$819,000,000,000 Bill

January 29, 2009 | 142 comments
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The Stimulus, Debt, Pork, Rescue, Special Interest Pay-off
$819 Billion Bill (not counting interest) has passed the House. You can search the text here if you like.

This is your thread to link, discuss, argue, complain, whine, illuminate, inform, panjandrumate, cavil, quibble, and chew the fat about it.

An initial question for discussion: The prophets’ warn us against excessive personal debt. Is this counsel applicable to states, nations, or corporations? Why or why not?

An initial item for discussion:

SEC. 1112. ADDITIONAL ASSURANCE OF APPROPRIATE USE OF FUNDS. None of the funds provided by this Act may be made available to the State of Illinois, or any agency of the State, unless (1) the use of such funds by the State is approved in legislation enacted by the State after the date of the enactment of this Act, or (2) Rod R. Blagojevich no longer holds the office of Governor of the State of Illinois. The preceding sentence shall not apply to any funds provided directly to a unit of local government (1) by a Federal department or agency, or (2) by an established formula from the State

As usual, unreasonable comment moderation policies will be in effect.

Previous TARP whine thread here; previous thread on how our belief in personal responsibility might influence our take on bailing out failed mortgages and failed businesses here.

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142 Responses to $819,000,000,000 Bill

  1. Alison Moore Smith on January 29, 2009 at 1:01 pm

    I started a thread on this this morning, too. I just thoroughly want to toss my cookies at congress. On congress. All over congress.

    If I remember correctly, we’ve got $350 million for smoking cessation, $55 million for STD prevention. How much for the creation of a “Comparative Effectiveness Research” council to identify medical items that it finds ineffective?

    Will one of you supporters PLEASE tell me where the money is coming from?

  2. Alison Moore Smith on January 29, 2009 at 1:04 pm

    My kudos to the 11 representatives who crossed the party line to vote no on the package:

    F. Allen Boyd
    Bobby Bright
    Jim Cooper
    Brad Ellsworth
    Parker Griffith
    Paul Kanjonski
    Frank Kratovill
    Walt Minnick
    Collin Peterson
    Heath Shuler
    Gene Taylor

  3. Adam Greenwood on January 29, 2009 at 1:09 pm

    Our goal for this thread is 819 billion comments. We’re off to a good start.

  4. Rob Perkins on January 29, 2009 at 1:21 pm

    That quoted portion sure feels like a Bill of Attainder, sort of. I know it’s not, but don’t people usually keep the names of individuals out of their bills?

  5. Julie M. Smith on January 29, 2009 at 1:24 pm

    Alison, I don’t think this spending is a good idea, but if it is going to happen, what’s wrong with a smoking cessation program? One could argue that the amount spent here will result in less spending down the road on health care and therefore a net long-term savings to the fed.

  6. Steve Evans on January 29, 2009 at 1:26 pm

    What would be REALLY AWESOME is if everybody just posts exactly the kinds of comments they always post on threads of this kind, rather than try to think about something in any new way.

    I, Alison and Adam have done our part — now it is up to YOU!

  7. Adam Greenwood on January 29, 2009 at 1:27 pm

    Rob P.,
    unless the individuals are famous. Or in-famous.

  8. Adam Greenwood on January 29, 2009 at 1:28 pm

    Alison Smith — cri de couer against the failings of our political classes.

    Adam Greenwood — flippant nonsense.

    Steve Evans — bitter sarcasm.

    How right you were, sir.

  9. Julie M. Smith on January 29, 2009 at 1:29 pm

    “An initial question for discussion: The prophets’ warn us against excessive personal debt. Is this counsel applicable to states, nations, or corporations? Why or why not?”

    Interesting question. Note that the counsel allows debt for education and a (modest) home. What’s the principle behind that? I assume the education debt is justified because it leads to increased income potential. One could hypothetically use that to justify a stimulus package, although I doubt this particular package would (entirely) meet that criteria.

    What about a home? Is the rationale that it is too difficult for most people to save up for a home? How would that relate to gov’t spending? It might justify a bond issue for a high school, but not a smoking cessation program.

  10. gst on January 29, 2009 at 1:33 pm

    Steve, I think your comments are un-American.

    Adam, your suggestion that the American government should heed prophetic counsel is in keeping with the philosophy of creeping theocracy that you have consistently endorsed, and un-American.

    Julie, smoking cessation programs are an insult to the spirit embodied in the rugged image of the range-riding, sun-baked, wind-scoured Marlboro man, and the thought that they should be funded is, frankly, un-American.

  11. Steve Evans on January 29, 2009 at 1:35 pm

    gst, you haven’t made a decent movie since Saving Private Ryan. Why should we listen to you?

  12. gst on January 29, 2009 at 1:39 pm

    Earlier today I made a comment that could be read to suggest that some of the commentators on this thread espoused philosophies that were fundamentally un-American. I believed, and still believe, that their comments were unfiltered bilge. But everyone has a right to be a chowderhead–nothing could be more American. To call the putative Mormons who comment here un-American was needlessly divisive, and I apologize.

  13. Brian Duffin on January 29, 2009 at 1:54 pm

    All of Steve’s comments are naturally un-American…he’s Canadian!

  14. gst on January 29, 2009 at 1:55 pm

    Brian, I should hardly need to point out that that’s precisely the kind of needless divisiveness that we don’t need.

  15. Mark N. on January 29, 2009 at 2:17 pm

    Thank goodness our Fearless Leaders have Done Something. I would hate for them to have the appearance of Doing Nothing.

  16. Adam Greenwood on January 29, 2009 at 2:18 pm

    Most of the spending isn’t for this year, apparently. The rush to pass a bill is, I guess, because the knowledge that the government will be spending lots more money in 2010 will stimulate private economic activity now?

  17. Adam Greenwood on January 29, 2009 at 2:19 pm

    You know what else is needless? Long division.

  18. Nate Oman on January 29, 2009 at 2:21 pm

    When thinking about government debt, I think that it makes more sense to think about government as a business rather than a household. For starters a government’s time horizon is much longer than a household time horizon, and in this sense is more like a business. Also, when thinking about what is or is not excessive debt, you should probably ignore dollar amounts and look at some measure like percentage of GDP. The deficit that the government is running today is almost always the largest deficit in history, not because the government is being especially spendthrift but because the U.S. economy today is virtually always larger than it was in years past.

    As for this particular bill you can evaluate it on two dimensions. First, you could look at it as a Keynsian stimulus measure. Its chances of success are are going to be a function of three elements: 1. gettting lots of cash, 2. fast, 3. to people who will spend it on consumption (don’t save! don’t pay down debt!). From what I have read, this package gets pretty low marks as a Keynsian program because the money will not be spent fast enough. This is done because we want to avoid “waste” — hence something like the Blogovich provision. Strictly speaking, however, it is not clear that this makes sense on Keynsian grounds. What you want is to spend lots and lots and lots and lots of money really fast on just about everything. It doesn’t really matter if the money goes to line the pockets of corrupt Chicago pols, so long as they spend the money rather than saving it. I think that the Keynsian argument for this bill is further weakened by the relative lack of success for Keynsian stimulus packages of late. The Japanese POURED money into infastructure and the like in the 1990s, without having any appreciable impact on their economy.

    The second dimension one can judge the bill on is the quality of what it is being spent on. Hence, one might say it is a good idea because it spends money on green energy which is itself good. Notice, these arguments are independent of the Keynsian argument, and to the extent that spending the money in a “smart” way takes time they probably actually undermine the Keynsian justification. Smart spending is slow spending, and slow spending is of little use as a stimulus even if you are a true believer in Keynes. Nevertheless, if you want to judge the program on the merits of the spending choices, you still need to ask yourself questions about trade offs. If I am not getting a Keynsian bang for my buck do I really want to fund this thing right now with a mass of borrowed cash?

    I am willing to be persuaded that a properly designed Keynsian stimulus might help a bit at the margins of recovery. I am skeptical that it is necessary or can have a big impact. On the other hand, given the reality of Congressional politics I think that chances of a Keynsian stimulus are pretty low. Even if Keynes provides a wonderful macro-economic theory, his political economy sucks.

    As for the it’s-quality-spending argument, I am extremely skeptical that the government can allocate capital better than the market, and on the specific issue of green technology, ethanol suggests to me that Congress is likely to pick and choose technologies on a political basis. The buy American provisions in particular are dangerous, short-sighted, and dumb.

  19. Steve Evans on January 29, 2009 at 2:29 pm

    Nate also complies with my #6! Thanks Nate.

  20. Adam Greenwood on January 29, 2009 at 2:30 pm

    It wasn’t that funny the first time, Steve E.

  21. mpb on January 29, 2009 at 2:32 pm

    In other news, Googling the word “panjandrumate” returns T&S as the second link!

  22. Adam Greenwood on January 29, 2009 at 2:33 pm

    Quality spending doesn’t need to be passed in one rushed omnibus bill, in my opinion.

  23. Steve Evans on January 29, 2009 at 2:37 pm

    Adam, I am convinced it will become funnier the more it is fulfilled.

    If it makes you feel better, Nate fulfilled my #6 by being cogent and thoughtful.

  24. Steve Evans on January 29, 2009 at 2:37 pm

    More to the point, what exactly did you expect to result from a post like this?

