links for 2009-01-06

• Mr. Amazon's Bookshop - Whimsley
• Where Is Our Ferdinand Pecora? (on "Banksters") - NYTimes.com
• Stimulate the Economy by Mending Our Safety Nets - Robert Reich
• Fed Focuses on Consumer, Corporate Rate Spreads - Bloomberg
• Again, the importance of what they will actually do - Richard H. Serlin
• Can nature's leading indicators presage environmental disaster? - EurekAlert
• Tackling climate change with new permits to pollute - EurekAlert
• How should governments finance the demographic shift? - voxeu.org
• Hard-Hit Families Finally Start Saving, Aggravating Economic Woes - WSJ.com
• What Precipitated the Stock Market Crash of 2008? - The Balance Sheet
• Obama Goes For Tax Cuts - pgl
• Current Fiscal Policy vs. Future Monetary Policy: Price-level Path Targeting - Nick Rowe

Comments

[anne]

http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/

January 6, 2009

Stimulus Arithmetic (Wonkish But Important)
By Paul Krugman

Bit by bit we’re getting information on the Obama stimulus plan, enough to start making back-of-the-envelope estimates of impact. The bottom line is this: we’re probably looking at a plan that will shave less than 2 percentage points off the average unemployment rate for the next two years, and possibly quite a lot less. This raises real concerns about whether the incoming administration is lowballing its plans in an attempt to get bipartisan consensus.

In the extended entry, a look at my calculations.

The starting point for this discussion is Okun’s Law, the relationship between changes in real GDP and changes in the unemployment rate. Estimates of the Okun’s Law coefficient range from 2 to 3. I’ll use 2, which is an optimistic estimate for current purposes: it says that you have to raise real GDP by 2 percent from what it would otherwise have been to reduce the unemployment rate 1 percentage point from what it would otherwise have been. Since GDP is roughly $15 trillion, this means that you have to raise GDP by $300 billion per year to reduce unemployment by 1 percentage point.

Now, what we’re hearing about the Obama plan is that it calls for $775 billion over two years, with $300 billion in tax cuts and the rest in spending. Call that $150 billion per year in tax cuts, $240 billion each year in spending.

How much do tax cuts and spending raise GDP? The widely cited estimates of Mark Zandi of Economy.com indicate a multiplier of around 1.5 for spending, with widely varying estimates for tax cuts. Payroll tax cuts, which make up about half the Obama proposal, are pretty good, with a multiplier of 1.29; business tax cuts, which make up the rest, are much less effective.

In particular, letting businesses get refunds on past taxes based on current losses, which is reportedly a key feature of the plan, looks an awful lot like a lump-sum transfer with no incentive effects.

Let’s be generous and assume that the overall multiplier on tax cuts is 1. Then the per-year effect of the plan on GDP is 150 x 1 + 240 x 1.5 = $510 billion. Since it takes $300 billion to reduce the unemployment rate by 1 percentage point, this is shaving 1.7 points off what unemployment would otherwise have been.

Finally, compare this with the economic outlook. “Full employment” clearly means an unemployment rate near 5 — the CBO says 5.2 for the NAIRU, ** which seems high to me. Unemployment is currently about 7 percent, and heading much higher; Obama himself says that absent stimulus it could go into double digits. Suppose that we’re looking at an economy that, absent stimulus, would have an average unemployment rate of 9 percent over the next two years; this plan would cut that to 7.3 percent, which would be a help but could easily be spun by critics as a failure.

And that gets us to politics. This really does look like a plan that falls well short of what advocates of strong stimulus were hoping for — and it seems as if that was done in order to win Republican votes. Yet even if the plan gets the hoped-for 80 votes in the Senate, which seems doubtful, responsibility for the plan’s perceived failure, if it’s spun that way, will be placed on Democrats.

I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

Let’s hope I’ve got this wrong.

