[Southsider2k12]

http://thenewsdispatch.com/main.asp?Sectio...ArticleID=21086

City has ‘shovel ready’ jobs

Editorial

Elected officials everywhere will be eagerly looking at the amount of money they can spend as the cash spigot begins to flow after President Obama signs the economic stimulus law today.

Here in La Porte County, a combination of federal money and Major Moves money will be available for more than $17 million in public projects - spending designed to jump start the economy, but also to accomplish some things that units of government need to do.

While our elected officials are probably drooling over the federal "bailout" money, it's important to keep at least two things in mind. First, this is money borrowed from future taxpayers , and second, the spending should do the most good both in putting people to work and building or buying things that are most needed in our communities.

While careful thought must be given to this spending, many of the projects it is likely to fund are projects that have been in the works, or becoming "shovel ready," as they say.

Among those listed as possibilities in Michigan City are remediating the "brownfield" sites in the redevelopment area of Eighth Street and Michigan Boulevard, one of the keys to getting land along Trail Creek prepared so that a developer can, finally after all these years, turn that property around.

Another big project is the reconstruction of East Michigan Boulevard, which is high on Mayor Chuck Oberlie's plans for redeveloping not only the Trail Creek corridor but this stretch of highway that serves as the major eastern portal for visitors to the city.

Sewer separation is another long-planned project that needs to be performed in Michigan City, not only to improve the sanitary and storm sewers but to protect the waters of Trail Creek and Lake Michigan.

The $4.6 million earmarked for Michigan City is but a fraction of the city's long-term needs, but if it moves these projects along, that should improve the city and the employment picture.

Our Opinion:
The Issue:

Spending should be on real needs and create jobs.

Our Opinion:

The city has plenty of projects that can improve the city.

[Southsider2k12]

This isn't necessarily MC, but has been a huge problem in The Region. This is from the Pete Visclosky mailer. I will post these kind of things as I get them, as it will be interesting to see how the stimulus money is spent locally.

Dear Michael,

I am pleased to announce that this week the U.S. House of Representatives approved $24 million for the Little Calumet River Flood Control and Recreation Project.

This ample installment of federal funding ensures that federal assistance continues to be available for levee construction. That means that once the local sponsor’s funding is secured, construction can begin on the final stages of the project and we can erect the levees that will protect people’s lives, property, and general wellbeing from floods.

With the availability of these new federal funds, it is critical to quickly come up with the local match needed to keep the project progressing. The residents of Northwest Indiana have battled enough floods already and deserve to know that the next time the rains come, their homes and businesses will stay dry.

Members of the Northwest Indiana delegation in Indianapolis are working together, in conjunction with Governor Daniels, to secure the local sponsor’s funding for the project so that they may access the $24 million.

I have always ensured that every penny needed from the federal government is available to complete the project and will continue working hard to uphold my end of the agreement. I am confident that, given the urgency of this matter, the state will provide the necessary funding to complete this vital project without any further delay.

[Tom Burns]

One of the best weekly economic summaries is published late each Friday by Vanguard and is available at vanguard.com. This week's follows: February 27, 2009

Economic Week in Review: Economy falls at fastest pace in 27 years
Stocks slid as more dismal economic reports were released. The Commerce Department revised GDP growth downward for the fourth quarter of 2008 to –6.3%, the largest quarterly drop in 27 years. Other economic headlines were equally bleak. The housing market continued to struggle, consumer confidence hit another record low, and the manufacturing sector continued to shrink as durable-goods orders experienced their sixth consecutive monthly decline. For the week ended February 27, the S&P 500 Index fell 4.5% to 735.1 (for a year-to-date total return of –18.2%). The yield of the 10-year U.S. Treasury note increased 26 basis points to 3.04% (for a year-to-date increase of 79 basis points).

GDP revised downward
The Commerce Department revised fourth-quarter gross domestic product downward from –3.8% to –6.3% on an annualized basis. The revised drop was more severe than economists' expectations and represents the sharpest contraction in real GDP in 27 years. The news is further evidence that the recession is accelerating. Real personal consumption (fell by 4.3%), exports (dropped 23.6%), and fixed investment (declined 21.3%) all contributed to the sharp economic decline. Inventories, which fell $19.9 billion in the fourth quarter instead of rising by $6.2 billion as originally estimated, were the lone bright spot, adding 0.2 of a percentage point to annualized growth.

"This significant downward revision shows that financial stabilization policies after September have not worked as expected in averting the adverse feedback loop between worsening financial conditions, the lack of credit, and the real economy," said Vanguard economist Roger Aliaga-Diaz. At the same time, Mr. Aliaga-Diaz said the global recession, which has become more severe and widespread than expected, has had an adverse effect on US exports.

"Going forward, we're concerned with the adjustment in business inventories that will result from such a sharp reduction in real final sales," said Mr. Aliaga-Diaz. "This will certainly trigger downward revisions in the GDP forecasts for the first quarter of 2009."

Consumer confidence hits record low
American consumers are once again less optimistic about their current situations and expectations for the future. For the second consecutive month, the Conference Board's index of consumer confidence fell to a record low, tumbling 12 points in February to 25 (from a revised 37.4 in January). The survey results were well below economists' forecasts for the month.

Falling home prices, employment concerns, and declining incomes all contributed heavily to this poor showing.

