Sunday, February 1, 2009

Economic history on Sunday

We will all come out this recession with a better knowledge of U.S. economic history and policy. The following are a medley of interesting articles pertaining to the Great Depression, massive fiscal stimulus, and well, is there really anything else?

Tyler Cowen has a great piece in the NY Times today, Recession Can Change a Way of Life :
AS job losses mount and bailout costs run into the trillions, the social costs of the economic downturn become clearer. The primary question, to be sure, is what can be done to shorten or alleviate these bad times. But there is also a broader set of questions about how this downturn is changing our lives, in ways beyond strict economics.

All recessions have cultural and social effects, but in major downturns the changes can be profound. The Great Depression, for example, may be regarded as a social and cultural era as well as an economic one. And the current crisis is also likely to enact changes in various areas, from our entertainment habits to our health.

First, consider entertainment. Many studies have shown that when a job is harder to find or less lucrative, people spend more time on self-improvement and relatively inexpensive amusements. During the Depression of the 1930s, that meant listening to the radio and playing parlor and board games, sometimes in lieu of a glamorous night on the town. These stay-at-home tendencies persisted through at least the 1950s.

In today’s recession, we can also expect to turn to less expensive activities — and maybe to keep those habits for years. They may take the form of greater interest in free content on the Internet and the simple pleasures of a daily walk, instead of expensive vacations and N.B.A. box seats.

In any recession, the poor suffer the most pain. But in cultural influence, it may well be the rich who lose the most in the current crisis. This downturn is bringing a larger-than-usual decline in consumption by the wealthy. (Read the rest here)
Amity Schlaes argues that Obama's stimulus plan is doomed to failure, as illustrated by FDR's New Deal in the 1930's:

The date matters, because our new president has made it clear that his model is Roosevelt. Barack Obama has spoken of creating 3 million jobs with his stimulus plan. As a new president in 1933, Roosevelt spoke of creating "one million jobs by October 1" through his spending packages. At about $850 billion, Obama's stimulus represents about 5.9 percent of gross domestic product. The spending programs of Roosevelt's National Recovery Administration amounted to almost precisely the same share. Then as now, the country was in what we might call an "illions" moment, when a nation contemplates federal spending of a magnitude previously unimaginable. The only difference is that today, we're discussing trillions instead of billions.

It's reasonable that a new executive in a downturn would want to evoke Roosevelt the leader. Like no other president, Roosevelt inspired those in despair. He kindled hope with his fireside chats on a then-young medium, radio. The new president gives radio talks, but they are also made available on this era's young medium, the Internet.

But Roosevelt the economist is unworthy of emulation. His first goal was to reduce unemployment. Of his own great stimulus package, the National Industrial Recovery Act, he said: "The law I have just signed was passed to put people back to work." Here, FDR failed abysmally. In the 1920s, unemployment had averaged below 5 percent. Blundering when they knew better, Herbert Hoover, his Treasury, the Federal Reserve and Congress drove that rate up to 25 percent. Roosevelt pulled unemployment down, but nowhere near enough to claim sustained recovery. From 1933 to 1940, FDR's first two terms, it averaged in the high teens.

Even if you add in all the work relief jobs, as some economists do, Roosevelt-era unemployment averages well above 10 percent. That's a level Obama has referred to once or twice -- as a nightmare. (Read the rest here)
Scientific American publishes the results of the state of U.S. infrastructure (it would be nice to see a cross-sectional analysis for other developed economies):
The nation's roads, bridges, levees, schools, water supply and other infrastructure are in such bad shape that it would take $2.2 trillion over five years to bring them up to speed. But even that huge chunk of change would only raise their grade from a "D" average to a "B," according to the latest "Report Card for America's Infrastructure" released today by the American Society of Civil Engineers (ASCE). (Read more here)
Dan Morgan puts the size of the stimulus bill - currently $819 billion - into historical Congressional context:
To truly appreciate the historic scope of the $819 billion stimulus package moving through Congress, it helps to have covered the Hill when passage of the whole domestic budget could be stalled by something as picayune as a fight over $30 million for Alaska's pollock fishermen.

From the mid-1980s to the early 2000s, when Congress and the White House had a tight leash on the domestic budget, I wrote hundreds of stories for The Post about spending programs and the congressional appropriations committees. It wasn't always the most exciting of jobs. A long line of lobbyists would snake down the corridor outside the committee room in the Rayburn House Office Building, hoping for a crumb for their clients: an agriculture research grant here, a bridge project there. Inside, lawmakers sat at long tables and battled over relative nickels and dimes. At one memorable session in 1995, then-House Appropriations Committee Chairman Bob Livingston, a Louisiana Republican, showed that he was serious about cutting spending by brandishing an alligator skinning knife called a "Cajun scalpel." In case that wasn't adequate, he warned, he had also come equipped with a machete and a Bowie knife, nicknamed an "Arkansas toothpick."

