Blog on the Run: Reloaded

Tuesday, August 23, 2011 8:11 pm

We’re so screwed, J. Bradford DeLong edition

Filed under: We're so screwed — Lex @ 8:11 pm
Tags: , ,

Brad DeLong is an economist who firmly believes that to put people back to work, we need to be doing things we’re not doing now. And he is very concerned about the near- and medium-term future:

Back at the end of 2008, our questions (at least my questions) were: “What if the downturn is bigger than we currently think it will be? What if worries about a jobless recovery and the absence of labor-market mean-reversion turn out to be true? What if–as has happened in the past–this financial crisis turns into sovereign crises and the world economy gets hit by additional shocks? Then your polices will not be bold enough. What is Plan B?” And the answers were all along the lines of:

  1. You are a pessimist. We are already doing unprecedented things to stabilize the economy–and odds are that in a year we will be worrying about inflation and unwinding the stimulus rather than about unemployment.
  2. Obama is genuinely post-partisan, and won’t have anything like the trouble Clinton had negotiating with Republicans: our policies will evolve as the situation evolves.

Back in the late summer of 2009, our questions (or at least my questions) were: “You aren’t getting any cooperation from Republicans–they appear to have doubled down on the Gingrich-Dole strategy that you win the next election by making the Democratic President a failure. The economy really needs more stimulus. What are you going to do? Isn’t it time to use the President’s powers more aggressively–to use Fed appointment powers and the Treasury’s TARP authority and Reconciliation to do major stimulus?” And the answers were:

  1. We are doing all that we can.
  2. This is really hard.
  3. Things will probably still work out all right.
  4. If worst comes to worst, we will trade long-run budget balance via a spending cut-heavy package of long-run spending cuts and tax increases for short-term stimulus to get us out of the short-term unemployment mess.
  5. Hippie punching.

By the late summer of 2010, our questions (or at least my questions) were: “You are in a total war with the Republican Party. They aren’t giving you anything. It is time to seriously push the envelope of executive authority to put policies in place that will reduce unemployment.” And the answers were:

  1. The best policy is to achieve long-run fiscal discipline so that the confidence fairy will show up.
  2. Hippie punching.

And now it is the late summer of 2011. Our big question still is: how is Obama going to use executive branch authority to reduce unemployment? There are lots of options: adjourn congress and do some recess appointments to get the Federal Reserve more engaged in actually pursuing its dual mandate, quantitative easing via the Treasury Department, shifting Fannie Mae and Freddie Mac from their do-nothing position by giving them a microeconomic stabilization mission, talking about how a weak dollar is in America’s interest.

And this time what I am hearing back is only:

  1. Hippie punching.

It is difficult to read this in any way but as a group of people inside a bunker who (1) have been wrong about the situation, (2) are scared to use the powers they have to try to make things better, and (3) really do not like being reminded that they were wrong about the situation.

That seems to me to mean that the Obama administration right now has one and only one macroeconomic policy idea: hope that the country gets lucky.

As I’ve mentioned, there’s been some back-and-forth on the left about whether what Obama is doing is the right thing to do (and why he’s doing/failing to do what he’s doing/failing to do). This discussion, as have most of our discussions about politics and government during the past 30 years or so, has tended to focus more on tactics than on substance: Obama is doing all he can do in this environment vs. Obama should be using the bully pulpit to call out recalcitrant Republicans who are supposedly keeping him from doing the right thing.

My own suspicion is that Obama, for reasons I cannot fathom, has decided that the suffering of millions of un- and under-employed Americans here and now matters less than arriving at some kind of grand bargain on federal spending that may or may not make us better off in the future. I find this approach problematic for a number of reasons, not least the likelihood that nontrivial numbers of Americans will die prematurely as a direct consequence of Obama’s inaction on jobs.

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14 Comments »

  1. Does Obama Have Any Idea Why FDR’s New Deal Failed ? Apparently not.

    …the Great Depression persisted[ because] entrepreneurs and businessmen had no incentives to create businesses or expand existing ones.

