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Tilting at Windmills

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January 30, 2009

AN ECONOMIC 'TRAIN WRECK'.... We knew the numbers would be bad, and they are.

The United States economy shrank at its fastest pace in 26 years from October through December, the government reported on Friday, in the broadest accounting yet of the toll of the credit crisis. Consumer spending and business investment all but disappeared, and economists said the painful contraction was likely to continue at an alarming pace well into the summer.

The gross domestic product -- a crucial measure of economic performance -- shrank at an annual rate of 3.8 percent in the fourth quarter of 2008 as the credit crisis deepened the recession. The contraction was significantly better than many economists had expected, but raised the possibility that the economy had not yet hit bottom.

"It was basically a train wreck for the economy in the fourth quarter," said Alan D. Levenson, chief economist at T. Rowe Price.

There were some expectations that the economic contraction would be even worse -- some were predicting a 5.5% drop -- but that's cold comfort. Jobs were cut, business investments were curtailed, trade fell, demand fell, and consumers spent less. And there's no evidence this is the bottom.

In light of all of this, maybe policy makers in Washington can, at their earliest convenience, invest in some kind of large stimulus package.

Steve Benen 9:15 AM Permalink | Trackbacks | Comments (21)

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"In light of all of this, maybe policy makers in Washington can, at their earliest convenience, invest in some kind of large stimulus package."

Thirty years of "stimulus" is what got us in this mess. More "stimulus" is not what is needed. What is needed is a social safety net to catch the working poor and middle class families who have no resources left and are facing imminent homelessness. The funds need to go directly to these folks. "Stimulus" wastes too much money on well-fed shareholders, creditors and executive talent at the large corporations that will get the bulk of the infrastructure contracts. The politically expedient "quick fix" will prove to be no fix at all.

Posted by: JustAnotherBozo on January 30, 2009 at 9:24 AM | PERMALINK

without the build-up in inventories, GDP declines 5.1% pretty close to bad expectations.

Posted by: kp on January 30, 2009 at 9:25 AM | PERMALINK

yeah, but the report came out after obama had been president for 10 whole days.
that means it's all his fault, right?

Posted by: mellowjohn on January 30, 2009 at 9:29 AM | PERMALINK

@justanotherbozo: That's exactly what was in the stimulus package that the Republicans said was "pork". Hear that working class Americans? You are considered "pork".

Posted by: DJShay on January 30, 2009 at 9:30 AM | PERMALINK

In California the court gave approval for the Gubinator to furlough up to 250,000 state workers.

Some here in California find that quite stimulating. Stimulus is not always more of something, it can also mean less of something else, and progressives know this, but will not say it.

If stimulus always means more, then how about we add 50% to the defense budget? No, yes? As a Krugman progressive would we not expect a 50% increase in defense to be a stimulus?

As a progressive explain to me why adding 50% to the defense budget is not productive, then after you explain it to me, please explain to Krugman why stimulus does not always means more of anything.

Then when you are done educating me and Krugman, please then enter the debate about which government expansions add to incomes and which government contractions add to incomes.

It is Friday here, and the Fresno City Council is sending its fleets of CO2 chugging garbage haulers to pick up three bins from our yards that are a third full. Explain why doing that 1/3 as often does not increase incomes. And if metering waste pick-up does increase incomes, then why is there not a contraction of wasteful government fleets in the stimulus package.

Posted by: MattYoung on January 30, 2009 at 9:31 AM | PERMALINK

MattYoung,

If you expect to be understood, you can't just use words any old way you want. A Keynesian "stimulus" by definition is more government spending. Krugman knows this, but you apparently don't.

Defense spending is undoubtedly a stimulus, and Krugman and Keynes would agree, but calling it "productive" hardly makes sense. How does another tank or military aircraft help you produce anything of economic value? It may be necessary, but unlike an investment in say, highways, doesn't help the economy produce any more goods or services.

HTH

Posted by: capitalistimperialistpig on January 30, 2009 at 10:00 AM | PERMALINK

"How does another tank or military aircraft help you produce anything of economic value?"

You are using words wrong. An increase in value is an increase in incomes according to standard Krugman economic theory.

Hence, a stimulus that is larger may not increase value hence incomes as you point out, therefore an increase in defense spending may not increase incomes, therefore there are some stimulus that require a contraction of unnecessary government spending.

Otherwise look at your multipliers. If increasing X by more and increasing Y by slightly more is a better multiplier then why not decrease X and increase Y by slightly less, putting more people from X into Y which is more productive.


