A Domestic Surge

Thomas Friedman says we need an immediate surge of overwhelming force:

We Found the W.M.D., by Thomas Friedman, Commentary, NY Times: ...This financial crisis is so far from over. We are just at the end of the beginning. ... If I had my druthers right now we would convene a special session of Congress, amend the Constitution and move up the inauguration from Jan. 20 to Thanksgiving Day. Forget the inaugural balls; we can't afford them. Forget the grandstands; we don't need them. Just get me a Supreme Court justice and a Bible...

Unfortunately, it would take too long for a majority of states to ratify such an amendment. What we can do now, though, said the Congressional scholar Norman Ornstein,... is "ask President Bush to appoint Tim Geithner, Barack Obama's proposed Treasury secretary, immediately." Make him a Bush appointment and let him take over next week. This is not a knock on Hank Paulson. It's simply that we can't afford two months of transition where the markets don't know who is in charge or where we're going. At the same time, Congress should remain in permanent session to pass any needed legislation.

This is the real "Code Red." As one banker remarked to me: "We finally found the W.M.D." They were buried in our own backyard - subprime mortgages and all the derivatives attached to them.

Yet, it is obvious that President Bush can't mobilize the tools to defuse them - a massive stimulus program to improve infrastructure and create jobs, a broad-based homeowner initiative to limit foreclosures and stabilize housing prices, and therefore mortgage assets, more capital for bank balance sheets and, most importantly, a huge injection of optimism and confidence that we can and will pull out of this with a new economic team at the helm.

The last point is something only a new President Obama can inject. ... I have no illusions that Obama's arrival on the scene will be a magic wand, but it would help.

Right now there is something deeply dysfunctional, bordering on scandalously irresponsible, in the fractious way our political elite are behaving - with business as usual in the most unusual economic moment of our lifetimes. They don't seem to understand: Our financial system is imperiled. ... The stock and credit markets ... have started to price financial stocks at Great Depression levels, not just recession levels. With $5, you can now buy one share of Citigroup and have enough left over for a bite at McDonalds.

As a result, Barack Obama is possibly going to have to make the biggest call of his presidency - before it even starts.

"A great judgment has to be made now as to just how big and bad the situation is," says Jeffrey Garten, the Yale School of Management professor of international finance. "This is a crucial judgment. Do we think that a couple of hundred billion more and couple of bad quarters will take care of this problem, or do we think that despite everything that we have done so far ... the bottom is nowhere in sight and we are staring at a deep hole that the entire world could fall into?"

If it's the latter, then we need a huge catalyst of confidence and capital to turn this thing around. Only the new president and his team, synchronizing with the world's other big economies, can provide it.

"The biggest mistake Obama could make," added Garten, "is thinking this problem is smaller than it is. On the other hand, there is far less danger in overestimating what will be necessary to solve it." ...

There are lots of uncertainties right now. For example, very few of the econometric estimates we have cover time periods where the conditions we are seeing today were in effect, so there is uncertainty about the right values to use in calculations concerning the size of the stimulus (will Okun's law still hold if firms have excess capacity allowing them to increase production without adding many new employees?). Many of the estimates are also based upon the assumption that the unemployment rate will reach 3.5% above normal (without intervention), but that number is not known with certainty either. You can use that uncertainty to tell a "maybe it won't be so bad so let's not panic and do a large stimulus" story, but the uncertainty also works in the other direction and things could be worse than expected (or the stimulus less could be less powerful than expected). Since the loss function is asymmetric - doing too little is more costly than doing too much - we need to be sure that the stimulus is large enough to provide some degree of insurance against unexpectedly bad outcomes. And the sooner we do this, the better.

Comments

[ndk]

Okay, I'm going to kick the hornet's nest again. Our policy responses are all wrong, and getting wronger.

1) Massive further borrowing by the Government will not help. We have no shortage of extremely eager borrowers. That's not the issue. We have a shortage of profitable ways to deploy capital at current interest rates. This will just further crowd out private sector borrowers.
2) Our intervention in markets has repeatedly competed with, scared away, or outright burned private capital. See mortgages, bank equity, commercial paper, long-dated sovereign debt through money recycling, etc. Many of these messed themselves up originally, but can you name one we resuscitated?
3) We've filled the Fed's balance sheet with total garbage. The solvency of the central bank does matter. Paying interest on deposits has further decreased seigniorage and made its insolvency deeper.
4) We're determined to keep deeply unprofitable businesses on life support, like GM and much of our financial/RE sector. Remember, unprofitable usually means bad for the economy collectively, and is supposed to be a signal to reallocate people and resources towards something better.
5) The rescuing we've done has not been according to formal criteria, creating appearances of unjust dealings and creating further uncertainty and hesitancy
6) China's bound and determined to protect its export sector, which will just make imbalances worse and force more consumption on to us

Chaining every lifeboat we have to our sinking ships in hopes the collective buoyancy will be enough to save everyone isn't a solution. We should have severed the chains that we were already sailing with -- CDS, I'm looking at you -- and pushed the survivors off towards land.

It's too late now, though. We have this lost, quasi-Keynesian monster staggering around. It's put a lot of trash on the balance sheet of the consolidated governmental sector. Every additional move makes the situation in private markets worse and a default by the government, in some form, considerably more likely.

There. I feel better.

[Lafayette]

Told you so ...

From the NYT (23 Nov.): In light of the downturn, Mr. Obama is also said to be reconsidering a key campaign pledge: his proposal to repeal the Bush tax cuts for the wealthiest Americans. According to several people familiar with the discussions, he might instead let those tax cuts expire as scheduled in 2011, effectively delaying any tax increase while he gives his stimulus plan a chance to work.

Right, because the plutocrats are going to "spend" their tax cuts? (Perhaps buy a new Ferrari, which will really, truly help Detroit?) Whose advising this guy?

Told you so .... the deception has begun already.

[Gegner]

The President elect announced today that he intends pass legislation to create 2.5 million jobs by 2010.

Supposing this 2.5 million has the effect of creating even more jobs, um 2.5 million jobs in an entire year is like dumping a glass of water into the ocean.

It's better than nothing...but not a lot better.

Worse, we have the secondary problem of not knowing for sure just how big the crisis is. Back in the Spring some sources reported that the derivative markets were in the vicinity of 650...trillion, yet lately, the 'domestic' figure being bandied about is merely 10% of that.

While it is true that the US wasn't the only financial system with an 'originate & distribute' model, it seems a bit difficult to believe that we're on the hook for a mere 10% of the total.

Nor am I 'sneezing' at 65 trillion, which is roughly five times our 'current' annual GDP. (Which is likely to be considerably lower next year.)

How high is up is the same thing as asking how big is enormous?

Will the (and again, figures vary) $600 billion 'stimulus package' do the trick?

Naturally, if printing money were the 'solution', Zimbabwe would be the most prosperous nation on the planet.

So I am 'doubtful' that expanding the money supply will have a positive effect upon the economy.

Especially any strategy that adds more cash to where most of it is piled up and 'feeding' the current crisis.