Home sales continue slide
The housing market continued to struggle as both new- and existing-home sales dropped in January. Despite falling inventory, economists attribute the continued decline in new-home sales to falling incomes, employment, and the poor overall condition of the U.S. economy.

New-home sales plunged more than 10% versus December 2008 results. Sales declined in three of the four regions, with the West seeing the biggest drop at 28%. The Northeast was the only bright spot, as new-home sales increased 12.5% for the month.

The news was not much brighter for existing-home sales, which fell 5.3% in January. The drop was somewhat of a surprise given that existing-home sales increased by 6.5% in December. While sales for both single-family homes and condos declined, the latter was hit harder, dropping 10%. Economists attribute last month's decline to foreclosures and uncertainty over government efforts to stimulate the economy.

Orders for big-ticket items fall again
Durable-goods orders continued their slide in January, falling 5.2% versus the previous month and declining for the sixth consecutive month. Although the drop was slightly better than economists' forecasts, all components of the manufacturing sector experienced declines in orders and shipments. Excluding aircraft, orders and shipments of nondefense capital goods saw the biggest fall, declining 5.4% and 6.6%, respectively. Economists attribute the overall drop in durable goods to large cutbacks in manufacturing, including the auto industry.

The economic week ahead
Economists will be busy again next week as multiple reports are scheduled for release. Highlighting next week's news will be February's unemployment report, which comes out Friday. Monday will be a particularly busy day, with several key reports, including personal income, construction spending, and the Institute for Supply Management's (ISM) manufacturing index. Other key reports include the ISM's nonmanufacturing index (Wednesday), nonfarm production (Thursday), and factory orders (Thursday). On Wednesday, the Federal Reserve will publish its latest Beige Book, which provides anecdotal evidence on economic conditions.

Summary of major economic reports
Date Report Actual Value Expected Value 10-Year Note Yield S&P 500 Index
February 23 0 bp –3.5%
February 24 Consumer Confidence (January)
Source: The Conference Board 25.0 36.5 +2 bp +4.0%
February 25 Existing-Home Sales (January, annualized)
Source: National Association of Realtors 4.49 million units 4.75 million units +15 bp –1.1%
February 26 Initial Jobless Claims (week ended 2/21)
Source: Labor Department 667,000 625,000 +3 bp –1.6%
Durable-Goods Orders (January)
Source: Commerce Department –5.2% –2.5%
New-Home Sales (January, annualized)
Source: Commerce Department 309,000 325,000
February 27 Real Gross Domestic Product (4Q annual rate)
Source: Commerce Department –6.3% –5.6% +6 bp –2.4%
Weekly change +26 bp –4.5%

bp=basis points. 100 basis points equal 1%. For example, if a bond's yield rises from 5% to 5.5%, the increase is 50 basis points.

Note: The economic statistics presented in this report are subject to revision by the agencies that issue them. For more information on the reports mentioned in this article, read Guide to major U.S. economic reports.

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"Vanguard: Economic Week in Review"

[Tim]

A slightly different view -

Forecasters: Economy worse in '09, better in '10


WASHINGTON – Brace yourself: The recession is projected to worsen this year. The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles. And the U.S. unemployment rate — now at 7.6 percent, the highest in more than 16 years — is expected hit a peak of 9 percent this year.

That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics to be released Monday. The new estimates are roughly in line with other recent projections, including those released last week by the Federal Reserve.

"The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters," said NABE president Chris Varvares, head of Macroeconomic Advisers.

All told, Varvares and his fellow forecasters now expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.

If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country had suffered through a severe recession.

Vanishing jobs, shrinking nest eggs, rising foreclosures and tanking home values have forced American consumers to cut back, which in turn has caused businesses to lay off workers and slash costs in other ways, feeding a vicious downward cycle for the economy.

The current recession, which started in December 2007, is posing a major challenge to Washington policymakers, including President Barack Obama and Fed Chairman Ben Bernanke. That's because its root causes — a housing collapse, credit crunch and financial turmoil — are the worst since the 1930s and don't lend themselves to easy or quick fixes.

"As the news on the economy has darkened, so too, have the forecasts," said Ken Mayland, president of ClearView Economics. "We are suffering a period of maximum stress on the economy."

The economy is expected to remain feeble this year — even with new efforts by the administration and Congress to provide relief.

Just over the past few weeks, a $787 billion recovery package of increased government spending and tax cuts was signed into law, the president unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

In terms of lost economic activity in 2009, the biggest hit will come in the first six months, forecasters said.

NABE forecasters now expect the economy to slide backward at a staggering pace of 5 percent in the current January-March quarter. That's a sharp downgrade from the 1.3 percent annualized drop projected in the old survey.

"Further pronounced weakness in housing and deteriorating labor markets underscore the risks for 2009," Varvares said.

Many economists believe that the current quarter will be the worst of the recession in terms of the bite to gross domestic product, which is the value of all goods and services produced within the U.S. and is the broadest barometer of the country's economic health.

The second quarter of this year also will be a lot weaker, with the forecasters now calling for the economy to contract at a 1.7 percent pace, compared with the prior projection of 0.5 percent growth.