    President Obama publicly admires and tries to emulate FDR. And Obama is experiencing two of FDR’s problems: expensive new programs that don’t work, and discouraged entrepreneurs who are saddled with much of the bill for taxes and new regulations.”

    Comment by Fred Gregory — Wednesday, August 24, 2011 4:24 pm @ 4:24 pm | Reply

  2. Does Burton Folsom have any idea that World War II was, economically, speaking, just the New Deal on steroids and that it in fact did work, except in 1937 when we embarked on the same sort of budget cutting we’re embracing now? Apparently not.

    Businesses are sitting on a record $2 trillion in cash. And they’re not refusing to create jobs because of “expensive new programs that don’t work, and discouraged entrepreneurs who are saddled with much of the bill for taxes and new regulations.” They are refusing to create jobs because nobody is going to buy the goods and services those jobs would produce.

    And why will nobody buy the goods and services those jobs would produce? Because 1) they’re in too much debt — household debt as a percentage of GDP is 50% higher than it was in 1995 — and 2) they’re unemployed, underemployed or terrified they’re about to be. This is not rocket science, and Burton Folsom is a goddamned idiot.

    Comment by Lex — Wednesday, August 24, 2011 4:41 pm @ 4:41 pm | Reply

  3. Marco Rubio at the Reagan Library

    You can watch his speech on YouTube above An excerpt:

    “[W]e must begin by embracing certain principles that are absolutely true. Number one – the free enterprise system does not create poverty. The free enterprise system does not leave people behind. People are poor and people are left behind because they do not have access to the free enterprise system because something in their lives or in their community has denied them access to the free enterprise system. All over the world this truism is expressing itself every single day. Every nation on the Earth that embraces market economics and the free enterprise system is pulling millions of its people out of poverty. The free enterprise system creates prosperity, not denies it.

    The second truism that we must understand is that poverty does not create our social problems, our social problems create our poverty. Let me give you an example. All across this country, at this very moment, there are children who are born into and are living with five strikes against them, already, through no fault of their own. They’re born into substandard housing in dangerous neighborhoods, to broken families, being raised by their grandmothers because they never knew their father and their mom is either working two jobs to make ends meet or just not home. These kids are going to struggle to succeed unless something dramatic happens in their life.

    These truisms are important because they lead the public policies that define the proper role of government. On the prosperity side, the number one objective of our economic policy, in fact the singular objective of our economic policy from a government perspective is simple – it’s growth. It’s not distribution of wealth, it’s not picking winners and losers. The goal of our public policy should be growth. Growth in our economy, the creation of jobs, and of opportunity, of equality of opportunity through our governmental policies.

    Now often when I give these speeches, members of the media and others get frustrated because there is nothing new or novel in it. We don’t have to reinvent this. It’s worked before and it will work again and they are simple things. Like a tax code that’s fair, predictable, easy to comply with. Like a regulatory framework that doesn’t exist to justify the existence of the regulators, that doesn’t exist to accomplish through regulation and rulemaking what they couldn’t accomplish through the Congress.

    And it is the proper role of government to invest in infrastructure. Yes, government should build roads and bridges, but it should do so as part of economic development as part of infrastructure. Not as a jobs program.

    And government should invest in our people at the state level. Education is important, critically important. We must educate and train our children to compete and succeed in the 21st century. Our kids are not going to grow up to compete with children in Alabama or Mississippi. They’re going to grow up to compete with kids in India, and China, all over the world; children who are learning to compete and succeed in the 21st century themselves.

    These are proper roles of government within the framework of creating an environment where economic security and prosperity is possible.”

    Comment by Fred Gregory — Wednesday, August 24, 2011 5:03 pm @ 5:03 pm | Reply

  4. Marco Rubio is also an idiot.

    Number one – the free enterprise system does not create poverty. The free enterprise system does not leave people behind. People are poor and people are left behind because they do not have access to the free enterprise system because something in their lives or in their community has denied them access to the free enterprise system.

    And yet here in the free-est of markets on the planet, we have tens of millions of poor people. Did the free-enterprise system create that poverty? Some of it, damn straight, through usurious interest rates, unpunished fraud and other tricks of the trade. Are people left behind? Most certainly; a majority of Americans have seen their incomes decline in real terms in recent years.

