I listened to a really interesting episode of KCRW’s On the Point while driving home today. The episode was about the stimulus, asking the question “With Unemployment at 9.5 Percent, Is the Stimulus Working?” It’s worth listening just to get a rundown on the state of the stimulus and what parameters might go into measuring its effectiveness over the long haul.

While I found the overall discussion interesting, I’m surprised at the current spate of “the stimulus isn’t working, we need another/shouldn’t have passed it” stories coming out. It’s gotten to the point that President Obama essentially responded in an editorial that appeared in the Post. Which, btw, produced the most amusing “about the author” note at the bottom of the editorial:

Thanks, WaPo. I might not have remembered that.

My thoughts are simply this: it’s too early to tell whether we need more action or whether the stimulus was a bad idea at least based on any new information since the stimulus passed.

In the episode of To the Point, Maya MacGuineas, of the Committee for a Responsible Federal Budget, essentially lays out this argument and, in the same section, she or someone else suggests that what we’re really getting here is a rehash of the same debate that happened in Jan/Feb. Those that wanted a bigger stimulus are saying we need another stimulus, and those that opposed the stimulus are claiming that the stimulus didn’t work. That sounds about right, especially considering that the debate in the public sphere has the same folks on both sides of the original debate.

Another weird aspect to this debate is the constant calls of “no one got this right” or, as Atrios likes to state it, “No one could’ve predicted” when excusing why every economic forecast made by those in power (either government or leading banks/investment firms) was wrong. There have been several places that have gotten this right, including several blogs and major economists like Nouriel Roubini. It’s really hard to understand why they don’t get more airtime, and why discussions of their approach to policy doesn’t get more discussion. When they get on TV, they’re treated like Oracles rather than economists who have approaches we should understand.

My last point, and this is more general frustration when discussing the economy beyond just the stimulus, is that we don’t talk about the structural imbalances that drove the downturn in the first place. There’s very little serious discussion about how the real estate market got so hot, or why so many people were turning to home equity lines of credit in order to spend. There are cultural issues, certainly, but also failures of fundamental regulation.

We’ve also now gone through a 30 year period in which we’ve undergone a massive shift of wealth to the wealthiest Americans. Median wages have been stagnant for many Americans over the last 10 years, while the richest Americans have seen massive growth in their median wages. This is not consistent with historical norms, especially compared to the strongest periods of American growth.

I know it’s unrealistic to expect that discussion to make it into the mainstream conversation, but IMHO it’s the real issue.

I was responding to Dan and BadMD in the comments to my previous post, but perhaps this is clearer than my crappy writing last night. Or, maybe it’s still crappy. You decide.

Also, just so we’re clear – my point isn’t’ to support the AIG bill that Congress passed. I’m ambivalent at best, but generally unhappy with the way this is all getting handled.

In fact, that was the whole point of the second half of the post – we’re all still trying to blame people instead of figuring out what the right policy is. This bonus thing is a sideshow. It’s something like a .1% of the money given to AIG.

There were systemic flaws in play. Something a commenter over at balloon juice said is still sticking with me, which is basically this:

When a few people do something, it can be explained as individual behavior. When a society does something or an entire industry (banking/lending in this case), there must be larger forces at work, screwed up market incentives, bad or insufficient regulation, something. We need to have a conversation about that stuff and yet that makes up very little of our discourse.

That was sort of my point, and my primary criticism of the DeSantis op-ed. Sure, he ran a good division. Who cares? It’s not about him. And that goes for both his whining and the public’s ‘outrage’.

I’m not sure why I should have any sympathy for him, btw. When I got laid off, I didn’t get to write an NYT op-ed. When Republicans were proposing legislation to rework auto-worker contracts, where was all of this “sanctity of contracts” stuff?

This country now is (and maybe was always) more interested in blaming people. Until that f’ing stops, we’ll get people in power demagoguing people… not sure why DeSantis thinks how good his division was matters.

Sujal

The comment I was referring to is here, and it was actually at Obsidian Wings, not Balloon Juice. Here’s an excerpt of the parts that rang true to me:

Let’s try a simple analogy: if one electron jumps two feet to the left, that’s just the random motion of electrons. But if every electron in your shirt jumps two feet to the left at the same moment, you’ve got to ask why they all did the same thing at once. Any one of them could do it, but it defies the laws of probability that each of them just happened to take the same bounce at the same time.

Same with people. If one person stops saving, or buys an overly expensive house, or whatever, then that’s one person’s bad decision. But if a whole society does it, one has to ask what forces are acting on everybody at once, because it’s ridiculously unlikely that everybody just happened to make the same set of bad decisions at the same time.

…

I’ll cheerfully take the responsibility for the bad effects that any of my decisions have had on my own life. But it’s those whose political pull and economic clout ruined the lives of thousands and millions of people who have to take the hit for our larger crisis.

