jump to navigation

Befuddlement Over Reactions to TARP October 6, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
Tags: ,
add a comment

It is a matter of enduring befuddlement why TARP, the legislation that rescued the banks and other financial institutions, remains unpopular.

Although it is appropriate to question the fairness of a program that rescued wealthy bankers and not homeowners, nevertheless the TARP programs were largely successful in accomplishing their task without very little costs to taxpayers.

Even as voters rage and candidates put up ads against government bailouts, the reviled mother of them all — the $700 billion lifeline to banks, insurance and auto companies — will expire after Sunday at a fraction of that cost, and could conceivably earn taxpayers a profit.

A final accounting of the government’s full range of interventions in the economy, including the bailouts of the mortgage finance giants Fannie Mae and Freddie Mac, is years off and will most likely remain controversial and potentially costly.

But the once-unthinkable possibility that the $700 billion Troubled Asset Relief Program could end up costing far less, or even nothing, became more likely on Thursday with the news that the government had negotiated a plan with the American International Group to begin repaying taxpayers.

Two years ago, many assumed that the hundreds of millions of dollars authorized to be spent to rescue Wall St. would disappear. But now it appears likely that the whole program will cost nothing and the public may actually make money on it.

Of course, we almost certainly won’t hear anyone from the administration boasting about these encouraging results, because public revulsion for TARP is unrivaled in our discourse. Indeed, the word “bailout” has managed to become synonymous with “evil,” so much so that nearly every policy debate involves participants trying to figure out a way to characterize the other side’s position as a “bailout” to someone.

Brian A. Bethune, the chief financial economist in the United States for IHS/Global Insight, called the program over all “a tremendous success.” Another industry insider said that TARP “is the best federal program of any real size to be despised by the public like this.”

It is estimated that letting the banks fail would have increased unemployment to at least 16% if not more.

As Matt Yglesias wrote:

Do you think letting the banks fail would have had zero disruptive impact on the economy? None whatsoever? What other programs can you name that garnered support from Nancy Pelosi and George W Bush, helped people millions of people, and had a negative cost to the government? And yet people think it’s horrible, in part because the public sphere has utterly failed to defend it.

That’s a problem, in part because the early days of TARP were a huge success for the public sphere…. It became a lost opportunity for ideological instruction. Instead it’s become a moment of anti-instruction, which people think has demonstrated the lesson that the government consists of nothing but corrupt giveaways. It makes me sad. When it was first proposed, I didn’t understand this issue correctly. But in the ensuing two years, I’ve learned more about it and improved my understanding. The public as a whole, however, as just gotten itself more confused.

It doesn’t take much to get the public confused these days.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com


Impeccable Logic September 2, 2010

Posted by Dwight Furrow in politics, Uncategorized.
Tags: ,
1 comment so far

One of the main talking points of Republicans in this election year is that the stimulus didn’t work to generate jobs so we have to go back to conservative, supply-side  economics—cutting taxes for the wealthy and eliminating regulations on business.

In fact, Carly Fiorina made this argument in her debate with Senator Boxer on Wednesday.

But this argument makes no sense. Here is Steve Benen’s explanation of why its nonsense—his logic is impeccable.

“…in early 2009 there were basically four main approaches.

(1) Pass a massive, ambitious economic stimulus.

(2) Pass a trimmed down economic stimulus that could overcome a Republican filibuster.

(3) Do nothing.

(4) Pass a five-year spending freeze proposed by confused congressional Republicans at the time.

With the benefit of hindsight, we can safely say that (1) was the best option, but we ended up with (2). The policy was effective and worked as it was intended, but it was too small to generate a robust, sustained recovery.

But let’s be clear about this — the shortcomings of (2) doesn’t discredit (1). That’s actually backwards. For that matter, those who thought (4) was just a terrific idea — i.e., almost every single Republican serving in the United States Congress — aren’t in a position to complain about (2), since (2) was an infinitely superior approach to (3) and (4).

Some folks, at this point, get to say, “I told you so.” Every Republican critic of the stimulus isn’t in this group.

You see. This is not really that hard to figure out.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

A Good Idea, But… August 30, 2010

Posted by Dwight Furrow in Uncategorized.
Tags: ,
add a comment

Democrats and Republicans have competing views on how to end this recession. Democrats want more stimulus and government spending to increase demand for goods and services; Republicans want to cut taxes to encourage more spending on consumer goods.

But there is reason to think neither strategy will work.