Posted by: MattYoung on January 30, 2009 at 10:10 AM | PERMALINK

How does another tank or military aircraft help you produce anything of economic value? It may be necessary, but unlike an investment in say, highways, doesn't help the economy produce any more goods or services.
Posted by: capitalistimperialistpig

The good things about defense spending is it can be very near term, it is going to be needed anyway, and it buys stuff that is made in America so it results in American jobs. It could be directed to recapitalize much of the National Guard forces, thereby supporting the state governments.

It can be accompanied with infrastructure projects that have longer lead times due to planning, filling the gap until they ramp up and start generating real jobs.

Posted by: red state mike on January 30, 2009 at 10:13 AM | PERMALINK

If military spending is such a good stimulus, please explain why, after spending half a trillion on the military adventures of the last 6 years, there appears to be no result.

Not all money spent produces the same result. Go blow your cash on candy, and the only stimulus you may get is at the dentist's office. Spend it on getting some education, and you wouldn't be making such dim arguments.

Posted by: Charles on January 30, 2009 at 10:30 AM | PERMALINK

On reflection one could argue and very easily and prove that the economy is not a train wreck…

The economy as it is today is not presently reported accurately in its true meaning. And, is far worse than any single train wreck. Actually the American rail system is so out dated and behind times of modern culture it is a system that is working deficiently and ignored. Compared to Europe, Americas interlinking system fall way short and even in many cases obsolete ignored and poorly managed.

Getting back to the infrastructure, or what George Lakoff said in his book “Whose Freedom” we should look at infrastructure here our economy of which the stock market and those who play in and claim to justify a bonus plan in the millions even if business goes bust. If this is the logic of the New World order it is defiantly out of order. And ass backwards logic.

George Comments that:

Scalar distribution of rewards, the more you work, the more you get is O.K.

Scalar distribution of rewards, the greater your abilities, the greater your responsibilities is O.K.

So it is simple, if your going to get money from the electorate we should at least know what is these responsibilities and how much time was endured to achieve success. Please success is the key not failure. It should be rewarded that way.

There are too too many people connected the high end bonus plans, media Journalist included hence the bias or skewed reporting that are linked to the Jekyll Island Banking Plan, America calls the Federal Reserve that essentially is nothing more than an elite Ponzied method to keep the rich and the powerful in power legally. There is not limit to the amount to fail with this kind of system. It goes to infinity; here we essentially chock each other to death before we change.

Until the Federal Reserve is completely dismantled and the money supply is totally controlled printed coined by the Congress there will never be a free market system. America will never enjoy or understand the effect of a free market as protracted in the basic Constitution. To even consider and use the terms to buy toxic assets is stupid and it should not be done. This stuff is tainted beyond value imagine you own property that is toxic and would like to sell it. Who will buy it?

If one looks closely at history the Ponzi schemes came and occurred wild directly after the Federal Reserve was created. Some can argue that system existed in medieval time or back to the bible perhaps why Jesus flip when he saw the money tables. Today they are still in full bloom. Why, because those in the know the money cycle is there in the electorate tax dollars with one advantage for the government to be able to print and exhaustive supply of money.


Posted by: Megalomania on January 30, 2009 at 10:40 AM | PERMALINK

01-30-09

The economy will rebound in about 60 months.

Will my retirement?

Will house values actually regain their losses?

Will corporations hire back the millions that have been laid off?

Don't count on it.

Rush, you're gonna get your wish, except that it was GEORGE and the GOP that failed.

God Bush America! And he did.

1/30/09 the day the planet woke up to the fact that capitilistic greed sucks.

Posted by: Tom Nicholson on January 30, 2009 at 10:50 AM | PERMALINK

If stimulus always means more, then how about we add 50% to the defense budget? No, yes?

Actually, defense spending is part of what was the final push to get us out of the Depression. All we have to do is convert all of the automobile factories to build tanks and bombs, have Boeing build thousands of fighter jets instead of airliners, send 12 to 15 percent of our able-bodied workers overseas to fight to free up jobs, and institute rationing so Americans will be forced to save.

I'm sure you'll be the first in line for your sugar coupons, right?

Posted by: Mnemosyne on January 30, 2009 at 10:59 AM | PERMALINK

Red State Mike, why are you continuing to babble about defense spending when you were already told that it's already budgeted -- and one of the biggest line items it the budget, yet?

Are you trying to burnish your credibility but trying to appear stupid instead of dishonest? Those of us here know you can be both at once.

By the way, we wouldn't need to rebuild the Army if your precious President Bush hadn't wrecked it by his incompetence.

Jackass.

Posted by: Gregory on January 30, 2009 at 11:16 AM | PERMALINK
A Keynesian "stimulus" by definition is more government spending.

