Grasping Reality with Both Hands

Barack Obama Is Once Again Far Off Message

Ezra Klein watches the train wreck:

Ezra Klein - Why does Obama keep telling reporters there are 'no shovel-ready projects'?: Perhaps I should've written this post before interviewing Jared Bernstein, the vice president's chief economist, on the same subject. But if you read that interview closely, you'll see a White House that doesn't exactly know what to do with the president's comments. The administration doesn't think the stimulus failed. At the end of the day, the law met its spending targets. As promised, it dispensed with 70 percent of the funds within two years. Most of the remaining money will pay out when projects that are underway reach completion. Today, the White House released a video in which Austan Goolsbee, the chairman of the Council of Economic Advisers, argues that the intervention saved the job market (though by looking only at private-sector jobs, he stacks the deck, as the public sector is where recent job losses have been concentrated).

So why did the president tell Peter Baker -- and before him, David Brooks -- that there are no "shovel-ready programs"? Those were three of the most important words used to sell the program -- and the president's decision to walk them back is giving plenty of ammunition to his enemies. And shovel-ready is not a controversial concept: It's what Rep. Pete Sessions, the Dallas conservative, called his city's rail project when he wrote Transportation Secretary Ray LaHood asking for some of the stimulus funding that he opposed.

And Sessions is no isolated case: Over the past two years, the stimulus has funded more than 15,000 transportation projects. In total, it's funded more than 75,000 projects. Those efforts weren't ready for shovels the morning after the bill passed, but it didn't take more than a couple of months to break ground on many of them, and all of them hit within the stimulus's two-year target range.

And even if the president was disappointed by the progress, why is he giving ammunition to the stimulus's critics only weeks before the midterm election? He couldn't have told Baker they'd conduct the interview Nov. 3?

The big news on the stimulus going into November should've been this report from the Center for Public Integrity pulling together the many, many letters Republican lawmakers sent asking the administration to use the stimulus to fund projects in their district and saying, forthrightly, that those projects would create jobs and improve the economy. Obama should be going around the country, setting up a podium at each of those projects and making clear just what it is the stimulus did, and just what it was that Republicans opposed. Instead, he's telling reporters that the foundational phrase of his sales pitch for the stimulus was a mistake, which implies to voters that the Republicans are right when they say the stimulus didn't work.

File this one under "unforced errors," I guess.

And here is poor Jared Bernstein trying to deal with the damage:

Ezra Klein - Are there 'shovel-ready projects?' An interview with Jared Bernstein.: Ezra Klein: The president has now told at least two journalists that "there’s no such thing as shovel-ready projects.” He obviously believes it. But what, exactly, does he mean?

Jared Bernstein: The president definitely had some initial frustration that projects were taking longer to get up and running than he wanted. About 100 days into the stimulus, the president and the vice president spoke to the agencies about speeding things up and laid out ambitious targets. And ultimately, they met and exceeded every one of those targets. The fact is that there are more than 75,000 infrastructure projects up and running today and creating jobs.

EK: What were the targets? How did the White House judge whether the stimulus was working?

JB: The most salient target was to spend 70 percent by September 30th, 2010. And we hit that target. We expected to have saved or created around 3.5 million jobs by this point, and according to the estimates of outside evaluators like the Congressional Budget Office, we hit that target, too. If you want more targets, read the report from the vice president that we released last week. It lists more of the specific goals the president set at that 100-day mark, like seeing 100 airports being improved, 1,500 highways being improved, 360 military facilities being repaired, and many more, by September 2009. And the agencies met or exceeded every one of those goals.

EK: You said you've spent about 70 percent of the money in the first two years. Where's the other 30 percent?

JB: The rest of that money is obligated, meaning that it's supporting projects that are under contract but are not yet completed. The way the spending works is that we don't provide the final check until the project is done. Just like if you pay someone to add on to your house, you make some initial payments, but you don't let go of all the money until the project is done. So the majority of that 30 percent are payments to come for projects that aren't finished. Then there are some tax receipts that are slotted to pay out over the next few months and things like Medicaid and food assistance.