In the second half of this year, the economy should expand, but still less than what economists thought just a few months ago. NABE forecasters believe home sales and housing construction should hit bottom by the middle of the year, which would help stabilize the economy. Home prices, however, are expected to keep falling, according to other experts.

NABE forecasters predicted that when all is said and done the recession will have caused GDP to decline 2.8 percent. That would be "slightly less than the 3.1 percent during the early '70s," according to the survey of 47 forecasters taken between Jan. 29 and Feb. 12.

Even in the best-case scenario, with the recession ending sometime in the second half of this year, employment conditions will be tough.

Some of the forecasters said the nation's unemployment rate could rise as high as 9 percent for all of 2009 and hit 10 percent next year. In 2008, the jobless rate averaged 5.8 percent, the highest since 2003. The survey's median forecast — or middle point — called for the unemployment rate to rise to 8.4 percent this year and 8.8 percent next year.

Companies touching every part of the economy have announced thousands of layoffs already this year and more cuts came last week. Goodyear Tire & Rubber Co., said it will cut nearly 5,000 jobs, or almost 7 percent of its work force, this year, following the elimination of about 4,000 jobs in the second half of last year. General Motors Corp. and Chrysler, which are asking the government for billions more in aid to remain viable, announced plans to cut 50,000 more jobs, 47,000 of which would be at GM.

The Fed said the unemployment rate could stay elevated into 2011. Some analysts think the jobless rate won't drift down to a more normal range of around 5 percent until 2013 — at the earliest.

Companies won't ramp up hiring until they feel confident that any recovery has staying power. That's why employment is usually the last piece of the economy to reap the benefits of a recovery.

"A meaningful recovery is not expected to take hold until next year," said Varvares.

NABE predicts GDP will rebound in 2010, averaging 2.4 percent over the course of the year. The Fed, too, is forecasting that the economy will grow again in 2010_ and will pick up momentum in 2011.

Even so, the Fed is still guarded about any turnaround.

Given all the negative forces weighing on consumers and businesses, the economic recovery "would be unusually gradual and prolonged," the Fed said.

______________________________________

Yeah - the news right now is all bad. And the road back looks to be long and hard. BUT - maybe this really is the worst of it. History has shown we will recover. It's getting through the time it takes to recover that's tough.

Ay least we're not in the middle of Prohibition!

*Calls liquor delivery store*

[lovethiscity]

Hear, hear! Finally, some sanity.

Whom gets the burden of carrying on with the war on terror? Texas? Indiana? Do we hold a 50 sovereign State lottery, loser cleans up the mess left by Bush? So un-american is the thought that things are rough so I am out of here. Selfish self centered behavior seems to have gotten us to where we are now.

[Tom Burns]

From one of the top living economists as quoted in the Wall Street Journal: (Possibly I should include a disclaimer of possible personal bias as I was a student when Becker published his studies of efficient markets at the University of Chicago. TB)




Now Is No Time to Give Up on Markets

By MARY ANASTASIA O'GRADY
"What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on."

Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is in New York to speak to a special meeting of the Mont Pelerin Society on the global meltdown. He has agreed to sit down to chat with me on the subject of his lecture.


Slumped in a soft chair in a noisy hotel coffee lounge, the 78-year-old University of Chicago professor is relaxed and remarkably humble for a guy who has achieved so much. As I pepper him with the economic and financial riddles of our time, I am impressed by how many times his answers, delivered in a pronounced Brooklyn accent, include an "I think" and sometimes even an "I don't know the answer to that." It is a reminder of why he is so highly valued. In contrast to a number of other big-name practitioners of the dismal science, he is a solid empiricist genuinely in search of answers -- not the job as the next chairman of the Federal Reserve. What he sees is what you get.

What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.

As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

Mr. Becker sees the finger prints of big government all over today's economic woes. When I ask him about the sources of the mania in housing prices, the first culprit he names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping [its] interest rates very low during 2002-2004." A second reason rates were low was the "high savings rates primarily from Asia and also from the rest of the world."

"People debate the relative importance of the two and I don't think we know exactly," Mr. Becker admits. But what is clear is that "when you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."

On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix.

The third effect, Mr. Becker says, was the "bubble mentality." By this "I mean that much of the additional lending and borrowing was based on expectations that prices would continue to rise at rates we now recognize, and should have recognized then, were unsustainable."

Could this behavior be considered rational? "There is a lot of debate in economics about whether we can understand bubbles within a rational framework. There are models where you can do it, but it's not easy," he says. What he does seem sure about is that "the lending would not have continued unless there was this expectation that prices would continue to rise and therefore one could refinance these assets through the higher prices." That mentality was at least partly related to Fed action, he says, because the low interest rates "generated an increase in prices and I think that helped generate some of this excess of optimism."

Mr. Becker says that the market-clearing process, so important to recovery, is well underway. "Construction in new residential housing is way down and prices are way down. Maybe 25% down. Lower prices stimulate demand, reduced construction reduces supply."

That's the good news. But he complains about "counterproductive" government policies "designed to lower mortgage rates to stimulate demand." He says he was against the Bush Treasury's idea of capping mortgage rates (which was only floated) and he has "opposed the mortgage plan of President Obama." "It goes against both these adjustments . . . it would hold up prices and increase construction. I think that's a bad idea at this time."

