That's the question that the Obama team should be asking as they court Republican support for a stimulus package. We would all like to get beyond the partisan rancor of the last 16 years, but there are real issues at stake here. If the effort to court Republicans means switching from spending to tax cuts, which will create fewer jobs per dollar; and from tax cuts for low and middle income families to tax cuts for businesses and the wealthy, which will create even fewer jobs, then President Obama will be paying a big price in jobs lost for those Republican votes.

It is understandable that President Obama would want to reach out to Republicans on the first major initiative of his presidency. But the price of this gesture should not undermine the goal of the policy. We need growth and jobs more than we need 80 votes in the Senate.

The latest mutterings from Congress, especially the Republican leadership, indicate that they still don't have a clue about the seriousness of the economic downturn we are facing. They are saying that they can't have a stimulus package ready for when President Obama takes office in two weeks, and that a package probably won't be ready until well into February.

This delay is inexcusable. Remember when the Wall Street boys needed their TARP bailout in the fall? President Bush and his crew, together with the Democratic congressional leadership, with a huge chorus of media cheerleaders, all told us that the economy would collapse without immediate action. That is almost true now in the case of stimulus.

Read more »

Virtually the whole economics profession somehow managed to overlook the largest housing bubble in the history of the world. Remarkably, few, if any, economists were fired or even demoted for their extraordinary incompetence. Unlike dishwashers and factory workers, economists are not held accountable for their performance.

This is disturbing not only for its moral implications, but more importantly because the lack of accountability means that economists have no incentive to ever start thinking for themselves rather than just repeating the conventional wisdom in the profession. After saying silly things about the housing market for much of the last decade, the same crew is now saying equally silly things about the value of the dollar and the budget deficit.

Read more »

I hate to play scrooge on Christmas, but $160k for part-time work seems a bit steep. The WAPO reported this would be the pay for Fannie Mae's new 10-person board of directors today.

The remarkable part of this story is that the Washington Post did not cite anyone in this piece who raised a question about the compensation levels for the board. Keep in mind that this is a newspaper that is absolutely apoplectic over autoworkers getting $27 an hour. If we assume that the board members on average will devote 500 hours a year to their duties, this puts their pay rate at $320 an hour.

Read more »

Imagine a major national newspaper that never saw an $8 trillion dollar housing bubble. Suppose its most often cited expert on the housing market was the chief economist of the National Association of Realtors, who also authored the 2006 bestseller : Why the Housing Boom Will Not Bust and How You Can Profit From It.

Yes, I'm talking about the Washington Post, which had the gall today to run a column by Jim Hoagland complaining about how "we" are passing on a bad world to our children. The "we" in the column is meant to refer to the generations currently in their 40s, 50s, and 60s, who he claims are leaving huge problems to our children.

He's right about the problems, but he's wrong about the "we."

Read more »

Now that economists have finally discovered that asset bubbles can be harmful (next week, they learn about the shape of the earth), we are getting a debate about how to deal with them. I'm sure that this debate can provide full-time work to hundreds of economists, but at the risk of sending some of my colleagues to the unemployment lines, let me suggest a simple solution: talk.

Economists seem to hold a bizarre view, that it is both very important that people like Fed chairs and Treasury secretaries be careful about what they say, but also that what they say does not really matter. While such contradictions are standard for the economics profession, I will argue that what these folks say can really matter.

Read more »

Picking up on Paul's question about why we didn't go back into recession/depression after World War II (and following Randall's point), I think unions did play a very important role. Strong unions are a great mechanism for ensuring that workers will get their share of productivity growth. Workers are far more likely to spend their income than owners of capital or managers. Therefore the strong labor movement that came out of the organizing drives of the the thirties and the war was a powerful mechanism for sustaining demand growth.

Of course many economists have complained that strong unions are harmful for precisely this reason. The argument was that they raised costs and created inflationary pressure. Obviously there is some truth to this story, but clearly unions are an effective tool against the sort of deflationary spiral that we saw at the beginning of the depression.

