Big Government and the Bailouts Saved the Day

Krugman:

So it seems that we aren’t going to have a second Great Depression after all. What saved us? The answer, basically, is Big Government.

Just to be clear: the economic situation remains terrible, indeed worse than almost anyone thought possible not long ago...

For all that, however, the latest flurry of economic reports suggests that the economy has backed up several paces from the edge of the abyss...

So what saved us from a full replay of the Great Depression? The answer, almost surely, lies in the very different role played by government...

Probably the most important aspect of the government’s role in this crisis isn’t what it has done, but what it hasn’t done: unlike the private sector, the federal government hasn’t slashed spending as its income has fallen...

In addition to having this “automatic” stabilizing effect, the government has stepped in to rescue the financial sector. You can argue (and I would) that the bailouts of financial firms could and should have been handled better, that taxpayers have paid too much and received too little. Yet it’s possible to be dissatisfied, even angry, about the way the financial bailouts have worked while acknowledging that without these bailouts things would have been much worse.

The point is that this time, unlike in the 1930s, the government didn’t take a hands-off attitude while much of the banking system collapsed. And that’s another reason we’re not living through Great Depression II.

Last and probably least, but by no means trivial, have been the deliberate efforts of the government to pump up the economy. From the beginning, I argued that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, was too small. Nonetheless, reasonable estimates suggest that around a million more Americans are working now than would have been employed without that plan — a number that will grow over time — and that the stimulus has played a significant role in pulling the economy out of its free fall.

All in all, then, the government has played a crucial stabilizing role in this economic crisis. Ronald Reagan was wrong: sometimes the private sector is the problem, and government is the solution.

And aren’t you glad that right now the government is being run by people who don’t hate government?

Yglesias points out that "“bailouts saved the economy” and “bailouts were structured so as to be very favorable to politically influential financiers” are not exclusive options."

I think that's right. The stimulus worked, but it could have worked better if it had been targeted solely at... stimulus, and less at, oh, say Goldman Sachs.

If there are any responsible Republicans left, please take lessons from this for the healthcare debate. You can't stop it, like you couldn't stop the stimulus. (In fact you shouldn't stop it, like you shouldn't have stopped the stimulus.) But if instead of fearmongering and holding your breath and throwing tantrums, you direct your opposition to things that actually should be opposed, you could affect positive change.

With regard to the stimulus, you could have held your fire, not smeared Obama as Stalin-incarnate, not ridiculed the very idea of stimulus, and instead insisted on making sure that the stimulus was as trim and directed as possible. Oh, you'll say you did argue against some of the waste and misdirected funds, and of course you did, but that was lost among the greater lunacy.

Now you have an opportunity to make sure that the health care plan does what it sets out to do rather than rewarding corporate interests at the expense of everybody else. But you've got to stop lying about everything, smearing Obama as a socialist, pretending that Obama's coming for grandma, insisting that government can never do good, and generally engaging in fearmongering. Instead, be a responsible opposition party. The Dems put forward a plan, respond with the same plan slightly improved. Stay on message. Say you support the plan, but you want to include tort reform. Or you want less money for X and more for Y. You can do that. If you put all your energy on making the plan better and none of it on insanity, you could not only cause a better health care plan, but take great strides in restoring a civil democracy.

Or you can scream "Socialism" and tear at your hair and have to live with whatever the Democrats manage to ram through without your help. Your choice.

Newsflash: Media Still Really Really Not Liberal

What with Democrats owning the White House and Congress and the media being allegedly liberal, one would expect the debate over the most important issue of the day to be slanted heavily to the left. It's not, because the media are not liberal but incompetent, offering "two sides" of any debate without any perspective on whether those two sides have anything remotely to do with the truth.

The Democrats and most economists believe that the economy requires a stimulus package. Obama, being a moderate kind of guy, chose a moderate number for the size of the stimulus, as compared to the numbers suggested by economists. The Republicans, on the other hand, staked out an insanely far-right position: a spending freeze. (A freeze? Holy crap, we dodged a bullet in the last election. What if McCain had actually followed through on the Hooverian rhetoric?)

