The Graph Of Doom: It’s Time To Get Real About the Stimulus

Recession

Take a moment and study the graphic above. You are looking at the arc of job losses during the last three recessions, 1990, 2001, and 2008-09 and counting. The graphic traces how long it took once the economy began to shed jobs until it returned to original overall number of jobs. One caveat: these are raw numbers, not adjusted for overall population increases, so the relationship between the three lines might adjust subtly if you plotted job losses per population. But the trajectories wouldn’t change.

Let that picture sink in and then come over the Metro I-4 News to read my take on the stimulus bill working through Congress and the nihilistically silly arguments the Rush Limbaughs of the world are making against it.

[box type=”shadow”]UPDATE: July 14, 2011 Editor’s Note: Since MetroI4News is down for reconstruction, we’re publishing the article here as originally written.[/box]

Recession

Take a moment and study the graphic above. You are looking at the arc of job losses during the last three recessions, 1990, 2001, and 2008-09 and counting. The graphic traces how long it took once the economy began to shed jobs until it returned to original overall number of jobs. One caveat: these are raw numbers, not adjusted for overall population increases, so the relationship between the three lines might adjust subtly if you plotted job losses per population. But the trajectories wouldn’t change.

Let that picture sink in.

We are riding the green line right now. This period of job loss already exceeds by an order of magnitude anything anyone my age really remembers. And the overall economic condition is different – and far worse – than anyone except the very eldest among us remember. The economy has already been in recession for more than a year, and the downward slide is accelerating. Most modern recessions run their course within about a year, as you can see here.

No recession since the Great Depression has lasted even 600 days. But 400 or so days into this one, no one sees an end yet, and it’s getting worse. I can’t emphasize that enough.

Friday morning, I ended up in a civil and intellectually stimulating argument on WLKF with Mayhem-in-the-Morning host Seth Mela. (I was listening because my wife Julie was on to promote First Friday. It was a little surreal to talk economics with guys who had called her a “hottie” a few minutes before, but I couldn’t help myself.) Mela had been attacking the government spending in the proposed versions of stimulus plan, echoing the Rush, Hannity, and Joe-Not-A-Plumber mantra of pork barrel, private sector, socialism, etc….I swear, it’s like a chant at a football game. I noticed Mr. MacMeekin recently used the same spiel. Echoing Rush’s party line, both Mela and Mr. MacMeekin insist that the New Deal didn’t help pull us out of the Depression. MacMeekin even goes farther, saying that World War II didn’t do it either. Only the conditions caused by World War II and the Depression lifted us out of the Depression, he argues, which I find to be a classic angels-on-the-head-of-a-pin bit of obtuse thinking. It’s sort of like saying the gas in my car doesn’t work, it only allows me to drive from one place to another.

And somehow the socialist Democrats are responsible for all the bad stuff that happened from the Depression forward and none of the good stuff. Like I said, it’s a very strange post.

But it makes for a useful jumping off point for rummaging through the nihilistic silliness Rush-the-Plumber conservatives are now spouting. What follows is very long. I’m sorry. It’s as much a way to collect my thoughts for future use as it is a post, but I hope you’ll read through it. It’s a piece-by-piece examination of the general criticisms one hears of the stimulus plan and my reaction to them.

1) Why do we need a stimulus? And did the New Deal work? Actually, I’ll take the second question first. I am neither an economist nor a historian. But I can read graphics and assess arguments. Herbert Hoover, a Republican, was president between 1929-1933. His record combating the Depression is more complicated than the popular perception that he did nothing and just let everything play out. But he clearly looked at direct government intervention far more skeptically than did the subsequent Franklin Roosevelt administration. And it wasn’t until the very end of his term that Hoover backed a major stimulus bill, which Roosevelt, a Democrat, greatly expanded on with the New Deal. So did the late Hoover and then Roosevelt approach work?

MacMeekin says no. Key quote: “Massive federal programs of the Roosevelt Era were more an effort to improve conditions than they were a statistical success.”