There is no shortage of money, the problem is that most of that money currently in existence isn't 'circulating.

I'd once again opine that this problem does not have a within the box solution that won't tear the fabric of society to shreds.

There are a few outside the box solutions...and some of them are downright frightening!

Which is neither here nor there because none of them are currently on the table...although of you peek to the right you can see a couple of the more dire outcomes lurking in the wings.

Are Mr. Flat Earth's comments a 'coincidence' or do they dovetail with the current president's push at the APEC meeting in Peru today for a 'global free trade agreement'?

[mmckinl]

~The stimulus needs to be large enough, and but fast enough as well. Infrastructure won't do it quickly and the cost per job is high.

Medicare for All would be about 2.1 trillion to start then shrink to about 1.4 trillion after implementation and reforms. The Federal Government already spends 650 billion on the nation's health care.

~ It is far easier to save jobs than it is to create them.

Medicare for All would save jobs immediately as states would see their portions of medical costs go away saving state jobs, medical clinics, highway projects and jobs in education. Any excess could be mandated for pension fund replenishment.

~ How do we get stimulus to those who need it most?

Mediacre for All helps businesses you want to help, those with the most employees per dollar of sales. Medicare for All would help the self insured, the under insured and the uninsured. 50% of all bankruptcies are due to medical bills !

Medicare for All would relieve states, local governments, school districts, companies and individuals of their health care costs, leaving billions exactly where it is needed as local taxes and business income slow appreciably.

It would assure the public that they wouldn't be bankrupt from medical costs, companies better competitive advantage from companies at home and abroad that don't supply coverage and states whereby they could maintain their workforces and fund what are going to be large and on-going unemployment benefits.

Politically impossible ? Maybe ... but there has not been a better time or a better reason.

[esb]

Amusing to see Friedman's flat out panic, as his wife's fortune goes down the drain, where it belongs.

Sorry to play the socialist, but multi-hundred-million dollar personal fortunes simply should not exist while a 9th ward exists,

and those who have (had) them should simply zip up their lips and suffer in private silence rather than playing the fool.

No more Latour '82 for you, Tommy boy.

Not a drop.

[satish]

us is not zimbabwe since zbd will not be able to claim goods and services of other countries. since many countries are pegged or managed against usd. thus lprinting dollars and putting them into consumer pockets will give them power to claim the goods and services in those countries.
thus usa can get goods and services for those free dollars

[a]

""The biggest mistake Obama could make," added Garten, "is thinking this problem is smaller than it is. On the other hand, there is far less danger in overestimating what will be necessary to solve it." ..."

Alway, always ask first the ontological question, "*Is* there a soluton?", rather than thinking there must exist a solution and trying to figure out what it is.

"There are lots of uncertainties right now. For example, very few of the econometric estimates we have cover time periods where the conditions we are seeing today were in effect, so there is uncertainty about the right values to use in calculations concerning the size of the stimulus "

Why just about the right values? Why not whether a stimulus will work at all? The idea that a stimulus will work, is based on a model. If this model has not been tested in the extreme conditions that we are facing, it's just hope and a prayer that it will work.

People often criticized Bush for seats-of-the-pant thinking, rather than basing his policy on evidence. Unfortunately, the same seats-of-the-pant thinking has infiltrated the reasoning of a lot more people than supposed... There is a problem. There must be a solution. Here's a model, which might have worked in less-extreme situations but which has never been tested in circumstances like those today. We can't be sure, but let's hope this model applies. So let's spend lots of money.

I guess I'm a cynic, but I think the conclusion is driving the reasoning. Everyone likes to spend lots of money. The only time anyone likes an economist is when he suggests that it's time to spend lots of money, and then he's given a bear hug.

But if the problem is too much debt, the way out of the problem is not to accumulate even more debt.

[hari]

MT is right - the stimulus has to be significant (cf. China).
Something between 3-5% of GDP is demanded in this gloomy circumstances. Once Summers is appointed, along with Geithner @ Treasury, the game plan will be aggressively revealed, me thinks.

EU-27 is doing same, since every day the situation looks more grim than the day before...So policy coordination is now realistic/desirable to get a greater bang for the (stimulus) dollar and euro and emerging markets ....

Throw all your text books/ideology away! This is going to be a monster deflation of a kind - with global reach. The APEC Peru declaration was unanimous and isolated the financial (fx) constraints to going forward as the central policy issue.

China is leading the way with generous stimulus to domestic consumption and infrastructure investments (medium-long term perspective). Indians are planning same, as inflation no longer a serious policy problem.

[ndk]

The idea that a stimulus will work, is based on a model. If this model has not been tested in the extreme conditions that we are facing, it's just hope and a prayer that it will work.

I'm shocked to see so many people willing to question the orthodox belief that simply having the government throw spending at these problems will make them go away. It's tempting and fun to just throw a lot of big numbers around, but higher real interest rates will only worsen deflation.

Why do so many believe that the Fed can "just print money"? It's such a bloody simplistic viewpoint. On any significant scale, you can repo assets, or you can purchase assets for cash. If the Fed purchases an asset that can default, like, oh, mortgages, credit card receivables or commercial paper, the Fed takes a loss.

It's a real loss. The Fed has a balance sheet too. This loss has to be made up later through higher taxes and a direct infusion of capital by Treasury, or a higher differential between the rate the Fed pays on deposits and the assets it owns. If that differential is negative, and it's profoundly negative right now with T-bills and most of the garbage purchased, then the Fed becomes even more insolvent.

Seriously, is anyone even thinking this through? :P

[Real Person from the Real World]

I like Thomas Friedman. He is a well intentioned guy. But now he is suddenly concerned? In the past, he was a major champion of globalization. Globalization took our manufacturing overseas, and lowered our wages, while the Wall Street crowd gouged us for as much as possible. Low wages and gouging forced people into borrowing against their homes, and the Wall Street crowd then bundled up the debt and sold that for more loot. Bottom line, most of us, except the top 10% or so, have been slowly going down the toilet, and Tom never noticed. He was just so, Gee Whiz! Isn't globalization great! NOW he's worried?

[ken melvin]

Same Tom (gander) who was extolling the virtues long as all fell on the working class (what was the name of that book that was on the best sellers lo these many?). Funny thing about the investment class, but man can the squeal.

[ken melvin]

The use of the figure 2.5 million does not portend well at all; bit unrelated to the size of the problem, i.e., some 15 million are unemployed, 7 million of which are attributable to bush, and 2 million per tear are need to keep up.

[Lafayette]

Beware, beware

Gegner: Supposing this 2.5 million has the effect of creating even more jobs, um 2.5 million jobs in an entire year is like dumping a glass of water into the ocean.

Pissing into the wind is more like it. It often comes back in your face. :^(

Whether he likes it or not, BO has set expectations very high. Like all PotUS candidates, his campaign was long on “Feelin’ Good for Change” and short on specifics. Which is only natural - it’s specifics that can kill a candidacy because of the awful way the paid media-mavens can distort them in a hate campaign.

