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October 9, 2011

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Posted: 09 Oct 2011 12:06 AM PDT

"Financial Crisis and Stimulus"

Posted: 08 Oct 2011 03:24 PM PDT

Ezra Klein:

Financial crisis and stimulus: Could this time be different?, by Ezra Klein, Commentary, Washington Post: Christina Romer had been asked to scare her new boss. It was six weeks after the 2008 election, and the incoming administration had gathered in Chicago. David Axelrod, Barack Obama's top political adviser, couldn't have been more clear in his instructions to Romer: The president-elect needed to know how bad the economy was going to get. No pulling punches, no softening the news.
So Romer, the preternaturally cheerful economist whose expertise on the Great Depression made her a natural choice to head the incoming president's Council of Economic Advisers, worked up some numbers to show how quickly the economy was deteriorating and what would happen if the federal government wasn't able to mount an effective response.
It was not a pleasant presentation to sit through. The situation was grim. Afterward, Austan Goolsbee, Obama's friend from Chicago and Romer's successor, remarked that "that must be the worst briefing any president-elect has ever had."
But Romer wasn't trying to be alarmist. Her numbers were based, at least in part, on everybody else's numbers: There were models from forecasting firms such as Macroeconomic Advisers and Moody's Analytics. There were preliminary data pouring in from the Bureau of Labor Statistics, the Bureau of Economic Analysis and the Federal Reserve. Romer's predictions were more pessimistic than the consensus, but not by much.
By that point, the shape of the crisis was clear: The housing bubble had burst, and it was taking the banks that held the loans, and the households that did the borrowing, down with it. Romer estimated that the damage would be about $2 trillion over the next two years and recommended a $1.2 trillion stimulus plan. The political team balked at that price tag, but with the support of Larry Summers, the former Treasury secretary who would soon lead the National Economic Council, she persuaded the administration to support an $800 billion plan.
The next challenge was to persuade Congress. There had never been a stimulus that big, and there hadn't been many financial crises this severe. So how to estimate precisely what a dollar of infrastructure spending or small-business relief would do when let loose into the economy under these unusual conditions? Romer was asked to calculate how many jobs a stimulus might create. Jared Bernstein, a labor economist who would be working out of Vice President Biden's office, was assigned to join the effort.
Romer and Bernstein gathered data from the Federal Reserve, from Mark Zandi at Moody's, from anywhere they could think of. The incoming administration loved their report and wanted to release it publicly. Romer took it home over Christmas to double-check, rewrite and pick over. At 6 a.m. Jan. 10, just days before Obama would be sworn in as president, his transition team lifted the embargo on "The Job Impact of the American Recovery and Reinvestment Act." It was a smash hit.
"It will be a joy to argue policy with an administration that provides comprehensible, honest reports," enthused columnist Paul Krugman in the New York Times.
There was only one problem: It was wrong. ...[continue reading]...

Reich: The Wall Street Occupiers and the Democratic Party

Posted: 08 Oct 2011 11:07 AM PDT

Robert Reich  argues that Democrats will have trouble embracing the populist goals of Occupy Wall Street. Why? Just "follow the money, and remember history":