First reponse to that: Economies do not exist to produce statistics; they exist to “improve conditions.” What else the hell is the point?

Second response: Consider this string of unemployment numbers from the U.S Commerce Department: 1929-3.1 percent; 1931-16.1 percent; 1933-25.2 percent; 1937-13.8 percent; 1938-16.5 percent; 1940-13.9 percent. You tell me, did it work? It’s always difficult to prove causation, as opposed to correlation. But clearly, New Deal policies coincided with a time that saw the unemployment rate drop from 25 percent to 13.9 percent by the eve of World War II, while the rough approach advocated by Rush-the-Plumber crowd these days concided with a time that saw it go from 3 percent to 25 percent. Those seem like statistics to me, but perhaps Mr. MacMeekin can explain how they are not.

Liberal economists make a convincing – to me – argument that the recession between 1937 and 1938 came about because Roosevelt bowed to pressure to cut spending before the economy was fully ready for it. But even that recession didn’t send the economy back into collapse. And WW II finished things off by artificially repressing demand and hyperstimulating production.

Perhaps most importantly, people alive at the time perceived that the New Deal worked because they kept voting for Roosevelt over and over again, setting the tone for a national economic and social consensus that lasted until Reagan and probably would still be in place without the backlash to the civil rights movement and 60s era social turbulence. I’ll take my chances with the Roosevelt approach, which also gave millions of idled men something productive to do and left behind lasting, valuable public facililites. I grew up across the street from one in Palatka, FL: the Ravine Gardens State Park, built through a New Deal program. I still, from time to time, go walking and picnicking there with my parents and kids when we visit.

Why do we need a stimulus? is a related, but different question. It has everything to do with two numbers: $2 trillion and 0. The first number is the amount of domestic product that economists predict that will be idled over the next two years. The second is where is the Federal Reserve’s benchmark interest rate stands right now, meaning it can’t be lowered. Most, if not all, recessions in recent history resolved themselves after the Fed lowered interest rates and made money cheaper, thus spurring investment and spending. Virtually every economist I’ve read agrees that interest rate changes (known as monetary policy) have far more power to affect the economy than normal tax cuts and spending plans (known as fiscal policy). However, because of the zero percent interest rate, the Fed cannot do what it has done in every other recent recession. That leaves only fiscal policy with the capability of bridging the $2 trillion, 14 percent gap between real and potential GDP. In that gap lies misery.

To his credit, Mr. MacMeekin very accurately describes the macroeconomic problem. “Today we have a glut – a massive oversupply of houses, autos, computers, appliances, most everything.” Yes. That is true. The credit bubble drove the economy into overcapacity. Mr. MacMeekin completely misunderstands what caused this, and I didn’t see anything resembling a solution or even willingness to address it beyond letting a lot of people die off. But he does accurately describe the problem. My own feeling is that we need to manage the process of matching capacity with real aggragate demand in a way that preserves our police forces, hospitals, water and sewer plants, schools, transportation and energy grids, and basic society in a form that we recognize in 10 years.

Government spending, to my mind, is the only possible tool available to us to accomplish that. All other countries are tanking right now as well. There’s no one to swoop in with money to buy our stuff. And we don’t have money to buy their stuff. Tax cuts right now will just add to the overcapacity. People will either save them, which provides little economic activity, or they will spend them in an artificial boomlet that will prop up capacity temporarily while producing nothing useful. Giving a tax cut to someone who loses their job is not nearly as helpful as allowing that worker to keep his or her job by direct government investment in production.

We will finance this stimulus spending by borrowing more money, which, of course, is dangerous. But we are very fortunate in that U.S. Treasury bills are one of the very few places where people and countries who do have money feel safe putting it. We may eventually very well default on our bonds one day or see a dollar devaluation. That’s a risk. But understand, there is no private sector job creation right now, and it’s hard to see where it will begin again. I think the almost inconceivable social risks of sitting around and watching unemployment surge to 25 percent in five years outweigh the fiscal risks. But I’m definitely out of my field of expertise here, and I’m open to reasoned argument.

