Anti-stimulus sentiment ran high in the comments section of my (qualified) defense of the Obama Administration’s economic policy. I encourage the skeptics to check out this article from Richard Posner, which mounts a limited defense of Keynesian policies in an economic downturn.

Indulge me, if you will, in a little self-reflection.

I would probably describe myself as a libertarian conservative. I’m pretty sympathetic to the ideas of limited, decentralized government, free markets, and a decent respect for history and the culture. One thing I can’t muster, however, is the righteous certitude that seems to characterize so many critics of this Administration. Take, for example, this editorial on the stimulus from The Washington Examiner:

Today nearly a year later, unemployment stands at 10 percent. The actual total is closer to 17 percent when you include people who gave up after months of fruitlessly searching for work. The Obama stimulus program has become the butt of jokes on late-night talk shows, thanks to revelations by this newspaper and others of the phantom nature of more than 100,000 of the 640,000 positions claimed by Obama to have been created or saved, as well as revelations about jobs saved or created in congressional districts and ZIP odes that don’t exist.

Now along comes the Associated Press with a detailed study of whether the Obama stimulus program had any measurable effect on the construction industry. The AP study was reviewed by economists at five universities. Here’s what AP found: “Ten months into President Barack Obama’s first economic stimulus plan, a surge in spending on roads and bridges has had no effect on local unemployment and only barely helped the beleaguered construction industry,”

–

Despite the evidence that federal stimulus spending does not do what its advocates promise, Obama and his Democratic allies who control Congress are determined to take another whack at the taxpayers by passing a second stimulus program, the $75 billion Jobs for Main Street Act that will spend most of its funds on — what else? — construction projects. The House approved the proposal in December on a narrow 217-212 vote, and the Senate is expected to take it up later this month. The basic reason government stimulus spending doesn’t work is this: For the government to spend $75 billion in one part of the economy, it must first take $75 billion out of the economy somewhere else. There is another name for this process — robbing Peter to pay Paul.

You’ll excuse me if I don’t find the folk economics of The Examiner’s editorial staff – “robbing Peter to pay Paul” and all the rest – terribly persuasive.

For starters, their agenda is transparently obvious: Make things seem really bad by citing a few out-of-context numbers and then suggest the stimulus – rather than, say, a terrible economic climate – is to blame. Never mind the fact that the 17 percent unemployment rate they point to is taken out of context and wildly-inflated. Never mind the fact that botched local jobs or faulty record-keeping are indictments of individual projects, not the economic logic of counter-cyclical government spending.

The rest of the editorial is hardly better. The widely-cited AP study on construction stimulus funds is, of course, a lot more complicated than The Examiner’s editorial excitedly makes it out to be. The construction industry – the actual source of the study’s data – called the AP’s conclusions “fundamentally flawed.” As for The Examiner’s contention that “federal stimulus spending does not do what its advocates promise,” the notoriously-liberal American Enterprise Institute seems to think the bill worked pretty well: “. . . substantial support from fiscal stimulus, coupled with inventory rebuilding, boosted real GDP growth in the second half of the year to an estimated 3 percent annual rate. Without fiscal stimulus and inventory building, however, growth would have remained negative–an ominous fact because the fiscal stimulus will fade rapidly by mid-2010.”

None of which is to say that the stimulus was an unqualified success. None of which is to say that liberals aren’t guilty of similar bouts of self-righteous back-slapping.  But as someone who tends toward conservative outlets, I’m shocked by frequency of similar proclamations, which seem more akin to religious mantra than anything approaching sober analysis (Shelby Steele’s latest op-ed immediately comes to mind: “But where is the economic logic behind a stimulus package that doesn’t fully click in for a number of years?” I don’t know about the logic of the stimulus package, Shelby, but I sure as hell wouldn’t turn to someone who “specializes in the study of race relations, multiculturalism, and affirmative action” for macroeconomic analysis).

In the wake of an incredibly disorienting collapse that defies just about every facile ideological diagnosis, I don’t find absolute certainty all that attractive anymore. Call me a squish or a bad team player or someone who’s unwilling to take sides when the chips are down, but the Great Recession of ‘09 has shaken my faith in dogmatic economic analysis of just about any stripe.