That last paragraph is what a lot of people are feeling. It is part of why “Not my fault” feels like it’s true when most of us consider our own circumstances, especially to folks like DeSantis.

That’s hardly the full picture, though. It’s not just those with clout that caused the problems, it’s also those of us who passively went along.

It’s our fault because we’re not asking the deeper questions. We need better leadership. We need better citizens who take their vote more seriously rather than revel in the mediocrity (“average joe”-ness) of their politicians. We need better politicians who actually consider what their policies do beyond the headlines… I really don’t know how to fix this, btw. So, I’m going to shut up again because I don’t know how to fix it. This is all interrelated and I’ve got nothing to add beyond saying, “We’re f*cked if we don’t stop this.”

I’m sorry if that’s not useful. Hence the, you know, lack of blogging. Of course you got me worked up enough to blog in the middle of my work day…

An AIG Exec VP wrote an op-ed for the NYT today in the form of an open letter to AIG’s CEO announcing his resignation from AIG. In it, the exec, Jake DeSantis, argues that he and his fellow bonus receivers are being unfairly demonized by the public and by politicians because their divisions were healthy, profitable, and sustainable. They worked hard and deserved the compensation they received. Because they weren’t involved in the CDS business that effectively killed AIG, the public shouldn’t blame them.

This line of reasoning is interesting. It’s also absurd, as demonstrated by the funniest comment I’ve ever read at the NYT:

The company where I was a janitor went out of business. It wasn’t my fault, I kept the floor clean. The taxpayers should be paying my salary.

That is, in essence, Mr. DeSantis’s argument. Leaving aside the issue of whether the government should or can ask for these bonuses back, his argument is basically ‘not my fault, so pay me!’

“Not my fault” is a common refrain these days, from Chris Dodd to the Bush administration to people on Main St. who got into mortgages they couldn’t sustain. At the risk of sounding like a curmudgeonly old man, this is ultimately the disease that is at the root of the entire meltdown. Real estate brokers, mortgage brokers, bankers and lenders, and home owners all took advantage of each others’ greed. Now that it’s blown up… “not my fault” is all you hear from everyone.

I keep thinking that we’re in pretty serious denial all around. We all screwed this up together. Maybe we all didn’t behave recklessly, but we all took advantage, in our own way, of the greed that permeated all of this. When people started running into trouble a few years ago, we were quick to blame this or that reason. Subprime! Community Reinvestment Act! Today it’s greedy Wall St. culture and millionaire executives.

Do we all look to demonize others for our troubles? In town, people won’t blink to demand the teachers renegotiate their contracts down and to call them greedy. I suspect many teachers don’t have an issue with AIG execs having their bonuses taken away, even though the underlying principle is essentially the same. I don’t mean to pick on Mr. DeSantis, but I imagine many of these Wall St. execs wouldn’t blink if teachers were getting pink slipped to save some money on taxes. Maybe these are good policies, but we don’t ever have that discussion. It’s always about “who’s screwing me.”

Well, while we were all saying “not my fault” and “they’re screwing us,” we all managed to screw ourselves. We’ve got to get beyond the blame game. I wish I knew how, though. Hence the lack of blogging…

This is an interesting discussion between the Morning Joe crew at MSNBC (Pat Buchanan, Joe Scarborough, Mika Brzezinski) and Paul Krugman (NY Times, Nobel economics winner). Two aspects of this are worthy of comment.

First, Paul Krugman has it exactly right in their discussion of the “bipartisanship” of the Clinton years. How Scarborough can say with a straight face that there was bipartisanship during the Clinton years is beyond me. That Krugman reduces him to sputtering incoherent phrases about “separation of powers” (wtf is he even trying to say?) I think emphasizes how little evidence Scarborough brings to the table. He had nothing else to add except to repeat his talking point.

Second, Krugman’s question about who Scarborough would consider the ideal Republican really hits the key issue to me. The Republicans run for national office by building a mythology about conservatism that they never actually deliver on when they have power. This is the fiscal conservative myth, this idea that Republicans are responsible guardians of the budget and the economy. No Republican administration has balanced the budget in the last 30 years.

Worth watching this. Krugman’s overall point about Republicans not being serious this time around is really the key point. It’s shocking how little consideration they’re giving to the actual effects of their policy preferences. They’re being irresponsible at this point by simply harping on tax cuts, tax cuts, tax cuts.

Let me begin by saying that I’m not actually defending the details of the current bailout bill. There are things I like, things I don’t like, though ultimately I’m not sure that this bailout is the right thing to do.

Instead, I want to summarize something I rambled about in the comments over at CTLP’s post about the bailout dying in the Senate.

The key objection and one of the key facts cited by Senate Republicans is that American auto makers can’t compete effectively with foreign automakers because of labor costs. Specifically, they claimed that the average cost per hour of an American auto worker is north of $70/hr. while Japanese and other auto companies play closer to $49/hr. This claim is false on several levels (note the clever wording – the cost per hour of labor, not the hourly wage). You might’ve guessed that it’s false (it’s the Senate Republicans, after all), but this is even more idiotic than the simple lie.