    Every nation on the Earth that embraces market economics and the free enterprise system is pulling millions of its people out of poverty.

    And putting many millions more back in: As of 2009 the U.S. poverty rate was at its highest level in 15 years. The 2010 figures will be out in a few weeks. If I were a gambler, I’d bet that rate goes higher still, because it’s not like we’ve been putting a ton of people back to work.

    And it is the proper role of government to invest in infrastructure. Yes, government should build roads and bridges, but it should do so as part of economic development as part of infrastructure. Not as a jobs program.

    It can be both, properly done it should be both, and right now it desperately needs to be both.

    Sorry; I can’t take any more of this fatuous twaddle. Marco Rubio no more knows how to get us out of this mess than does Bozo the Clown.

    Comment by Lex — Wednesday, August 24, 2011 5:44 pm @ 5:44 pm | Reply

  5. Yipee!!!!

    Comment by Fred Gregory — Wednesday, August 24, 2011 6:29 pm @ 6:29 pm | Reply

  6. “in the free-est of markets on the planet,” Now arguable. One wishing to engage in business must apply for permits, pay fees, earn licenses, pay fees, earn credentials, pay fees, comply with conflicting and confusing regulations, pay fees. Those all sound good and honorable. But filling out paperwork and paying fees does not equal working for gain. We have gone much too far with regulation.

    Comment by Ken Hill — Thursday, August 25, 2011 5:52 pm @ 5:52 pm | Reply

  7. And yet not nearly so far as most other Western industrialized democracies, Ken. We’re also grossly overpaying for relatively crappy health care compared with them, which is a huge unforced error that also burdens employers.

    Comment by Lex — Thursday, August 25, 2011 7:10 pm @ 7:10 pm | Reply

    • And how are those others doing? Over 600 new Federal regulations were enacted in June 2011. How long until we spend all our time learning about the regulations (ignorance of the law and all that) and all our money paying fees and buying permits? They are big red lights facing us with every move. Economic gridlock is here. My part-time business as a retiree was bringing in about $10K per year- with the Sate and Feds getting their tax cut out of that. To comply with new EPA regs., I would have to spend about $60K to do right with the equipment and an extra truck. How do I drive two trucks to a job site a the same time? Now I just sit and my former suppliers get no business from me. One of them has closed his doors, but my non- purchases were not the primary cause. How many multiplied thousands are in the same situation as me? Cumulatively, it does make a difference.
      My 401K now looks like a 52K.

      Comment by Ken Hill — Thursday, August 25, 2011 8:13 pm @ 8:13 pm | Reply

  8. Hear, hear..Ken.. Lex just gobbles up what DeLong says as gospel. While he calls every sensible conservative stupid , ignorant or an idiot. What thoughtful name calling . Sheesh !!

    Comment by Fred Gregory — Thursday, August 25, 2011 8:49 pm @ 8:49 pm | Reply

  9. How are they doing, Ken? On health care in particular, pretty damned well, paying half or a little more than half what we’re paying for equal and, in many cases, demonstrably better outcomes.

    They’re doing well in other cases, too. Sweden’s unemployment rate in July was 6.9%, only about two-thirds of ours. Why? One big reason is that they stopped propping up their insolvent banks, nationalized them, stabilized them and then sold the stable pieces back to private investors, which is what we should have done with Citi and Bank of America (and probably Wells Fargo and a couple of others) a long, long time ago.

    Beyond that, I’d just like to ask you a couple of things:

    1) With respect to government regulation overall, how far is too far? I mean, what’s an objective, quantifiable way of measuring the burden of government regulation on business that can be used to construct apples-to-apples comparisons of the regulatory burden between different countries?

    (I raise this question because you make a generalized statement that in many cases isn’t even true. For example, I could, if I chose, hang out my shingle and call myself a consultant specializing in public-opinion research, and I wouldn’t have to be licensed by the state, nor would I pay any fee unless I chose some form of incorporation.)

    2) Have you any evidence that the overall regulatory burden in the U.S. is anywhere near what it is in most other Western industrialized countries?.