  25. Mark Brown on January 29, 2009 at 2:39 pm

    Nate said:

    Also, when thinking about what is or is not excessive debt, you should probably ignore dollar amounts and look at some measure like percentage of GDP.

    If my BYU math education serves me correctly, 819 billion comes to about 4% of GDP. Or at least that’s close enough for government work.

    Another way to look at it is like this: the national school lunch program in 2007 cost 8.7 billion dollars. so this is like paying for 100 years of school lunch all at once.

    There are other ways to describe it, but “sand down a rathole” seems to cover it best. I doubt this spending will have its desired effect.

  26. Mark B. on January 29, 2009 at 2:44 pm

    I’m just confused about why we have a stimulus package on the one hand and Nancy Pelosi promoting contraception on the other. Wouldn’t there be a lot less need for contraception if there were less stimulating going on?

  27. Adam Greenwood on January 29, 2009 at 2:47 pm

    Marc Bohn’s sidebar link:

    Irwin Stelzer (of the Hudson Institute) defends the Bill
    http://business.timesonline.co.uk/tol/business/columnists/article5580664.ece

  28. Nate Oman on January 29, 2009 at 3:06 pm

    Note: Stelzer’s argument is not quite a defense of what just passed the House. I would make two points. First, he admits that much of the delayed spending cannot be justified on Keynsian grounds, but rather must be justified on cost benefit grounds. This is right. If it makes sense for the government to build roads, then we ought to build roads. This does not mean, however, that building roads will cause and economic recovery. Second, his argument in favor of delayed spending as a way of forestalling the dip down the road — the W pattern — strikes me was odd. His analogy is to the Depression within the Depression of 1937. The question is why did that happen. If I understand Stelzer’s argument it is something like this: there was a Keynsian stimulus early on in the New Deal that petered out in 1937 and there was no spending to goose the economy more as it slowed. My reading of the history, however, is that there wasn’t much of a stimulus in the early New Deal. Indeed, FDR was concerned about balancing budgets early on for crying out loud. Rather, the first New Deal’s path to prosperity was going to be a system of price supports through the government-sponsored cartelization of the economy. This was what the NRA, the center piece of the New Deal, was meant to do. There was no Keynsian goosing anywhere, except perhaps in the easing of the Gold Standard which helped to reduce the Fed’s tight money policy but not be nearly enough to matter by Keynsian standards, which is supposed to prefer fiscal to monetary policy anyway. (And for those who want to anachronistically interpretat the WPA and the like as a Keynsian stimulus package, look at the numbers. These were not ultimately big enough programs to goose up aggregate demand, nor where they sold as such at the time.)

    That said, Stelzer may be right that pushing up the deficit may help to broker a deal on entitlements. This, however, is rather like driving as fast as you can towards the edge of a cliff, slamming on the brakes, and skidding two tires over the abysss as a way of convincing your passengers that they need to fix their brakes. It may be the only thing that works in the current context, but seeing as I am stuck in the car you can understand why it is a bit of a white-knuckle experience for me…

  29. Kent G. Budge on January 29, 2009 at 3:11 pm

    The best way to achieve a short-term stimulus, if one is needed, is to lower taxes. Unfortunately, from the Democratic perspective, that would benefit all the wrong people.

    That leaves having no stimulus and letting the thing run its course. That’s even less acceptable, from a politician’s point of view, because it risks demonstrating that not everything needs to be fixed by politicians.

  30. Sam B. on January 29, 2009 at 3:16 pm

    Kent,
    While the Republicans aregue that lowering taxes would best acheive a short-term stimulus, beyond their assertation, I haven’t seen any evidence backing up that view. In fact, the way people used their refund checks last year (largely, in my understanding, to pay down debt or to increase savings) intuitively belies that assertion, especially given that today people are actually concerned about their jobs and about whether there will be money tomorrow.

    It may be that lower taxes are the best (or are a strong) stimulus, but I’d like to see the empirical evidence.

  31. woodboy on January 29, 2009 at 3:30 pm

    “The deficit that the government is running today is almost always the largest deficit in history, not because the government is being especially spendthrift but because the U.S. economy today is virtually always larger than it was in years past.”

    The deficit this year is likely to at least quadruple, on top of a hefty increase last year. That far outpaces any general growth in the economy (which is negative). At some point the numbers start to matter.

  32. Rob M on January 29, 2009 at 3:31 pm

    The prophets’ warn us against excessive personal debt. Is this counsel applicable to states, nations, or corporations? Why or why not?

    I believe that the answer is yes, but not for all of the same reasons. We as individuals and households are taught to avoid debt (specifically unsecured debt) because it places a burden on us that is detrimental to temporal harmony. This affects our decision-making, thus affecting our spiritual harmony. I believe we all recognize that financial misgivings are a primary factor in a majority of divorces.

    Similarly, when a state or a business incurs debts there are obligations that are attached. That may affect the ability of that entity to act in the best interest of its constituents in the future, upsetting the stability of a nation or the existence of a business or corporation. The spiritual implications on individual lives is less direct, but it still exists. In my mind, it is unethical for a business to undertake debts that it does not reasonably believe it will be able to pay back. Has anyone figured out how the government is going to recoup these expenses? Can any of this spending that might be considered “secured” actually be a good investment?

    I realize that the previous paragraph is an oversimplification, but I do think that the principle has merit in large scale applications. Just look at how the church operates. No debt. The church keeps cash reserves on hand. It doesn’t accept gifts of property that come with liabilities attached.

    I’m resisting the urge to obsess about my food storage or buying a shotgun, but I’m not happy with any of this. Not one bit. And yes, I think the whole think is irresponsible and even a bit immoral.

  33. Mark in MA on January 29, 2009 at 3:39 pm

    Regarding prophets’ counsel on avoiding unnecessary debt…

    Ezra Taft Benson very directly stated that governments, like individuals, should avoid debt and spend within their means. I am not able to look it up at the moment, but perhaps some of his statements are in “The Constitution: A Heavenly Banner.”

    That makes one prophet who won’t buy into the “government as a business, rather than a household” argument. (#18)

  34. Rob M on January 29, 2009 at 3:50 pm

    #5. Spending money to help smokers stop smoking is a nice gesture, but how will it stimulate the economy?

    #15. I would definitely prefer that Congress ACTUALLY DO NOTHING rather than make itself appear to do something.

    #18. Invoking Keynes? I’m not questioning your understanding of Keynsian economics, but I have to roll my eyes. Keynes seems to have become a buzzword to lure conservatives into wild spending habits. When did Keynes become the gold standard of economics anyway? We need to be pragmatists. I don’t think that people can blindly apply very general policies that have been dubbed Keynsian and expect them to always have the same effect. I’m not suggesting that’s what you’re saying, that’s just my gut reaction anytime I hear it anymore.

    #25. (images of homeless rats digging new holes).

    #28. But it’s okay if I’m wearing my seatbelt, right?

    #31. (Head nodding)

  35. Last Lemming on January 29, 2009 at 3:56 pm

    If you have already plowed through Nate’s comments, he has it pretty much right. My opinion is that a large stimulus bill is needed, but that both the one that passed the House and the one pending in the Senate should be significantly tightened up so that the Keynesian part is better targeted and a future mechanism for paying for the investment part is spelled out in the bill. (Or, better yet, pulled out into a separet bill altogether). Also, the buy-American clauses need to go. If Senate Republicans negotiate in good faith, they can use their filibuster threat to improve the bill. Seriously trying to kill the whole thing, however, would be a big mistake. (As would turning it into a supply-side bill, which a lot of Republicans want).

  36. Frank McIntyre on January 29, 2009 at 3:59 pm

    Sam B.,

    Christy Romer, one of Obama’s current economic gurus, has a nice piece of empirical work showing that taxes are substantially more effective than spending for stimulus. Of course, her work might be completely wrong, but if you want evidence I might start there.

    Tax cuts, for example, a payroll tax holiday, have the advantage that they are far quicker to institute than effective spending. Ineffective spending might raise GDP but not actually make things better– because GDP is a number easily fooled by government spending. You call it extra goods but it is actually just wasted.

    It also strongly encourages firms to engage in rent-seeking rather than in producing goods– which is bad.

  37. Rob M on January 29, 2009 at 4:03 pm

    #33. I think I have that ETB address (or one instance of it) on my iPod. It’s entitled, “Pay thy Debt and Live.”

    http://speeches.byu.edu/?act=viewitem&id=1637

  38. Jeremy on January 29, 2009 at 4:08 pm

    Why are people bringing up the prophetic counsel on debt only now, five years into a war that is still being paid for through unbudgeted “emergency appropriations” and that will end up costing us over three times more than the current stimulus package?

    (And I can’t help but ask, while we’re on the subject of the institutional application of gospel principles: If the prophet’s counsel to avoid debt should be instituted by governments, why, for example, are conservatives always saying that the prophet’s counsel on sharing wealth with the poor should be instituted only by individuals and private organizations like churches, not by governments?)

    Our current national debt stands at $10.6 trillion, having nearly doubled to that amount under Bush II. The stimulus package stands at under $1trillion. Now, it seems to be that very smart people stand on both sides of the issue of whether or not this stimulus package will work. But if this country is done in by debt, Obama’s gamble will certainly not have been the deadliest blow.

  39. Frank McIntyre on January 29, 2009 at 4:10 pm

    “But if this country is done in by debt, Obama’s gamble will certainly not have been the deadliest blow.”

