CBO on Stimulus

I am not a huge fan of the stimulus. I think the range of programs is close, but that it should have been much larger. But, here is the CBO on the stimulus multiplier effects.

The output gap is still massive.

Weekend Round-up - Perception Gap

Interesting piece from the New York Times about the recession, and when growth will resume.

Also, WSJ Real Time Economics has some great commentary on Warren Buffett's shareholder meeting this weekend.

Also, Tyler Cowen has a great link to an article mainly about unconventional monetary policy, and Matt Y. debunks bad arguments from the right and the left pretty much on a daily basis.

My own personal take away from the weekend of television and blogs was a clear perception gap in our democracy. It is astounding to me how upper middle class and rich people talk to their audience.

As Matt pointed out David Gregory, Brian Williams and many hosts are talking about tax increases, when 95% of families will being getting tax cuts. I'm no expert, but my guess those 95% are most of their viewers.

Greg Mankiw talked about how difficult it is for economists who decide to do public service, maybe I'm overly sensitive but it does seem that if this idea is onerous - then unemployment must be Armageddon (maybe my lack of family skews this perspective).

It is quite striking to me this idea that despite quantitative knowledge people's perception of the world based on their own situation skews objectivity one way or another. This is the true legacy of the Second Gilded Age and the income inequality that it has left us.

State of the Nation - Final Thoughts

Generally, I thought that the speech hit just the right notes.  Many of these ideas are laid down in the books The Political Mind and The Political Brain, both are worth the time.

As the President executed his political tap dance, he articulated commonsensical policy prescriptions for the problems we face as a nation. Not an easy feat. Health care, Energy Independence, Education, Curing Cancer, and Financial Regulatory Reform; he truly had policy prescriptions that both citizens and policy wonks alike can identify with.

That said, as a nation all short, medium, and long-term challenges and goals are trivial if the financial system it not fixed. On this agenda item I think that the President's words and the Administrations rhetoric have been opaque, weak, and reactive. And the speech had nothing new to offer in that regard.

Honestly, if I had to write a playbook about the first 100 Days of a Presidency it would be pretty close to what the Obama team has done, but this competence to this point has been overshadowed by the incompetence on the banking system front. I hope this is soon to change.

Again, I won't really be around the next week or so, so please read all of these folks to get an idea of what financial system reform is looking like and what it should look like.

News Reports

Stress Test

Housing Sales

Bank Capital

Citigroup - Zombie or Government Entity?
Government - Which Has Not Looked Good

Joint Statement

State of the Nation Address

Bernanke Testimony

Blogosphere - Where The Debate Has Been Smart and Lively

Calculated Risk (read everything yesterday and today)

Krugman (read it all)

Yves Smith (is on top of the debate)

WSJ Real-Time Economics (they talk to more reputable economists than anyone)

State of The Nation Address - Live Blog (from last night)

9:31 - Pretty sure the President just proposed nationalization or private banking with public control

9:32 - CEO Bashing

9:33 - TARP has been run poorly. We need to solve the problem.

9:34 - We will do whatever it takes to fix the financial system. It is not about helping banks, its about helping people.

9:35 - We need to reform the financial system

9:36 - But lets look long-term .... health-care, energy, eduction....Budget is a Blue-print for the America I want to see.

9:37 - History says Reagan and Greenspan were wrong.

9:38 - G.I. Bill was a engine of growth.

9:40 - America needs to lead in battery and alternative technology.

9:41 - I want a climate change bill.

9:42 - We want and auto industry that is retooled and imagines the technology of tomorrow

9:43 - Health care is an economic problem for individuals, small businesses, and corporations

9:44 - (The Speaker was pumped) about SCHIP

9:45 - (I'm sorry but what doesn't this guy think he can do?) He just said we are going to cure cancer. And that we want preventive health care and coverage for all. 

Away

I have some things coming up so I won't be posting the next week or so. I am trying to stay on top of the nationalization story as closely as possible so I will stop in if possible to throw up updates and details on nationalization. Here are a few links.

http://woodwardhall.wordpress.com/2009/02/23/the-right-way-to-create-a-good-bank-and-a-bad-bank/

http://blogs.wsj.com/economics/2009/02/20/lessons-from-swedens-bank-nationalization/

http://taxprof.typepad.com/taxprof_blog/

Watch Out!!

Nearly, four years from the next election, I can already tell you who Democrats should be scared of. And he is from Utah. Utah you say? Yes, Utah. Thanks to Nate Silver for the initial read on Gov. Huntsman.

Barack Obama is the best political talent I have seen in a generation, but this guy, Gov. Huntsman may end up being his kryptonite. Check out this flawless Politico interview.

I will tell you right now, he wins the Republican primary with his eyes closed, if he is just a little smart and charismatic (and he seems to have plenty of both). The right may be mobilized in four years, but the country is moving to the center demographically. This combined with the fact that Moderate Democrats and Independents will not have a Democratic primary to vote it. Their participation drives up turnout and Huntsman wins the Republican primary in about two weeks time in 2012.

Right now nothing is clear, but Stanford and Jindal are fighting for the support of the far Right, and this will wind up being a mistake. This will concede the entire middle to Huntsman.

In January 2007, I predicted an Obama/McCain general election with an Obama win. I know because the person I bet took Clinton/Romney. Based on this its difficult to predict future trajectory, especially because the economic recovery is still in question and moves so rapidly. It was not until Katrina that President Bush's public stock took a turn down, then the second leg of the chair fell when the violence accelerated to historically terrible levels in the Summer of 2006.

For the current President the Summer of 2010 and the November 2010 election will set the stage for 2012, of course their could be curve balls after that just like the Lehman Failure and the bailout like this past election cycle.

The saddest part of this narrative is that legislating will come to a stand still after about March 2010.

The smart money is still on Obama for 2012 because the economy will probably be back to full-employment, but Gov. Huntsman could make a compelling case in 2012.

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.