Via Doug Mataconis, Jaybird gets to eat a nice big plate of “I Told You So” over Cash-For-Clunkers. Says the article: [Read more →]

Riffing off my last post, I’d like to take on two thoughts.  First, here’s Yglesias: [Read more →]

James Joyner points us to this bit of union badness from Mickey Kaus:

I knew they’d find a way to punish Ford: The new UAW contract with Ford apparently does not give America’s surviving non-bankrupt automaker parity with GM and Chrysler, reports Bloomberg: “The plan doesn’t include cuts to retiree benefits, such as vision coverage, that were granted to GM and Chrysler.” Rather, the pain seems even more concentrated on future hires (if there are any) than with the GM/Chrysler deals. … TTAC wonders whether the UAW had an extra incentive to resist giving concessions that might make Ford more successful now that the union owns a large chunk of its main domestic competitors. [emphases original]

Yes, now you have the UAW and the government as stakeholders in GM and Chrysler, while members of the UAW work for Ford.  This certainly seems like an awkward situation.  Writes Joyner:

It is, to say the least, problematic for a labor union to own competing firms.  But to the degree that the conflict of interest hurts Ford’s UAW employees, they could presumably divest and start a new union.

The real issue is the antecedent to this situation:  The federal government picking winners and losers between firms.  The federal taxpayer bailed out two of the Big 3 and now has powerful incentive to assure the success of those two companies at the expense of the third.  Not only is Ford much less likely to get government contracts now but they’re much more likely to come under higher regulatory scrutiny.  That they also have a more hostile union — one that no longer ultimately needs them to stay in business — is mere icing on the cake.

Picking favorites is key here.  This is what happens when the government intervenes in the markets to the advantage of specific corporations or special interests.  Unlike a stimulus check cut for every American to spend as they please, this sort of bailout rewards failing companies and punishes the one US automaker that was actually not in trouble.  Intentions aside, this seems pretty antithetical to capitalism and fairness and how we ought to be running our economy.

Now walk over to health care for a moment.  We hear a lot about insurance companies – and sure, they’ll make out pretty good under the new legislation, since it doesn’t require them to really compete any more than they do today – but what about Big Pharma?  And we know that the big unions are opposing any move to wrest health insurance from employers – even though liberals and conservatives alike think that’s the only way to really reform our muddled system.  So we can rest assured that the unions will be winners, too.   So let’s see, that’s Big Pharma, Big Insurance, and Big Labor in the Winners Column.

Who should we put in the Losers Column?

Richard Posner has an interesting essay on John Maynard Keynes in The New Republic.  I’m still trying to untangle all the various ideas and contradictions implicit in this economic downturn.  There are many competing visions which all have merit.  That the stimulus and bailouts seem to have helped, I think is true, but what and who they have helped is another question.  Whether they will do much for working (or unemployed) Americans is harder to say.

Consumer debt is high, and with plummeting home values, rising unemployment, and falling wages, the road to recovery is hardly obvious.  We may be in something of a balance-sheet recession, but I think it goes beyond that, and it’s made all the worse by the housing burst.  As consumer spending continues to fall – due both to people hoarding over uncertainty, to lost equity, and to people paying down personal debt – so does employment.  As employment falls uncertainty rises, consumer spending drops off, and we find ourselves in a spiral.  Decreased spending leads to higher unemployment leads to decreased spending and so on and so forth.  Furloughs and wage cuts force people to limit spending, which leads to more furloughs, more wage cuts, and increased unemployment.  It goes on and on.

At this point, Keynes would argue that the government should intervene – that it should replace consumer spending with government spending in order to keep employment numbers high.  When the spiral is ended, and spending and employment have returned to normal levels then the government will have served its purpose.  Business as usual can resume.

As Posner writes:

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Well, first of all I have a clunker.  A minivan to be precise.  It is rusty on the top, and though it drives fairly well in town, our mechanic recently warned us not to take it out of town.  So we went to look at some new cars when this cash-for-clunkers scheme was hatched, because there’s no way we could sell that thing for $4500.  A few thoughts:

First, cars are too expensive.  Basically all the “basic” models were sold-out by the time we got there.  So the Honda Civic advertised at $7999 after discounts and the government rebate – well, there was nothing even close.  The lowest we could get anything was about $14,000.

Second, cars are too fancy for the regular buyer.  These cars are all chalk-full of extras: Blue Tooth; storage organizers; plush interirors; stereo-systems; fancy bumpers; computers and navigation systems.  I don’t want any of this stuff.  I want a car, damnit.  One that runs and doesn’t cost me a fortune.  Preferably one that isn’t so computerized as to be almost entirely inaccessible to a mechanic or tinkerer without a diagnostic computer.  I want durability.