Over the past 30 years, consumers have been spending more by going into debt assuming that increased value of assets such as homes will keep them solvent. But that created artificially high prices, especially in real estate and real estate-backed securities, that collapsed when the financial crisis hit. Thus, there has been a massive loss of wealth since the beginning of the recession which makes it harder for people and businesses to borrow money and makes it harder to service the debt they have already incurred. Until the level of debt held by individuals is brought into line with current income levels, spending will be sluggish no matter what the government does. According to  some economists, it may take 10 years to work of the excess debt in the economy.

So what to do about the recession? William Galston has the right idea:

A different era … How long will it take our policy makers and political parties to absorb the implications of that stark, undeniable phrase? When they do, they will realize that we have only two strategic options: Either we accept years of sluggish growth and high unemployment, or we shift to a new model that mobilizes the record level of private capital now sitting on the sidelines for public investments that will boost economic activity and employment in the short term, and economic productivity and growth in the long term, while generating rates of return sufficient to interest investors.

This is why we need a national infrastructure bank as the linchpin of a public investment strategy driven by economic analysis rather than congressional politics. Rather than bridges to nowhere, we need a bridge to the future. It’s time for hide-bound appropriators to get out of the way.

Our nation’s infrastructure is old and deteriorating. Now is the time to mobilize capital to rebuild it and put people back to work as well.

But what Galston fails to mention is that conservatives are likely to see a government supported infrastructure bank as more “socialism” since the idea is coming from Democrats.

Why would they be more welcoming toward this idea that any of the others Democrats have floated?

The problem is not a lack of ideas; the problem is Republican intransigence fed by public ignorance.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

Lessons Unlearned August 23, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
Tags: ,
add a comment

Economics professor Teresa Ghilarducci reports:

The shocking story in this week’s Financial Times had this lead: “Call center workers are becoming as cheap to hire in the U.S. as they are in India.” High unemployment in the U.S. has forced down wages for low-paid workers in the U.S. so that in many cases Americans are cheaper to hire than those in a country where most people live on less than $8.00 per day.

She links this story to another about an ongoing strike at a Dr. Pepper/Snapple factory in upstate New York where workers are attempting to prevent cuts in wages and pensions despite healthy company profits.

Unlike other companies that have gotten drastic pay cuts from union members when they opened their books to prove their economic distress—GM, Ford, Chrysler, Goodyear tire company—Dr Pepper Snapple admits they can afford to pay; but they argue (I imagine some with some smugness) that unemployment is so high that competition between desperate workers will boost profits further as workers accept less pay to get and keep a job.

Of course, if you are a free market fundamentalist you will find nothing wrong with this scenario. Workers deserve only those wages that the market will bear. If an increased supply of labor suppresses wages so be it.

But as Ghilarducci argues:

Falling wages is a bad thing, a very bad thing. Even if you are channeling gilded age Jay Gould—who said, “I can hire half of the working class to kill the other half”—you must concede that if workers don’t buy stuff, there is more unemployment, which means even lower wages, leading to more unemployment, in a spiral downward of recession and depression that eventually means you won’t be able buy stuff, no matter how cheap it is.

The only antidote to downward pressure on wages is a strong union movement. But most Americans hate unions and the power of unions has steadily eroded.

We have been through all of this before. Capitalism nearly destroyed itself in the early 20th Century because the business community refused to pay workers enough to create demand for their products. One of the reforms that helped produce mid-20th Century prosperity was laws that protected the right of workers to organize. But anti-union sentiment and globalization have conspired to take that option off the table.

Will capitalism have to learn the hard way again?

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

How’s That Radical Socialist Agenda Workin’ for Ya? August 2, 2010

Posted by Dwight Furrow in Dwight Furrow's Posts, politics.
1 comment so far

The polls say that the public thinks government actions, taken over the past two years, to prevent the economy from collapsing were ineffective and unfair. Everybody hates the bailout of the financial industry, the stimulus package was just wasted taxpayer money, and the bailout of the automobile industry was an excessive government intervention in a private enterprise, according to this version of events.

This of course is precisely what Republicans said about these efforts (despite the fact that most of them voted for the bailout of the financial industry.)

Democrats have insisted that strong government action avoided a catastrophe, but somehow it is the Republican version of events that has captured the public “mind”’.

But what about the reality of the situation?

Two respected economists have tried to quantify the effects of the financial bailout and stimulus package.

In a new paper, the economists argue that without the Wall Street bailout, the bank stress tests, the emergency lending and asset purchases by the Federal Reserve, and the Obama administration’s fiscal stimulus program, the nation’s gross domestic product would be about 6.5 percent lower this year.