2) Stimulus and Pork: Perhaps the most annoyingly stupid aspect of this debate is the, “Oh, it’s all pork, not stimulus, yada, yada…” line.

Take one of the celebrated “pork” projects: Resodding and landscaping the national mall. For a relatively small amount of money, that project would have helped a sod producer, landscaping designers, and landscape workers. And it would have refurbished a vital national symbol that has been allowed to wither into embarrassing condition without creating new overcapacity. But no, Republicans and so-called centrist Democrats would rather give tax cuts to people in the hope that they’ll create new capacity on top of the overcapacity we already have and must destroy.

As President Obama said, spending, of any kind, is stimulus. Certainly, there are debates over what’s most effective. But nowhere is it written that road-building is stimulus, and everything else is pork. That’s just head-smashingly stupid. Read this terrific story in the New York Times about Japan’s decade-plus-long economic morass, which avoided depression through massive and often wasteful stimulus spending focused on beautiful bridges-to-nowhere and other capacity-increasing projects.

Money quote from the piece:

Moreover, it matters what gets built: Japan spent too much on increasingly wasteful roads and bridges, and not enough in areas like education and social services, which studies show deliver more bang for the buck than infrastructure spending. (Emphasis mine)

“It is not enough just to hire workers to dig holes and then fill them in again,” said Toshihiro Ihori, an economics professor at the University of Tokyo. “One lesson from Japan is that public works get the best results when they create something useful for the future.”

Infuriatingly, the Senate version of the stimulus bill trades out direct aid for states, almost all of which would go to help stave off major health care and education service cuts, in favor of pointless tax cuts. That state aid would go immediately into economic circulation by paying doctors, nurses, or teachers, and it would provide a vital service in the process by keeping people healthy and/or educated. Without it, the Polk School District will be furloughing employees. And much worse will come next year.

Building, say, an unnecessary freight superhighway designed to give a private company a dominant future business position with $600 million in tax money isn’t as effective as sustaining the vital economic and social activity around which communities have built their existence.

3) TARP and Stimulus: These are not the same things. Not. The. Same. Things. Mela and Mr. MacMeekin conflate them because Rush conflates them because people hate the TARP, otherwise known as the bank bailout. I also lament the TARP, but the Rush-the-Plumber crowd does not acknowledge the very plausible alternative to it. Had we definitively defeated the baliout back in the fall, it’s entirely likely, though not certain, that massive portions of the nation’s financial system would have gone bankrupt. The practical impacts of that – ATMs not working, runs on banks, insurance policies gone, dogs and cats living together, mass hysteria – would have caused the government to nationalize banking because there would have been no other choice. I probably would have preferred that becasue we may still have to do it, and at least we’d have it over with. But it’s a very tough call. No TARP very, very likely would have meant nationalized banking and insurance. Which of you good conservatives is down with that?

4) Socialism: And honestly, when did socialist become the rhetorical equal to child molester? What is it you think socialism is? Isn’t it just the population, through tax money levied by its elected representatives, paying for and administering a service for the benefit of itself. Guess what, folks. You already live in a highly socialized country. We have socialized national defense, socialized law enforcement, socialized firefighting, socialized foreign intelligence gathering, socialized space travel, socialized water and sewer treatment, socialized enforcement of private sector contracts through the socialized court system and that socialized police force I metioned before. We drive on socialized roads, take our children to socialized parks, and often bury our dead in socialized cemeteries. We have socialized insurance of private sector bank deposits. And we already have a half-socialized health care system. The best, most financially efficient health care system in America, the VA health system, is completely socialized. Socialism encroaches on and/or enhances our quality of life every day. World War II, which most people other than Mr. MacMeekin consider the ultimate nail in the coffin of the Depression, was the greatest act of socialism in the history of mankind – by far. The Marshall Plan, which rebuilt Europe and set the conditions for a half-century of peace and prosperity on that heretofore fractious continent, is probably the second.