EK: None of this really explains Obama's disappointment with shovel-ready projects. You're saying the work fulfilled expectations. He keeps telling reporters that it didn't.

JB: Very early on in the Recovery Act, the VP went to visit this bridge in Pennsylvania that was a good candidate for repair. He asked “how shovel-ready is it?” It happened that the engineer was there and said, “hold on, I’ve got the blueprints right over here in my car.” He actually got them and showed them to the VP. They quickly got a transportation grant to fix the bridge but didn’t start construction for a few months because the local government didn’t want to have to divert traffic patterns until the summer. Now the project is completed. That’s just the way these things unfold sometimes. There’s often going to be some wiggle between approval and shovels in the ground. The point is there are now tens of thousands of projects creating good jobs and we should build on that momentum.

EK: The White House is asking Congress to put in a lot more money for infrastructure repair. But a lot of my readers are skeptical. We've spent more than $100 billion, we've started more than 75,000 projects, we're skeptical that this spending can come online as quickly as we'd like to see it move. Is there really more to do, and can it be done in an effective manner?

JB: This isn't hard to conceive of once you spend some time in this world: One program I liked in the Recovery Act was the 48C tax credit to incentivize the production of clean energy manufacturing products here in the United States. Thanks to this program, we've broken ground on nine new advanced-battery factories, and we think we can double that in the next few years and give the U.S. a global footprint in that industry. The smart grid program installed more than two million smart meters. There's just so much to be done in the infrastructure space, whether that's repairing our infrastructure or building out things like smart-grid systems and high-speed rail.

Problem Set 5

problem set 5.pdf

Due October 27, 2010

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Open publication - Free publishing - More microeconomics

Econ 1: Fall 2010: U.C. Berkeley: Files for October 20 "Short Run and Long Run" Lecture

October 20: Short Run and Long Run:

• Slides

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Open publication - Free publishing - More microeconomics

Expansionary Government Spending to Boost the Economy Was Not Tried--Except, of Course, in China

Paul Krugman

Even More On The Origins of the Deficit - NYTimes.com: Let’s look at trends in GDP, spending, and revenues over two periods — one designed to capture “normal” growth, the other the economic crisis.... During the pre-crisis period, spending grew slightly faster than GDP — that’s Medicare plus the Bush wars — while revenue grew more slowly, presumably reflecting tax cuts. What happened after the crisis? Spending continued to grow at roughly the same rate — a bulge in safety net programs, offset by budget-slashing at the state and local level. GDP stalled — which is why the ratio of spending to GDP rose. And revenue plunged, leading to big deficits.

But I’m sure that the usual suspects will find ways to keep believing that it’s all about runaway spending.

Department of "Huh?": Do They Understand What's in the Health Care Bill? Edition

I don't know what the hell these people think that they are saying. There is no way that you can argue that, because of the health-care reform bill, workers who want minimum wage jobs will be unable to find them.

John Goodman:

The $6-an-Hour Health Minimum Wage | John Goodman's Health Policy Blog: Most people intuitively know that the worst thing government can do in the middle of the deepest recession in 70 years is enact policies that increase the expected cost of labor. Yet that is exactly what happened last spring, with the passage of the Affordable Care Act (ACA). How bad is it? Right now we’re estimating the cost of the minimum benefit package that everyone will be required to have at $4,750 for individuals and $12,250 for families.... In four years’ time, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour...

Arnold Kling:

Health Care Costs and Wages: John Goodman writes,

In four years' time, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour or about $27,331 a year. (I think you can see already that no one is going to want to hire low-wage workers with families.)

Read the whole thing. As you know, I have been making similar points, but I don't blame the new health care law so much. This is already an issue before the new law takes effect...

Tyler Cowen:

Marginal Revolution: Sentences to ponder:

In four years' time, the minimum cost of labor will be a $7.25 cash minimum wage and a $5.89 health minimum wage (family), for a total of $13.14 an hour or about $27,331 a year.