We can be comforted that BO does not surround himself with ideologues, like Reich or Summer. He seems to be seeking out pragmatists, which is goodness. Pragmatists are good for tweaking an economy for betterment. Visionaries are better at transforming it. Obama is, indeed, no visionary FDR.

We know that the task is Herculean. We know that some of the obstacles are quite likely insurmountable. I see one immediately on the horizon.

It came up on French TV, where a public network interviewed French-speaking Americans regarding the subject of an Obama Administration, with both Dem and Replicant spokesmen. (Yep, all guys, don’t know to where the gals went.)

When the Replicant was asked why Americans cannot envision a Health Care system like that of the French, he boasted that Americans “cannot accept a national health system that is imposed”. I couldn’t believe the twerp; he supposedly lives in France, so he has French Health Insurance. He should know that your choice of GP or Specialist is NOT imposed.

Here we go again … beware, beware - the evil hand of Socialized Medicine is stalking the nation.

[Aunt Deb]

Mr. Friedman got his druthers with Iraq. But somehow that doesn't give him pause. For myself, I don't look to a jumped-up journo-pundit for profound or even useful economic analysis. Let alone 'solutions'.

[Steven Earl Salmony]

Dear Friends,

We are witnessing the evolution of Thomas Friedman. It is a good thing.

I am sure Tom would agree that science is indisputably the finest source for gaining an adequate understanding of the way the world we inhabit actually works and for accurately enough grasping the "placement" of the human species within the order of living things on Earth. But, as others have noted with such clarity and coherence, too many world-class scientists have treated the human overpopulation of Earth as a taboo topic and, even worse, perniciously participated in the politicization of the science of climate change. Barack Obama cannot know whatsoever could somehow be true, in large part, because so many scientists have failed to reasonably assume their responsibilities to science as well as to sensibly fulfill their duties as scientists.

Rather than do what I have been doing over the past 7 years by extolling the virtues of good science, today I am going to try something different.

What follows is a brief artistic expression that is intended to convey a symbolic meaning parallel to but distinct from, and more significant than, the literal meaning.

Please consider an allegory: that a titanic struggle between human beings and the natural world is in the offing. It seems this struggle is fulminating now precisely because too many leaders of the 6.7 billion {soon to be 9+ billion} members of the human family generally do not share the distinctly scientific, evidence-based perspective of many within this community. Many too many of our brothers and sisters, especially those with great wealth and power, pompously and erroneously believe that human organisms are separate from, and somehow superior to, life as we know it on Earth.

At least to me, it appears that an epochal contest is taking shape on the far horizon between the ‘team’ of “mother culture and father profit” on one side and ‘Team’ Mother Nature on the other.

This could be the greatest show on Earth in 10,000 years.

The team of “mother culture and father profit” appears adamant in its willful intentionality to stay the same old business-as-usual course of recklessly overconsuming limited natural resources; relentlessly expanding large-scale production and distribution capabilities without regard to physical limitations of the natural world; and overpopulating our planetary home, come what may for children and coming generations, biodiversity, the environment and the Earth’s body.

Team Mother Nature simply is.

Which team will likely be seen by reasonable and sensible observers as winning the contest for success in 2012, 2020 and 2050, if the human community continues its idolatry of distinctly human overconsumption, overproduction and overpopulation activities by choosing forevermore unbridled overgrowth activities just as we are doing now?

If the leaders of the family of humanity do not choose change, do you have any ideas about which team will prevail and when will the outcome of the colossal contest no longer be in doubt?

Sincerely,

Steve

Steven Earl Salmony
AWAREness Campaign on The Human Population,
established 2001
http://sustainabilityscience.org/content.html?contentid=1176

http://literature.lalisio.com/oai.html?o.0.au=Salmony%2C+Steven+Earl

[Lars]

There certainly are a lot of uncertainties right now, and that seems to be part of the problem. This brings lack of confidence that anyone even knows the scope of the economic problems or a suitable "fix". If the economy is 70% driven by consumers buying stuff (a stat given as fact), and those consumers worried about jobs, housing, failing banks, etc, it is no wonder that consumers cut back spending and add to the "problem".

Watching the near chaos of the FED, Treasury, and Congress desperately throwing money around in hopes that something works is not a scene that inspires confidence.

The country needs a well thought out, rational plan to deal with the economic woes we are facing, if that is even possible without leadership. We need confidence that someone can lead in this effort. There is no evidence that this is going to happen.

[ken melvin]

Non Sequitur

http://wpcomics.washingtonpost.com/client/wpc/nq/

[calmo]

The opening paragraph from Tom shouts the same thing at me as they do at Gegner:Are Mr. Flat Earth's comments a 'coincidence' or do they ...? It is like the failure of the pointing gesture...when the attention is directed to the finger (part of the hand that feeds...part of the arm that smacks us...part of the body that puts the leash on us) instead of the thing pointed to, yes?

Tom mistakes us for dogs:...This financial crisis is so far from over. We are just at the end of the beginning. ... If I had my druthers right now we would convene a special session of Congress, amend the Constitution and move up the inauguration from Jan. 20 to Thanksgiving Day. Forget the inaugural balls; we can't afford them. Forget the grandstands; we don't need them. Just get me a Supreme Court justice and a Bible... Dang.
But we is better than that Mr Friedhound.
The essential difference: we are no longer into Fetch Rover, bud...no, we are into sniffin the grass and mo. [Dang, calmo, these people prolly do not have dogs and have no idea...]
Ok, many good sniffs here beside Gegner...another case of the comments being so mo betta than the article.

[Don Quijote]

I am sure that the economy will turn around in a couple of Friedman Units, so let's stay the course.

[JeffF]

"We Found the W.M.D., by Thomas Friedman"

I don't think Friedman gets to make that joke. Or at least he should be greeted with horrified stares rather than amusement.

[calmo]

He is not that cognizant JeffF.
..lookit that tail: he's an Irish Setter.

[Bruce Wilder]

ndk: "Massive further borrowing by the Government will not help. We have no shortage of extremely eager borrowers. That's not the issue. We have a shortage of profitable ways to deploy capital at current interest rates. This will just further crowd out private sector borrowers."

I actually can think these things thru. And, this paragraph is not all that coherent.

If private borrowers, however eager, do not have profitable ways to deploy capital, then they should be crowded out. Lending money to people to buy houses and to the government to pour into a hole in the desert, is how we got into this mess.

Federal stimulus spending is to be recommended precisely because of high and rising unemployment. Unemployed resources are not being crowded; that's sort of the meaning of unemployed.

And the Federal government, being a government and all, has a different set of investment opportunities from private business. There are lots of public goods and public investment opportunies, which promise considerable net benefits, which would, being public, not be candidates for private investment, because there's no way for a private business without the ability to tax, to capture the return "privately". Again, crowding out is not a problem.

[donna]

When oh when will lil Tommy just shut up?