In addition, there would be about 8.5 million fewer jobs, on top of the more than 8 million already lost; and the economy would be experiencing deflation, instead of low inflation.

The paper, by Alan S. Blinder, a Princeton professor and former vice chairman of the Fed, and Mark Zandi, chief economist at Moody’s Analytics, represents a first stab at comprehensively estimating the effects of the economic policy responses of the last few years.

“While the effectiveness of any individual element certainly can be debated, there is little doubt that in total, the policy response was highly effective,” they write. […] “When all is said and done, the financial and fiscal policies will have cost taxpayers a substantial sum, but not nearly as much as most had feared and not nearly as much as if policy makers had not acted at all,”

Zandi is no left wing economics professor. He was an advisor on economic policy to the McCain presidential campaign.

What about the Republican do-nothing approach? Would that have worked? Bender and Zandi write:

It is clear that laissez faire was not an option; policymakers had to act. Not responding would have left both the economy and the government’s fiscal situation in far graver condition. We conclude that [Federal Reserve Chairman] Ben Bernanke was probably right when he said that “We came very close in October [2008] to Depression 2.0.”

As to the government bailout of the auto industry, when President Obama rescued the auto industry last year, Republicans claimed that not only would the government takeover not work and the taxpayer would have to foot the bill  but that this was a socialist agenda designed to destroy capitalism.

But as the Washington Post noted last week, “many of the critics have retreated from their sharpest attacks as they watch the auto industry once again turn a profit.”

In the first quarter of 2010, GM earned a quarterly profit of $865 million, its first since 2007. Chrysler reported an operating profit of $143 million over the same period.

Preliminary figures suggest that auto industry employment in the United States may reverse a decade of decline.  […]  Today, most of the government money is expected to be repaid, but the program’s ultimate cost was estimated by the administration in March to be $24.6 billion. Administration officials predict that the expected loss will fall as the companies in which the United States has an ownership stake grow in value.

General Motors is expected to have a public offering of stock as early as August; Chrysler’s is expected next year. The government investments could be repaid then.

And thousands of people are employed who would have lost their jobs had the government not intervened and the tax payer is much better off than without the intervention.

Of course Republicans are now trying to take credit for the policy. Senator Corker now says:

“The ideas [Republicans] laid out there were followed through,” Corker told the Washington Post. “I take some pleasure out of helping make that contribution.”

There dishonesty is breathtaking.

It is a good thing the adults were in charge last year. It might be a good thing to keep them in charge.

book-section-book-cover2 Dwight Furrow is author of

Reviving the Left: The Need to Restore Liberal Values in America

For political commentary by Dwight Furrow visit: www.revivingliberalism.com

Why the Old Growth Won’t Return May 25, 2009

Posted by Dwight Furrow in Current Events, Dwight Furrow's Posts, politics.
Tags: , , , ,
1 comment so far

One very straightforward way of thinking about the current economic crisis is that some investment bankers, seeking quick profit with little risk, developed some unusual and unworkable investment instruments. And because of a deregulated environment where no one was paying attention to what they were doing, these investment instruments enabled lots of bad loans, especially in the housing sector. This created a bubble—an inflated housing market—that burst sending the economy into a tailspin.

Once the bad loans are off the books and housing prices are stabilized we can return to the kind of growth rates that we had before the crisis.

I get the impression that lots of people expect something like this after the recession.

But there is another story to be told, one that is less optimistic. The alternative story is that easy credit is not something that appeared over the last few years but has been expanding over the past few decades, fueling what we now think of as modern consumerism—middle class people with the ability to buy lots of stuff. But this expansion of credit was not based on improving real wages for the middle class. Thus, for many years people were borrowing money that they had no realistic means of paying back, while paying exorbitant interest on that money to the bankers. The collapse of the housing market was just the “straw that broke the camel’s back”—an event that triggered the collapse of a financial bubble that had been building for years.

Via Kevin Drum, this chart suggests the alternative story is the right one.



The chart shows, since 1979,  an enormous leap in real income for the top 1%, some modest growth for the next 19%, and for everyone else almost nothing. Yet, this flat growth in real income for most Americans is accompanied by a plummeting savings rate for the middle class and an explosion in consumption fueled by credit.

The conclusion to draw from this is that the growth rates of the past 30 years were based on nothing but financial shenanigans and delusional spending. If so, we will not be able to return to previous growth rates even once there is a economic turn around.

This means a fundamental shift in how Americans conceptualize a good life. It also suggests that no matter how successful Obama is at ending the Great Recession, he will face a frustrated electorate in the future.