That's John Goodman, via Arnold Kling.

Repeat after me:

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

There is no employer mandate in the bill. Employers will still be able to offer workers $7.25/hour to work.

Department of "Huh?!": Tim Geithner Edition

Tim Geithner:

Dollar: Geithner Vows US Will Not Devalue Dollar: U.S. Treasury Secretary Timothy Geithner vowed on Monday that the United States would not devalue the dollar for export advantage, saying no country could weaken its currency to gain economic health. "It is not going to happen in this country." Geithner told Silicon Valley business leaders of devaluing the dollar.... "It is very important for people to understand that the United States of America and no country around the world can devalue its way to prosperity, to (be) competitive," Geithner added. "It is not a viable, feasible strategy and we will not engage in it." Answering audience questions before the Commonwealth Club of California in Palo Alto, he said the United States needed to "work hard to preserve confidence in the strong dollar."

Tim Geithner:

In a luncheon with Silicon Valley business leaders Monday, U.S. Treasury Secretary Timothy Geithner said the Chinese yuan is "significantly undervalued."... The G20 finance ministers and central bank governors at the meetings in Gyeongju, South Korea are expected to tackle head-on the disparities in currency policies that are distorting capital flows in the hopes of achieving a more coordinated approach. But U.S. officials have put most of the blame on China's highly restrictive exchange rate regime, which until recently had kept the yuan largely pegged to the dollar. The United States is pressuring China to allow the value of its yuan to rise to take some pressure off capital flows and to rebalance its economy away from exports.... Geithner said in Palo Alto that he believes China will continue to lift the value of its yuan currency to aid the rebalancing of its economy away from exports and toward domestic growth.

Asked how much higher China should allow the yuan to rise, Geithner said: "Higher." "You can't know how far it should go. What you know now is that it's significantly undervalued which I think they acknowledge and it's better for them, and of course very important for us, that it move. And I think it's going to continue to move," Geithner said.

Marty Peretz, Anti-Muslim Bigotry, Rand Paul, Jonathan Chait, and Tbogg

Tbogg writes:

Rand Paul Is A Filthy Genocidal Muslim Mudperson | TBogg: I just wanted to say something really horrible about Rand Paul... [that] would not upset the delicate sensibilities of The New Republic’s Jonathan Chait...

Jonathan Chait, you see, was upset because Rand Paul's opponent Jack Conway called Paul an un-Christian Aqua-Buddha worshipper:

Sympathy For Rand Paul: The ugliest, most illiberal political ad of the year may be this one, from Kentucky Democrat Jack Conway.... I actually don't doubt the implication of the ad, namely that Rand Paul harbors a private contempt for Christianity. He's a devotee of Ayn Rand, who is a fundamentally anti-Christian thinker. And much of Paul's history, which he is frantically covering up in an attempt to pass himself off as a typical Republican, suggests among other things a deep skepticism about religion. The trouble with Conway's ad is that it comes perilously close to saying that non-belief in Christianity is a disqualification for public office. That's a pretty sickening premise for a Democratic campaign.

But as Tbogg notes:

I figured that calling Paul a sub-human tent-sniffing camel-rapist would not upset the delicate sensibilities of The New Republic’s Jonathan Chait since it has never stopped Chait from cashing a paycheck signed by his boss Marty Peretz.

Here is Mark Feeney on the case of Marty:

After blog post, Peretz again in a firestorm: The scene at Harvard looked less like the ’10s than the ’60s. Students stood outside the Science Center chanting “Harvard, Harvard, shame on you, honoring a racist fool!’’ When Martin Peretz, the object of the protest, left the building that Saturday late last month, they trailed behind, heckling and taunting him through Harvard Yard.... Five decades ago, Peretz had been on the other side of the bullhorns and banners.... Now he was being denounced as an anti-Muslim bigot for comments he had written for his blog on The New Republic’s website.