[mrrunangun]

The Mississippi Company bubble in early 18th century France squandered a large share of the capital stock of the country and crippled its financial system. It failed to recover and the economic consequences of the capital loss arguably caused the revolution of the late 18th century. An important part of any planned stimulus here ought to be that the capital be spent productively whether by the government or by the private world. At present the banks seem to be sterilizing their own rescue package, so it isn't working. They may have capital but it is non-productive. Capital could once have been productively employed in the auto business had it been competently managed, but not now unless demand returns. Ways of productively spending capital must be found or we will just be wasting more of the nation's capital stock in order to stave off the pain a little longer.
The globalization system has allowed Americans to live beyond our means for the past 40 years. If we are to stop living beyond our means, a reduction in customary standards of living will be required even if the stimulus is successful.
China and Japan have sterilized their surpluses with us in order to keep their export industries profitable. If Americans start to import less and produce more here, a sine qua non for recovery here IMHO, those stored surpluses may no longer be available to us on favorable terms once the rationale for sterilization is gone.
Leadership that is honest with the people and calls for shared sacrifice a'la FDR is needed. FDR was not all happy talk and moonshine, unlike our current political leaders. But that is why people had faith in him. BO has avoided moonshine so far, so he is still credible.

[save_the_rustbelt]

FRiedman's ego has gotten so large he is totally insufferable.

While I understand the urge to "do something," I'm not certain there is a lot of direct action that can or will be effective, although I would certainly support anything that pops up in January that makes sense.

[ndk]

Bruce,

I disagree.

Federal stimulus spending is to be recommended precisely because of high and rising unemployment. Unemployed resources are not being crowded; that's sort of the meaning of unemployed.

If we just had humans and factories sitting around as truly fallow resources, and these projects didn't need to pay minimal wages or consume raw materials, sure. But that's not the case.

The government has to compensate these individuals for their employment, and it must buy the resources necessary to complete these projects. To do so, it must borrow from or tax private enterprise, because these projects don't themselves generate profits. If they did, then private enterprise would have built them.

This increases the level of return that all other private enterprise must display in order to move forward with their own projects, because they need to not only support themselves, but they must also fund the cash flow that has been diverted from them to pay for these programs, and compete with these programs for workers and resources.

And the Federal government, being a government and all, has a different set of investment opportunities from private business.

Here, I certainly agree. It's possible to look past the constraints of profitability towards something that is a win on net for the system. That's not surefire, though, and the payoff is not usually in the short term. That's particularly true of infrastructure. We need help now, and instead, this will further burden any nascent recovery.

[Bruce Wilder]

mrrunangun: "If we are to stop living beyond our means, a reduction in customary standards of living will be required even if the stimulus is successful."

Yes. Although I think we could manage that in ways that were less painful.

We could spend a lot less time producing salesmanship, marketing and advertising, and more time on vacation. We could provide less income to CEOs and hedge-fund managers and Wal-Mart heirs, and more to Wal-Mart clerks and Tennessee autoworkers. We could spend a lot less on health care, and get better health care, too.

[roger]

"But if the problem is too much debt, the way out of the problem is not to accumulate even more debt." - mr. a.

This is not an economic principle - but it is a principle of homeopathy. Homeopathy has always enjoyed popularity among the grassroots - it goes back all the way to the Galenic principle of similars. And so it worries about any kind of medicine that seems counter-intuitive - surely a vaccine, which injects a virus in the body, will cause the body to break down? In the Galenic world, the economy is always at a low equilibrium in which growth can be discounted - since it will eventually fail.

Mr. a's dictum isn't true - it doesn't even contain enough information to be trivially true. If the problem is too much debt, the solution could be - less debt, or cutting back on unnecessary expenses, or borrowing money and targeting it for an enterprise that allows one to pay back debt, or none of the above. The debt accumulated from the war in Iraq, for instance, is a dead loss debt. It was expenditure that should never have been made in the first place, and that will pay absolutely no dividends in the future. The debt incurred by say, rescuing the American auto industry is a different kind of debt. When Chrysler was rescued, they paid the money back to the government with interest. If the government lends the automakers money and interferes in their business majorly - which the government should do, conservative howling aside - to make them create very quickly automobile technologies that Americans will have a reason to buy and even prefer - that debt will pay for itself. If, on the other hand, the government goes into debt trying to rescue one Wall Street financial firm after the other, that debt will most probably be like the war in Iraq - until there is a massive nullification of synthetic securities, and a natural shrinking of a sector that boomed on innovating in financial fiction, good money there will follow bad infinitely. Since the Government hasn't even done the reasonable thing that was floated weeks ago, viz, set up an open institution for the trading of all securities and abolishing the OTC peer to peer system, the bailout of Wall Street is well and truly doomed.

As for infrastructure, I would hope the massive borrowing is not to give us the infrastructure of the past, but that it will be integrated to the green tech we need, and that can put life back into the manufacturing sector. And we shouldn't only think of building roads. The government should be aggressive about changing the whole transportation system. We could do things like, for instance, lowering the tax on diesel fuel and encouraging - via government loans, if necessary - the creation of more refinery capacity to make "clean diesel" - such as they have in Europe. That would be a major step towards the 65 mpg car, and Ford is a leader in that technology.

If Obama and the Congress ignore the obsolete ideology that binds government hands, they could do a lot to bring to the surface America's vast latent wealth. We shouldn't be the captives of a false dichotomy between the private and public sector at this time.

[ndk]

Bruce,

We could spend a lot less time producing salesmanship, marketing and advertising, and more time on vacation. We could provide less income to CEOs and hedge-fund managers and Wal-Mart heirs, and more to Wal-Mart clerks and Tennessee autoworkers. We could spend a lot less on health care, and get better health care, too.

I am 100% in favor of squashing rentiers like the bugs they are. It reduces inefficiencies that have arisen, and our health care system is one big, fat inefficiency. That's not fiscal stimulus, though, and it doesn't cost the Government anything except possibly votes.

[KThomas]

Steven Earl Salmony, thanks for the post. Darned if you don't write well, sir, but you put me to sleep.

Thomas Friedman....the enigma, the Great Cheerleader of Globalization...here to save us from ourselves. Still, I partly agree with a few things in his article. He's not a COMPLETE butt-kisser now.

[ndk]

Roger,

If the government lends the automakers money and interferes in their business majorly - which the government should do, conservative howling aside - to make them create very quickly automobile technologies that Americans will have a reason to buy and even prefer - that debt will pay for itself.

Why don't these businesses themselves create automobile technologies that Americans would buy or prefer? What's wrong with them? If these businesses are so fundamentally flawed that they would actively avoid that opportunity, they should fail. Other, better businesses will rise to take their place. If they aren't that deeply flawed, and there is no opportunity to do this, then the government can't arbitrarily create such an opportunity from whole cloth.