Yet the professor is no laissez-faire ideologue. He says we have to think about what the government can do to "moderate the hit to the real economy," and he says it should start with "the first law of medicine: Do no harm." Instead it has done harmful things, and chief among them has been the "inconsistent policies with the large institutions . . . We let some big banks fail, like Lehman Brothers. We let less-good banks, big [ones] like Bear Stearns, sort of get bailed out and now we bailed out AIG, an insurance company."

Mr. Becker says that he opposed the "implicit protection" that the government gave to Bear Stearns bondholders to the tune of "$30 billion or so." So I wonder if letting Lehman Brothers go belly up was a good idea. "I'm not sure it was a bad idea, aside from the inconsistency." He points out that "the good assets were bought by Nomura and a number of other banks," and he refers to a paper by Stanford economics professor John Taylor showing that the market initially digested the Lehman failure with calm. It was only days later, Mr. Taylor maintains, that the market panicked when it saw more uncertainty from the Treasury. Mr. Becker says Mr. Taylor's work is "not 100% persuasive but it sort of suggest[s] that maybe the Lehman collapse wasn't the cause of the eventual collapse" of the credit markets.

He returns to the perniciousness of Treasury's inconsistency. "I do believe that in a risky environment which is what we are in now, with the market pricing risk very high, to add additional risk is a big problem, and I think this is what we are doing when we don't have consistent policies. We add to the risk."

On the subject of recovery, Mr. Becker repeats his call for lower taxes, applauds the Fed's action to "raise reserves," (meaning money creation, though he said this before the Fed's action a few days ago), and he says "I do believe one has to try to do something more directly to help with the toxic assets of the banks."

How about getting rid of the mark-to-market pricing of bank assets [that is, pricing assets at the current market price] that some say has destroyed bank capital? Mr. Becker says he prefers mark-to-market over "pricing by cost because costs are often completely out of whack with what the real prices are." Then he adds this qualifier: "But when you have a very thin market, you have to be very careful about what it means to mark-to-market. . . . It's a big problem if you literally take mark-to-market in terms of prices continuously based on transactions when there are very few transactions in that market. I am a mark-to-market person but I think you have to do it in a sensible way."

However that issue is resolved in the short run, there will remain the problem of institutions growing so big that a collapse risks taking down the whole system. To deal with the "too big to fail" problem in the long run, Mr. Becker suggests increasing capital requirements for financial institutions, as the size of the institution increases, "so they can't have [so] much leverage." This, he says, "will discourage banks from getting so big" and "that's fine. That's what we want to do."

Mr. Becker is underwhelmed by the stimulus package: "Much of it doesn't have any short-term stimulus. If you raise research and development, I don't see how it's going to short-run stimulate the economy. You don't have excess unemployed labor in the scientific community, in the research community, or in the wind power creation community, or in the health sector. So I don't see that this will stimulate the economy, but it will raise the debt and lead to inefficient spending and a lot of problems."

There is also the more fundamental question of whether one dollar of government spending can produce one and a half dollars of economic output, as the administration claims. Mr. Becker is more than skeptical. "Keynesianism was out of fashion for so long that we stopped investigating variables the Keynesians would look at such as the multiplier, and there is almost no evidence on what the multiplier would be." He thinks that the paper by Christina Romer, chairman of the Council of Economic Advisors, "saying that the multiplier is about one and a half [is] based on very weak, even nonexistent evidence." His guess? "I think it is a lot less than one. It gets higher in recessions and depressions so it's above zero now but significantly below one. I don't have a number, I haven't estimated it, but I think it would be well below one, let me put it that way."

As the interview winds down, I'm thinking more about how people can make pretty crazy decisions with the right incentives from government. Does this explain what seems to be a decreasing amount of personal responsibility in our culture? "When you get a larger government, when you have the government taking over Social Security, government taking over health care and with further proposals now for the government to take over more activities, more entitlements, the rational response is to have less responsibility. You don't have to worry about things and plan on your own as much."

That suggests that there is a risk to the U.S. system with more people relying on entitlements. "Well, they become an interest group," Mr. Becker says. "The more you have dependence on the government, the stronger the interest group of people who want to maintain it. That's one reason why it is so hard to get any major reform in reducing government spending in Scandinavia and it is increasingly so in the United States. The government is spending -- at the federal, state and local level -- a third of GDP, and that share will go up now. The higher it is the more people who are directly or indirectly dependent on the government. I am worried about that. The basic theory of interest-group politics says that they will have more influence and their influence will be to try to maintain this, and it will be hard to go back."

Still, there remain many good reasons to continue the struggle against the current trend, Mr. Becker says. "When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world."

Ms. O'Grady writes the Journal's Americas column.

[jb9152]

Whom gets the burden of carrying on with the war on terror? Texas? Indiana? Do we hold a 50 sovereign State lottery, loser cleans up the mess left by Bush? So un-american is the thought that things are rough so I am out of here. Selfish self centered behavior seems to have gotten us to where we are now.

There are many reasons why we're "where we are now", but one of the biggest is the unchecked growth of a federal government that cannot seem to help itself but to get bigger and bigger, no matter what party is in power. The current "stimulus package" is a pile of horsesh*t, and it's cover for one of the biggest power grabs this voracious federal government has ever attempted. It is not helping the economy, it is not GOING to help the economy, and I'd go so far as to say that it will prolong and deepen the current economic downturn.