Third, this program’s success speaks directly to the price and fanciness of new cars these days.  If car companies want to sell more cars, they need to start selling more cars that are at least $4500 cheaper.  Basic models with no frills, brand new off the lot for six or seven or eight thousand dollars.  They don’t need to be super fuel-efficient, though that wouldn’t hurt.  (I’m all for bringing back diesel, myself.)  If car makers want to see their numbers go up, they need to manufacture cheaper vehicles.  They won’t always have the government around to offer cash for clunkers.

I think we’ll just go buy something used and sell our P.O.S. to the highest bidder.  A friend of ours recently went out and bought a 95 Civic because it was pre-computerization and he wanted something he could work on himself that got good gas mileage.  Unfortunately it doesn’t have AC.  And he lives in Phoenix, AZ.

Note: I never considered an “American made” vehicle at any point and still don’t.  Both my current cars are “American made” and they’ve convinced me to go Asian this time.  We’re thinking Subaru for the AWD.  That’s another point that can’t be made enough – not only are these cars too expensive, they’re often far less reliable than they should be.  Back to the basics!

Okay, a fun little photo album here, and more hypocritical acts of “dissent” here and here from Republican protestors who just realized that massive spending and the ensuing debt might just cause problems for the next generation.  So interesting that they just struck on this little pearl of wisdom now that a Democrat is in the White House.

Michelle Malkin, donning the unquiveringly brave voice of the people, writes:

The opposition will not be silenced.

Right, until the opposition happens to be those protesting unnecessary wars or disgraceful acts of torture.  Then said opposition is “un-patriotic” and defeatist.

I’m sorry, this little charade is just too much for me.  This guy, for instance:

Yeah, where were you the last eight years?  Where was your “ethics and honor?”

In any case, here we see the new face of GOP populism once again.  The boggart is out of the bag.  The fiscal conservatism dragon has woken from its long sleep.  Now is the time for snarky signs and sarcasm, with the economy in tatters, with two wars still on, with record job losses.  No introspection needed.  Just bring out the attack dogs and let them do their worst.

UPDATE:  The chart below is via Balloon Juice.  John Cole writes:

And none of these graphs include the violence done to the budget in the last year of the Bush administration. Long story short- even during the years of Republican Jesus Ronald Reagan, Republicans were never “fiscal conservatives.” It took me some time to come to terms with it, too, because I deified Reagan with the best of them and still have my ‘Peace Through Stregnth’ buttons from the 80’s, but you just can’t argue with the facts.

Much ado is being made over the recent revelations surrounding the Obama rescue plan that was sort-of, not-really unveiled the other day by Timothy Geitner.  Apparently there was a bit of floundering from on high:

According to several sources involved in the deliberations, Geithner had come to the conclusion that the strategies he and his team had spent weeks working on were too expensive, too complex and too risky for taxpayers.

They needed an alternative and found it in a previously considered initiative to pair private investments and public loans to try to buy the risky assets and take them off the books of banks. There was one problem: They didn’t have enough time to work out many details or consult with others before the plan was supposed to be unveiled.

It’s important to note two things: first, the Obama administration is able to re-evaluate their bad ideas and change them and even apologize if necessary; and second, they have a tendency to get ahead of themselves–like unveiling a plan that they didn’t have completely formulated and were in the process of changing.

Clearly, this is another case of the Failed Obama Administration.  I mean, seriously, the guy’s been President for almost a whole month and he still hasn’t fixed the economy, pulled us out of two wars, and lined the streets with gold?

My one criticism is that we’re seeing too many attempts at compromise, half-measures, and unlikely solutions.  Krugman describes it as “worrisome insularity” and maybe it’s that, or maybe what we’re witnessing is a sneaky move toward nationalization of the banks.  Maybe it’s a bit of both.   Hell, we’re already seeing Sen. Graham put the “option on the table.”

“This idea of nationalizing banks is not comfortable,” said Sen. Lindsey Graham (R-SC). “But I think we’ve got so many toxic assets spread throughout the banking and financial community, throughout the world, that we’re going to have to do something that no one ever envisioned a year ago, no one likes. To me, banking and housing are the root cause of this problem. I’m very much afraid any program to salvage the banks is going to require the government… I would not take off the idea of nationalizing the banks.”

I hate to bring up Sweden so often (and no it’s not because I’m half-Swedish by descent either), but the same thing basically happened there in the nineties, and in the end the taxpayer came out on top, and the banks were stabilized.

Sweden placed its banks with troubled assets into a so-called bad bank, where they could be held and then sold over time when market and economic conditions improved. In the meantime, it used taxpayer money to provide enough capital to allow banks to resume normal lending.