    3) In the unlikely event that you have an affirmative answer to Question 2, have you any evidence that we are underperforming our Western, industrialized competitors as a result of this alleged regulatory burden? If so, what is it?

    Moreover, it’s worth pointing out that in January President Obama issued an executive order curbing federal regulations. And it’s also worth pointing out that a lot of regulations are there for a rational economic reason: to prevent the socialization of costs incurred by private businesses (e.g., contamination of public water sources by private industry). Earlier this year, the Economic Policy Institute released a study of the economic impact of all environment regulations either proposed or finalized by the Obama administration. Here’s what they found:

    The total effect of such regulations on the economy in general and on employment in particular, one way or the other, is minuscule. “Fears that these rules together will deter economic progress,” study author Isaac Shapiro writes, “are unjustified.”
    To the extent that that effect can be reliably calculated or at least estimated, the costs of such regulation are far outweighed by the benefits:
    Expressed in 2010 dollars:

    • The combined annual benefits from all final rules exceed their costs by $32 billion to $142 billion a year. The benefit/cost ratio ranges from 4-to-1 to 22-to-1.
    • The combined annual benefits from four proposed rules examined here exceed their costs by $160 billion to $440 billion a year. The benefit/cost ratio ranges from 12-to-1 to 32-to-1.

    I may be a wild-eyed commie, but I do not have a problem with that.

    Fred, Marco Rubio is not a sensible conservative, he’s an idiot. I pointed out things he said that were factually and/or logically wrong, and rather than admitting that Rubio doesn’t know what in the pluperfect hell he is talking about, you criticize me for “gobbling up what DeLong says as gospel.” I don’t take what he says as gospel, but I would point out a couple of things: First, what he’s saying about what government ought to be doing for the economy is now being echoed not only by Paul Krugman but also by such Republicans as former Reagan/Bush 43/Kemp/Ron Paul advisor Bruce Bartlett. Second, DeLong has been right about this economic crisis since long before most other economists understood that it was a crisis. What, I’m supposed to rely on the frothings of Megan McArdle, who can’t even wield a calculator competently? I think not.

    But, hey, don’t take my word for it. Take David Frum’s as he analyzes Rubio’s words as if they have meaning:

    Teddy Roosevelt left office more than 100 years ago, but I think these words rule him out. They probably don’t rule out Warren Harding, but even Calvin Coolidge as governor of Massachusetts signed a maximum-hours bill for women and children. For sure, Rubio’s words condemn Presidents Hoover, Eisenhower, Nixon, Ford, George H.W. Bush, and George W. Bush. Truth be told they condemn Ronald Reagan too, but shhh. They condemn almost every one of the party’s presidential nominees since Wendell Wilkie except Barry Goldwater: Tom Dewey, Bob Dole, and John McCain. And of course they condemn almost every important Republican governor, senator and member of Congress of the post-1945 period, Robert Taft very much included.

    One of the effects of the Tea Party movement is to cut the Republican Party off – not only from the measured policy preferences of the American people – but from the Republican Party’s own history. It shrivels the GOP into a party without heroes, or rather a party with only one hero, Ronald Reagan, and otherwise a long succession of false and deluded leaders.

    And it points Republicans to a doomed future of continuing failure and recrimination. After all, if almost every elected Republican leader of the past 100 years save Reagan fell short of conservative principle, then it seems overwhelmingly probable that the next Republican leader will also fall short of conservative principle. In which case, conservative principle has become a vehicle for guaranteeing eternal conservative disappointment and alienation. Unhealthy, no?

    I would just add that even Rubio’s insistence on portraying Reagan as a visionary hero is ahistorical. Plenty of other people agreed with Reagan that it was not inevitable for Communism to rule a significant chunk of the world. The difference is that they agreed for different reasons: They knew that the Soviet Union was never as economically healthy and never as much of a military threat to us (nukes notwithstanding) as we were told. But they were dismissed as “liberals” and their voices were marginalized, and so we spent trillions we didn’t have on an arms race we didn’t need to win in order to prevail.

    Pyrrhus did that, too. History has not treated him kindly.