    A ringing endorsement, if ever there was one.

  40. Jeremy on January 29, 2009 at 4:12 pm

    I pointlessly and self-indulgently snarky comment, if ever there was one.

  41. Jeremy on January 29, 2009 at 4:17 pm

    Dammit. Nothing kills a comment volley like a typo.

    Frank, it should have been clear from my comment that I wasn’t predicting Obama’s failure. I was simply pointing out how amusing and ironic it is to see all this fiscal hand wringing only now, after the last eight years.

  42. Adam Greenwood on January 29, 2009 at 4:38 pm

    Christy Romer, one of Obama’s current economic gurus, has a nice piece of empirical work showing that taxes are substantially more effective than spending for stimulus.

    Tax cuts?

  43. Alison Moore Smith on January 29, 2009 at 4:38 pm

    $20 million “for the removal of small- to medium-sized fish passage barriers.” (p. 45)

    $400 million for STD prevention (p. 60)

    $25 million to rehabilitate off-roading (ATV) trails (p 45)

    $34 million to remodel the Department of Commerce HQ (p. 15)

    $70 million to “Support Supercomputing Activities” for climate research (pp. 14-15)

    $150 million for honey bee insurance (p. 102)

    $10 million for bike and walking trails (p. 65)

    $200 million for plug-in car stations (p. 31)

    $400 million for climate change research (p. 22)

    $800 million to clean up Superfund sites (p. 122)

    $600 million for diesel emission reduction grants (p. 119)

    $650 million for “alternative energy technologies, energy efficiency enhancements, and deferred maintenance at Federal facilities” (p. 119)

    $1.5 billion for construction of “Green Schools” (p. 176)

    $1 billion to Community Oriented Policing Services (COPS) hiring program

    $83 billion earned income credit (a “tax cut” for people who…ahem…don’t pay taxes)

    $50 million for the National Endowment for the Arts (p. 122)

    $150 billion to education

    $75 million for smoking cessation (p. 148)

    $335 million for STD education and prevention

    $4.19 billion for “neighborhood stabilization activities” (voter fraud, anyone?)

    $462 million for facilities at the Centers for Disease Control (p. 137)

    $150 million for repairs to the Smithsonian (p. 128)

    $44 million to the Agricultural Research Service (p. 135)

    $1 billion for follow-up to the 2010 census (p. 49)

    My personal favorite…drum roll please…

    $227 million for oversight of the stimulus package!

  44. Sam B. on January 29, 2009 at 4:40 pm

    Thanks Frank. Do you know (and I’m not being snarky–you’re the economist) if her work takes into account that people hoard rather than spend the money? That is, in your opinion, would a plan of pure tax cuts be best, or some combination of cuts and spending. (I think, at the very least, I can infer that you’re not a fan of spending sans tax cuts.)

  45. Adam Greenwood on January 29, 2009 at 4:45 pm

    #38,

    First, does the fact that we’ve already incurred a ton of debt to little economic purpose over the last few years make it more or less worrisome that we’re now rushing to incur more?

    Second, the problems with accusations of hypocrisy in politics is that they almost always apply both ways. I’m not aware of any ‘conservatives’ in this thread who have opposed government debt but made an exception for the fighting in Iraq and Afghanistan. There probably are some out there somewhere, though. Just as likely there are liberals out there who complained about the debt we were getting into during the Bush years but who are fine with this bill. Are you one of them?

  46. Adam Greenwood on January 29, 2009 at 4:47 pm

    AMS,
    do you have a link to the “neighborhood stabilization activities” section? I know some on the right are claiming that this is a pay-off to ACORN, but personally I have no idea what it means. What is a “neighborhood stablization activity”?

  47. Alison Moore Smith on January 29, 2009 at 5:05 pm

    Adam, I’m on my way out, but here’s the most recent reference that may address your question. I’m sorry that I don’t have time to look more thoroughly until later.

    Read through that page (249) and up through page 252. An awful lot of “provided furthers” going on.

  48. Jeremy on January 29, 2009 at 5:14 pm

    #43

    Alison, I’m confused. Your intent seems to have been to cherry-pick the most ridicule-worthy items in the bill and parade them here for our amusement. And some of those you list do seem unusual. But some that may seem silly probably aren’t nearly so. (I’m assuming, for example, that the silly-sounding honeybee insurance has something to do with the honest-to-goodness agriculture pollination crisis farmers are facing.)

    And most of your items frankly don’t seem silly to me at all. They seem very much like the modern equivalents of the canal-digging and road-building WPA and CCC projects that employed my grandfather and great-uncles in the 1930s. (I even favor the artsy-fartsy ones. The Utah Symphony started as a WPA orchestra. A job’s a job.)

    #45

    Adam, as to your first point: I’m convinced (by the arguments of Krugman, and others) that we have to incur debt to get out of this economic crisis. Do I worry that Bush already increased the debt so much, weakening our position? Of course. That doesn’t weaken this option in particular; it weakens all of our options.

    As to your second point: I’m simply curious as to why $11.4 trillion, specifically, seems to be the threshhold at which the national debt becomes a grave enough concern that it warrants a T&S post invoking prophetic counsel against debt. Unless I’ve overlooked something, there were no posts of this sort when the debt reached $6trillion, or 8trillion, or 10 trillion…

  49. Ian M. Cook on January 29, 2009 at 5:20 pm

    Thank you Jeremy #38. Too true.

    I’m not %100 behind this bailout. Alison #43 kind of puts things into perspective. I don’t see how this package actually stimulates the economy, other than possibly creating jobs to do all those things that are listed.

    That is a lot of money set apart as oversight. How many jobs is that going to create?

  50. Jeremy on January 29, 2009 at 5:22 pm

    Also, here’s a counter-argument to the funny way Boehner wrested Romer’s study to make the (wild) claim that 6.2 million jobs would be created with tax-cut stimulus alone.

  51. Jeremy on January 29, 2009 at 5:37 pm

    Ugh. “Counter-argument” should have linked to:

    http://tinyurl.com/btp8p2

    (Why did the link work in the preview window but not in the post?)

  52. Adam Greenwood on January 29, 2009 at 5:37 pm

    Responsible people don’t argue that it would be a good idea to do bad stuff now because bad stuff was done earlier. I get that you don’t like Bush much, but I don’t see how you not liking Bush makes this stimulus bill a good idea or a bad idea. If you think this bill was a good idea, explain why (or link to other’s explanations).

    The reason for this post is the stimulus bill, not any specific debt threshold. But if you want to pick a debt threshold before which T&S discussion of debt is illegitimate and beyond which T&S discussion of debt is mandatory, knock yourself out. The time you waste will be your own.

    Also, feel free to continue to use the comments to indulge your conspiratorial notions about why there’s a post on a $800 billion dollar bill. But please try to make them more interesting. If not, I may have to help you out. (Hint: bribes, insider trading, blackmail, sex scandals, secret combinations, lizards).

  53. Adam Greenwood on January 29, 2009 at 5:38 pm

    Adam, as to your first point: I’m convinced (by the arguments of Krugman, and others) that we have to incur debt to get out of this economic crisis. Do I worry that Bush [and the Democratic Congress] already increased the debt so much, weakening our position? Of course. That doesn’t weaken this option in particular; it weakens all of our options.

    You have avoided my first point just as much as you avoided my second point. Lets try again.

    I have asked for opinions on the stimulus bill. Your response was to complain that the county incurred lots of debt in the Bush years. Your response sounds to me like a big non sequitur. Please explain how it isn’t.

    Second, you complained about hypocrisy: specifically, people who favored or were indifferent to debt during the Bush years but who now say our religion is against it. I am not aware of any such person (can you point to any?). Nonetheless, I concede that there are probably conservatives out there who are fussing about debt now but who didn’t fuss about debt during the Bush administration. If this automatically makes them hypocrites, isn’t it also true that liberals who complained about war debt during the Bush years but support the stimulus bill are also hypocrites? If not, why not? Are you saying that there aren’t any such liberals?

  54. DavidH on January 29, 2009 at 5:55 pm

    My understanding is that, as usual, the GOP conservative cure for our ills is another tax cut. That is, for example, rather than spending $150 billion on education (a wasteful idea, if ever I heard one), we should cut taxes by that amount, probably across the board.

    True, $819 billion in pure tax cuts would increase our deficit by just the same amount as the combination of spending and tax cuts proposed by those spendthrift democrats. But, because rich people pay a disproportionate share of taxes (by definition under a progressive tax system), a restoration to them of their own money (to save, to invest in sophicated tax sheltered hedge funds or to buy office furniture) would cure our ills (or at least the ills of the rich) faster than spending on education, the Centers for Disease Control, or the earned income credit (which only benefits the working poor, for Pete sake).

    For example, Wall Street executive faced a 44% reduction in bonuses last year, only receiving $18.4 billion in 2008 (the lowest bonuses since about 2004). I do not know how they can live on that reduced amount (how many of us could accommodate a 44% reduction?). Think of what this will do to sales at fancy restaurants, private jets, and the like.

    I think the best way to deal with the crisis of the reduction in Wall Street bonuses (and perhaps CEO compensation in other sectors) is special tax relief targeted to Wall Street executives and CEOs generally. Perhaps a tax cut designed so that the aftertax income for those individuals is no lower than it was in 2007–those allowing for the re-flourishing of society.

    Prudence McPrude signs on to this analysis (I hope).