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In response to Freddie, Ross Douthat writes:

The issue is the risk the Democrats are taking, period, by spending enormous sums that aren’t obviously justified by the current crisis, at the start of an administration in which they’re hoping to push through enormous structural reforms as well. Those reforms have something like a mandate, since Barack Obama campaigned, and won, on promises to fix the nation’s health care system and reform the energy sector. But he didn’t campaign promising to spend massively on existing government programs – and the more massive the forthcoming burst of spending gets, the bigger the risk that it will end up swallowing the broader ambitions of this administration’s first four years. This doesn’t mean liberals are wrong to take the stimulus money and run with it, but they should at least be clear-eyed about the political risks involved.

Everything is a gamble at this point, in any case.  The stimulus package, and those who voted for and against it, are all merely assessing the incumbent risks and voting accordingly.  It’s a fancy cost-benefit analysis.  The Democrats are pushing full throttle ahead because they see this current panic as an opportunity to push legislation they’ve been hoping to push for years, and now is the most golden of opportunities to spend because it can all be done under the umbrella of stimulus.  Republicans, on the other hand, have 2010 in their sights.  Quite likely any stimulus passed now won’t actually stimulate anything in the near future, and most smart people agree that this is likely to all get worse before it gets better.  If Republicans simply refuse to go along with the Democrats on stimulus, then they can point the finger and lay the blame at the Democrat’s feet.  This is a risk the Democrats see all too well, which is the only reason they’ve attempted to get bipartisan support in the first place.  Freddie wonders why the Dems don’t just steamroll over their colleagues across the aisle, and it basically comes down to a desire to spread any potential political liability as far and as thin as possible.  Likewise, the Republicans have dug in their heels not so much out of political principle, something they had very little of these last eight years, but out of political pragmatism.

Then again, there is risk involved in the Republican’s strategy as well.  The stimulus might work better than expected, for one, and the Republicans will be blamed in 2010 for not doing more to contribute.  The economy itself may take a turn for the better, and then the Democrats, whether or not the stimulus actually did help, could very well claim credit for its perceived success.

Then, too, on a slightly more micro-level, voters whose Representatives voted down stimulus instead of accepting help for their struggling constituencies may find a less ideologically driven base either simply doesn’t turn out in 2010 or actively turns against them.  It’s one thing, after all, to oppose stimulus on a purely ideological footing, and quite another to see your neighboring districts get a check and a boost while your own goes hungry.

In any case, I don’t think either side is motivated very much out of considerations of principle or partisanship.  They’re all taking significant gambles in an economic situation that is largely made up of unknowns and uncertainties.  It’s unlikely to play out in favor of either side to any great degree, so starting now both sides have to plan their spin, and figure out how to create the softes landing possible.  Perhaps the Democrats should steamroll the opposition; push all their chips into the center and see what happens.  But if that’s the case, the Republicans have nothing to lose and everything to gain from not going along with the big spending measures.  If they do go along with the Democrats they’ll only do so haphazardly and in small numbers at best.  Any bipartisan victory will still largely go to the Democrats, while the GOP would become little better than accomplices should the stimulus be perceived as a failure, losing their blame game card almost entireley.

Perhaps a better position for the Republicans to take would be that of the people’s watchdog, demanding accountability and transparency for all the spending measure put forth, and following through on promises received by any bailout recipients, etc.  Keep it honest, since they have no political means to keep it from happening.  Not only is this one area that the GOP has lost enormous credibility over the past eight years, but it’s also politically fairly safe.  People love the idea of oversight as much as they love the idea of fiscal responsibility (and almost as much as they love the benefits they actually receive from big spending).  Then again, with the vanguard of current movement conservatism spear-headed, it would seem, by Rush Limbaugh, I fear we have very little to hope for from the Right in the foreseeable future, save the same tired talking points that the Republicans only seem to live by when they’ve been pushed out of the majority and into the loyal opposition.

David Leonhardt writing in the NyTimes:

But while Washington has been preoccupied with stimulus and bailouts, another, equally important issue has received far less attention — and the resolution of it is far more uncertain. What will happen once the paddles have been applied and the economy’s heart starts beating again? How should the new American economy be remade? Above all, how fast will it grow?

The rest of Leonhardt’s article goes through some of the next layer of Obama admin plans:  climate change (“green jobs”), health care reform as stimulus, as well as a revitalized education structure.

I have to say on all those fronts I’m less than optimistic that any of that will come to be the future, production-based, of an economy.  Assuming Leonhardt is correct that the stimulus will work (which actually I think at best it may stave off a kind of financial armageddeon), this is the central question.  All of which is a variation on Thomas Friedman’s (et. al) calls for a new domestic Marshall Plan.  Whether of a green economy, health care & education reform or all three combined.  Oh plus infrastructure spending.

