Monday, February 23, 2009

Insightful Graph

New Deal Deficit

This is a graph from Matt Y. I show this graph for a few reasons. One, it should show that spending during the early years of the New Deal was inadequate to "Jolt" the economy out of the Depression.

WWII - Quite a Public Works Project

Two, the public works project called WWII (Paul Krugman's phrase) was what got us out of the Depression. We can haggle about the details, but generally it was massive deficit spending and the huge inflow of capital to the United States to finance public and private investment (because we were the only safe place in the World).

Ideology - Did It Explode the Deficit?

Three, every Post-war President basically up until Vietnam (LBJ was half/half) was pretty fiscally responsible. It wasn't until Ronald Reagan and his economic theology came into vogue that we started to see the deficit explode. Then, Bill Clinton reduced the deficit significantly with wildly unpopular tax increases. Followed by President Bush who, as a tax cut zealot, tried his hardest to erase the deficit reduction.

Room to Run

Four, in the short-term we need to fix the banking system at any cost. This means swift bold action. Nationalize a few money center banks. Break them up into parts. Clean them up. And sell them off. The government might need to take another $500 billion or $1 trillion in losses cleaning up the mess, but the faster they do it and the bolder the housing plan the more they can mitigate such losses. Also, the whole capacity issue with the FDIC is silly. Bring in outside help, hire 15,000 workers, do whatever is necessary. This is like a non-issue issue because its expense is so inconsequential relative to the size of the banking problem (this is not to ignore the obvious time issue of training and HR which I am sure it the real problem).

Conclusion

In all seriousness, I believe in these arguments. One can disagree with my wit or approach, but by and large the facts don't lie. There is most certainly a little more nuance than I have time to address, but generally these are simple macro arguments that I do not see at the highest levels of government. Hopefully, they are going on behind closed doors - it doesn't like that way, but looks may be deceiving.

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