This is something to keep in mind as Congress debates the Employee Free Choice Act next year.

I love the prospect of secular stagnation (raised by Bob Reich) primarily because the answers are so easy. :Let's keep our eyes on the ball. The problem in this picture is that we are capable of producing more goods and services than we want to consume. It's a problem of too little money chasing too many goods and services.

Well, there are two really simple answers to this problem:

Read more »

This is a tough situation. I don't want to just parrot Paul Krugman, but I find it hard to disagree with much of what he has to say in this book.

So, I will take a slightly different tack. Paul is absolutely right that we must spend big time right now. This is a situation in which, to refer back to Keynes, completely wasteful forms of spending would be better than no spending at all. We must generate demand, and in this respect paying people to dig holes and then fill them up again is better than doing nothing.

Read more »

The Detroit automakers have made many mistaken business decisions that have been important factors contributing to their current crisis. However, they are not responsible for some of the factors that have brought them to the brink of bankruptcy.

Most obviously, they are not responsible for the collapse of the housing bubble and the subsequent loss of more than $15 trillion in housing and stock wealth. This falloff in wealth has sent consumption plummeting. The auto industry has been especially hard hit, with sales falling by more than 30 percent year over year in the last two months.

The Big Three are also not responsible for the broken U.S. health care system. If we paid the same amount for health care as Canada, G.M. would have accumulated an additional $22 billion in profits over the last decade.

Read more »

As the tale of greed and stupidity that gave us the housing bubble and subsequent crash continues to unfold, it is becoming increasingly clear that the problem was not simply that the regulators were out to lunch. Some regulators saw the problems and wanted to take steps to rein in abuses but were prevented from doing so by the political power of the financial industry.

The best example of politics thwarting effective regulation was when Alan Greenspan, Robert Rubin, and Larry Summers prevented Brooksley Born, the head of the Commodity Futures Trading Commission, from regulating credit default swaps in 1998. However, there are many other instances coming to light in which political interference obstructed efforts to stem questionable practices by the financial industry.

Read more »

Yes folks, more good news from the folks who bought you payment option ARMS, collaterized debt obligations (CDO), and credit default swaps. The banking industry (at least the folks not yet in jail) has a great plan to make home buying affordable and stabilize house prices.

They propose that the federal government should make it so that everyone can get a 4.5 percent mortgage through Fannie and Freddie's financing. I know it's rude to question the wisdom of the people who didn't see the housing bubble, but let's try to think about this one for a moment.

Read more »

Back when President Bush wanted to privatize Social Security he visited the office in West Virginia where the government bonds owned by the Social Security trust fund are stored. After viewing the bonds, Bush held a press conference and announced that "they're just sheets of paper."

Bush was absolutely right about the "sheets of paper" part of the story, but the "just" needs some further qualification. The value of these bonds depends on the taxing authority of the U.S. government. That is still the most valuable guarantee in the world.

Read more »

The taxpayers are coughing up tens of billions of dollars because Citibank was run by incompetent people. As the Washington Post reminds us today, one of those people, Robert Rubin, was formerly a close associate of the two top government officials in charge of the bailout. He knew Treasury secretary Henry Paulson from his days at Goldman Sachs before he joined the Clinton administration. Rubin worked with New York Federal Reserve Board president Timothy Geithner when he was Treasury Secretary.

While it's nice to see old friends working together, this one really raises some concerns. There are tens of billions of taxpayer dollars being tossed around with minimal accountability. It is difficult to see why we should let Citigroup continue to be run by the crew that made it a ward of the state, especially when one member of this crew is such good friends with the people controlling the money.

Read more »

The Great Depression was a horrible and extremely painful experience. But we did learn something extremely valuable from this experience: how to get out of a depression. The answer came in the form of the massive government stimulus associated with World War II. At the peak of the war, our deficits exceeded 20 percent of GDP. This would imply deficits of more than $3 trillion in today's economy.

This is important. We know how to keep the economy from collapsing. We didn't have this information 80 years ago. The secret is to spend money, lots of it.

Read more »