False. A Keynesian stimulus is government actively redirecting money from places where it has a low velocity in the domestic economy to places where it has a higher velocity, usually through increased deficit spending, which is not the same thing as increased overall spending, though that's frequently a component of actual Keynesian stimulus. Targetted tax cuts even without spending increases can be Keynesian stimulus (across the board tax cuts, and particularly such cuts in income taxes given the US's current tax structure, are empirically not particularly effective stimulus, but that doesn't mean that properly structured tax cuts cannot be useful.)

Posted by: cmdicely on January 30, 2009 at 11:39 AM | PERMALINK

Not all money spent produces the same result. Go blow your cash on candy, and the only stimulus you may get is at the dentist's office.
Posted by: Charles

No, you would stimulate the candy makers and their entire supply chain including sugar production etc. Same as with defense.

The top tier of defense contractors are defense-focused, but many (most?) of the supply chain are not defense-exclusive. And repair work is done at military depots and can be done at a much broader variety of companies.

Posted by: red state mike on January 30, 2009 at 11:42 AM | PERMALINK

Actually the American rail system is so out dated and behind times of modern culture it is a system that is working deficiently and ignored. Compared to Europe, Americas interlinking system fall way short and even in many cases obsolete ignored and poorly managed.
Posted by: Megalomania

I'm sure throwing another billion at AMTRAK will help. With that kind of money (if spent on rolling stock it will result in jobs) they ought to demand some changes in order to possibly correct an unbroken 40 year record of losing money.

Posted by: red state mike on January 30, 2009 at 11:46 AM | PERMALINK

cmdicely - "False. A Keynesian stimulus is government actively redirecting money from places where it has a low velocity in the domestic economy to places where it has a higher velocity, usually through increased deficit spending, which is not the same thing as increased overall spending, though that's frequently a component of actual Keynesian stimulus."

Well, I'm reluctant to challenge the formidable cmd, but I think that what Keynes originally advocated was counter-cyclical deficit spending. It's not obvious to me that that is equivalent to cmdicely's formulation.

Posted by: capitalistimperialistpig on January 30, 2009 at 12:11 PM | PERMALINK

MattYoung@ 10:10 AM.

I have no idea what you are intending to say here. It lacks internal logic or obvious connection to the topic of the initial sentence. I think you should try to reformulate your objection more clearly.

Posted by: capitalistimperialistpig on January 30, 2009 at 12:18 PM | PERMALINK

In regard to Amtrak, if we could just restore the nationwide double-track train system we had before the highway system was created I would bet that Amtrak would be the most popular means of transportation in the country in a very short time.

The way it is now with our skimpy single-track system, passenger trains have to pull over every time a freight train approaches from the other direction, which is often. This results in hours of delays repeatedly which screws up the whole system and is majorly responsible for its miserable financial performance.

Building rails as well as rolling stock would create jobs, reduce shipping costs, reduce the number of vehicles on the roadways and the pollution they cause, and encourage the use of alternative fuels in train engines among other benefits.

I really don't know of any other project that would have as much "bang for the buck" as this one.

Posted by: Curmudgeon on January 30, 2009 at 1:40 PM | PERMALINK

The banking system has apparently contracted credit availability, so the government needs to counteract that by injecting it's capital into the economy. Focusing on defense would put the money into the hands of fewer people than by distributing it around. I also agree that items which are separately funded should probably not be in the stimulus program, unless it's to boost spending on those items to unusually high levels. I also happen to be one who feels we're already spending too much on the military, so shifting resources from there to other things would naturally be some improvement. In any event, spending on things of lasting value has to be better than subsidizing the sugar industry and such.

The risks are that we'll push too little cash into the system and not stabilize it or that we'll push too much and sometime down the road when the economy gets going we'll have too much cash in the system and it'll give us price inflation.

The biggest danger though is in dilly-dallying too long and not getting on with fixing bad mortgages. That's at the root of the banking problem and must be fixed.

Posted by: MarkH on January 30, 2009 at 11:09 PM | PERMALINK

Back to Steve's "There were some expectations that the economic contraction would be even worse -- some were predicting a 5.5% drop -- but that's cold comfort."

Super-cooled comfort. I just read a market report that had several analysts saying that investors had been hoping for the bigger drop as a sign that we're at or near the bottom, and took the more moderate drop (along with some bad first-quarter indicators) as a sign that it's going to get worse.

Don't know if I believe it; don't really know that I understand it. But there it is.

Posted by: Suzii on January 31, 2009 at 1:43 AM | PERMALINK




 

 

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