* http://www.economy.com/mark-zandi/documents/Small%20Business_7_24_08.pdf

** Non-Accelerating Inflation Rate of Unemployment

[anne]

I have learned to take Obama entirely seriously, and as a result have been worried about the repeated approach to job creation of initially 2.5 and now 3 million jobs over 2 years, when simply keeping up with expansion of the labor force through population growth should mean creation of 140,000 jobs a month or 3.36 million over 2 years.

But we have lost 2 million jobs since January 2008, with more to come, and the Bush years have been startling in failure to create jobs. The Bush years have accounted for 38,800 jobs created monthly or 3.7 million in 95 months, when 13.4 million jobs should have been created to keep up with labor force growth.

[anne]

We are running 9.7 million too few jobs created through the last 95 months, and the number will become more ominous in coming months before any stimulus takes effect.

http://www.bls.gov/webapps/legacy/cesbtab1.htm

The Bush experience in monthly job creation has been,

38,800 x 95 months = 3.7 million jobs created in all so far;

the Clinton experience was,

240,300 x 95 = 22.8 million jobs created in an equivalent time or 23.1 million jobs created in 96 months;

enough job creation to keep up with civilian work force growth would have meant,

140,600 x 95 = 13.4 million jobs created so far or 13.5 million jobs created in 96 months.

[anne]

http://krugman.blogs.nytimes.com/2009/01/06/forecasts/

January 6, 2009

Forecasts
By Paul Krugman

A bit more information to go with my post on stimulus: * forecasters surveyed by the WSJ ** predict, on average, that unemployment will reach 8.1 percent by end 2009 and peak at 8.4% — that is, it will keep rising into 2010. That’s a forecast of what will happen with the stimulus plan, not of what would happen absent stimulus, which would presumably be considerably worse.

Two points: 1. This suggests that the consensus is at least as grim as the scenario I laid out 2. This looks to me like an economy that could easily be spun by conservatives as a failure of Obama’s policies.

* http://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/

** http://online.wsj.com/public/resources/documents/info-flash08.html?project=EFORECAST07

[anne]

http://www.nytimes.com/2009/01/07/world/middleeast/07mideast.html

January 7, 2009

Israeli Strike Reportedly Hit United Nations School in Gaza
By ISABEL KERSHNER and TAGHREED EL-KHODARY

Scores were reported killed after shells hit the school, and Israeli troops were said to be moving toward the south of Gaza on Tuesday.

[Collateral damage is the horrid term, school kids being entirely collateral.]

[anne]

Interestingly enough, there was gloating by foreign policy analysts that Jimmy Carter, who for years has tried to highlight the problems in the Gaza, was not allowed to speak at the Democratic Convention. As though Carter, working for peace, or Desmond Tutu working similarly for peace even in the Gaza, for the matter, were somehow an embarrassment to Democrats who are forever afraid of not being as tough as Republicans.

The voices of Carter and Tutu were not heard when so necessary, are not heard now, and Democratic leaders are not heard now demanding peace in the Gaza. Barack Obama surely need not worry from here about being found too dovish.

says...

Nick Rowe..."...this will cause current real interest rates to be minus 10%..."

I'm mystified as to who Nick thinks will loan under these terms.

says...

Torben M. Andersen..."Raising retirement ages..."

Now the diabolical plan comes to fruition. Inflation made the majority totally dependent upon Social Security (inflating away savings and corporate pensions), and then the age is raised beyond the ability of the elderly to do heavy lifting jobs.

says...

WSJ..."U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008."

US citizens didn't repay loans to foreigners, so the foreigners stopped lending to them. This is not quite the same thing as buying more capital goods, which is not happening either because foreigners also stopped lending to private businesses.

The old economy was based upon loaning ever more to people who don't repay (outright default or inflate it away). What were they thinking?

says...

WSJ..."U.S. household debt, which has been growing steadily since the Federal Reserve began tracking it in 1952, declined for the first time in the third quarter of 2008."

US citizens didn't repay loans to foreigners, so the foreigners stopped lending to them. This is not quite the same thing as buying more capital goods, which is not happening either because foreigners also stopped lending to private businesses.