[anne]

http://angryarab.blogspot.com/2008/11/president-bushs-addresses-to-american.html

November 23, 2008

"President Bush’s addresses to the American people after 9/11 and the financial meltdown sound like two versions of the same speech. Both times, he evoked the threat to the American way of life and the need for fast and decisive action. Both times, he called for the partial suspension of American values (guarantees to individual freedom, market capitalism) to save those very values. Where does this similarity come from?" *

* Slavoj Žižek - http://www.lrb.co.uk/webonly/14/11/2008/zize01_.html

-- As'ad AbuKhalil

[anne]

http://select.nytimes.com/search/restricted/article?res=F30A13F83B540C778CDDAF0894DB404482

June 4, 2003

Because We Could
By THOMAS L. FRIEDMAN

The failure of the Bush team to produce any weapons of mass destruction (W.M.D.'s) in Iraq is becoming a big, big story. But is it the real story we should be concerned with? No. It was the wrong issue before the war, and it's the wrong issue now.

Why? Because there were actually four reasons for this war: the real reason, the right reason, the moral reason and the stated reason.

The ''real reason'' for this war, which was never stated, was that after 9/11 America needed to hit someone in the Arab-Muslim world. Afghanistan wasn't enough. Because a terrorism bubble had built up over there -- a bubble that posed a real threat to the open societies of the West and needed to be punctured. This terrorism bubble said that plowing airplanes into the World Trade Center was O.K., having Muslim preachers say it was O.K. was O.K., having state-run newspapers call people who did such things ''martyrs'' was O.K. and allowing Muslim charities to raise money for such ''martyrs'' was O.K. Not only was all this seen as O.K., there was a feeling among radical Muslims that suicide bombing would level the balance of power between the Arab world and the West, because we had gone soft and their activists were ready to die.

The only way to puncture that bubble was for American soldiers, men and women, to go into the heart of the Arab-Muslim world, house to house, and make clear that we are ready to kill, and to die, to prevent our open society from being undermined by this terrorism bubble. Smashing Saudi Arabia or Syria would have been fine. But we hit Saddam for one simple reason: because we could, and because he deserved it and because he was right in the heart of that world. And don't believe the nonsense that this had no effect. Every neighboring government -- and 98 percent of terrorism is about what governments let happen -- got the message. If you talk to U.S. soldiers in Iraq they will tell you this is what the war was about.

The ''right reason'' for this war was the need to partner with Iraqis, post-Saddam, to build a progressive Arab regime. Because the real weapons of mass destruction that threaten us were never Saddam's missiles. The real weapons that threaten us are the growing number of angry, humiliated young Arabs and Muslims, who are produced by failed or failing Arab states -- young people who hate America more than they love life. Helping to build a decent Iraq as a model for others and solving the Israeli-Palestinian conflict are the necessary steps for defusing the ideas of mass destruction, which are what really threaten us.

The ''moral reason'' for the war was that Saddam's regime was an engine of mass destruction and genocide that had killed thousands of his own people, and neighbors, and needed to be stopped.

But because the Bush team never dared to spell out the real reason for the war, and (wrongly) felt that it could never win public or world support for the right reasons and the moral reasons, it opted for the ''stated reason'': the notion that Saddam had weapons of mass destruction that posed an immediate threat to America. I argued before the war that Saddam posed no such threat to America, and had no links with Al Qaeda, and that we couldn't take the nation to war ''on the wings of a lie.'' I argued that Mr. Bush should fight this war for the right reasons and the moral reasons. But he stuck with this W.M.D. argument for P.R. reasons.

Once the war was over and I saw the mass graves and the true extent of Saddam's genocidal evil, my view was that Mr. Bush did not need to find any W.M.D.'s to justify the war for me. I still feel that way. But I have to admit that I've always been fighting my own war in Iraq. Mr. Bush took the country into his war. And if it turns out that he fabricated the evidence for his war (which I wouldn't conclude yet), that would badly damage America and be a very serious matter.

But my ultimate point is this: Finding Iraq's W.M.D.'s is necessary to preserve the credibility of the Bush team, the neocons, Tony Blair and the C.I.A. But rebuilding Iraq is necessary to win the war. I won't feel one whit more secure if we find Saddam's W.M.D.'s, because I never felt he would use them on us. But I will feel terribly insecure if we fail to put Iraq onto a progressive path. Because if that doesn't happen, the terrorism bubble will reinflate and bad things will follow. Mr. Bush's credibility rides on finding W.M.D.'s, but America's future, and the future of the Mideast, rides on our building a different Iraq. We must not forget that.

[anne]

No one was more passionately committed to an invasion and occupation of Iraq, no matter the cost, than Thomas Friedman. The point was a war for the sake of remaking the Middle East after the image of a Friedman fantasy, and for that fantasy the suffering has been beyond proper measure and continues apace. At least we should remember, that much we can afford those beyond remembering.

Now having saved Iraq and Afghanistan and Somalia and Pakistan and Iran and Syria and Lebanon and Israel, now to save us all economically.

"Is this a great country, or what?"

[anne]

http://angryarab.blogspot.com/2008/11/for-succinct-wisdom-and-insights-on.html

November 9, 2008

For succinct wisdom and insights on politics, I always turn to Thomas Friedman: "Is this a great country or what?" *

* http://www.nytimes.com/2008/11/09/opinion/09friedman.html

-- Asad AbuKhalil

[halbhh]

The column was interesting more for a "here's where that group is" kinda insight more than anything. There's a group that is just now realizing how feedback loops apply here, and what is a "deflationary spiral", etc. Perhaps they even woke up when Obama just used the term!

[roger]

"Other, better businesses will rise to take their place. If they aren't that deeply flawed, and there is no opportunity to do this, then the government can't arbitrarily create such an opportunity from whole cloth."

No and no. A, the only businesses that will arise will be businesses already in the industry. There is a big barrier to entry in the auto business. If you fail to look at the scope of an industry, you fail to understand the space in which it works, or how it works.

B. the government creates industries out of whole cloth all the time. The radio industry owes its creation to the U.S. navy in 1917. Nuclear power is and always will be utterly dependent on the government for technology, tax breaks, etc. The whole of the economy of the Sunbelt has been dependent for decades on the government luring industries that were founded and resourced elsewhere to site there via tax subsidies and breaks. If you want to see how the sausage is made, look at what Alabama did to lure Toyota and Honda to Alabama. Somehow - this is inexplicable, I know - a separate Alabama auto company didn't spring up to mop up the vast amount of Alabamian know how in the making of automobiles.

What is important at the moment is that the Government has a chance to address a number of problems at the same time with the auto industry - our oil dependence, the oncoming environmental crisis, and the malign politics that have emerged from trying to maintain semi-imperialistic control over the Middle East and its oil wealth. The U.S. can operate like thatcherite U.K., which has no car industry, or like Japan, Germany, France and South Korea, which do. In all of those countries, the government has coddled the industries into existence and is on standby to help them, whether that means tariffs, taking on the cost of research, or whatever.

[Bruce Wilder]

halbhh: "The column was interesting more for a 'here's where that group is' kinda insight more than anything. . . . Perhaps they even woke up when Obama just used the term!"

I think Tom Friedman might have woke up in his 11,000 square foot house in Maryland, to discover that his wife, previously worth $30 million, was now worth $0, due to the disappearance of the family shopping mall fortune, and that experience set his hair on fire. Suck on this, Tom.