[IndyTransplant]

There are many reasons why we're "where we are now", but one of the biggest is the unchecked growth of a federal government that cannot seem to help itself but to get bigger and bigger, no matter what party is in power. The current "stimulus package" is a pile of horsesh*t, and it's cover for one of the biggest power grabs this voracious federal government has ever attempted. It is not helping the economy, it is not GOING to help the economy, and I'd go so far as to say that it will prolong and deepen the current economic downturn.

“A government big enough to give you everything you want, is strong enough to take everything you have."
Gerald Ford
Presidential address to a joint session of Congress (12 August 1974)

[Tom Burns]

“A government big enough to give you everything you want, is strong enough to take everything you have."
Gerald Ford
Presidential address to a joint session of Congress (12 August 1974)

There was a study published about 50 years ago in England by a political historian whose findings were not discussed in the U.S. He found the life cycle of republics going back to the Greeks was about 250 years as follows: For the first 100 years people were so happy to be free they were quite motivated and society was productive. By the 150th year special interests discovered they could appropriate to themselves a larger part of the product of the society and gradually did so, passing the tax burden to others. Approaching the 250th year the productive portions of the society got tired of supporting a growing overhead and rebelled, leading to either chaos or a totalitarian government.

[IndyTransplant]

There was a study published about 50 years ago in England by a political historian whose findings were not discussed in the U.S. He found the life cycle of republics going back to the Greeks was about 250 years as follows: For the first 100 years people were so happy to be free they were quite motivated and society was productive. By the 150th year special interests discovered they could appropriate to themselves a larger part of the product of the society and gradually did so, passing the tax burden to others. Approaching the 250th year the productive portions of the society got tired of supporting a growing overhead and rebelled, leading to either chaos or a totalitarian government.

My high school major was history and we actually studied the length of forms of government. In my memory is the idea that no republic form of government has survived for 300 years. The US did form a slightly different form of the republic (democratic republic) form of government, but that could possibly lead to an earlier demise...or not.

[eric.hanke]

I don't feel "stimulated" yet...

[IndyTransplant]

I don't feel "stimulated" yet...

does anyone?

[kharris]

My high school major was history and we actually studied the length of forms of government. In my memory is the idea that no republic form of government has survived for 300 years. The US did form a slightly different form of the republic (democratic republic) form of government, but that could possibly lead to an earlier demise...or not.

Norman Mattoon Thomas (November 20, 1884 - December 19, 1968), was a leading American socialist, pacifist, and six-time presidential candidate for the Socialist Party of America.

Norman Thomas said this in a 1944 speech:

"The American people will never knowingly adopt socialism. But, under the name of "liberalism," they will adopt every fragment of the socialist program, until one day America will be a socialist nation, without knowing how it happened." He went on to say: "I no longer need to run as a Presidential Candidate for the Socialist Party. The Democratic Party has adopted our platform."

This was said 65 years ago ... put it in context with what is happening today and maybe some eyes will be opend.

[Dave]

Yeah, and I have a quote for you:

"Reality has a liberal bias" -- Stephen Colbert

The fact of the matter is that anyone who was "middle of the road" 65 years ago would look at what's now the conservative wing of the Republican Party and think they're a bunch of heathen communists. The structure of things today is fundamentally different than it was in 1940.

While I recognize that some aspects of our current society are worse than they were then -- there may be a certain sense of "community" that has diminished over the years, not to mention the onset of reality TV -- but the only people who I could imagine thinking life in general was better back then would be non-poor white males.

And as a non-poor white male, I have to say that I prefer today to then, seeing as I'm not willing to trade off the technological and social advancement we've had since then. I like the interstate highway system, the internet, and the fact that I've never even seen a "whites only" drinking fountain.

[jb9152]

Yeah, and I have a quote for you:

"Reality has a liberal bias" -- Stephen Colbert

The fact of the matter is that anyone who was "middle of the road" 65 years ago would look at what's now the conservative wing of the Republican Party and think they're a bunch of heathen communists. The structure of things today is fundamentally different than it was in 1940.

While I recognize that some aspects of our current society are worse than they were then -- there may be a certain sense of "community" that has diminished over the years, not to mention the onset of reality TV -- but the only people who I could imagine thinking life in general was better back then would be non-poor white males.

And as a non-poor white male, I have to say that I prefer today to then, seeing as I'm not willing to trade off the technological and social advancement we've had since then. I like the interstate highway system, the internet, and the fact that I've never even seen a "whites only" drinking fountain.

Wow! Is that a stretch or what? Correct me if I'm wrong, but I don't believe anyone has said that they're pining for the days of segregation.

In fact, there is a broad spectrum of Americans that cuts across the very conservative and the very liberal, that thinks that the course we're on will not only bankrupt the nation and lay huge debt burdens on our kids and their kids, but will prolong and worsen the downturn we're in rather than helping it. In many ways, it's not a stimulus at all but a very thinly-veiled attempt to re-order the financial and social systems of the nation.

I personally don't find much about our current society that isn't better than the "olden days". I also happen to believe that the current administration has got it all wrong when it comes to "stimulus". Does that make me a racist, now, Dave?