U.S. auto makers are having trouble competing on several levels. The underlying issue is that their cars aren’t selling well. The only way union wages should be in this discussions is if you believe that American auto makers aren’t doing well because of price competition with foreign auto makers. Considering that American cars are already often priced a few thousand less than their competition, this seems unlikely. In all the critiques about American cars, I’ve yet to hear the argument that American cars are too expensive compared to their Japanese or German competition.

So, this is a smoke screen and, pardon the language, a bullshit reason to oppose the bailout.

Looking deeper at the Senators on the Republican side opposing this bill, many of them represent states that have foreign owned auto factories in their state. These factories are non-union, and they also receive significant subsidies or concessions from the states to have the factories there. Those Senators have several incentives to keep the unions weak, not the least of which will be donations to their campaigns from the U.S. citizens running those factories for Toyota, BMW, etc. Those companies don’t want unions in their factories, and their managers understand this.

There’s nothing particularly wrong with them doing this. I’d argue that they’re putting their states and their campaigns ahead of the health of the nation, and that it’s bad policy, but that’s their prerogative in our system. It shouldn’t, however, give them permission to lie about the underlying facts of the labor picture.

The other problem I have with this debate is that the unions are portrayed as wielding dictatorial powers over the auto makers. There is the issue of the costs payed to retirees, and certainly it does look like a bad deal for the auto makers. The thing is, the manufacturers negotiated this agreement. On top of that, some accounts indicate that the manufacturers negotiated this to postpone costs into the future (read into the comments at that link for the cites). In other words, they made a bad decision and perhaps got their projections wrong (or used optimistic ones). It isn’t the union’s fault.

Even the retiree benefit issue has already been worked out with the UAW. There’s a deal in place where the UAW and the auto makers will set up a trust, administered by the union, that will take over the funding of those retiree benefits. This is agreed upon already and should go into effect in, IIRC, two years. So, those costs come off that “$71/hr” bill. Ultimately, we find ourselves back at total costs that are very close to the foreign factories in the U.S.

It’s hard to believe that the Republican Senators don’t understand these things. The only explanation seems to be that perpetuating this lie serves their other goals, namely pushing their anti-union ideology. Ultimately, this is what Senate Republicans (and most Republicans in Congress) seem to be about these days. As Kevin Drum put it today, it’s “Another shining moment in the history of the modern GOP. Ideology uber alles.”

Ultimately, when we look back at the past 20 years or so of Republicans in politics, including the causes of the current financial meltdown, I think we’ll be able to point to “ideology uber alles” as the simple, defining explanation of all of their failures. Too bad the rest of us have to pay for it.

On a more productive note, my preferred “bailout” would be to let GM et al go into Chapter 11 with the government pledging to provide the DIP financing if no private lender can be found. Ultimately, this isn’t about costs of their cars, but a very poorly structured business. I’m not sure any bailout, as such, will do anything to make these guys make better cars. It’s not like they suddenly will know how to make a better car. If they could, they would’ve by now.

I’d also like to see some legislative issues addressed. I posted about one of these issues a few weeks ago, namely re-examining the protections around dealership/manufacturer relationships. Some of these things need to be addressed or else we’re only fixing a small, relatively inconsequential part of the problem.

Newsweek’s Daniel Gross explains the Consumer Price Index (here’s the official BLS site) in a very simple video. I could do without the goofy sound effects, but it’s a good, 2 minute explanation of how the government tracks inflation.

Per David Simon’s Berkeley talk, though, the video doesn’t go into why this matters. Perhaps they’ll cover that in the next installment of the Economics 101 series.

(via @newsweek, Newsweek’s Twitter feed)

Quick note about Greenspan’s mea culpa.

Look, I know that I’m no financial expert and I don’t really know much about these complicated financial instruments. The thing I have studied is the behavior of people, and people in groups. We study this stuff in political science and, before I was a computer nerd, I took a few political science courses.

So, I have one quick comment on this portion of Greenspan’s testimony today:

I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

(the “I made a mistake” quote has been edited out of the Times piece, but you can see it here at about 3:35 in this video of the hearing.)

The problem with this statement is that organizations are made up of individuals whose self-interest doesn’t necessarily align with those of the institution. And, further, these competing interests often move individual firms to choose actions that aren’t in the best interest of the market as a whole.

Greed is a powerful motivation and the amount of time required for risks to expose themselves make it easy for individuals within these organizations to get rich and leave before the firm needs to face the penalties. This is one reason why some level of regulation, or a neutral referee/rules committee, is an important part of a healthy free market.

Sorry this is so brief, but there’s entire portions of political science and business school study that go into these areas (Rational choice theory, organizational theory, etc). I wish the hard core free-marketers would remember this stuff now and again.