[Lafayette]

Commonists

Many too many of our brothers and sisters, especially those with great wealth and power, pompously and erroneously believe that human organisms are separate from, and somehow superior to, life as we know it on Earth.

These are modern day Replicants of the Know-Nothing Party that was fashionable in the 1850s. The members of this party were epileptic over the fact that too, too many Irish Catholics were immigrating to the US and, of course, these people were subservient to the Papists in Rome and therefore "undesirable aliens".

The American south and Midwest are renowned for various herds of such curious animals. Shout "Socialism!" and they usually come out of the woodwork with their arms to defend the nation from the "Commonists".

[ndk]

A, the only businesses that will arise will be businesses already in the industry. There is a big barrier to entry in the auto business. If you fail to look at the scope of an industry, you fail to understand the space in which it works, or how it works.

That's not true. There's no shortage of car companies in this world, and new ones spring up all the time. Tesla Motors was founded just 5 years ago, and now they'll be put at a competitive disadvantage.

B. the government creates industries out of whole cloth all the time. The radio industry owes its creation to the U.S. navy in 1917. Nuclear power is and always will be utterly dependent on the government for technology, tax breaks, etc.

That's not true for radio, and it's not true for nuclear power. I agree that the government can and should operate in basic R&D and national security, where there are no immediate profits to be had but there are real collective benefits.

The whole of the economy of the Sunbelt has been dependent for decades on the government luring industries that were founded and resourced elsewhere to site there via tax subsidies and breaks. If you want to see how the sausage is made, look at what Alabama did to lure Toyota and Honda to Alabama.

Is this a good thing? Why? If we can't competitively produce automobiles, why do we do it at all?

[calmo]

Ok, donna informs me...that he's short.
Had I only known this, I would've stayed with Buiter and could have come up with something somewhat important...but, no...evidence was not presented in a timely manner.

ken in combination with Bruce and Rusty provide us (hunting dogs, really: German short-haired pointers, a beagle, a couple of terriers...not an Irish Setter among us) with a view of Thomas Friedman speaking on behalf of the poodles...like Halbhh says.

[Bruce Wilder]

ndk: "That's not surefire, though, and the payoff is not usually in the short term."

The payoff from an electrical grid, or a highway bridge or a year in Head Start can be a long time coming . . . and coming and coming. Which is a good thing.

But, the waste of unemployment is unrecoverable. If Joe Smith (and one or two million like him) is otherwise going to be unemployed for the next year, then the opportunity cost of employing him doing something worthwhile for the gov't is very low, even if the financial expense appears to be significant.

I am surprised that so few seem to fully grasp the Keynesian diagnosis of the aftermath of a deflationary financial crash, or the full nature of the Keynesian response.

Think about the circular flow that is the economy -- money moving in one direction and goods and services in the other -- in which everyman's spending is another man's income. The "equilibrium" in which a dollar of spending is a dollar of income, and a dollar of savings is a dollar of investment, is a tautology, an accounting convention. But, there's no necessity constraining any actor to spend only income, or all income, or any income, from the current period -- and, therefore, no equilibrating mechanism to keep the circular flow from spiraling downward in a vicious circle, if people suddenly have reason to want to spend less of their current income, and less from their accumulated financial "wealth" (their stock of money, including its extended forms). If spending, in the aggregate declines as a result of coincident mass behavior, as in a panic, the circular flow is less, and some resources, including people, can fall out of the circular flow, where they are not employed in the market economy and have no income; some may not even have much wealth or other claims, and be plunged into severe poverty as well as unemployment. They can not spend, so they provide no one else income; and no one else's spending can provide them income. A vicious circle. And, again, if the fall is large, the lack of strong equilibrating mechanisms (other than government acting as spender and lender of last resort) means that the economy can settle into an equilibrium state with mass unemployment (and suffering and waste). This is bad.

The Keynesian response is a kind of bootstrapping (as in pull yourself up by your bootstraps). The government, acting for the collective mass of people, spends out of income it doesn't have. In circumstances in which there's substantial unemployment, because a vicious spiral downward in the circular flow, spending and borrowing by government is a good thing, regardless of what the government spends the money on. Because it restores the circular flow to balance, to a full-employment equilibrium.

I am not unsympathetic to concern about the implications of the borrowing. We ought to be realistic enough about this, to recognize that it may matter from whom we borrow. Ideally, we would borrow from ourselves, in our own currency exclusively. Borrowing from abroad, in someone else's currency would be a recipe for disaster down the road.

If government were a business, responding to marketplace signals, there would be little ambiguity about the right response. Right now the government can borrow vast amounts at very low rates; there's a huge demand for new issues of government debt, because people all of a sudden want to save, save, save. Right now, the disemployment of hundreds of thousands of construction workers is underway or imminent.

Hello? Borrow for free, giving people the financial securities they want for risk-free savings. Hire unemployed construction workers. Build stuff. What's not to love?

The economy is trying very hard to adjust its flow balances. Resistance is futile, or, at the very least likely to trigger further downward spiraling. The economy wants higher household savings rates. The economy wants more public investment. The economy wants lower capital and business income and higher labor income. The economy wants fewer imports and less borrowing abroad. Give the economy what it wants. Do not resist. Embrace reality and give Keynes a hug.

[roger]

A. , of course it is true for radio - look at this link for the history of the earliest radio broadcasts in the us, sponsored by the agricultural department http://earlyradiohistory.us/sec001.htm and follow the site pages for the involvement of the Navy - and it is too true of nuclear power, a power source created by the U.S., to even argue about.

As for Tesla, are you joking?

Although I'd love to see a micro-car company like Tesla have an impact, still, the big car companies all are heavily reliant on support from their governments. Where, after all, did Toyota, which started out as a textile firm, get the idea to become a car company - from the Japanese Imperial Government, which "urged" it to make trucks for the army. During the twenty postwar years in which Toyota developed its production system, the Japanese government helpfull banned foreign investment in auto companies and raised tariffs to nurture the company - as the U.S. had once done to create a domestic auto manufacturing section. Now, there is something funny about the victory of a company formed by the Imperial Japanese army to make trucks to rampage through Manchuria becoming dear to the heart of America love it or leave it types in Alabama, but such are the ruses of history. Japan did the right thing, and they would undoubtedly do it again and will do it again if their industrial base is threatened. The rumor that the Japanese government contributed to the research that went into the Prius has been vigorously denied by Toyota, but myself - I think that would have been an excellent use of the Japanese tax dollar. Maybe some money seeped in from the 155 billion the Japanese government at least pledged to spend on science R and D in the nineties.

If I wanted to, I could extend the list of U.S. industries - from rails to pharmaceuticals - that received big initial boosts from the government, used government funded research, and in general acted in a level headed, business way about offsetting costs by using government goods and services. Laissez faire has always been a dream - and never a reality.

[ndk]

Hello? Borrow for free, giving people the financial securities they want for risk-free savings. Hire unemployed construction workers. Build stuff. What's not to love?