The Wall Street Occupiers and the Democratic Party, by Robert Reich: Will the Wall Street Occupiers morph into a movement that has as much impact on the Democratic Party as the Tea Party has had on the GOP? Maybe. But there are reasons for doubting it. ...
So far the Wall Street Occupiers have helped the Democratic Party. Their inchoate demand that the rich pay their fair share is tailor-made for the Democrats... But if Occupy Wall Street coalesces into something like a real movement, the Democratic Party may have more difficulty digesting it than the GOP has had with the Tea Party.
After all, a big share of both parties' campaign funds comes from the Street and corporate board rooms. The Street and corporate America also have hordes of public-relations flacks and armies of lobbyists to do their bidding – not to mention the unfathomably deep pockets of the Koch Brothers and Dick Armey's and Karl Rove's SuperPACs. Even if the Occupiers have access to some union money, it's hardly a match.
Yet the real difficulty lies deeper. A little history is helpful here.
In the early decades of the twentieth century, the Democratic Party had no trouble embracing economic populism. It charged the large industrial concentrations of the era – the trusts – with stifling the economy and poisoning democracy. In the 1912 campaign Woodrow Wilson promised to wage "a crusade against powers that have governed us … that have limited our development … that have determined our lives … that have set us in a straightjacket to so as they please." The struggle to break up the trusts would be, in Wilson's words, nothing less than a "second struggle for emancipation."
Wilson lived up to his words – signing into law the Clayton Antitrust Act..., establishing the Federal Trade Commission (to root out "unfair acts and practices in commerce"), and creating the first national income tax.
Years later Franklin D. Roosevelt attacked corporate and financial power by giving workers the right to unionize, the 40-hour workweek, unemployment insurance, and Social Security. FDR also instituted a high marginal income tax on the wealthy. ...
By the 1960s, though, the Democratic Party had given up on populism. Gone from presidential campaigns were tales of greedy businessmen and unscrupulous financiers. This was partly because the economy had changed profoundly. Postwar prosperity grew the middle class and reduced the gap between rich and poor. By the mid-1950s, a third of all private-sector employees were unionized, and blue-collar workers got generous wage and benefit increases.
By then Keynesianism had become a widely-accepted antidote to economic downturns – substituting the management of aggregate demand for class antagonism. ... Who needed economic populism when fiscal and monetary policy could even out the business cycle, and the rewards of growth were so widely distributed?
But there was another reason for the Democrats' increasing unease with populism. The Vietnam War spawned an anti-establishment and anti-authoritarian New Left that distrusted government as much if not more than it distrusted Wall Street and big business. Richard Nixon's electoral victory in 1968 was accompanied by a deep rift between liberal Democrats and the New Left, which continued for decades.
Enter Ronald Reagan, master storyteller, who jumped into the populist breach. If Reagan didn't invent right-wing populism in America he at least gave it full-throttled voice. "Government is the problem, not the solution," he intoned, over and over again. In Reagan's view, Washington insiders and arrogant bureaucrats stifled the economy and hobbled individual achievement.
The Democratic Party never regained its populist footing. ...
Which brings us to the present day. Barack Obama is many things but he is as far from left-wing populism as any Democratic president in modern history. True, he once had the temerity to berate "fat cats" on Wall Street, but that remark was the exception – and subsequently caused him endless problems on the Street.
To the contrary, Obama has been extraordinarily solicitous of Wall Street and big business – making Timothy Geithner Treasury Secretary and de facto ambassador from the Street; seeing to it that Bush's Fed appointee, Ben Bernanke, got another term; and appointing GE Chair Jeffrey Immelt to head his jobs council.
Most tellingly, it was President Obama's unwillingness to place conditions on the bailout of Wall Street – not demanding, for example, that the banks reorganize the mortgages of distressed homeowners ... as conditions for getting hundreds of billions of taxpayer dollars – that contributed to the new populist insurrection. ...
This is not to say that the Occupiers can have no impact on the Democrats. ... Pressure from the left is critically important. But the modern Democratic Party is not likely to embrace left-wing populism the way the GOP has embraced – or, more accurately, been forced to embrace – right-wing populism. Just follow the money, and remember history.

Nothing will change until the interests of the powerful are threatened -- they won't give in until populist demands are the lesser of two evils. In the aftermath of the Great Depression, the fear that capitalism would be replaced by something much worse for business contributed to the acquiescence of the powerful to reform that stripped away some of their power and benefited the working class. But what threats do the powerful face now that would cause them to embrace reform as better than the alternative? Is there anything that makes reversing growing inequality, reducing the political power of the wealthy, and changing the view that the system is rigged in favor of the few the best political choice for those who have the most political influence? So far, I don't think there is -- we see pictures on the news of people on Wall Street sipping champagne and enjoying the show with no signs they feel threatened rather than amused -- and there is little sign so far that Democrats believe their reelection chances hinge on embracing this movement (and if this starts to happen, the powerful will do their best to undermine the movement with hippie bashing -- which has already started -- and other attempts to strip the movement of its ability to bring about change).

The powerful aren't going to worry about you, they, of course got where they are with hard work, brains, skill, etc., not a rigged system, family connections, inheritance, the Harvard buddy system, etc. If you weren't as talented as they are, that's your problem. But they will worry about themselves, and if their interests are threatened they'll demand change. Thus, the key will be to make the change the working class needs the only acceptable choice for the powerful, and as I see it we are still (unfortunately) quite a ways from that goal.

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