The old economy was based upon loaning ever more to people who don't repay (outright default or inflate it away). What were they thinking?

[anne]

http://thecaucus.blogs.nytimes.com/2009/01/06/obama-warns-of-trillion-dollar-deficits/

January 6, 2009

Obama Warns of ‘Trillion-Dollar Deficits’
By JEFF ZELENY

Meeting with his economic team in Washington on Tuesday, Barack Obama warned that the country faced the prospect of “trillion-dollar deficits for years to come.”

[Thanks.]

[anne]

http://www.nytimes.com/2009/01/07/business/economy/07fed.html

January 7, 2009

In Fed’s Decision to Slash Rates, Fears of a Long Recession
By JACK HEALY

Meeting last month, Fed officials worried that even a dramatic cut in interest rates would not be enough to cauterize the country’s economic troubles quickly.

[anne]

http://www.democracynow.org/2009/1/6/headlines#7

January 6, 2009

Obama Defers to Bush on Gaza Crisis
By Amy Goodman

On Monday, President-elect Barack Obama made his first comment about the situation in Gaza—ten days after Israel’s attacks began. Obama said he would not interfere in “delicate negotiations” by the outgoing Bush administration.

“Obviously, international affairs are of deep concern. With the situation in Gaza, I’ve been getting briefed every day. I’ve had consistent conversations with members of the current administration about what’s taking place. That will continue. I will continue to insist that when it comes to foreign affairs, it is particularly important to adhere to the principle of one president at a time, because there are delicate negotiations taking place right now, and we can’t have two voices coming out of the United States when you have so much at stake.”

[anne]

http://angryarab.blogspot.com/2009/01/i-stand-corrected.html

January 6, 2009

I stand corrected

I was certain that Obama would disappoint once he becomes president. I did not know that he will succeed in disappointing before assuming the presidency.

-- As'ad AbuKhalil

[Nick Rowe]

says...

'Nick Rowe..."...this will cause current real interest rates to be minus 10%..."

I'm mystified as to who Nick thinks will loan under these terms.'

Nobody (or almost nobody). That's the point. Everybody will want to spend, and nobody will want to lend. That's how we increase aggregate demand and escape the liquidity trap.

[anne]

Nick Rowe:

"Everybody will want to spend, and nobody will want to lend. That's how we increase aggregate demand and escape the liquidity trap."

Paul Krugman recommended the Japanese central bank create an expectation of inflation to break from the liquidity trap in the 1990s, but the Japanese bank would not and could not do so politically and I do not believe any central bank could do so though the idea is workable.

[anne]

Here is what the Federal Reserve has done, however:

http://www.economagic.com/em-cgi/data.exe/fedstl/ambns+1

December 18, 2008

Monetary Base, 2004-2008

Year - Month - Percent Change Year Over Year

(Billions of dollars)

2008 01 ( 0.9)
2008 02 ( 1.1)
2008 03 ( 1.5) Bear Stearns collapse
2008 04 ( 0.7)
2008 05 ( 1.2)
2008 06 ( 1.4)
2008 07 ( 2.2)
2008 08 ( 2.1)
2008 09 ( 9.9) Lehman Brothers collapse
2008 10 (33.4)
2008 11 (72.7)
2008 12 (97.0)

[anne]

During the Depression, the Federal Reserve only increased the monetary base in dramatic fashion during the 2nd and 3rd bank panics of 1931 and 1933, after failing to respond to the 1st panic in 1930. The monetary base was continually increased year to year but not dramatically so till 1939.

[anne]

Correcting:

During the Depression, the Federal Reserve only increased the monetary base in dramatic fashion during the 2nd and 3rd bank panics of 1931 and 1933, after failing to respond to the 1st panic in 1930. The monetary base was continually increased year to year from 1929, but not dramatically so till [April 1934].

[anne]

http://www.economagic.com/em-cgi/data.exe/fedstl/ambns+1

December 18, 2008

Monetary Base, 1925-1945

The monetary base shrunk in every month (year over year) from March 1928 through June 1929, then the monetary base shrunk in every month from December 1929 through December 1930. The base grew every month from January 1931 through January 1937, then the base shrunk again from February 1937 through March 1938, and grew from April 1938 through October 1941.