Bruce, I appreciate your viewpoint based on your premises, but I strongly disagree with those fundamental premises. We're not in a standoff where there are no borrowers. There are many, and they're desperate for capital. They can't borrow because nobody will lend to them. The time value of money and risk premia have severely adjusted. We're in a standoff where there is no capital.

In circumstances in which there's substantial unemployment, because a vicious spiral downward in the circular flow, spending and borrowing by government is a good thing, regardless of what the government spends the money on.

How does governmental borrowing for more projects help a situation where everyone else is starving for capital? From everything I know of economics, it makes it worse. Our entire goal here is to reduce real interest rates.

Ideally, we would borrow from ourselves, in our own currency exclusively. Borrowing from abroad, in someone else's currency would be a recipe for disaster down the road.

I strongly agree, but our national savings rate is 1.3%. Who else do we borrow from?

[Bruce Wilder]

It was only a couple of years ago, that Democrats were worried that Bush's profligacy would leave the next Democratic President fiscally constrained. There would be a war between the Rubins, who wanted to return to Clinton-era earnest budget-balancing, and the Reichs, who wanted to spend, and finance the spending like Republicans.

Well, it looks like Bush has settled that little dispute in Reich's favor.

[ndk]

A. , of course it is true for radio - look at this link for the history of the earliest radio broadcasts in the us, sponsored by the agricultural department http://earlyradiohistory.us/sec001.htm and follow the site pages for the involvement of the Navy

Roger, the only thing that page you linked says about the Navy in 1917 is: "Finally, in April, 1917, with the entrance of the U.S. into World War One, the government, led by the Navy, took over control of all radio communications for the duration of the conflict." The rest is Marconi, as it ought to be.

says...

I agree completely with Friedman. We must freak out, run around like chickens with our heads cut off, amend the constitution, take dramatic, definitive action of epic proportions, and most importantly, lay back, hyperventilating, chest heaving, and enjoy the mack daddy huge injection of optimism and confidence. Good stuff.

[the economic fractalist]

The Time Based Fractal Solution for the Commodity and Equity Asset Low and for the US Debt Instrument and Dollar High Saturation Valuations

The macroeconomic system of total wages, savings, debt, asset valuation, and asset supply is completely mathematical and mechanistic. It produces asset saturation valuation curve data in hourly, weekly, monthly, and yearly units. These data conform to simple fractal patterns which define the complex macroeconomic system as a science just as the simple mathematical laws of gravity describe the relationships of proximal heavily bodies under the influence of unseen but mathematically discernible and consistent fractal energy forces emanating from the mass-energy bodies.

Within any given section of the asset valuation saturation curve, fractal patterns at various time orders are identifiable. This is the nature of fractals. But in order to prospectively and accurately determine the true ongoing asset valuation fractal pattern, the complete curve and the longer, intermediate and shorter fractal patterns must be viewed in totality and with relational consistency. Likewise the short term and long term decay and growth fractal relationships of debt valuations, currency valuations, commodity valuations, and equity valuations and their respective inverse growth and decay fractal relationships must be consistent. The world is at the historical time frame for a nonlinear commodity and equity collapse involving the most invested and monied second fractal asset valuation saturation curve in the history of the world - the terminal portion of the150 year US equity valuation second fractal. Saturated real estate market assets and saturated equity assets and saturated commodity assets rotationally peaked within a 2 and 1/2 year period of each other - limited by ongoing debt, overvaluation, and oversupply of durable goods including housing involving basic commodities. Now a collapsing real economy: diminishing jobs, diminishing total wages, collapsing commodity, equity, and real prices is an exponential feed back system causing more oversupply, less demand, and greater debt default. And because the United States has been such a dominant force in the world's - debt driven, US consumer driven, US financial facilitator industry driven, US low interest rate driven -macroeconomy, the entire world has operated under the umbrella of the United States- dominant long range 150 year second fractal pattern - especially for the last 50 years since the second world war. The first 70-71 year asset valuation growth cycle for the United States began coincidentally with the writing of its constitution and ended in 1858 shortly before the American civil war. Nonlinearity between the 2x and 2.5x time frame characterizes the terminal portion of asset valuation second fractals. Asset nonlinear devolution has been transpiring in earnest for the last two months and will now accelerate percentage wise in a precise and predictable nonlinear fractal pattern. This predictable nonlinearity has the potential for dislocating the entire global macroeconomic, debt obligation, political, social, ownership, and currency systems.

While the qualitative guidance for the rotational collapse of real estate, equities, and commodities has been accurate, the prospective daily quantitative identification for the daily fractal sequence of the collapse has not been. The prior fractal decay estimations included portions of saturation curve and parts of the various asset elements but not all of the assets within the context of intermediate and longer fractal progression and linked in mechanistic optimal lock step with each other. There is now a fractal solution that fits all parameters: debt instrument growth, commodity and equity collapse, and US dollar growth relative to other basket currencies. This fractal solution provides a time table within which the emanating epiphenomena continuous stream of bad news - collapsing banks, corporations. and retailers; exponentially rising unemployment; unbalance-able state budgets, state budget cuts, tuition increases, defaulting local community bonds, defaulting pension plans, collapsing GDP numbers, and finally decreasing Big Mac sales - will occur. As of 22 November 2008, the inverse fractal daily decay growth pattern is prospectively predicted as 33/14 of 83/25 days.

[mrrunangun]

BW,

Agreed that the sacrifices to come must be managed in a better fashion going forward, and that should be accomplished by the incoming administration. The poor cannot bear the financial burden of commercial and industrial reconstruction, the rich will have to supply the capital and accept reasonable returns on it. The financial sector must be made to behave itself. Working people will have to accept a lower standard of living and that will be hard. Improvements in educational attainment will be necessary to restore social mobility, but that will require leadership to convince young people that it is worthwhile. Right now many have no faith in that proposition. Will the leadership be there to say, "We are all in this together and have to work and sacrifice together in order to restore prosperity to our country"? Or will it be a matter of, "Now it's our turn to try reward our constituencies the way the GOP has rewarded its constituencies"? Given the difficult business climate, the latter approach will probably make this a short window of opportunity rather than the realignment of political allegiance that FDR's administration created. The country made immense progress from 1932-68, but not much from 1976-80 or 1992-2000.

[Bruce Wilder]

ndk: ". . . but our national savings rate is 1.3%. Who else do we borrow from?"

I think you're missing the point about that circular flow concept. If you save $50 by buying a U.S. Savings Bond, the U.S. government has borrowed that $50. If we borrow $xx from ourselves, we've also saved $xx. If the gov't spends $50, that $50 gets added to someone's income, so they can "save" the $50.

Fiscal stimulus properly accommodated by the Central Bank is a self-solving problem.

Think about how WWII spending solved the persistent problem of the Great Depression. The government accumulated a staggering national debt, but the government forced people to save, so at the end of the War, a large middle-class had accumulated considerable financial wealth in savings accounts (FDIC-insured, of course) and savings bonds and the like. A massive migration from the farm to the cities had been accomplished.