  55. Frank McIntyre on January 29, 2009 at 6:07 pm

    Jeremy,

    “Frank, it should have been clear from my comment that I wasn’t predicting Obama’s failure.”

    It was perfectly clear. I just thought that last line was funny.

    Sam B.,

    I don’t know, as I never read the paper — macro doesn’t interest me that much. But in all likelihood, the results are based on empirically looking at what happens in an economy after an exogenous change in taxes, thus the savings argument is factored in.

    On the other hand, if behavior now is different than what usually happens, then those results will be less useful — but then so are any results arguing for spending stimulus, which is also vulnerable to the fact that people save more. Both types of fiscal stimulus rely heavily on the amount of money people save vs. consume — though tax cuts probably more so. Both are also vulnerable to a broken credit market — as Japan seems to have found out.

    Standard Keynesian theoretical analysis would say that spending cuts are better than tax cuts, but Romer’s empirical work suggests otherwise. And standard Keynesian analysis does not take into account the standard problems of mismanaged money and political economy.

  56. Adam Greenwood on January 29, 2009 at 6:09 pm

    DavidH,

    Agreed that $150 billion in additional federal education subsidies is a bad idea.

    Disagreed that your Depression-era “economic royalists’ rhetoric has any connection to reality. In the very few minutes I spent reading about the alternate GOP plan, it looked like it consisted of a cut in the basic tax rates, plus an increased tax credit for children, plus some tinkering with expensing capital investments. Could be wrong, but I’m pretty sure that a marginal tax rate for the wealthy and semi-wealthy wasn’t part of it.

    One other detail that did not escape my notice was that this GOP alternate plan is an alternate. If we faced some kind of existential choice between the GOP alternate plan and the stimulus bill, criticizing the alternate plan might justify the stimulus bill in some way. But we don’t. Lawmakers could craft a different stimulus bill, a different tax-cut bill, or do nothing at all.

  57. Jeremy on January 29, 2009 at 6:11 pm

    Adam,

    Responsible people don’t argue that it would be a good idea to do bad stuff now because bad stuff was done earlier.

    You’re equating Obama’s targeted economic stimulus package (regardless of whether or not you agree with the targets) with Bush’s eight years of economic policy, simply on the basis that they both incurred debt? And then you call me, not just an irresponsible internet interlocutor, but an irresponsible person?

    If you think this bill was a good idea, explain why (or link to other’s explanations).

    http://www.nytimes.com/2009/01/26/opinion/26krugman.html

    The reason for this post is the stimulus bill, not any specific debt threshold. But if you want to pick a debt threshold before which T&S discussion of debt is illegitimate and beyond which T&S discussion of debt is mandatory, knock yourself out. The time you waste will be your own.

    I’m not sure why you’re bristling so much at my (clearly rhetorical) question about “thresholds,” unless it’s because there’s some truth to my hunch: that people who already dislike Obama seem to be exhibiting conspicuously more concern about the debt he’s incurring than they were about the debt his predecessor incurred. This shades any discussion of the merits of this or that particular part of the bill.

    Also, feel free to continue to use the comments to indulge your conspiratorial notions about why there’s a post on a $800 billion dollar bill. But please try to make them more interesting. If not, I may have to help you out. (Hint: bribes, insider trading, blackmail, sex scandals, secret combinations, lizards).

    Really? I mean, really?

  58. Adam Greenwood on January 29, 2009 at 6:18 pm

    Yep, really. I mean, really.

    Its hard to disentangle your rhetoric and emotion from your substantive points, but as far as I can tell what you’re saying is that anti-stimulus bill arguments are discredited because they come from people who don’t like Obama.

    OK. Can you explain why we should not also discredit pro-stimulus arguments from people who do like Obama? Do you like Obama? Should we ignore your comments in the future?

  59. Adam Greenwood on January 29, 2009 at 6:20 pm

    Only 818,999,999,932 comments to go.

  60. Adam Greenwood on January 29, 2009 at 6:27 pm

    A good, evenhanded discussion here:

    There are really two quite separate debates going on over the stimulus, but they’re being jumbled together into one gigantic ad hominem
    . . . .
    Question #1 Will a fiscal stimulus work?
    a) Are we increasing actual output, or only measured output?
    b) Are the increases permanent, or temporary?
    c) What are the costs?
    . . . .
    Question #2: What sort of stimulus will best provide that boost?

  61. Jeremy on January 29, 2009 at 6:32 pm

    Adam, I’m not sure you’re in a position to be lecturing me about disentangling rhetoric and emotion from substantive points.

  62. Blake Ostler on January 29, 2009 at 6:35 pm

    Can anyone say HYPERINFLATION following spending billions that we don’t have on pork-barrel politics as usual? The list of pork-projects for spending makes me sick to my stomach and reminds of the events that led to Germany’s hyperinflation. Spending money we don’t have to pay our way out of excessive spending and failing to save money is like killing everyone in sight to save human lives. Gooo OOObama!

  63. DavidH on January 29, 2009 at 6:36 pm

    Adam,

    I think you are correct. I had heard or seen one summary of the GOP proposal as calling for a 5% reduction in all marginal rates, but as I look at more precise summaries on the internet, it looks like they only proposed reducing the 10% and 15% brackets. It was in previous GOP tax cuts that the largest shares of the tax reduction went to the wealthiest. I have not seen an economic analysis of who would get what share of tax reductions, but my sense is that you are correct. It appears then, that even under the GOP proposal, the captains of finance and industry may have to tighten their own belts. Mea culpa.

  64. Adam Greenwood on January 29, 2009 at 6:39 pm

    Adam, I’m not sure you’re in a position to be lecturing me about disentangling rhetoric and emotion from substantive points.

    No, but I’m a lizard-being member of the Trilateral Commission. Disentangling is hard for us.

    What’s your excuse?

  65. Jeremy on January 29, 2009 at 6:39 pm

    as far as I can tell what you’re saying is that anti-stimulus bill arguments are discredited because they come from people who don’t like Obama.

    No, what I’m saying is that anti-stimulus bill arguments are less compelling if they are based on sheer concern for the debt load the bill incurs, and not on the particulars of the bill, especially if those expressing concern about debt now did not express comparable concern about debt previously.

    Because you kicked off the discussion by invoking prophetic counsel about debt, I took that to mean that the sheer debt load of the bill, not any specific particulars, was one of your main concerns with it.

  66. Thomas Parkin on January 29, 2009 at 6:40 pm

    “reminds of the events that led to Germany’s hyperinflation”

    You know, if there is one thing you can say about Hitler, he sure turned the German economy around. Oh, come on now, don’t look at me like that. Good grief, have you heard the man speak??! ~

  67. Adam Greenwood on January 29, 2009 at 6:44 pm

    So all this hullabaloo was because you thought my question about whether prophetic counsel about personal debt applied to nations, states, and corporations was my way of saying that I thought it *did* apply, but that for some reason I was too chicken to say so directly?

    You could have just asked me, Charlie. For the record, my current view, like Nate Oman’s, is that government debt is different from personal debt.

  68. Adam Greenwood on January 29, 2009 at 6:46 pm

    Thomas Parkin,
    Maybe. Its true that the Germany was one of the first countries to get out of the Depression (the US was one of the last). But I’ve read that it involved a lot of financial shenanigans and that if Hitler hadn’t gone to war the bill would have come due.

  69. Jeremy on January 29, 2009 at 6:48 pm

    Adam,

    It wasn’t my concern who was saying that, Shirley, but you threw it out there, and several people starting responding, and so did I. And then you went nuts and started throwing things at me and breaking furniture.

  70. Adam Greenwood on January 29, 2009 at 6:52 pm

    Did my neo-con masters bribe me to go nuts or was it just because I’m deranged from not liking President Obama?

  71. Frank McIntyre on January 29, 2009 at 7:31 pm

    Adam, is that either/or?

  72. Adam Greenwood on January 29, 2009 at 7:40 pm

    You don’t even so much *sniff* that AIPAC money, Frank, until you’ve passed rigorous psychological tests.

  73. woodboy on January 29, 2009 at 8:01 pm

    There won’t be any inflation anytime soon, let alone hyperinflation. All the debt writedowns going on and the contracting economy are very deflationary, and the dollar’s status as the world’s reserve currency makes a currency collapse or significant capital flight unlikely.

  74. Dan on January 29, 2009 at 8:01 pm

    Heh, Republicans arguing NOW about spending control after the eight years they had to rein in that spending…

    Frankly, 819,000,000,000 might not be big enough.

  75. Rob Perkins on January 29, 2009 at 8:02 pm

    I think it’ll do what stimulus bills always do: It will appear to work for a little while, and maybe half of us will feel better.

    Considering that the half of us who will feel better is the same half that has been spitting nails, fire, and brimstone at the previous President for the last eight years and two months, it stands to reason that that is a net positive.

    Thus, if the *other* half of the country, the half that didn’t spend eight years blowing a gasket at every thing Bush said or did, if they can keep their displeasure down to a dull roar, what we’ll have is a net positive change in the country’s mood.

    Maybe that will be enough to trigger the real recovery?

  76. Jeremy on January 29, 2009 at 8:02 pm

    #70: it’s not mine to say why you reacted so, just that you did.

  77. Adam Greenwood on January 29, 2009 at 8:07 pm

    Too prim by half. Don’t be coy.

