL and NBA winners after that. You can't let these things pile up.

Photo by flickr user Pixteca MX used under a Creative Commons license.

A Democratic congressional staffer confirms to Mother Jones that Pittsburgh Steelers owner and Obama supporter Dan Rooney will be named the United States Ambassador to Ireland today.

Rooney became president of the Steelers in 1975 and owner in 1988, continuing a line of family ownership that began when Rooney's father, Art Rooney, known as "the Chief," bought the team in 1933 for roughly $2,500 in horserace winnings. In addition to being involved in the Steelers' league-leading six Super Bowl championships, Dan Rooney is known for guiding the creation and implementation of what is commonly called the Rooney Rule, which requires NFL teams to interview at least one minority candidate when filling a head coaching vacancy. The rule is widely credited for adding to the diversity of the NFL's coaching ranks. When the Steelers won the Super Bowl last February, their head coach, Mike Tomlin, was only the second African-American head coach to pilot a team to the championship. Rooney was inducted into the Pro Football Hall of Fame in 2000.

Rooney has long ties to Ireland. He created the Rooney Prize for Irish Literature and founded the American Ireland Fund. Despite being a lifelong Republican, Rooney supported the candidacy of Barack Obama, going so far as to campaign for him in important swing states.

Currently, Pittsburgh area papers are reporting that Rooney "may" be named to the ambassadorship. The congressional staffer who confirmed the move to Mother Jones said that his member received a courtesy call from the administration informing his office of the appointment.

Update: The White House emailed reporters announcing Rooney's appointment at 10:04 am. Beat 'em by about 25 minutes. Obama had this to say: "I am honored and grateful that such a dedicated and accomplished individual has agreed to serve as the representative of the United States to the Irish people. Dan Rooney is an unwavering supporter of Irish peace, culture, and education, and I have every confidence that he and Secretary Clinton will ensure America’s continued close and unique partnership with Ireland in the years ahead."

According to the principles of retributive justice, punishment is supposed to be more or less in proportion to the magnitude of a crime. So—which do you think is an appropriate punishment for the Wall Street executives whose greed and corruption not only bankrupted their own companies, but set in motion a meltdown that has deprived millions of Americans of their homes and their life savings, driven millions more into unemployment and poverty, and triggered economic chaos, political unrest, and even starvation and death around the world?

A. Don’t give them a bonus this year.

B. Fire their asses.

C. Lock them up and throw away the key.

If you answered A, you are in line with the policies of the Obama administration, which, after giving billions in bailout money to the likes of AIG, discovered that the company intends to pay out millions in executive bonuses.  The administration’s response has been to get really, really pissed off, and say that they just aren’t going to stand for  these guys getting multi-million-dollar bonuses on top of their multi-million-dollar salaries–if only they can figure out a way around those pesky contracts.

So what happens if we manage to wrest all those retention bonuses away from the AIG traders who destroyed the company?  Maybe this:

Company officials contend that the uproar is scaring away the very employees who understand AIG Financial Products' complex trades and who are trying to dismantle the division before it further endangers the world's economy.

"It's going to blow up," said a senior Financial Products manager, who spoke on condition of anonymity because he was not authorized to speak for the company. "I have a horrible, horrible, horrible feeling that this is going to end badly."

That would be bad.  But Andrew Ross Sorkin thinks it might be even worse:

A.I.G. employees concocted complex derivatives that then wormed their way through the global financial system. If they leave — the buzz on Wall Street is that some have, and more are ready to — they might simply turn around and trade against A.I.G.’s book. Why not? They know how bad it is. They built it.

So as unpalatable as it seems, taxpayers need to keep some of these brainiacs in their seats, if only to prevent them from turning against the company.

Now that's a lovely thought, isn't it?  If they don't get their bonuses, these guys might not only leave AIG, but turn around and do their best to make things even worse.  That's just speculation, of course.  But would it surprise anyone if that started to happen?

Roger Atwood has previously reported for Mother Jones from Iraq and Peru. This guest blog entry is a post-election follow up to his recent dispatch from El Salvador.

El Salvador's long civil war finally ended on Sunday night. As election results trickled in showing victory for Mauricio Funes, presidential candidate of the guerrilla group-turned-political party Farabundo Marti National Liberation Front, the streets around FMLN headquarters in San Salvador filled with people wearing red shirts, waving red flags, and chanting a line popularized by the president of the FMLN’s former archfoe, the United States: "Yes, we could!" 

Pickup trucks jammed with flatbed-riders and buses crammed with celebrating passengers crisscrossed the city into the night, red flags flapping behind them. The fact that many, if not most, of these celebrants were too young to remember the actual war did not change the fact that the promise of the 1992 peace agreement that ended the fighting and created a pluralist political system has finally been fulfilled. Through fair elections, Salvadorans chose the first genuinely left-wing government of their history. The ruling Nationalist Republic Alliance, or ARENA, which formed in the early 1980s with the express goal of stopping el comunismo, has collapsed under its own weight after 20 years in power. "This result says to the world that El Salvador is prepared for democratic alternation in power," Funes told cheering supporters. "Tonight, Salvadorans have signed a new peace agreement." The ARENA candidate Rodrigo Avila was sullen but gracious, saying in his concession speech, "When we said we would accept whatever result there was, we meant it." 

One learns not to get one's hopes up in a country that has seen as much betrayal and war as El Salvador, but this time it does look like the democratic transition is complete.

Funes takes office on June 1. He is going to face high expectations and tough odds. The economy relies on remittances from Salvadorans living abroad, and remittances are in sharp decline. At 55 homicides per 100,000 people, the crime rate is one of the highest in the world and intimately tied to the family disintegration caused by mass emigration. Even foreign trade has fallen far short of expectations, despite ARENA's ambitions for a globalized role: El Salvador's trade deficit rose to $5.2 billion last year, a sad performance for a small, export-driven economy.