The economy was well-positioned to enable this middle-class to go out and effectively demand cars, and suburban houses and electrical appliances, and also well-positioned to finance the business investment to supply that demand. That's liquidity in action.

It didn't matter that most of the money the Federal government had spent in WWII was for stuff it blew up.

In our present circumstances, the Federal government could actually spend most of the money on things that might be useful five or ten years from now. But, that payoff is pure bonus. We could accomplish the immediate purpose of Keynesian stimulus by building replicas of the Egyptian pyramids.

[ndk]

I think you're missing the point about that circular flow concept. If you save $50 by buying a U.S. Savings Bond, the U.S. government has borrowed that $50. If we borrow $xx from ourselves, we've also saved $xx. If the gov't spends $50, that $50 gets added to someone's income, so they can "save" the $50.

Fiscal stimulus properly accommodated by the Central Bank is a self-solving problem.

I understand how money used to be created. The world has changed. We've already tried this in the form of allowing the Fed to expand its balance sheet and pay interest on the deposits. Whether the Fed is paying out interest or the Treasury is paying out interest and the Fed is monetizing that is irrelevant.

We've already more than doubled the balance sheet's absolute size, and trashed its quality. Excess reserves are already very high, and banks are now collecting the spread, making the Fed's sheet worse.

Read the Bad luck section in Sims' document. That's what is happening now.

[ECONOMISTA NON GRATA]

Thomas Friedman sounds like he's in PANIC mode and rightfully so. It appears as though the in-law's family malls are imploding faster that you can say, "I'll have another". The little Poodle is scared, mommy's not going to buy him any more Gucci loafers. Awwwww....

Tom's going to have to start to write coherently because he may find that he will have to feed his family on his only source of income, which appears to be bad journalism. No more parties Tom, no more charity gala events. Welcome to the real world Tom....

As for stimulus, anyone that thinks that we can go back to "American Capitalism" as it was two years ago is delusional. So, if your expectations are such, be prepared for anxiety and depression, keep your Valium dry.

Best regards,

Econolicious

[roger]

NDK -

A. “The United States Department of Agriculture also rapidly foresaw radio's possibilities. Beginning in 1900, the department financed some of Reginald Fessenden's early research, until the two sides had a falling-out. But the department continued to work, at times haltingly, to develop radio applications, at first for gathering reports, and then for distributing them over a broad area. The Agriculture Department was responsible for some of the earliest radio broadcasts, including weather reports in 1912, although the first transmissions were in telegraphic code. :
B. : World War I: all amateur and commercial use of radio came to an abrupt halt on April 7, 1917 when, with the entrance of the United States into World War One, most private U.S. radio stations were ordered by the President to either shut down or be taken over by the government, and for the duration of the war it became illegal for private U.S. citizens to even possess an operational radio transmitter or receiver. Radio in the U.S. had become a government monopoly, reserved for the war effort.
C. Post world war I: However, as reviewed in the Attempts to Establish a United States Government Radio Monopoly chapter of Linwood S. Howeth's 1963 History of Communications-Electronics in the United States Navy, during the war the Navy Department plotted to circumvent this, and tried to convert the radio industry into a permanent government monopoly. To this end, the Navy quietly purchased the Federal Telegraph Company stations plus a majority of the Marconi stations located in the United States, meaning that the government now owned most of the U.S. commercial stations. The Navy belatedly reported its actions to the United States Congress, which was not amused. Congress challenged the Navy's purchases, and directed the Department to return the stations to their original owners.

The return of American Marconi's stations restored that company's domination of U.S. radio, which it had held since its 1912 takeover of United Wireless. However, in spite of its name American Marconi's ownership and management was largely British, and, because of national security considerations, the U.S. government -- especially the Navy Department -- wanted to avoid foreign control of U.S. international communications. Led by the Navy's S. C. Hooper and its Director of Naval Communications, W. G. H. Bullard, in mid-1919 the U.S. government applied extensive pressure on American Marconi to sell its operations to a U.S. firm -- at the same time General Electric was convinced to purchase the former American Marconi holdings. (The government selected G.E. because it was a major electrical firm, and it also manufactured the Alexanderson alternator-transmitters which seemed poised to dominate international radio communications. Development of these transmitters dated back to the high-speed alternators G.E. had built for Reginald Fessenden beginning in 1906.)”

This sounds exactly like - the Goverment deciding to take an active part in the manufacture of automobiles. Let's underline the sentence beginning - "The government selected G.E..." Ah, the wonders of laissez faire.

[roger]

ps - you might also want to ask yourself - how did the government end up owning radio space? The answer is that the government took it, under Coolidge, in 1927, with the Dill-White Radio act. One of the funnier causes of the rightwingers at the moment is the fear that the government will re-impress the Fairness doctrine and dear old Rush will be knocked off the air to make way for (gasp!) socialist feminazis. Of course, the air that he is on is policed by the gov, which arrests pirate radio stations. Because, after all, the government does own the airwaves. They took em fair and square.

[ken melvin]

Un chien? I thought getting a turkey, goose and pig in was doing pretty good.

[jm]

http://www.nakedcapitalism.com/2008/11/chinas-smoot-hawley.html

[Lafayette]

The you-know-whats

ndk: That's not true for radio, and it's not true for nuclear power.

It IS true that nuclear is dependent upon state funding to function in Europe. The nuclear stations in the US were built, I suspect, on local entities employing bond sales to fund their projects. So, it comes down to political philosophy. Should the government borrow the money or a private entity? That's the question to be answered, to get funding for nuclear plant production/implementation.

Once again, some think the state should not get involved in such areas, which should be reserved to private enterprise. Of course, that notion was thrown to the wind, after Vice Lead-head paid a campaign chit to BigOil by shutting nuclear out of the game. So, government DOES get involved in such decisions. (Making the wrong ones.)

It doesn't matter, really, how nuclear energy is funded. What is important is to understand that, in the variety of options open in terms of renewable energy and (unless you want a wind-farm whirling away in your backyard), there is not much alternative to nuclear energy for bulk electricity production. Both geothermal and nuclear energy will function 24/24 7/7. No other non-carbon molecule energy source is that continuous in its peak power output -- a key criteria applied to ALL energy generating options.

Geothermal or solar heating works well for suburbia, but large cities, no matter how many solar captors on the roofs, must have another source of electric power.

Most nations are trying to propose reforming energy away from carbon-based sources anyway they can. Italy, which reneged on the opportunity to follow France down the path of nuclear energy, has come around finally -- 45 year later. It will be launching this effort with state funding (to play catch-up as quickly as possible). China is building them in an accelerated program, with the state doing the spending.

Regardless of how it will do it, the US must turn to nuclear energy. And, it should stop dithering about it. Each minute is wasted and leaves us with the Middle East holding tightly Uncle Sam by the you-know-whats.

Energy is the most crucial element, necessary to day-to-day life, of any modern society. Only food is more important ... and what is food if not also an energy source.

[tibmjfac ncifrjap]

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[chihuahua]

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[baseball]

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[baseball]

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[mills]

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