  78. Adam Greenwood on January 29, 2009 at 8:09 pm

    Rob Perkins, Dan, et al.,

    lets cool the partisan recriminations. In principle it should be possible to discuss the merits of this bill without accusing Bush and his supporters or his opponents of selling down the country. I’ve been amusing myself instead of deleting comments, but that will probably change.

  79. Blake on January 29, 2009 at 8:22 pm

    Woodboy: “There won’t be any inflation anytime soon”

    You’re right, it took 3 years to show up in Germany when that government did the same thing in the 1930s. It will take 3 years for the economy to go nowhere and when the market does begin to take control, we will have massive debt without the economy or tax base to support it. We are spending an additional $819,000,000,000 that we don’t have in tax revenues! And for what? We are spending about .14 of every dollar on economic recovery and $.86 of every dollar on shameful and embarrassing pork — but that is the way of the Democrats. I agree that the Repubs didn’t keep the national debt anywhere near reasonable, but last time I looked 2 wrongs don’t make 1 right.

    In the not too distant future it will actually be reported by some journalist somewhere with a smidgen of integrity that the Democrats pulled off the snow job of the century: successfully blaming the Repubs for what Clinton’s cheap housing policies of loans to people who couldn’t afford them caused. The Repubs tried 3 separate times to change these policies, but the Democrats — every last one of them — voted down these efforts with just a few Repubs joining them each time (take a bow Trent Lott).

    I’m not Repub, but spending money we don’t have to save the economy is the stupidest thing I have seen in a long time. Bush started the ball rolling on this nonsense, and Obama is more than willing to have $819,000,000,000 to spread to those who bankrolled him.

    Does anybody find it strange that when Prop. 8 passes with 53% it “squeaks to victory,” but if Obama wins with 53% of the vote he has a landslide mandate?

  80. Mark Brown on January 29, 2009 at 8:52 pm

    This thread is a thing of beauty.

    In comment # 78, Adam calls for an end to partisan recriminations. In #79, we get yet more partisan recriminations, and also the second comparison on this thread by the same commenter of Obama’s U.S.A. to Hitler’s Germany. Blake, is your middle name Godwin?

  81. Jeremy on January 29, 2009 at 9:50 pm

    Blake,

    It’s inaccurate at best, and disingenuous, at worst, to blame the housing crisis so handily on Clinton’s housing policies, the CRA, etc. etc. See Daniel Gross’s pointed critique of this argument here: http://www.newsweek.com/id/162789

    And your partisanship is truly astonishing. The three presidents who have increased the national debt the most are Bush II, Reagan, and Bush I, so I don’t see how this spending is “the way of the democrats.”

  82. DavidH on January 29, 2009 at 10:17 pm

    Jeremy,

    The offical alumni publication of the Lord’s university also asserts (quoting an inspired economics professor) that the Wall Street crash is attributable to those evil politicians who wanted to make loans available to the hoi polloi. http://magazine.byu.edu/?act=view&a=2360

    It may be true that the democrats did not hold a gun to the Wall Street financiers and to the Main Street mortgage companies to force them to make “Ninja” loans (NINJA= “no income, no job”), but the fact that many years before Congress required or encouraged that lending be made available to the less wealthy was sort of like a “gateway” drug. Kind of like how drinking a decaffeinated coke leads to drinking caffeinated coke leads to crystal meth (collateral backed mortgage obligations being like crystal meth).

    I think I have the analysis right. If I do not, Mr. Greenwood can set me straight. :) :) Hopefully I am not engaging in 1930s economic royalist argument again, but if I am, forgive me.

  83. Blake on January 29, 2009 at 10:21 pm

    Mark: Correction, Hitler hadn’t come to power yet: those who don’t learn from history are doomed to repeat it.

    Jeremy: you’re the most partisan commenter here. I know that you buy all of the crap about how Clinton’s housing policies aren’t to blame — but the record there on the policies, the legislation and the votes for any person who can actually read. As a committed independent I hardly exonerate Bush I and II (though Reagan’s policies clearly worked to grow the economy and give Clinton an economic boom for which Clinton improperly gets credit). The fact that you buy Daniel Gross’s avoidance of the obvious speaks volumes.

  84. woodboy on January 29, 2009 at 10:34 pm

    Large increases in government spending do not necessarily cause hyperinflation in themselves. The US today is quite a bit different from Weimar Germany. Hyperinflation is usually accompanied by political instability, runaway increases in the velocity of money, massive capital flight, and complete loss of confidence in the currency as it collapses. The US dollar is the reserve currency of the entire world, and that gives it a stability and safety most small countries would kill for. Let’s put it this way, under your hyperinflationary scenario, where is all the money rushing out of the USD going to go? We are screwed, but everyone else is even more screwed. And since all the major economies seem hell-bent on fiscal spending and currency devaluation, the USD should hold up pretty well on a relative basis. And for the record, we mostly agree as I am against this spending plan, just as I was against all of last year’s bailouts.

    The CRA is a red herring, as pointed out by others. Even if you take out all the loans attributable to the CRA, FNM and FRE were still dangerously overleveraged and bound for collapse. Underwriting standards were poor and risk was massively mispriced across the system. Far more complicit in causing the mess were the Fed providing money at below-market rates, and the SEC removing the leverage limits of the broker/dealers.

  85. DavidH on January 29, 2009 at 10:40 pm

    Blake, to make sure I understand your position, the balancing of the budget and the economic boom (some of which was a stock market bubble) during the second four years of Clinton’s administration were attributable to Reagan’s policies of 8-12 years before, and the crash of housing and finance during the second four years of Bush II are attributable to Clinton’s housing policies of 8-12 years before?

  86. Jeremy on January 29, 2009 at 10:44 pm

    Blake,

    Wait a second, I almost missed it there in your parentheses: Reagan’s debt spending clearly worked to grow the economy? But I thought you just said…

    And you manage quite a dance around Daniel Gross. Please, indulge me, since you don’t count me among “anyone who can read”: lay out a little more carefully the “obvious” that Gross “avoids” (since you’ve presented nothing he fails to grapple with), and give us a Cliff Notes version of the “volumes” it speaks. You really lay NO blame at the feet of Phil Gramm, et. al.?

  87. Frank McIntyre on January 29, 2009 at 11:12 pm

    Daniel Gross isn’t really doing that great a job of dismantling the argument for the problems with the CRA and associates. The part where he claims we know that loans to the poor aren’t more risky because of microcredit lending is laughable. But it is just an op-ed, so maybe I should not expect more.

    Not, by the way, that I know if the CRA is to blame (or how much it is to blame). Rather Gross’ quick and dirty five paragraphs are more assertion than evidence.

    Not unlike our comments here, I suppose.

  88. Blake on January 29, 2009 at 11:14 pm

    Woodboy: I think that we are largely in agreement — except the notion that a government can print money with nothing to back it up and not create inflation down the road. But no matter, Obama will be able to blame Bush for years — and he bears a great deal of the blame.

    DavidH: Yup, a little historical perspective demonstrates that in these instances the successors in offices reaped the benefits and downside of the prior administrations. And Yes, specifically, the current economic crisis were proximately caused by the cheap housing that began with the Community Reinvestment Act of 1977, which mandated that banks be regulated to insure that they provided loans to moderate and lower-income housing.

    This act was follows in 1992 by the Federal Housing Enterprises Financial Safety and Soundness Act (presumptuous name that) which established mandates for affordable housing to be enforced by HUD. The FHEFSSA mandated that given percentage of loans purchased by Freddie Mac had to be written in moderate and low income and special area affordable housing.

    Then in 2004 HUD increased the Freddie Mac to subprime loans by raising the percentage of loans written to low income housing to 56%. The Federal Housing Enterprise Regulatory Reform Act of 2005 was introduced in Congress less than a year later. The bill was sponsored by Sen. Charles Hagel [R-NE] and co-sponsored by Senators Elizabeth Dole [R-NC], John McCain [R-AZ], and John Sununu [R-NH]. The bill was bottled up in the Committee on Banking, Housing, and Urban Affairs and went nowhere. There were three more votes introduced to change the buying practices of Freddie Mac and Fannie between 2005 and 2008, each time with Republican sponsors and the vast majority of Republican support and each time the Democrats voted without a single dissenter to kill the votes.

    Jeremy: Or course, Cross didn’t mention any of that, did he? In fact, he attacks a straw man saying that those who see the clear role of the low income housing legislation and loan mandates from very powerful Democrats is somehow blaming minorities and low income people for the crisis. No one has made the argument that Cross attacks. I didn’t and you attack me with Cross’s irrelevant response.

  89. Jeremy on January 29, 2009 at 11:35 pm

    Here’s a much more comprehensive explanation of why the blaming the CRA is silly:

    http://www.federalreserve.gov/newsevents/speech/kroszner20081203a.htm

    A few important points: delinquency rates in areas just above the CRA threshold were the same as in groups just below the CRA threshold; most foreclosure filings take place in middle- and higher-income households; and the vast majority of risky loans extended to lower income homeowners were made by institutions other than depository banks (in other words, institutions not even covered by the CRA).