"But, frankly, Muslim life is cheap, most notably to Muslims," Peretz, the magazine’s owner and editor in chief, wrote Sept. 4. "I wonder whether I need honor these people and pretend that they are worthy of the privileges of the First Amendment which I have in my gut the sense that they will abuse." A week later, Peretz apologized for the First Amendment comment....

More than 500 students at Brandeis University, Peretz’s alma mater, signed a petition calling on him to apologize, and Harvard withdrew an invitation for him to speak last month at the 50th anniversary celebration of the university’s social studies program.... Anti-Muslim sentiment has been on the rise.... [T]he Martin Peretz Undergraduate Research Fund would be announced to honor him and the social studies program. Peretz, as assistant professor then lecturer, had taught in the program for many years. The protest took place outside the program’s anniversary celebration.

"It’s like this was waiting to happen, almost," said Joseph Finder, a novelist and friend of Peretz’s since the early ’80s. "For so many years, he’s [ticked] off so many people with so many impolitic or outrageous statements. And there are a lot of people in the academy who are jealous of that power he has. Or there are journalists who didn’t get a job or he’s attacked before."... A sign of the eminence of Peretz’s friends is that $500,000 had been raised for Peretz’s Undergraduate Research Fund before the blog post. A sign of their devotion is that after the controversy started and there were calls for Harvard to reject the money another $150,000 was donated. (Harvard declined to dissociate itself from the fund.)

The man whom The Christian Science Monitor had described in 1974 as a "socialist millionaire professor" had come a long way. "The fact is that Peretz has the social and economic guns to be a bigot," Atlantic senior editor Ta-Nehisi Coates wrote on the magazine’s website last month, "to then be defended by even those who acknowledge his bigotry, and finally be honored at the highest levels of American academia."

Peretz’s Harvard proteges include Jamie Gorelick, a former deputy attorney general, film director Edward Zwick, CNBC personality Jim Cramer, and Washington Post columnist E.J. Dionne. A steady stream of talented Harvard students would move on after graduation to The New Republic, including future editors Michael Kinsley, Hendrik Hertzberg, and Andrew Sullivan....

Critics have charged him with being not just a defender of Israel, but also prejudiced against Arabs. In 2007, Glenn Greenwald, now a blogger for Salon, wrote on his website that "The New Republic is led by someone who harbors — and routinely expresses — what can only be described as pure bigotry towards Arabs and Muslims." Comments Peretz has made on his blog include the application of a barnyard epithet to the description of Jerusalem as "the third holiest city of Islam," on Sept. 8; writing in 2007 that "it is characteristic of the Arabs, who have almost no physicists to speak of... to make their politics a shabby substitute for science"; and to note of Arab extremists, in 2006, "I know that since their passions emerge from Muslim religious belief I should treat them with respect. I can’t. OK, why don’t you try?..."

Hoocudanode?

Kevin Drum:

Is Gridlock Good?: The only other thing I can think of that the administration screwed up seriously is mortgage reform. Again, though, that would have been politically difficult even if they had played all their cards perfectly. Like it or not, the American public hates the idea of seeing their neighbors get bailed out from stupid mortgages. It makes them feel like saps: we scrimped and saved and bought a house we could afford and we're getting nothing. Joe and Betty down the street lived the high life, took out a NINJA loan they knew was way more than they could afford, and now they're getting a taxpayer-funded bailout and living easy. That's not a vote getter.

I think Bruce way overestimates the value of perception. Sure, a better communications strategy might have helped. Getting healthcare done faster might have helped. Beyond that, though, people are mostly reacting to actual pain, and there's surprisingly little Obama could have done about that. A gigantic stimulus and more aggressive action from the Fed might have done the trick, but Republicans and centrist Dems flatly wouldn't have allowed the former and the president has no leverage over the latter. Failing that, balance sheet recessions just take a long time to work through. There's not a lot Obama could have done to change that.

The Treasury had enormous flexibility and freedom to use TARP money to grease the deals for large-scale mortgage reorganization, even with cramdown. And it is hard to object to policies if the Treasury makes money on the deal.