    Comment by Lex — Friday, August 26, 2011 11:46 am @ 11:46 am | Reply

  10. Who is whose fluffer. DeLong/Krugman or Krugman/DeLong

    Random comment:

    “DeLong is also widely regarded as an asshole. Some economists won’t even engage him in debate because he is notoriously underhanded (deleting comments, selectively editing comments and threads, attributing straw-man arguments to his opponents while ignoring their clarifications). Whatever. It’s not as if he’s a serious player in these debates. There’s any number of bloggers who have a better handle on some of the stuff in which he claims expertise.”

    But let’s not stop there. You are concerned with economic policies killing people. Well the savior has a jobs plan.. hold that… it’s an OUTLINE. Sheesh.

    ( you will have to figure out who penned this and call him/her one of your pejorative appellations on an individuals IQ..reserved for conservative thinkers )

    “We’ve all been waiting with pregnant anticipation for Dear Ruler to return from his vacation and explain to us his grand jobs plan … right? Oh yeah! We’re saved! Barack Obama, the smartest man ever to become president, has a plan! Finally, after more than two and one-half years in office, Our “sort of a God” president who had to “step down” into the office of the presidency is going to step forward and part the unemployment waters so that his people can march across a red-carpeted seabed to the wonderful world of employment!

    I feel this strange tingly thing going up and down my leg!

    Now since Obama is going to present us with his “plan,” we can imagine that it will be in the form of a comprehensive business plan, right? After all, that’s where we need to create the jobs. So I’m guessing Obama is going to present us with some goals for American Business and a detailed plan on how we will achieve those goals.

    This is going to be just swell!

    But, alas! Something has happened! After Obama (PBUH) left for his oh-so-well-deserved vacation and his handlers immediately started to downgrade expectations for his jobs plan. Now we are all saddened to learn that it isn’t actually going to be a plan any more. Drat! Not a plan? Now we’ve learned that suddenly it became an outline. Oh, okay .. so screw the specifics on how to achieve our goals. Now we are just going to get an outline. Fantastic. I’m sure it is still going to be a fantastic outline – something worthy of the Great and Powerful Obama.

    Uh oh .. hold on. Now we’re hearing that perhaps an outline became too much for us to expect of Dear Ruler. Now, according to deputy spokesman Josh Earnest, we can anticipate “some reasonable ideas that can have a tangible impact,” Left in the lurch again. Now we’ve been downgraded to some “reasonable ideas.” Well, I’m sure that with all of his experience in business and finance, and considering his understanding of the dynamics of private sector business growth and hiring, Obama will come roaring in the game with “reasonable ideas” that are sure to empty the unemployment lines in no time flat.

    Who the hell am I kidding here? The American people feel more negatively about our economy than they’ve felt in decades … and that’s because the American people know that we have a man in the White House that has no clue in the world what he is doing. He’s a freaking community organizer and leftist activist, for Gawd’s sake – not a brilliant economic mind. This man doesn’t have the knowledge or experience to run a sandwich shop, yet there he sits on his godly throne telling us that he is going to save our economy with some “reasonable ideas” that will be written on two stone tablets when he comes down from The Mount of Martha’s Vineyard. What a load of purified horse squeeze.

    So at this point, what sort of “reasonable ideas” can we expect from Obama? They damned sure won’t be ideas that will encourage private businessmen to start spending some of their money to expand and hire. Remember … to Obama, the private sector is “the enemy.” His words, not mine. We did, however, have two more have surfaced as of yesterday. These ideas, by the way, would be able to be accomplished without any legislation or need to battle with Republicans in Congress. They would be:

    #1: Increase the number of college graduates in engineering and give companies incentives to hire them.

    Really? How many small business owners do you know out there who are sitting on their hands right now because they’re concerned that there’s just not enough engineering graduates to go around? And incentives? What kind of incentives? Know what this sounds like to me? Do something to artificially boost the number of engineering students in colleges and then use taxpayer money to entice businesses into hiring them when the graduate. Yeah, that ought to work. I can see the Dow going through the roof right now.

    #2: Employ construction workers to retrofit commercial buildings to make them more energy efficient.

