Kevin Drum

The Stimulus

| Mon Jan. 12, 2009 1:10 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?

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Quote of the Day - 01.12.09

| Mon Jan. 12, 2009 12:40 PM 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.

24

| Mon Jan. 12, 2009 12:32 PM 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.

The Harry Potter Effect

| Mon Jan. 12, 2009 11:54 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.

Stimulus Details

| Sat Jan. 10, 2009 3:43 PM EST

STIMULUS DETAILS....In case you're curious, Barack Obama's economic boffins now estimate that his stimulus plan will create 3.6 million additional jobs over the next two years. And if you're further curious about how likely this is to affect you, the estimated breakdown by industry is on the right:

To get more detailed information on the breakdown of the jobs created, we use a simulation from a prominent private forecaster on a plan that is similar — though not identical — to the type of plan the President-Elect is considering....The estimates suggest that 30% of the jobs created will be in construction and manufacturing, even though these industries employ only 15% of all workers. Both sectors have been particularly hard hit recently. The other two significant sectors that are disproportionately represented in job creation are retail trade and leisure and hospitality.

Later in the report the authors helpfully estimate that 42% of the new jobs will go to women. Bruce Bartlett emails a very brief critique of the report: "Some of these numbers look rather dubious to me, especially those for 'indirect' job creation." Perhaps so, though the broad methodology seems within the ballpark of reasonableness: they assume a net multiplier (spending + tax cuts) of around 1.3 producing nominal GDP growth in 2010 of $500 billion, combined with a "conservative rule of thumb that a 1 percent increase in GDP corresponds to an increase in employment of approximately 1 million jobs." Paul Krugman thinks these numbers sound roughly right and show that the stimulus package is too small. I'll pass along other economic comment as I see it.

Job Losses

| Sat Jan. 10, 2009 1:29 PM EST

JOB LOSSES....A headline at CNN blares:

Worst year for jobs since '45

The LA Times follows suit. But come on, folks. This is completely bogus. I'm all for dramatizing just how grim our economic situation is, but you can't use raw numbers like this in an era of rising population. The civilian labor force today is 40% larger than it was in 1982 and more than twice as large as it was in 1945. Job losses last year amounted to about 1.7% of the labor force, but in 1945 the equivalent number was nearly 5% and in 1982 it was nearly 2%.

Job losses last year were brutal, and if you count broader measures than the headline unemployment rate they were even grimmer. But there's no need to use moron math to make it seem even worse than it is. "Worst since 1982" would have been fine.

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Don't Ask, Don't Tell

| Fri Jan. 9, 2009 10:37 PM EST

DON'T ASK, DON'T TELL....Obama press secretary Robert Gibbs posted a video Q&A today on the change.gov site and took the following question:

Thaddeus: Is the new administration going to get rid of the "don't ask don't tell" policy?

Gibbs: Thaddeus, you don't hear a politician give a one-word answer much, but it's yes.

That's very good news, though I sure wish Gibbs had given a multi-word answer instead. Mainly, what I want to know is: "What do you plan to replace it with?" We'll just have to wait and see, I guess.

Friday Cat Blogging - 9 January 2009

| Fri Jan. 9, 2009 3:48 PM EST

FRIDAY CATBLOGGING....Yesterday was a nice sunny winter day, so Inkblot got a bee in his bonnet and suddenly decided to scamper up our jacaranda tree. Perhaps he knew that we're about to have it removed and wanted one last look? Hard to say. As usual, though, he didn't really know what to do once he got up, and came scampering down about as fast as he scampered up. Domino, who knows her limits, enjoyed the winter sun from ground level.

In other cat news, the Bush family cat, India, died on Sunday. R.I.P.

Debra Bowen, California's Secretary of State, sends along news of her critters: "I'm up to three cats now — Mapplethorpe, Oz and Sushi. Sushi, my latest pound cat, hangs out on the 6th floor of the SOS office fairly often — and knows everyone who works there, and who has the best sleeping spots at what time of day." She promises pictures someday.

Finally, last week Blue Girl started up Friday Public Art Blogging over at her Missouri blog. "Does Missouri have any public art of cats?" I asked. Probably so, but this week a dog will have to do. And Zoe!

Quote of the Day - 01.09.09

| Fri Jan. 9, 2009 3:25 PM EST

QUOTE OF THE DAY....From Ben Shapiro, describing the Benjamin "Henry Gale" Linus character on Lost:

Benry is evil to be sure — but he's pure, solid, wonderful evil in the mold of Dick Cheney.

Yes, this is meant as a compliment.

High-Speed Rail

| Fri Jan. 9, 2009 2:04 PM EST

HIGH-SPEED RAIL....John Judis makes the case for a big piece of the stimulus package to be spent on high-speed rail:

One area that is ripe for such investment — and that is not, from what I have seen, a declared priority of the Obama administration — is high-speed rail. Amtrak's Acela trains — the closest thing we have to one — average less than 100 mph between Washington D.C. and Boston, whereas trains in Western Europe and Japan go more than twice as fast. Many of them also run on electricity. They would be the most energy-efficient and quickest means of getting between places like Boston and New York, or Los Angeles and San Francisco. But they would require a massive investment. For instance, installing high-speed rail in the Northeast corridor could cost about $32 billion, while California's high-speed rail system would require up to $40 billion. A system that would address the other areas of the country could easily raise the cost to the hundreds of billions. The House transportation and infrastructure committee has currently proposed $5 billion in stimulus funds for intercity rail--not even a down payment on what it would cost to convert the U.S. to high-speed rail.

Investing in high-speed rails would be very expensive, but unlike tax cuts — the benefits of which can be siphoned off in the purchase of imported goods — the money spent would go directly to reviving American industry and improving the country's trade balance. That doesn't just mean jobs creating dedicated tracks or new rail stations: Though the U.S. abandoned train manufacturing decades ago to the French, Germans, Canadians, and Japanese, this kind of production could be undertaken by our ailing auto companies or aircraft companies — if the federal and state governments were to place orders. And building trains that would run on electricity would be a paradigmatic example of the "green jobs" that Obama often touts.

I agree with some of this. The train manufacturing part seems like small potatoes, and I have my doubts that there's anything to be gained from trying to revive that particular part of the American manufacturing scene. On the broader picture — and I say this even though I live in California — I'd be happiest with a large and highly targeted investment in high-speed rail in the northeast. Most medium and long-haul rail projects in the U.S. are both iffy in conception (LA-San Francisco is really at the bleeding edge of what's likely to be workable for high-speed rail) and so far from being started that they'd have no immediate stimulative impact at all. The northeast, by contrast, fairly cries out for a modern, fast, European style rail system. It's geographically compact and densely populated; its residents are fairly train-centric already; and most of the terminal cities have good public transit. That's not really true of any other region in the country.

Unfortunately, this is a political minefield. There's no way Congress will allocate tens of billions of dollars to the northeast unless lots of other congressional districts get their pet rail projects too. Amtrak has always been a porkfest, and it's not clear that anyone has the political will to put a stop to it.

But maybe! Common sense suggests that high-speed rail in the northeast corridor would be a pretty good national project to get started on, and other regions of the country should probably focus either on urban subway/light rail projects or on non-transit spending. For now, the northeast ought to be both a showcase and a pilot project for serious high-speed rail. If the French can do it, so can we.