  90. Blake on January 29, 2009 at 11:50 pm

    Jeremy: Don’t be a putz. The partisan Federal Reserve (Board Governor Randall Kroszner nonetheless) is trying to minimize its culpability. Give Bush credit for at least trying to get someone competent. Could you get anyone more partisan here? Here is a much more comprehensive and — uhhum — balanced treatement: http://en.wikipedia.org/wiki/Subprime_mortgage_crisis

    Needless to say, asserting that the CRA isn’t the total cause totally misses the point, now, doesn’t it? It was a very important contributing cause — likely the primary cause in the web of factors. As a dedicated Dem I can see why you want to exonerate these irresponsible government agencies that fueled subprime loans and masked the risk of poor mortgage investments. But heck, I don’t let the Wall Street greed that took home $23.9 billion in bonuses in 2006 off the hook either. Their greed was also a factor. In fact, greed and precisely what Mormon warns us against over and over again is at the root of this crisis. Greed is also at the root of Obama’s massive government give-away plan.

    [Ed.--watch your mouth. I don't accept this kind of language.]

  91. woodboy on January 29, 2009 at 11:57 pm

    “Woodboy: I think that we are largely in agreement — except the notion that a government can print money with nothing to back it up and not create inflation down the road.”

    I was arguing against hyperinflation specifically. I agree that this spending is likely inflationary longer term. However, the scenario you point out above is in fact possible, if the monetary authority withdraws the money back out of circulation once the economy starts to heat up. That’s how inflation was tamed in the early 80s.

  92. Jeremy on January 30, 2009 at 12:14 am

    Putz? Classy. Explain to me how CRA (et al) can carry so much of the blame if subprime and prime mortgages both started seeing dramatic increases in foreclosures at the same time, and at same rates? Increases in home ownership among lower income people contributed to the bubble, of course, but when you’ve got higher-income non-occupant speculators with nothing-down, adjustable-rate mortgages accounting for one-fourth of the pre-bubble home purchases, and those mortgages originate with non-depository banks not even covered by the kinds of government regulation you’re talking about, it seems like a stretch to be blaming Clinton’s housing policies.

  93. Mark D. on January 30, 2009 at 12:27 am

    The most basic problem with the economy is that the government consumes too much of it. The only advantage that high taxes have over deficit spending is that it forces us to face economic reality sooner.

    Keynesianism is an excessively simple minded theory that has set the economic profession back more than a century. It is responsible for far more ills than it has remedied. It has only one singular virtue – it provides a convenient excuse for left-liberals to expand the size of government relative to the private sector.

    Has any economy ever had more than a temporary boost from deficit spending? At some point the bills have to be paid – if not in taxes, then in inflation. More deficit spending at this point is like giving alcohol to an alcoholic. Neither individuals, nor businesses, nor countries can spend their way into prosperity. Deficit spending just makes the hangover deeper and last longer.

    If we want a long term recovery, we should pass a balanced budget amendment and return the size of government to 199Os levels. Managing the money supply on a price rule would be a very good idea too. There is no more effective prescription for economic difficulties than for the Federal Reserve to try to print its way out of a recession.

  94. Tim J on January 30, 2009 at 12:27 am

    “Explain to me how CRA (et al) can carry so much of the blame if subprime and prime mortgages both started seeing dramatic increases in foreclosures at the same time, and at same rates?”

    The same rate?

    http://krugman.blogs.nytimes.com/2007/10/27/some-housing-pictures/

    See graph #5.

  95. woodboy on January 30, 2009 at 12:39 am

    I think he means the _increases_ were happening at the same rate, not that the absolute foreclosure rates were the same.

  96. Jeremy on January 30, 2009 at 12:40 am

    Tim,

    Yes. In the graph you point to, they both roughly double.

  97. Ray on January 30, 2009 at 12:40 am

    Should have expected nearly 100 comments in twelve hours. Now I have to decide whether or not to read them.

  98. Blake on January 30, 2009 at 12:40 am

    Darn Jeremy, don’t let any good facts get in the way of your commitment to the Dems commitment to low income housing even if the mortgages don’t get paid. Of course the speculators also contributed — they had all of the risk taken away by Freddie and Fannie so they could speculate away!

  99. Blake on January 30, 2009 at 12:51 am

    Jeremy: comparing the prime and subprime loans in the two graphs is a pretty serious error in reasoning. The number of prime defaults if incredibly lower than subprime defaults. Moreover, the subprime defaults are causing other defaults because they depress the market given their massive numbers and the prime defaults follow because property values drop precipitously — thus triggering prime mortgages to default as well.

  100. Mark D. on January 30, 2009 at 12:56 am

    The most cogent explanation I have heard of for the contribution of the CRA, is that starting late in the Clinton administration federal regulators used their regulatory authority to compel banks to make loans to minorities who would not otherwise qualify. The banks implemented this mandate by lowering the standards for all loans.

    Additional contributing factors were a Federal Reserve that artificially goosed the money supply in the mid part of this decade, and a flood of foreign (primarily Chinese) savings (the flip side of the trade deficit), both of which lead to unsustainably low interest rates.

    As far as the banks are concerned, it seems to me that any holder of adjustable rate mortgages or securities doesn’t have his or her head screwed on straight. ARMs should be illegal.

    And of course, we have the seemingly irrepressible instinct for Wall Street to persuade themselves that they can hedge against systemic economic failures.

  101. Jeremy on January 30, 2009 at 1:05 am

    Blake,

    Of course the overall subprime numbers are higher. They’re subprime. But if the subprime foreclosures had caused the prime foreclosures, there would be a lag. And there isn’t.

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1211822

    From the abstract:
    “The recent rise in foreclosures is not related to the subprime/prime distinction since both markets had similar size increases in foreclosures that occurred at exactly the same time.”

    And the actual number of prime foreclosures per month eclipsed subprime foreclosures sometime last summer.

  102. Jeremy on January 30, 2009 at 1:09 am

    (And that’s from an abstract of an article quite critical of Clinton housing policies.)

  103. Blake on January 30, 2009 at 1:13 am

    Jeremy: Look at the graph again — there is about a 3-4 month lag.

  104. Blake on January 30, 2009 at 1:14 am

    Mark: “And of course, we have the seemingly irrepressible instinct for Wall Street to persuade themselves that they can hedge against systemic economic failures.”

    Yup. Except one fact about Wall Street — we can always count on it to be greedy. We cannot blame the snake for biting us if we know that snakes bite by their very nature.

  105. Clark on January 30, 2009 at 1:15 am

    I’m absolutely not an economist but one thing I’ve noticed after reading the blogs of lots of economists and reading the back and forth is that no one really knows much. It appears lots of people are making big errors (not that I can pick them out – but others do and you just watch for the responses to the responses).

    My honest guess is that no one knows whether it will work at all. While I’m distrustful of some of McArdle’s posts over the past few weeks I think the end of that post someone linked to is very good. In a couple of years we’ll know if this is a success. And then Republicans will either have a lot of explaining to do or will be acting the way Democrats did to Bush’s boondoggle of Iraq. And I’m sure the “right” answer will be “obvious” two years from now just as the right answer about Iraq appeared so obvious to Bush’s critics.

    Now unlike Bush at least Obama is trying to hedge his bets a bit by applying both tax cuts and spending. But it is a bet.

    And if Obama, as expected, tries to launch comprehensive medical reform on top of this then I think there is a huge danger that the debt will become too large to ignore the way so many have. (It’s ironic how many Democrats are now taking Cheney’s line about deficit spending not mattering — I wonder how many felt that back 6 years ago?)

  106. woodboy on January 30, 2009 at 1:26 am

    “Additional contributing factors were a Federal Reserve that artificially goosed the money supply in the mid part of this decade, and a flood of foreign (primarily Chinese) savings (the flip side of the trade deficit), both of which lead to unsustainably low interest rates.”

    I realize Bernanke has tried repeatedly to blame “Chinese saving” for our problems, but I don’t think it’s really accurate. China’s demand for treasuries comes not from conscious saving and investment in the US, but from their high current accounts balance and the PBoC’s desire to keep the RMB weak by pegging it to the dollar.

    But yes, net effect is below-market price of money.

  107. Mark D. on January 30, 2009 at 1:49 am

    Blake: I think the basic (or at least most curable) problem with Wall Street is a systematic failure in corporate governance. Essentially the managers are running the companies for their pecuniary benefit, not for the long term interest of the owner shareholders.

    As such I think it is a regrettable necessity that the government pass laws to both require greater participation on the part of shareholders in compensation decisions, and to require non-trivial bonuses to reflect the long term financial performance of the corporation involved, and to be awarded five or ten years after the employment period concerned.

    In addition the whole idea of “off balance sheet” obligations should be outlawed, and public companies should have to make their operations, contracts, and financial obligations as public as the governments. A shareholder should be able to know more about a company than the IRS does, indeed more than the company’s auditor does. If the CEO knows significantly more about the health of the company he presides over than a diligent shareholder does, something has gone seriously wrong.

    In particular, the contracts and financial obligations of a corporation should be sufficiently public that anyone could download the data about an arbitrary ensemble of such companies and estimate the systemic risk involved and the true default risk of any financial instrument.

  108. Mark D. on January 30, 2009 at 1:57 am

    woodboy: I didn’t say private saving. In this case it is the Chinese government using their trade surplus to buy up U.S. treasury and agency bonds in unprecedented quantities.

    That is certainly fair game in my opinion, but I don’t think it is sustainable over the long run. The U.S. cannot run massive trade deficits forever. Nor the Chinese such large trade surpluses, whether by currency rate manipulation or other dubious schemes.