[kharris]

Yeah, and I have a quote for you:

"Reality has a liberal bias" -- Stephen Colbert

The fact of the matter is that anyone who was "middle of the road" 65 years ago would look at what's now the conservative wing of the Republican Party and think they're a bunch of heathen communists. The structure of things today is fundamentally different than it was in 1940.

While I recognize that some aspects of our current society are worse than they were then -- there may be a certain sense of "community" that has diminished over the years, not to mention the onset of reality TV -- but the only people who I could imagine thinking life in general was better back then would be non-poor white males.

And as a non-poor white male, I have to say that I prefer today to then, seeing as I'm not willing to trade off the technological and social advancement we've had since then. I like the interstate highway system, the internet, and the fact that I've never even seen a "whites only" drinking fountain.

I in no way intended to insinuate that I would prefer to take a step back in time 60 years! What I was trying to say is that the "stimulus" and its surrounding policies appear to be laiden with socialist tendencies. I am far from being ultra conservative, I like to think of myself as a moderate. But when the government starts taking control of businesses, especially banks, and then follows with who can be paid what salary I begin to wonder about the direction we are headed. Perhaps it is an over reaction, but I am seeing things that do not appeal to my sense of democracy. I am seeing government grow at a rate that is frankly frightening to myself, and I am hearing "trillions of dollars" being thrown around in an unbelievable fashion. When considering these things, I believe the quote from a socialist of 60+ years ago to be rather appropriate.

[Southsider2k12]

From one of the top living economists as quoted in the Wall Street Journal: (Possibly I should include a disclaimer of possible personal bias as I was a student when Becker published his studies of efficient markets at the University of Chicago. TB)
Now Is No Time to Give Up on Markets

By MARY ANASTASIA O'GRADY
"What can we do that would be beneficial? [One thing] is lower corporate taxes and businesses taxes and maybe taxes in general. Particularly, you want to lower the tax on capital so you raise the after-tax return to investing and get more investing going on."

Gary Becker, the winner of the 1992 Nobel Prize in Economic Sciences, is in New York to speak to a special meeting of the Mont Pelerin Society on the global meltdown. He has agreed to sit down to chat with me on the subject of his lecture.


Slumped in a soft chair in a noisy hotel coffee lounge, the 78-year-old University of Chicago professor is relaxed and remarkably humble for a guy who has achieved so much. As I pepper him with the economic and financial riddles of our time, I am impressed by how many times his answers, delivered in a pronounced Brooklyn accent, include an "I think" and sometimes even an "I don't know the answer to that." It is a reminder of why he is so highly valued. In contrast to a number of other big-name practitioners of the dismal science, he is a solid empiricist genuinely in search of answers -- not the job as the next chairman of the Federal Reserve. What he sees is what you get.

What Mr. Becker has seen over a career spanning more than five decades is that free markets are good for human progress. And at a time when increasing government intervention in the economy is all the rage, he insists that economic liberals must not withdraw from the debate simply because their cause, for now, appears quixotic.

As a young academic in 1956, Mr. Becker wrote an important paper against conscription. He was discouraged from publishing it because, at the time, the popular view was that the military draft could never be abolished. Of course it was, and looking back, he says, "that taught me a lesson." Today as Washington appears unstoppable in its quest for more power and lovers of liberty are accused of tilting at windmills, he says it is no time to concede.

Mr. Becker sees the finger prints of big government all over today's economic woes. When I ask him about the sources of the mania in housing prices, the first culprit he names is the Fed. Low interest rates, he says, were "partly, maybe mainly, due to the Fed's policy of keeping [its] interest rates very low during 2002-2004." A second reason rates were low was the "high savings rates primarily from Asia and also from the rest of the world."

"People debate the relative importance of the two and I don't think we know exactly," Mr. Becker admits. But what is clear is that "when you have low interest rates, any long-lived assets tend to go up in price because they are based upon returns accruing over many years. When interest rates are low you don't discount these returns very much and you get high asset prices."

On top of that, Mr. Becker says, there were government policies aimed at "extending the scope of homeownership in the United States to low-credit, low-income families." This was done through "the Community Reinvestment Act in the '70s and then Fannie Mae and Freddie Mac later on" and it put many unqualified borrowers into the mix.

The third effect, Mr. Becker says, was the "bubble mentality." By this "I mean that much of the additional lending and borrowing was based on expectations that prices would continue to rise at rates we now recognize, and should have recognized then, were unsustainable."

Could this behavior be considered rational? "There is a lot of debate in economics about whether we can understand bubbles within a rational framework. There are models where you can do it, but it's not easy," he says. What he does seem sure about is that "the lending would not have continued unless there was this expectation that prices would continue to rise and therefore one could refinance these assets through the higher prices." That mentality was at least partly related to Fed action, he says, because the low interest rates "generated an increase in prices and I think that helped generate some of this excess of optimism."

Mr. Becker says that the market-clearing process, so important to recovery, is well underway. "Construction in new residential housing is way down and prices are way down. Maybe 25% down. Lower prices stimulate demand, reduced construction reduces supply."

That's the good news. But he complains about "counterproductive" government policies "designed to lower mortgage rates to stimulate demand." He says he was against the Bush Treasury's idea of capping mortgage rates (which was only floated) and he has "opposed the mortgage plan of President Obama." "It goes against both these adjustments . . . it would hold up prices and increase construction. I think that's a bad idea at this time."