    Oh yeah. Weatherization II. Oh … and green jobs. Gotta love those green jobs.

    Roll the tape: “The Economic Development Department in California reports that $59 million in state, federal and private money dedicated to green jobs training and apprenticeship has led to only 719 job placements — the equivalent of an $82,000 subsidy for each one.”

    Then there’s that weatherization program in Seattle. You remember that one, don’t you? And that’s what we’re talking about here in Obama’s “reasonable idea.” Weatherizing commercial buildings. In April of 2010 Bite Me Biden and Mike McGinn, the mayor of Seattle, had a little soiree to announce a $20 million federal grant (borrowed funds your children will have to pay back) for weatherizing Seattle homes. Oh yeah .. what a big deal THIS was going to be. Think about it! It was going to create 2000 jobs! Amazing! So fast forward to now, and what do we have? A total of three homes have been weatherized and 14 jobs have been created; most of them administrative and temporary.

    But wait! There’s more! Here’s a peak at how that is working out for California:

    Federal and state efforts to stimulate creation of green jobs have largely failed, government records show. Two years after it was awarded $186 million in federal stimulus money to weatherize drafty homes, California has spent only a little over half that sum and has so far created the equivalent of just 538 full-time jobs in the last quarter, according to the State Department of Community Services and Development.

    The weatherization program was initially delayed for seven months while the federal Department of Labor determined prevailing wage standards for the industry. Even after that issue was resolved, the program never really caught on.

    Look, folks .. these ideas are all well-and-good but they are not based on any semblance of reality. This is nothing more than government picking the economic winners and losers: The government wants green jobs and construction workers to succeed, therefore it will create and fund a program to do something that otherwise would not be done in the private marketplace.

    At one point in his presidency, Obama pledged to create five million green jobs over the next ten years. Five million green jobs. Instead, we have 2.5 million fewer people working today than the day he was inaugurated. From the looks of things, pushing green initiatives seems to be a jobs killer, not an economic boost: “A study released in July by the non-partisan Brookings Institution found clean-technology jobs accounted for just 2 percent of employment nationwide and only slightly more — 2.2 percent — in Silicon Valley. Rather than adding jobs, the study found, the sector actually lost 492 positions from 2003 to 2010 in the South Bay, where the unemployment rate in June was 10.5 percent.”

    All Obama needs to do is unleash the private sector. Unshackle businesses from the binds of burdensome regulations and stifling taxes. Let the marketplace determine whether or not it needs energy efficient buildings or more engineers in the office place. Trying to create artificial demand will only hinder true demand and therefore true economic growth”

    Good luck job seekers.

    Brad DeLong call one of those kids in the WH economic team and share some of your ” reasonable ideas ” or are you just a second rate second guesser

    Comment by Fred Gregory — Friday, August 26, 2011 1:01 pm @ 1:01 pm | Reply

  11. Uh, Fred, you’re not really going to suggest that I give the random ravings of some commenter on a pro-corporate blog the same due consideration as I give an academic economist with a LONG RECORD OF BEING RIGHT about the current economy, are you?

    Really?

    Hey, for all I know, Brad DeLong IS an asshole. For all I know, he DOES delete comments. But those things, even if they aren’t admirable (and if he’s being an asshole to people who deserve it, that WOULD be admirable), wouldn’t make him wrong on the economy.

    Comment by Lex — Friday, August 26, 2011 1:37 pm @ 1:37 pm | Reply

  12. So are you saying DeLong is pro ” worker ” ?

    This is not what you may think it is

    Brad DeLong Talks Too Much Shit- Can’t Back It Up with Lyrics

    DeLong applaued Christine Roemers’s appointment and the AIARA.”>So how is that working out ? ….as promised

    Comment by Fred Gregory — Friday, August 26, 2011 2:49 pm @ 2:49 pm | Reply

  13. I don’t know whether he’s “pro-worker” because that word usually pertains more to micro- than macroeconomics. I do know that he knows what we need to do to get more people back to work and that he knows why doing so is critical.

    Comment by Lex — Friday, August 26, 2011 4:06 pm @ 4:06 pm | Reply


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