  109. Matt Evans on January 30, 2009 at 2:22 am

    In the not too distant future it will actually be reported by some journalist somewhere with a smidgen of integrity that the Democrats pulled off the snow job of the century: successfully blaming the Repubs for what Clinton’s cheap housing policies of loans to people who couldn’t afford them caused.

    Blake, you’ll be happy to know that the impeccable Stuart Taylor wrote that article for the National Journal in October.
    http://www.nationaljournal.com/njmagazine/or_20081018_3384.php

  110. Dan on January 30, 2009 at 6:56 am

    Mark,

    #93,

    Has any economy ever had more than a temporary boost from deficit spending?

    Um, is everybody in agreement that the deficit spending that America did DURING World War II brought the country out of the Depression? Mobilization to war IS deficit spending on a grand scale. That’s why I believe, like Krugman, that this particular bill of $819,000,000,000 may just not be big enough. But I think that Obama’s economic aides have considered this. We’re not, of course, at the low levels of the Great Depression. Maybe $819,000,000,000 is just right.

    What is required though, for a healthy long term plan, is that when we are doing well, that we tighten our belt and pay off our debt. This is what Republicans should have done these past eight years. Sadly, they doubled our national debt while they were in power.

  111. Adam Greenwood on January 30, 2009 at 8:04 am

    Should have stayed up monitoring the thread instead of sleeping. Yikes! This will be a lesson to me to exercise more arbitrary editorial powers in the future. Starting right now, I’m requesting that Jeremy, Dan, and Blake bow out of this thread.

  112. Adam Greenwood on January 30, 2009 at 8:14 am

    If anyone can explain to me how affixing partisan blame for our economic troubles justifies or unjustifies the stimulus bill, by all means, continue to affix it. Otherwise its now off topic. And please don’t give me your lame excuse that side X did bad things in the past therefore side X must be wrong on the stimulus bill. Even a country lawyer can see through that one.

  113. Aaron on January 30, 2009 at 8:39 am

    Where were all you anti-debt guys when Bush was running up billions of debt in Iraq and not raising taxes to pay for it? Shopping, probably.

  114. John C. on January 30, 2009 at 8:39 am

    I believe the argument behind this particular batch of deficit spending is that during the Great Depression the deficit hawks won the day and, it is believed, made the situation much, much worse. It’s a bit of speculative hokum, because who knows, but it is the ultimate reason for the stimulus as a whole. As to what that has to do with smoking, maybe smokers will spend more if they are alive.

    The fundamental problem is that the economy rides on our consumption (especially since we have become a service economy instead of a manufacturing one). That means that the natural human impulse to save when times are tough is contributing to the problem. I don’t know how to get around that, but I don’t know that either spending borrowed money or offering tax cuts so that people can save more, spend less is the answer.

    I personally think that the whole durn economy was overvalued and that this is a market correction dressed up as a recession. I predict that we won’t see the kind of economic and financial opportunity that we had in the 1990s for another 70 years or so. I think that generational amnesia will be a bigger factor than any governmental plan.

    Do I like the stimulus? No. Have I liked any of the financial news since Enron? No. Will it help? Possibly (I think it has as good a chance as tax cuts). I think that, right now, it is too hard to say.

    Finally, while I cannot speak to the worth of previous omnibus spending bills, the timing of our sudden interest in the minutiae thereof is fascinating to me. In a strictly non-partisan manner, natch.

  115. Last Lemming on January 30, 2009 at 9:25 am

    We are spending about .14 of every dollar on economic recovery and $.86 of every dollar on shameful and embarrassing pork

    For the record, it’s closer to 65/35, but that’s still not good enough.

  116. Adam Greenwood on January 30, 2009 at 10:25 am

    $150 Billion on Education.

    55 million students (K-12).

    6.8 million teachers

    124,888 schools.

    $8,287 average government spending per pupil.

    See here.

    http://www.census.gov/Press-Release/www/releases/archives/facts_for_features_special_editions/007108.html

    That’s roughly

    $2,500/student.

    $21,000/teacher.

    $1,250,000/school.

    In principle that could be worthwhile, though I’m not sure you actually get much improvement in education just by spending more money on it. What I am sure is that your average student, teacher, or school isn’t going to see a whole lot of this.
    If we’re going to make a major education effort (a 30% increase in per pupil spending), its probably worth doing a separate education bill. If we just want ‘stimulus’ with educational dressing, we should just cut a check to teachers or parents.

  117. Dan on January 30, 2009 at 10:44 am

    And suddenly the debate goes silent because people are only allowed to criticize labels on this thread. You dare say one word against conservatives, and Mr. Greenwood deletes your comments.

    Maybe if y’all want to live in the bubble…but frankly, I’m not afraid of people changing my beliefs. Why are you Mr. Greenwood? Certainly your actions do not cause us to be spiritually salubrious. You cause contention, Mr. Greenwood and then try to say you’re some angelic trying to bring healing.

    This comment will either be deleted or not even appear. That’s okay. It’s more for Mr. Greenwood’s eyes, anyways. He always reads comments. If anyone else gets a chance to read it that’s great. If not, that’s okay too. I know Mr. Greenwood is more interested.

    Here’s a kiss for you, Mr. Greenwood.

  118. DavidH on January 30, 2009 at 10:51 am

    As some of you know, for most of my life, I was a registered independent, mostly voting republican. While I am now a registered democrat, who voted for Obama, I still consider myself, more or less, a political centrist (which means a far leftist in Mormon circles). Part of the reason I voted for Obama is because I believe he will listen to the other side, certainly more than, in my estimation, the last administration did.

    With that preface, I think it would be preferable for a compromise. My perception, though, and I may be wrong, is that the GOP will not support anything except tax cuts. That, I believe, is what the House republican alternative was.

    Again, I may be wrong, but I think congressional democrats would be willing to accept a recalibration of the mix between spending and tax cuts and deletion of many of the spending programs if it were possible to obtain any GOP support.

    But it appears to me that the GOP will not accept any significant spending increases, in which case, what is the point of compromise if the GOP will still unanimously vote against it.

    In my perspective, it may be like the legislation at the beginning of the Clinton Administration (I voted against Clinton twice) which led to a balanced budget by both cutting spending and increasing taxes (primarily on the higher paid). It passed almost exclusively by democratic votes, because the GOP (minding the lesson of GHWB’s defeat for antagonizing the anti-tax part of the party) refused to agree to any compromise that involved an increase of tax on anyone. Is there the same sort of GOP animus here toward spending? Or is it animus toward spending that benefits particular groups in society (like those who pay payroll taxes but not federal income taxes)?

    Let me inquire of the opponents on T&S to the House bill–how much of your antagonism is because of the composition of the spending, and how much is because a significant part of the proposal involves spending? In other words, for example, would Adam support (or at least not oppose) the proposal is the education spending were reduced? Would Allison support (or at least not oppose) the proposal if many of the spending proposals were eliminated or reduced?

  119. DavidH on January 30, 2009 at 10:53 am

    Dan, in Adam’s defense, I think his prospective ban affects a certain conservative self-described independent.

  120. Nate Oman on January 30, 2009 at 11:02 am

    It is heresy to say it, but I am not sure that WWII deficit spending ended the Depression. A couple of points. First, there was in fact a post-war recession in the United States. Second, in the wake of the War there were massive structural changes to the global economy, notably Breton Woods and GATT, which reduced the protectionism of the interwar years and got global trade flowing again. Third, the destruction of the war created a huge global demand for re-building and also meant that the America was literally the only major industrialized portion of the globe that had not been subject to intensive bombardment. Literally millions of tons of high-explosives had been dumped on all of America’s chief competitors.

    Like I said before, I can believe that some sort of Keynsian programs can work. (I think that the strongest arguments are for counter-cyclical automatical stabilizers like unemployment insurance.) On the other hand, I do think that the we-deficit-spent-our-way-to-prosperity in World War II story is overly simplistic.

  121. Dan on January 30, 2009 at 11:03 am

    Nate,

    That’s an interesting point you make. You say, however, that there was a great demand for rebuilding around the world. Just who, may I ask, funded the rebuilding around the world? Was it government led? Or private?

    [Ed.--I'm letting this one stay since Nate O. already replied to it.]

  122. Nate Oman on January 30, 2009 at 11:04 am

    David H.: I think that you give the House GOP too much ideological credit. They would like tax cuts, but I think also what they want is access to the pork possiblities of the stimulus package. What really pissed them off was that Polosoi would not let them hunker down at the trough for their constituencies and pet projects with the Dems.

  123. Nate Oman on January 30, 2009 at 11:08 am

    Dan: Both. There was the Marshall plan in Europe, as well as a lot of deficit spending by European governments. There was also, however, a lot of private rebuilding. I haven’t seen the numbers, but I would be shocked if the private post-war spending didn’t dwarf the deficit fueled government spending. I’m not saying that deficits didn’t play a role. On the other hand, I think that the removal of many of the structural causes of the great Depression had much more to do with it than people think. Finally, given the rather dismal performance of Keynsian style stimulus packages in recent decades — see, e.g., Japan in the 1990s or Britain in the 1970s — pointing at deficit spending in WWII is a crude argument at best, and deeply misleading one at worse.

  124. Dan on January 30, 2009 at 11:11 am

    Nate,

    Fair enough. If any government from any country had not participated in deficit spending to stimulate the economy, what might we speculate would have we seen?