Yet the professor is no laissez-faire ideologue. He says we have to think about what the government can do to "moderate the hit to the real economy," and he says it should start with "the first law of medicine: Do no harm." Instead it has done harmful things, and chief among them has been the "inconsistent policies with the large institutions . . . We let some big banks fail, like Lehman Brothers. We let less-good banks, big [ones] like Bear Stearns, sort of get bailed out and now we bailed out AIG, an insurance company."

Mr. Becker says that he opposed the "implicit protection" that the government gave to Bear Stearns bondholders to the tune of "$30 billion or so." So I wonder if letting Lehman Brothers go belly up was a good idea. "I'm not sure it was a bad idea, aside from the inconsistency." He points out that "the good assets were bought by Nomura and a number of other banks," and he refers to a paper by Stanford economics professor John Taylor showing that the market initially digested the Lehman failure with calm. It was only days later, Mr. Taylor maintains, that the market panicked when it saw more uncertainty from the Treasury. Mr. Becker says Mr. Taylor's work is "not 100% persuasive but it sort of suggest[s] that maybe the Lehman collapse wasn't the cause of the eventual collapse" of the credit markets.

He returns to the perniciousness of Treasury's inconsistency. "I do believe that in a risky environment which is what we are in now, with the market pricing risk very high, to add additional risk is a big problem, and I think this is what we are doing when we don't have consistent policies. We add to the risk."

On the subject of recovery, Mr. Becker repeats his call for lower taxes, applauds the Fed's action to "raise reserves," (meaning money creation, though he said this before the Fed's action a few days ago), and he says "I do believe one has to try to do something more directly to help with the toxic assets of the banks."

How about getting rid of the mark-to-market pricing of bank assets [that is, pricing assets at the current market price] that some say has destroyed bank capital? Mr. Becker says he prefers mark-to-market over "pricing by cost because costs are often completely out of whack with what the real prices are." Then he adds this qualifier: "But when you have a very thin market, you have to be very careful about what it means to mark-to-market. . . . It's a big problem if you literally take mark-to-market in terms of prices continuously based on transactions when there are very few transactions in that market. I am a mark-to-market person but I think you have to do it in a sensible way."

However that issue is resolved in the short run, there will remain the problem of institutions growing so big that a collapse risks taking down the whole system. To deal with the "too big to fail" problem in the long run, Mr. Becker suggests increasing capital requirements for financial institutions, as the size of the institution increases, "so they can't have [so] much leverage." This, he says, "will discourage banks from getting so big" and "that's fine. That's what we want to do."

Mr. Becker is underwhelmed by the stimulus package: "Much of it doesn't have any short-term stimulus. If you raise research and development, I don't see how it's going to short-run stimulate the economy. You don't have excess unemployed labor in the scientific community, in the research community, or in the wind power creation community, or in the health sector. So I don't see that this will stimulate the economy, but it will raise the debt and lead to inefficient spending and a lot of problems."

There is also the more fundamental question of whether one dollar of government spending can produce one and a half dollars of economic output, as the administration claims. Mr. Becker is more than skeptical. "Keynesianism was out of fashion for so long that we stopped investigating variables the Keynesians would look at such as the multiplier, and there is almost no evidence on what the multiplier would be." He thinks that the paper by Christina Romer, chairman of the Council of Economic Advisors, "saying that the multiplier is about one and a half [is] based on very weak, even nonexistent evidence." His guess? "I think it is a lot less than one. It gets higher in recessions and depressions so it's above zero now but significantly below one. I don't have a number, I haven't estimated it, but I think it would be well below one, let me put it that way."

As the interview winds down, I'm thinking more about how people can make pretty crazy decisions with the right incentives from government. Does this explain what seems to be a decreasing amount of personal responsibility in our culture? "When you get a larger government, when you have the government taking over Social Security, government taking over health care and with further proposals now for the government to take over more activities, more entitlements, the rational response is to have less responsibility. You don't have to worry about things and plan on your own as much."

That suggests that there is a risk to the U.S. system with more people relying on entitlements. "Well, they become an interest group," Mr. Becker says. "The more you have dependence on the government, the stronger the interest group of people who want to maintain it. That's one reason why it is so hard to get any major reform in reducing government spending in Scandinavia and it is increasingly so in the United States. The government is spending -- at the federal, state and local level -- a third of GDP, and that share will go up now. The higher it is the more people who are directly or indirectly dependent on the government. I am worried about that. The basic theory of interest-group politics says that they will have more influence and their influence will be to try to maintain this, and it will be hard to go back."

Still, there remain many good reasons to continue the struggle against the current trend, Mr. Becker says. "When the market economy is compared to alternatives, nothing is better at raising productivity, reducing poverty, improving health and integrating the people of the world."

Ms. O'Grady writes the Journal's Americas column.

Great article. It would have been nice to focus on the fear in the business community now of people the next public target for scorn, but most interesting for sure.

Yeah, and I have a quote for you:

"Reality has a liberal bias" -- Stephen Colbert

The fact of the matter is that anyone who was "middle of the road" 65 years ago would look at what's now the conservative wing of the Republican Party and think they're a bunch of heathen communists. The structure of things today is fundamentally different than it was in 1940.