As of today Iceland has gone bankrupt as a country.  Britain could well be next (h/t Automatic Earth).  I just wonder if we have reached the point where any top-down mechanisms will actually work?  Whether we are witnessing instead the death spiral of a series of our institutions simultaneously (a la Homer-Dixon’s Upside of Down).  As a student of history, I know that at certain crucical periods the old order simply dies in an often catastrophic and rather quick end.  e.g. Alexander the Great’s conquest and destruction of the previous ziggarut/ancient Near Eastern model of governance and cosmology, replaced with Hellenization and the spread of the polis.  Or the Industrial Era’s mass upheveal.  While there was talk for some of the rise of the post-industrial economy as a new stage in economic history co-arising with the Counterculture of the 60s and the dying of the centrist liberal post WWII order–and I don’t want to minimize the upheveal that period created (e.g. rise in crime, drugs, urban black holes in the West, decolonialization and revolutions in the Third World), I think we can’t compare that period to the mass upheveal of say the Industrial Era.

The question that lingers on my mind is whether we are really headed into that storm now or very soon anyway.  We often hear tales (some tall, some more accurate) about writings days before the fall of the Berlin Wall discussing the inevitable existence of the Soviet empire and communism.  And then, poof, it was pretty well gone.  The potential I think is coming for there to be a similar shift–where what will occur on the far side of the interim nonequilibrium dynamics, i.e. when a new equilibrium of some sort is established, will look radically different than what we have today.

I think there was a time for the sort of top-down led program of shifting to a new productive economy (or at least top-down aided if not led):  that period was the Bush presidency.  That period was clearly wasted.  And I wonder now if it is gone and Obama’s plans are far too little, far too late.

Update I (3 hrs later):  As a somewhat silly-actually not example of the thing I am talking about.  Talking to our children and grandchildren about how we lived through 2009, the year the newspaper (and much else died) will be an interesting discussion. Discussing with them newpapers will be like for me hearing about Model Ts or horse and buggy.  I’ve seen them (in a museum in the former case, on the road once in Amish country in the latter), but that is the kind of thing on a smaller technological-social scale.  [Although on second thought I guess newspapers aren't exactly a small deal].  How crazy will it be on a larger scale?

There is much ado today about the fact that Obama, apparently in response to conservatives’ objections, has asked House Democrats to withdraw a provision in the stimulus package that would provide family planning money for low income families.   Some of the more partisan elements of the left are particularly upset about this, arguing that this provision is an absolutely essential element of the stimulus package.  This type of reaction is pretty much par for the course whenever a President concedes something to the opposing party on an important piece of legislation, so I’m not going to write anything further about it. 
But more independent liberals are also quite upset about this whole situation – even though, as Matt Yglesias acknowledges (correctly I think), the provision is “genuinely tangential to the point of the bill.”  In other words, liberals of Yglesias’ mold acknowledge that the family planning provision, whatever its independent merits, has little relevance to economic stimulus.  Yglesias justifies his disappointment, with which Brian Beutler and Kevin Drum agree, writing:

as with a lot of Democratic concessions on the bill thus far, what seems to be missing is the “pro quo.” Where are the members of the House saying “yesterday I was inclined to vote ‘no’ on this, but thanks to this change I’m voting ‘yes.’” Bargaining is smart. I even think magnanimity on the part of a new majority is smart. But when you bargain, you get something. And I don’t see what Obama’s gotten for his business tax cuts nor do I see what he’s getting for selling out low-income women’s access to contraceptives.

I’m not sure I get this style of argument, at least not in this particular instance.   Don’t get me wrong – even though I’m not loyal to either political party, there are few words more likely to make me cringe than “bipartisan.” 

Particularly given Yglesias’ admission that the contraception provision is not very germane to the concept of economic stimulus, his point doesn’t seem to give Obama enough credit and fails to recognize an important nuance that all-too-often gets lost in the usual arguments against “bipartisanship.”  Specifically, Yglesias seems to argue that the sole reason for stripping the provision is to obtain Republican support for the stimulus package – even though it is almost inconceivable that this action will actually succeed in bringing Republicans on board.  As such, Yglesias basically accuses Obama  of caving in simply for the sake of appearing “bipartisan.”

But this misses something extremely important that we cynics (of all political stripes), myself included,  seem to forget all too frequently:  sometimes politicians legitimately try to do the right thing. 
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