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November 18, 2009

Economist's View - 4 new articles

Obama's Wrong-Headed Thinking on the Deficit

Edward Harrison catches this quote from Obama:

The president is in Beijing as part of his tour through several Asian countries to address economic challenges. He spoke candidly about the precarious balancing act his administration is trying to perform. He wants to spend money to kick-start the economy, but at the same time is in danger of creating too much red ink.
Obama warned the United States' climbing national debt could drag the country into a "double-dip recession," though he said he's still considering additional tax incentives for businesses to reverse the rising unemployment rate.
"There may be some tax provisions that can encourage businesses to hire sooner rather than sitting on the sidelines. So we're taking a look at those," Obama told Fox News' Major Garrett.
"I think it is important, though, to recognize if we keep on adding to the debt, even in the midst of this recovery, that at some point, people could lose confidence in the U.S. economy in a way that could actually lead to a double-dip recession."

I hope his economic advisers set him straight, though I suppose there's a chance that this nonsense is coming from them. We needed a larger stimulus package to begin with, and the economy could still use more help, labor markets in particular.

Let's hope that this doesn't turn into a call to actually start balancing the budget before the economy has fully recovered as that would increase the chances of the double dip recession that he is so worried about (something we should have learned from the 1937-38 experience where an attempt to balance the budget prematurely plunged the economy back into recession).

These comments also make it sound like any jobs program, if we get one at all, will be limited to (right-wing approved) tax cuts which is, in my opinion, inferior to direct job creation strategies. Tax cuts can be part of the mix, but by themselves are unlikely to do enough to solve the employment problem.

"Obama's Vietnam Syndrome"?

Simple question. If George Bush was president instead of Barack Obama, would the discussion and criticism of the war in Afghanistan be different? Why has there been so little attention to this issue? This has been bugging me for quite awhile, people are dying everyday - many of them are innocent bystanders - yet we don't seem to be willing to bring this discussion out into the open and talk about whether this is the correct policy to pursue. Is it because Obama and most of the left is "thoroughly frightened by America's right wing"? (This is supposed to be an economics blog, so I tossed in a graph):

Obama's Vietnam syndrome, by Jonathan Schell, Commentary, Project Syndicate: There can be no military resolution to the war in Afghanistan, only a political one. Writing that sentence almost makes me faint with boredom..., who wants to repeat a point that's been made thousands of times? Is there anyone on earth who does not know that a guerrilla war cannot be won without winning the "hearts and minds" of the people? ...
Americans are accustomed to thinking that their country's bitter experience in Vietnam taught certain lessons that became cautionary principles. But historical documents recently made available reveal... those lessons were in fact known -- though not publicly admitted -- before the U.S. escalated the war in Vietnam. That difference is important. If the Vietnam disaster was launched in full awareness of the "lessons," why should those lessons be any more effective this time? ...

Why did President Lyndon Johnson's administration steer the U.S. into a war that looked like a lost cause even to its own officials? One possible explanation is that Johnson was thoroughly frightened by America's right wing. ... His national security adviser, McGeorge Bundy, fueled Johnson's fears. In a 1964 memo, he wrote that "the political damage to Truman and Acheson from the fall of China arose because most Americans came to believe that we could and should have done more than we did to prevent it. This is exactly what would happen now if we should be seen to be the first to quit in Saigon."...

Did Johnson's advisers push the country into a disastrous war in order to win an election -- or, to be more exact, to avoid losing one? ...


What is uncanny about the current debate about Afghanistan is the degree to which it displays continuity with the Vietnam debates, and the Obama administration knows it. To most Americans, Vietnam taught one big lesson: "Don't do it again!" But, to the U.S. military, Vietnam taught a host of little lessons, adding up to "Do it better!"
Indeed, the military has in effect militarized the arguments of the peace movement of the 1960s. If hearts and minds are the key, be nice to local people. If civilian casualties are a problem, cut them to a minimum. If corruption is losing the client government support, "pressure" it to be honest, as Obama did in recent comments following President Hamid Karzai's fraud-ridden re-election.
The domestic political lessons of Vietnam have also been transmitted down to the present. George McGovern, the Democratic presidential candidate in 1972, proposed to end the war, which by then was unpopular, yet lost the election in a landslide. That electoral loss seemed to confirm Johnson's earlier fears: Those who pull out of wars lose elections. That lesson instilled in the Democratic Party a bone-deep fear of "McGovernism" that continues to this day.
There is unmistakable continuity between Joseph McCarthy's attacks on President Harry Truman's administration for "losing" China, and for supposed "appeasement" and even "treason" and Dick Cheney's and Karl Rove's refrains assailing Obama for opposing the Iraq war... It is no secret that Obama's support for the war in Afghanistan, which he has called "necessary for the defense of our people," served as protection against charges of weakness over his policy of withdrawing from Iraq. So the politics of the Vietnam dilemma has been handed down to Obama virtually intact. Now as then, the issue is whether the U.S. is able to fail in a war without becoming unhinged.
Does the American body politic have a reverse gear? Does it know how to cut losses? Is it capable of learning from experience? Or must it plunge over every cliff that it approaches?
At the heart of these questions is another: Must liberals and moderates always bow down before the crazy right over national security? What is the source of this right-wing veto over presidents, congressmen and public opinion? Whoever can answer these questions will have discovered one of the keys to a half-century of American history -- and the forces that, even now, bear down on Obama over Afghanistan. ...

Housing Starts Fall

I just posted this at MoneyWatch:

Housing starts fell unexpectedly last month. The Census report gives the details:

Privately-owned housing starts in October were at a seasonally adjusted annual rate of 529,000. This is 10.6 percent (±8.7%) below the revised September estimate of 592,000 and is 30.7 percent (±8.3%) below the October 2008 rate of 763,000.

Single-family housing starts in October were at a rate of 476,000; this is 6.8 percent (±7.5%)* below the revised September figure of 511,000. The October rate for units in buildings with five units or more was 48,000.

This graph shows the recent trend in housing starts:

Housing Starts

As the graph shows, starts bottomed several months ago, and have been "moving sideways" ever since. What is causing housing starts to move sideways rather than recover? Calculated Risk, one of the best sites for analysis of the housing industry, gives this explanation (which I agree with):

Total housing starts were at ... the all time record low in April of 479 thousand (the lowest level since the Census Bureau began tracking housing starts in 1959). Starts had rebounded to 590 thousand in June, and have move sideways (or down) for five months.

Single-family starts were at 476 thousand (SAAR) in October... Just like for total starts, single-family starts have been at this level for five months.

As he notes, an important piece of the puzzle is that the percentage of vacant units has been climbing and is now at a record level (see this report):

It is very unlikely that there will be a strong rebound in housing starts with a record number of vacant housing units.

The vacancy rate has continued to climb even after housing starts fell off a cliff. Initially this was because of a significant number of completions. Also some hidden inventory (like some 2nd homes) have become available for sale or for rent, and lately some households have probably doubled up because of tough economic times.

It appears that ... starts are now moving sideways - and will probably stay near this level until the excess existing home inventory is reduced.

This raises the question of whether the overall economy will echo this pattern of falling backwards after apparent improvement, i.e. of moving sideways for a period of time. This is something I don't think we can or should rule out as we think about the appropriate economic policies that we should have in place to help the economy recover from the recession.

links for 2009-11-17

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