Year - Month - Percent Change Year Over Year

(Billions of dollars)

1928 03 (- 0.3)
1928 04 (- 0.0)
1928 05 (- 0.2)
1928 06 (- 0.6)
1928 07 (- 1.0)
1928 08 (- 1.7)
1928 09 (- 1.4)
1928 10 (- 1.3)
1928 11 (- 1.4)
1928 12 (- 1.0)

1929 01 (- 1.1)
1929 02 (- 0.5)
1929 03 (- 0.4) Hoover
1929 04 (- 2.0)
1929 05 (- 1.9)
1929 06 (- 1.3)
1929 07 ( 0.4)
1929 08 ( 1.2)
1929 09 ( 0.4)
1929 10 ( 0.4)
1929 11 ( 2.2)
1929 12 (- 0.5)

1930 01 (- 2.0)
1930 02 (- 2.7)
1930 03 (- 2.7)
1930 04 (- 1.8)
1930 05 (- 1.9)
1930 06 (- 1.8)
1930 07 (- 2.9)
1930 08 (- 3.4)
1930 09 (- 3.7)
1930 10 (- 4.2)
1930 11 (- 5.7)
1930 12 (- 1.4)

1931 01 ( 1.9)
1931 02 ( 1.6)
1931 03 ( 1.7)
1931 04 ( 2.3)
1931 05 ( 3.2)
1931 06 ( 4.1)
1931 07 ( 5.2)
1931 08 ( 6.4)
1931 09 ( 8.7)
1931 10 (12.5)
1931 11 (10.1)
1931 12 ( 6.4)

1932 01 ( 7.2)
1932 02 ( 8.5)
1932 03 ( 6.8)
1932 04 ( 6.3)
1932 05 ( 7.8)
1932 06 ( 6.4)
1932 07 ( 7.3)
1932 08 ( 7.1)
1932 09 ( 5.6)
1932 10 ( 2.9)
1932 11 ( 5.2)
1932 12 ( 6.1)

1933 01 ( 7.1)
1933 02 ( 9.0)
1933 03 (20.7) Roosevelt
1933 04 (10.8)
1933 05 ( 5.6)
1933 06 ( 4.9)
1933 07 ( 2.5)
1933 08 ( 2.7)
1933 09 ( 3.4)
1933 10 ( 3.9)
1933 11 ( 3.7)
1933 12 ( 3.7)

1934 01 ( 3.6)
1934 02 ( 3.4)
1934 03 ( 1.2)
1934 04 (12.9)
1934 05 (17.3)
1934 06 (19.1)
1934 07 (21.2)
1934 08 (22.0)
1934 09 (19.7)
1934 10 (18.6)
1934 11 (19.6)
1934 12 (18.1)

1935 01 (19.9)
1935 02 (23.0)
1935 03 (13.7)
1935 04 (10.9)
1935 05 (13.7)
1935 06 (15.0)
1935 07 (13.5)
1935 08 (15.3)
1935 09 (16.6)
1935 10 (18.8)
1935 11 (20.5)
1935 12 (21.2)

1936 01 (18.5)
1936 02 (15.8)
1936 03 (13.9)
1936 04 (13.0)
1936 05 (12.7)
1936 06 (10.3)
1936 07 (15.0)
1936 08 ( 7.4)
1936 09 ( 1.9)
1936 10 ( 2.0)
1936 11 ( 1.2)
1936 12 ( 0.9)

1937 01 ( 0.3)

[anne]

http://www.nytimes.com/2009/01/07/world/middleeast/07diplo.html?ref=world

January 7, 2009

Rice Heads to U.N. for Talks on Gaza Cease-Fire
By MARK LANDLER

The U.S. is backing a cease-fire based on three pillars: ending the rocket attacks; opening border crossings into Gaza; and dealing with arms smuggling in border tunnels.