The Obama administration in early 2009 was not nearly as constrained as Kevin Drum imagines.

Compound Interest and Social Discount Rates

John Holbo on Greg Mankiw:

Compound Interest, the Doctrine of Equivocation, and Social Discount Rates — Crooked Timber: In a sense the problem is this: on the assumption that future people are people, too, the wonders of compound interest make it seem insane to do anything but save for five centuries hence.

Indeed. If long-term real interest rates are as Mankiw describes them, then either the future must be so filthy rich and so satiated with wealth that there is no point in saving, or it is profoundly irrational to consume more than bare subsistence today because the opportunity cost in terms of how much you are impoverishing the future is so large.

The Fiscal Commission Was Another Enormous Unforced Obama Administration Error

Ezra Klein:

Ezra Klein - Americans prefer tax increases to benefit cuts: In Washington, the fiscal commission -- and the elite consensus -- favors sharp spending cuts over tax increases as a way to plug the entitlement hole. In the country, the preference is just the opposite.... [T]his holds true for every single age group. We're not looking at a situation where the elderly oppose benefit cuts in large numbers, but other demographics are more favorably inclined. In fact, it's the young who are most steadfastly opposed to benefit cuts:

The Federal Reserve Is Going to Wait Until After the Election to Move: Eighteen Months Late and at a Third of the Scale the Economy Calls For

Paul Krugman:

The Unbearable Slowness of Understanding: [Sewell Chan's New York Times] article about how the Fed is gradually coming to realize that low inflation and a liquidity trap might be a problem fills me with despair. I mean, we’ve been there for two years.... Yet we’ve spent most of the last two years worried about the wrong things — inflation, crowding out, invisible bond vigilantes.

Even now, we get things like this:

Many economists remain confident that the United States will avoid the stagnation of Japan, largely because of the greater responsiveness of the American political system and Americans’ greater tolerance for capitalism’s creative destruction. Japanese leaders at first denied the severity of their nation’s problems and then spent heavily on job-creating public works projects that only postponed painful but necessary structural changes, economists say.

There are multiple things wrong with that paragraph — but what on earth would give one reason to consider our political system “responsive”? The truth is that we’re responding worse than Japan did.

And yes, I’m depressed about it.

Buce Asks: "Why Oh Why Can't We Have a Better Press Corps?" (Niall Ferguson/NPR Edition)

Buce:

Underbelly: The Nation's Premier Broadcast Organization Takes a Dive Before Niall Ferguson: Faithful readers will recognize Ferguson as an entertaining teller of tales who has somehow developed the idea that he is a Man of Vision.   That's to be expected, I guess; once you bear the weight of two named Harvard professorships, it would be surprising if you retained any sanity at all.  So it is hardly surprising that we heard stuff like this:

He beat up on Paul Krugman for endorsing Depression-era deficit spending, without seeming to grasp that Krugman's complaint is that we spent too little in the Depression: caught between Roosevelt's diffidence and the counter-cyclic pressure from the states (sound familiar?) we were left with the need of a great war to bail us out.

He sniped about "Keynesianism" but than morphed into an attack on quantitative easing as if he can't tell the difference between fiscal policy and monetary --i.e., precisely the distinction that lies at the heart of the conflict between Keynes and his free-market critics.

He seems to be under the impression that the Depression was an era of isolated national, as distinct from global, markets.  Dear God, has this man never heard of the Gold Standard?

As I say, Ferguson can pontificate all he wants and nothing I can say will slow him down. But what was the reporter doing while all this was going on?  Twittering his publicist?  I should think that one of DeLong's Political Econ majors ought to be able to pick up on and challenge (seeming) absurdities like this. Why,oh why, as one might say, can't we have a better radio show?

Still, why the introductory hippy punching? Does Buce have to establish that he is a Serious Person?

I often think Brad DeLong goes over the top in his criticism of the press but I hope he wasn't listening to the NPR interview with Niall Ferguson (on All Things Considered) tonight or they would have had to call for the paramedics...