Go back and look at that recession history graphic. Mr. MacMeekin and Seth Mela think economic conditions were better before all those socialists started trying to provide basic economic and social security, before the hyperstimulus of World War II worked its grisly, murderous magic. Really? There were eight recessions in the 27 years between 1902 and the crash of 1929. Four of them lasted longer than the longest of the 10 recessions in the 63 years since World War II ended. Eight longer recessions in 27 years is better than 10 shorter in this 63-year post war period? Really? You want to go back to the pre-Depression national economic and social structure? I do not. Most importantly, I don’t want my kids returning there.

There are completely legitimate arguments to have over the role of government. European countries tend to inject it more heavily in their societies than we do – see media, telecommunications, health care, public transit, energy production, and private sector job protection. But don’t kid yourselves, the difference in their brand of socialism and ours – even under St. Reagan – has always been a matter of degree, not kind. We’re not nearly the rugged individualists we pretend to be, thank goodness.

6) Depressions Kill and Destroy. A couple of years ago, I took a walk with my grandmother and other members of my family to the homestead where my deceased grandfather lived as a boy. The lot’s within sight of the St. Johns River. The remains of the house stand within a mini-wilderness of untended trees and underbrush. You can tell the house was once a nice, very comfortable place to live, probably about the size of my own house. My great-grandfather was a prosperous agricultural businessman in land boom Florida. Then the land bust and Depression came. It ruined him, and he sank into alcoholism. My grandfather, as a teenager, found my great- grandfather dead one morning not far from this house. Watching my grandmother walk through a place that represented so much loss for the man she loved was an incredibly moving experience. I’ll never forget it.

My great-grandfather died more than seven decades ago. No one has ever cleared the house and built on that valuable piece of property. It stands as a monument to the awesome and lasting destructive power of economic collapse.

One of my favorite quotations – which I’ve heard attributed to Karl Jung – is: “Those who will not learn will be made to feel.” I don’t pretend to have the answers to what’s coming. I don’t for a second think any stimulus package alone will fix what ails us. But it can help treat symptoms. It can help keep people alive and reasonably productive, while sustaining industries and services vital for our long-term well-being. And it can occupy some of the hordes of young men the marketplace is disgorging into idleness. The alternatives to massive government intervention is – for me – too hideous to contemplate. There’s this sense out there in the ether that this long overdue reckoning is just a matter of taking our flat screens to the pawn shop and keeping those wretched poor kids from wearing the expensive shoes they have no business wearing. We’ll all just tighten our belts and mosey happily onward. It’s like people think the Great Depression was some sort of rustic camping trip where we all learned thrift and got back to nature. It wasn’t.

A good argument can be made that the global economic trauma of the Great Depression brought us Nazisim, Fascism, and internationally viable Communism. It can be argued that nuclear weapons and 6 million murdered Jews are just as much monuments to the Depression as the ruins of my grandfather’s childhood home. What will be the monuments of this looming depression, in a world of far more people, far more heavily armed?

Those are the stakes.

I have a good, relatively stable job, good health care, a ridiculously reasonable house payment, and a paid off 10-year-old Honda that runs like a top. But I know well how much luck contributed to this hard won security and how fragile it is. The misfortunes of friends and acquaintances and faceless people you read about in the shrinking newspaper are always just a heartbeat away from my own life. It’s like that for all of us.

You’re certainly under no obligation to take my word for anything. And I encourage you not to. But don’t take anybody else’s either. You owe it to yourselves, your children, and communities to get informed. Turn off Rush. Read. Think. Don’t just spout “socialism, pork, libruls, and TARP,” as if repeating them often enough turns the chant into an argument or a point. By all means, refute anything I say because I want to be wrong about all of this. But don’t bring weak factless aspersions backed by rants on the Sean Hannity show. If you want to blow up government efforts to stave off a new depression, at least have a good, soundly argued reason. Come strong, because this is not a damn game.