[And the dead shall be dead no more.]

[anne]

http://krugman.blogs.nytimes.com/2009/01/06/the-trouble-with-sanjay-gupta/

January 6, 2009

The Trouble With Sanjay Gupta

So apparently Obama plans to appoint CNN's Sanjay Gupta * as Surgeon General. I don't have a problem with Gupta's qualifications. But I do remember his mugging ** of Michael Moore over Sicko. You don't have to like Moore or his film; but Gupta specifically claimed that Moore "fudged his facts", when the truth was that on every one of the allegedly fudged facts, Moore was actually right and CNN was wrong.

What bothered me about the incident was that it was what Digby would call Village behavior: Moore is an outsider, he's uncouth, so he gets smeared as unreliable even though he actually got it right. It's sort of a minor-league version of the way people who pointed out in real time that Bush was misleading us into war are to this day considered less "serious" than people who waited until it was fashionable to reach that conclusion. And appointing Gupta now, although it's a small thing, is just another example of the lack of accountability that always seems to be the rule when you get things wrong in a socially acceptable way.

* http://voices.washingtonpost.com/the-trail/2009/01/06/obama_wants_journalist_for_sur.html

** http://www.usatoday.com/life/people/2007-07-16-sicko-CNN_N.htm

[The trouble with Barack Obama....]

[anne]

What has been happening in the Gaza is tragedy on tragedy, and for George Bush and Barack Obama to have allowed these days of war is beyond any excusing, with Bush even responsible for blocking a United Nations attempt to call for a ceasefire while the silence of Obama is simply agreement with Bush and agreement with war no matter any attempt to claim differently.

There should have been calls for peace before the Gaza attacks began because there was no question the attacks were coming, and as the attacks began the impossible tragedy should have been immediately evident to any political leader or foreign policy analyst. And there were voices, and the voices supported war.

[anne]

http://angryarab.blogspot.com/2009/01/ethan-bronner.html

January 6, 2009

Ethan Bronner

I am glad that Ethan Bronner said today: "Israel said it had hit some civilian targets because they housed rockets, launchers or militants. It offered limited evidence of its claim." * But when he refers to the Israeli terrorist war on Gaza as: "On the 10th day of Israel’s war on the Islamist rulers of Gaza..." Does he mean that the children who are being killed are also part of the Islamist rulers of Gaza? We need to know.

* http://www.nytimes.com/2009/01/06/world/middleeast/06mideast.html

-- As'ad AbuKhalil

[im1dc]

A heads up.

Gary Shilling's 2009 Predictions: We're Still Screwed

Henry Blodget | Jan 6, 09 3:58 PM

Last year, economist Gary Shilling humiliated the rest of the economic forecasting industry by going 13 for 13.

As promised, here are Gary's predictions for this year:

1. Sell homebuilder stocks and bonds.

2. If you plan to sell your house, second home or investment houses anytime soon, do so yesterday.

3. Sell some housing-related stocks.

4. Sell some consumer discretionary spending companies.

5. Sell most commercial real estate.

6. Sell some commodities.

7. Sell emerging market equities.

8. Sell emerging market debt.

9. Buy the dollar.

10. Sell stocks in general. (S&P 500 to 600)

11. Sell consumer lenders’ equities.

12. Buy, carefully, high-grade bonds.

[halbhh]

Lehman collapse...

Lehman collapse....

"let Lehman fail", etc., etc., etc.

The reason this part of the story matters, at least from the perspective of the stock market, is that even after Lehman Brothers failed (provoking the crisis that Paulson and Bernanke were talking about) stocks initially held up pretty well. While they tumbled right after Lehman failed, the talk of a rescue plan seemed to reassure investors, to the point that the day before the first vote in the House was taken, the S. & P. 500 was only slightly below where it had been before Lehman went under, at around 1213. It was only after Congress failed to pass the bill that the market went into free-fall, tumbling twenty-five per cent in the next ten trading days.

from The New Yorker from the link in the list "What....market crash of 2008"