So I had to pinch myself last week when I looked at the breathtaking numbers in the House-passed stimulus measure and contemplated the vast ambition behind them: $11 billion to upgrade the nation's electricity grid; $2.8 billion to extend broadband Internet service to every nook and cranny of rural America; $2.4 billion to develop power plants that don't spew carbon into the atmosphere -- a step that could help America use its vast supply of cheap coal far into the carbonless future. Along with that were billions of dollars to repair dams, improve water quality and fix the U.S. Department of Agriculture's Stone Age computer system, famous for crashing during the crucial harvest period. (Read the rest here)
And Greg Mankiw reminds us of the dangers of protectionism to support industries in an economic downturns:
I hope President Obama and his economists strongly oppose these first shots in a new trade war of protectionism. So far, the article says, "the administration has not addressed the issue publicly."(Read the rest here)
Have a nice Sunday! Rebecca Wilder


  1. A couple comments:

    On infrastructure:
    That report seems to me like it has been a tool of policymakers who want to push infrastructure spending, more than anything else. Like you said, it would be worthwhile to see a cross section of some other countries. Based on that report card, I don't think any country could score an A in any catagory, really. Probably the majority of the rest of the world is straight F's, and most of the developed world around our scores.

    That's not to say that we don't have serious infrastructure problems that need money to be addressed, but the scale is clearly set in terms of bad grades as a marketing tool to seek spending.

    On FDR and stimulus:
    Claiming the New Deal is a failure because it didn't return unemployment to ~5% isn't a good argument. FDR faced a very real possibility of violent revolt with 25% unemployment, and an economy in complete free fall- I remember the stories of the first government officials trying to get a handle on how bad it was (not much data was available back then) and the GDP was shrinking at 30-40% per year. And the unemployment situation improved significantly as well as the GDP numbers. Obviously not all the way back to the prosperity of the 20s, but better than the alternative keeping a balanced budget.

    What's different in my mind this time around, is that when people were worried about running record deficits during the Great Depression, they had one major benefit which we don't. The US was a creditor nation at that time, whereas now we are a huge debtor nation, already in debt trouble. The only thing holding the dollar together is the momentum of history as a strong reserve currency, as well as some fundamental flaws in any alternatives- and I don't think it will make it through unscathed.

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  3. White teeth! Of whom does that remind you?
    Re: the Roosevelt/Obama packages - Roosevelt didn't actually get to do anything until 1933 when he was inaugurated. The depression had already been going on for some time. Obama has the advantage of starting to work on stimulus in a more timely manner - namely, much earlier in the cycle. I find it difficult to relate the two just because of that difference and the fact that Hoover had done more harm than good.
    happy Super Bowl Sunday - GO CARDS!!

  4. The so-called "Obama Stimulus" plan amounts to giant-sized pork barrel spending, a wish-list of pent-up Democrat pork spending denied over the last 12 years of Republican-controlled Congresses.

    Only one-fifth of the Obama Pork Plan shall be allocated to infrastructure-like projects, mostly states' roads.

    Four-fifths of the Obama Pork Plan (OPP) gets allocated to failed states governments with their union workers, and failed public education with its union workers.

    Considering a $420 billion FY deficit is a boondoggle (a typical Bush the Lesser budget), an $850 billion FY deficit is a double-plus waste.

    Yet, collapse is coming. The insolvency of the U.S. is here, nearly.

    When the day comes that the cumulative U.S. Government debt (wrongly named "national debt") exceeds the GDP of America, the U.S. Government shall be bankrupt, insolvent, done.

    Foreigners shall refuse to sell us oil and all the other stuff we import. America shall turn into one big Iceland, without a bailout coming since foreigners shall decree the U.S. dollar as worthless and thus far, all IMF bailout money
    has been U.S. dollars.

    U.S. Big Government Collectivism is a failure.

    The perverse Political Class of Politicians, Central Bankers and Fortune 100 CEOs along with their moronic hand-maidens from Academia (PhD Economists, Sociologists) and Mainstream Media (New York Times, Wall St. Journal, CNN, FOX, MSNBC, and countless others) have run their collectivist system into the ground.

    Always, Collectivism fails as greed drives too many factions engage in ever greedier takings from the defenseless productive ones.

    Until the 16th Amendment gets repealed to stop Americans from working as wage slaves to politicians; Until the 17th Amendment gets repealed so citizens of states through their legislators can control their part of the U.S. Senate; until Popular Representation gets restored to the House to reflect the founders' ratio of 1 representative to 30,000 Americans; until the Federal Reserve gets disbanded and a free market in money and credit arises; Americans shall suffer under the U.S. style of Collectivism, a thoroughgoing failure, a source of tremendous misery worldwide, a killing machine responsible for millions of murders (Korea, Vietnam, Iraq, Bosnia, Afghanistan).

    Collapse would be the best medicine for Americans, medicine that would awaken them from the insanity.

    Instead, Americans seem to be in denial about their government and their lives.

    They cannot see they live under Collectivism, a collectivism not much different than Stalin U.S.S.R., Hitler NAZI Germany or Mussolini Fascist Italy.

    Instead, Americans worry about their Celebrity Idols, if they have enough credit card balance to buy some more imported plastic or another super-sizing make-me-fat nutrition-less fast-food meal.

  5. i think that even though the stimulus plan may need a lot of work here & there, it still got approved nonetheless and we all need to figure out how we can all benefit from should be a win-win situation, and not something that will cause more trouble for the economy.after all the purpose is to help--not break the country apart

  6. With all the pork spending included in the last bailout ( you'd think Washington would have learned something. Either way I agree with Imee to a degree. Until it's signed into law, it's our American right to voice our disapproval. If it is voted into law we should step back and see how it can become a win-win for our faltering economy (if at all possible).