    [Ed.--likewise, but my patience is running thin]

  125. Nate Oman on January 30, 2009 at 11:15 am

    Who knows. I suspect that we probably would have seen a long post-war prosperity so long as the walls to international commerce created in the interwar years came down. Also, you would still need a Pax Americanna — or at least mutually assured destruction — to keep a lid on the horribly destructive great power wars that screwed up the economy of the first half of the twentieth century.

  126. Nate Oman on January 30, 2009 at 11:19 am

    I would also slyly add that the beginning of the long post-war boom coincides with the passing of the Taft-Hartley Act, which essentially marked the ebbing of the high-tide of labor union influence in American politics. ;->.

  127. Nate Oman on January 30, 2009 at 11:25 am

    I now notice that Adam has asked Dan to bow out of this thread. It’s his thread and I leave such matters to him. Feel free to edit or pull my comments as you see fit.

  128. Rob Perkins on January 30, 2009 at 11:43 am

    #115, that’s an interesting point. That much money, cut as a simple check to my kids’ district, would turn our $10 million budget shortfall this year into a surplus of around $5 million.

    That in turn would have a mild impact on my county’s economy, since the school district is the largest single employer here.

    At this point in our budgeting process I say that while it might have been nice to have education funding reform in a separate bill, now I’ll take it from any source, however passed.

    Deficit spending to improve basic education is sensible to me, and roughly consistent with the personal Mormon notion that education debt is sensible.

    You have me wondering, as well, which strings are attached to all that education funding. My district could really use another middle school and two more elementaries….

  129. I Speak on January 30, 2009 at 12:13 pm

    Goverment debt has a slightly different criteria than personal debt because goverment has the obligation to maintain social order and stability.
    Therefore,
    goverment is obligated to go into debt to effect rapid victorious conclusions to wars that threaten its nations security.
    Additionally and argument can be made that spending in times of social and economic crisis is also justified as those instabilities can increase themselves and lead to revolutions and various upheavals. As an example consider the WWI veterans march on washington. I dislike FDR’s policy but he restored confidence and thus stability.

  130. Rameumptom on January 30, 2009 at 12:57 pm

    While a conservative-independent, I don’t mind us attempting a stimulus package to restart the economy.

    This, however, AIN’T no stimulus package. Only 12% of it is directly tied to stimulating the economy.

    What this shows is the majority in the House of Representatives are as corrupt and unscrupulous as Madoff and the other criminals on Wall Street, who are buying $40M jets, $1M office refurnishings, etc.

    Clearly, we can see that Nero/Congress fiddles, while Rome burns.

    We can only hope that Pres Obama is true to his word, and slashes the waste in this, and replaces it with real stimulus actions. It will take over $1T to fix our bridges and highways – so the $40B they offer is just a drop in the bucket. Governor Arnold is furloughing half the teachers in California – which he wouldn’t have to do if Nancy Pelosi’s hundreds of millions for STDs were used to pay teacher’s salaries, instead.

    Is it time for a few Jeremiahs to go to Congress and call them to repentance?

  131. Mark D. on January 30, 2009 at 1:02 pm

    Um, is everybody in agreement that the deficit spending that America did DURING World War II brought the country out of the Depression?

    Hardly. The consequences of the war brought America out of the Depression. Among those was the levelling of the industrial base of all of our major competitors. If there wasn’t a necessary war to be fought, the consequence of all of that deficit spending would have been largely negative. Rationing anyone?

    I might add that the idea that saving (“hoarding”) threatens a country’s economy, and the parallel concept that retail consumption is the be all and end all of economic health is Keynesian hokum.

    In a fiat currency, putting your money under the mattress is equivalent to an interest free loan to the rest of the country. The federal reserve can issue the same amount of additional currency (backed by adequate collateral of course) with no inflationary consequences. Then later when you decide to spend it, the federal reserve can reduce the money supply to compensate. The same goes for undercapitalized banks. If they hold on to more savings then they lend, the Fed can temporarily increase the money supply to compensate.

    That is to say nothing of the socially beneficial consequences of normal savings and investment. A country cannot consume its way into prosperity.

  132. I Speak on January 30, 2009 at 1:15 pm

    For the economists out there. What effect does deficit spending have on availability of credit? How would that effect a recovery?

  133. woodboy on January 30, 2009 at 1:58 pm

    Right on, Mark D. Agree 100%. Savings, investment, and production are the bedrocks of a solid economy, not profligate consumption.

  134. Last Lemming on January 30, 2009 at 2:04 pm

    Well in theory, greater public debt competes with private debt, driving up interest rates. But during the Bush administration, public debt increased dramatically while interest rates remained remarkably low. Some of that was driven by the Federal Reserve, and some by the Chinese, who play by different rules.

    Because their currency is deliberately undervalued relative to the dollar, dollar-denominated debt has been very attractive to them, even at low interest rates. Now that we are pressuring them to revalue their currency, their incentive to buy our debt goes way down, which could result in a bounce-back effect on interest rates in addition to the market pressure the stimulus bill would provide.

    But higher interest rates are not an unmitigated evil either. They could be the incentive needed to get banks lending again, which is a necessary condition to ending the recession.

    With economics, everything seems to be a two-edged sword.

  135. woodboy on January 30, 2009 at 2:16 pm

    “Now that we are pressuring them to revalue their currency, their incentive to buy our debt goes way down”

    Just because we are pressuring them to revalue their currency does not mean they will do so. In fact, their faltering economy is leading to huge domestic pressure to keep their currency weak. So as long as they are running sizeable trade surpluses, they will continue to buy US debt without much regard for price. Their current account balance actually increased at the end of 2008, as domestic demand for imports fell off faster than exports.

    I agree that over time the price of debt is likely to fall (and interest rates go up) if Treasury keeps overwhelming the market with supply to fund the government’s spending spree.

  136. Brad Kramer on January 30, 2009 at 2:31 pm

    I’m generally a big Obama fan, but I’m skeptical about the utility of this bill as an effective stimulus package. Recent decades have taught us, government efforts at economic stimulus will inevitably lead to increased federal deficits and debt — either in the form of taking in less money than we need (tax breaks) or spending more than we have (spending packages). My sense is that, following Nate’s breakdown of will-it-stimulate/is-it-wise-spending, we would do well to follow three general courses: 1) modestly and smartly increased taxes, to offset some of the cost of new spending; 2) effectively managed spending directed largely at infrastructure development/rebuilding; and 3) a stimulus package designed to prime the consumption pump (i.e. cash in the hands of consumers) taking the form of debit cards (with government supplied balances) with expiration dates and only accepted in credit-card type transactions (i.e. cannot be deposited in banks, invested, or used to pay down existing bills).

  137. Brad Kramer on January 30, 2009 at 2:32 pm

    Of course this all presumes that the end goal is a return to something like the economic landscape of the past 3 decades (where debt in all forms is basically the fuel source for US economic growth).

  138. John C. on January 30, 2009 at 2:54 pm

    One final remark, if short lived, on the partisan question of blame,

    In so far as I can ascertain, there is no particular section of America’s political and economic life that did not contribute (by direct action or indifference) to the current financial crisis. This goes, so far as I can tell, to both sides of the aisle and most economic strata. So, we have met the freeloader who tears the economy down, and he is us.

  139. Adam Greenwood on January 30, 2009 at 2:56 pm

    Brad Kramer,
    as an Obama fan, you can comfort yourself with the knowledge that this bill was drafted in the House. President Obama supports his fellow democrats but the bill might have been very different if the White House had done the first drafts.

  140. Mark D. on January 30, 2009 at 5:31 pm

    Debt is just fine as a “fuel” for economic growth provided it is for reasonably priced long term assets people really want and that they can really afford, including the financing cost.

    Long term debt for short term assets is a good way to pay a 100% tax on the cost of everything. And that is the main problem with most credit card spending and much of what the government borrows money for.

    The related problem is the buy now pay later mentality artificially encourages a sense of false prosperity that leads people and governments to think they can afford things that in actuality they cannot, or which under due consideration are lower priorities than other things they should be spending their money on. California is a case in point, a spectre of things to come for the country as a whole.

  141. Adam Greenwood on February 2, 2009 at 9:57 am

    Here’s a website that plans to track how the money is spent at the local level:

    http://www.stimuluswatch.org/

  142. Elaine on February 9, 2009 at 4:21 pm

    gst – if you’re who I think you are, you really don’t understand what is and isn’t American… and your apology was hollow and self serving. Back to the subject… the question was about whether the prophet’s counsel is applicable to government, not whether government should be subject to the prophet. The counsel is absolutely applicable and prudent and it’s too bad so many self-serving politicians chose to hate religious leaders simply because they are religious. Wise counsel should always be listened to, regardless of the source. For instance, those Hollywood types have spewed out all kinds of rhetoric, but if they had anything wise to say I’d listen. Of course I said IF, because there are so few with any credibility or understanding of the real world that nothing they say has any merit to those of us in the real world. However, the prophet has his finger on the pulse of the world, whether you believe him to be a prophet or not. He is responsible for members all over the world and has to be aware of world events and trends in order to effectively manage the church. That would give him a strong basis on which to understand world events. For me, having a spiritual sense only gives me greater reason to listen, but even if you take that factor out the messenger, you still have good, sound, prudent advice. Leaders can benefit from the integrity and wisdom in the words that come from the prophet, even if they don’t believe in his spiritual leadership.

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