While I recognize that some aspects of our current society are worse than they were then -- there may be a certain sense of "community" that has diminished over the years, not to mention the onset of reality TV -- but the only people who I could imagine thinking life in general was better back then would be non-poor white males.

And as a non-poor white male, I have to say that I prefer today to then, seeing as I'm not willing to trade off the technological and social advancement we've had since then. I like the interstate highway system, the internet, and the fact that I've never even seen a "whites only" drinking fountain.

You missed a nice Hitler reference to make this reply full loaded.

[Ang]

I in no way intended to insinuate that I would prefer to take a step back in time 60 years! What I was trying to say is that the "stimulus" and its surrounding policies appear to be laiden with socialist tendencies. I am far from being ultra conservative, I like to think of myself as a moderate. But when the government starts taking control of businesses, especially banks, and then follows with who can be paid what salary I begin to wonder about the direction we are headed. Perhaps it is an over reaction, but I am seeing things that do not appeal to my sense of democracy. I am seeing government grow at a rate that is frankly frightening to myself, and I am hearing "trillions of dollars" being thrown around in an unbelievable fashion. When considering these things, I believe the quote from a socialist of 60+ years ago to be rather appropriate.

I agree here.

[Dave]

I'm happy to see that some of us can see the "good old days" weren't necessarily all that good.

As for the creeping socialist some folks are talking about, let me say personally I would have approached the Wall Street bailout differently than the Obama administration. I would have "nationalized" the banks and AIG the good old fashioned way -- by letting them go into either voluntary or involuntary bankruptcy, at which point their shareholders would have been wiped out, existing contracts (including employee bonus packages) could have been rewritten, and the taxpayers wouldn't be on the hook for a trillion bucks.

Heck, if McCain had said something like the above during the campaign, I might have considered voting for him, if it wasn't for that Palin issue.

As for the stimulus package, my feeble understanding of economics is that, under some models anyway, the way to avoid another depression is to have the government spend our way out of it. At the end of the 1930's the "project" the government spent on, in addition to WPA projects and some spiffy parks we still have, was gearing up for, and fighting, WWII. While we currently are involved in two occupations, Afghanistan and Iraq aren't the same sort of wars, where we are building ships and airplanes and guns and such -- those are just matters of pouring money and blood down ratholes. I have no idea what would serve as a 21st century "project" to focus on nationally, but I suspect global warming isn't going to be it. At least not until Disneyworld is under water.

As for socialism, I have no problem with our current quasi-capitalist system, let's just not socialize the downside for the uber-rich if we aren't going to have things like universal healthcare for the poor as well, eh?

I have no idea as to whether the stimulus package is going to spend us out of our current economic situation, not having all the information on the package or the expertise to know what the results of it will be. I don't know if the Dow is going to be above 15000 two years from now, or if the US is going to look like a Mad Max movie. I suspect somewhere in between, but I tend towards pessimism most of the time. On other message boards I use the username "entropy," which is the second law of thermodynamics -- everything eventually tends towards chaos. I've always been of the opinion that the more complex a system is, the more likely something in it is going to fail -- and I would be hard pressed to think of anything more complex than the global or US economy.

I think we are currently living in interesting times . I just hope the mess works out in the end.

Ok, enough rambling.

This post has been edited by Dave: Mar 23 2009, 12:11 PM

[jb9152]

I'm happy to see that some of us can see the "good old days" weren't necessarily all that good.

That was a straw man the entire time, Dave - nobody here, I don't believe, said that the "good old days" were necessarily better than today.

As for the creeping socialist some folks are talking about, let me say personally I would have approached the Wall Street bailout differently than the Obama administration. I would have "nationalized" the banks and AIG the good old fashioned way -- by letting them go into either voluntary or involuntary bankruptcy, at which point their shareholders would have been wiped out, existing contracts (including employee bonus packages) could have been rewritten, and the taxpayers wouldn't be on the hook for a trillion bucks.

Heck, if McCain had said something like the above during the campaign, I might have considered voting for him, if it wasn't for that Palin issue.

Obama telegraphed the entire campaign who and what he was. He was not vetted by the national media in any substantive way, and the result is that people who weren't paying attention (which was, apparently, the majority) heard "hope and change" and pulled the lever. Senator Obama had not one day of executive experience (less, in fact, than Palin) - the sum total of his experience can be summed up as "campaigner". What you do *after* the campaign is the issue. He doesn't know what to do except campaign and "organize", and it shows.

As for socialism, I have no problem with our current quasi-capitalist system, let's just not socialize the downside for the uber-rich if we aren't going to have things like universal healthcare for the poor as well, eh?

As long as you don't require me to use government doctors, I'm fine with that.

As for the "uber-rich" - God bless 'em. I could not care a whit if they make another $800 billion trillion next year; it is not a zero sum game, and because they have more does not mean that I have less. I don't think they should be taxed to death, though, because one day my ability to feed my family may depend on some "uber-rich" person's investment of capital in a company that might employ me. Plus, I hope one day to be uber-rich. And I hope all of you are, too. As I said, it's not a zero sum game.

By the way, the definition of rich, if you're the President, means $250,000 per year. That could easily be the salary of a firefighter and nurse in Silicon Valley living paycheck to paycheck. We're all going to be paying more one way or another anyhow, since cap & trade will effectively raise utility bills by upwards of $1800 per year. Some "stimulus".