So the media, incompetent approval-seekers that they are, dutifully accepted those two positions as representing opposite ends of the spectrum and has presented them as such. The result is a "debate" wildly skewed towards the right.

This happens on many issues. In the lead-up to the Iraq war, the right staked out the "we must invade" position, while the left took to a moderate "let's wait and see" position. So the media dutifully framed the debate that way, effectively making the new center the "we'll probably invade soon, but we'll pay a little lip service to waiting first."

Krugman:

One major sin of news coverage, especially on TV, is the way certain points of view just get excluded from consideration — even if many of the best-informed people hold those views. Most famously and disastrously, the case against invading Iraq was just not heard in the months before the war.

And still it happens. According to the invaluable Media Matters, the idea that the Obama stimulus plan might be too small — a view held by many well-known economists — basically went unreported on broadcast news during the stimulus debate. Out of 59 broadcasts addressing the plan, only 3 mentioned concerns that the plan was inadequate. And it’s actually even worse than that: one of those three involved Harry Reid talking about longer-term goals on health and education — and one of the other two was me.

Meanwhile, it’s rapidly becoming clear that yes, the plan was too small.

The future of our economy is at stake. And it's at risk because the Republicans are better at framing the debate and the media are too cowed to correct for it.

Obama should have opened with a 1.3 or 1.5 trillion dollar package, with almost no tax cuts. The Republicans would have stuck to their extreme, and the media would have framed the debate so that a $750 billion stimulus with $300 billion in tax cuts appeared to be the moderate, centrist position it is. And who knows? We might have even gotten a stimulus big enough to fix things. Now we just have to hope.

Republican "Economics" and Propaganda

Nobel-winning actual economist Paul Krugman:

But the part that really got me was Broder saying that we need “the best ideas from both parties.”

You see, this isn’t a brainstorming session — it’s a collision of fundamentally incompatible world views. If one thing is clear from the stimulus debate, it’s that the two parties have utterly different economic doctrines. Democrats believe in something more or less like standard textbook macroeconomics; Republicans believe in a doctrine under which tax cuts are the universal elixir, and government spending is almost always bad.

The Republicans are really pissing me off. They have no legislative power, but they continue to play the media like a fiddle. Democrats control the White House, the Senate, and the House, but the great "liberal" media has had twice as many Republicans as Democrats on t.v. discussing the stimulus package.

And the Republicans are singing the same song as always: tax cuts! Wait, they're singing that other song, too: the experts are wrong! It's so obvious! So what if basically all the scientists in the world say that anthropogenic global warming is happening? All you need is common sense to tell you that's a lie! What do those stupid scientists know?

Now economics is a much softer "science" than climatology, it's true. But it's not like economists are dumber than your average television pundit. They're smart, and they base their opinions on data. And when the data change, their opinions change.

Republicans, on the other hand? Different data, same opinion. Economy booming? Tax cuts! Gas prices rising? Tax cuts! Economy tanking? Tax cuts! Two wars? Tax cuts!

Another article by Krugman, called Bad Faith Economics:

As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending.

Some of these arguments are obvious cheap shots. John Boehner, the House minority leader, has already made headlines with one such shot: looking at an $825 billion plan to rebuild infrastructure, sustain essential services and more, he derided a minor provision that would expand Medicaid family-planning services — and called it a plan to “spend hundreds of millions of dollars on contraceptives.”

But the obvious cheap shots don’t pose as much danger to the Obama administration’s efforts to get a plan through as arguments and assertions that are equally fraudulent but can seem superficially plausible to those who don’t know their way around economic concepts and numbers. So as a public service, let me try to debunk some of the major antistimulus arguments that have already surfaced. Any time you hear someone reciting one of these arguments, write him or her off as a dishonest flack.

...

Next, write off anyone who asserts that it’s always better to cut taxes than to increase government spending because taxpayers, not bureaucrats, are the best judges of how to spend their money.

Here’s how to think about this argument: it implies that we should shut down the air traffic control system. After all, that system is paid for with fees on air tickets — and surely it would be better to let the flying public keep its money rather than hand it over to government bureaucrats. If that would mean lots of midair collisions, hey, stuff happens.

The point is that nobody really believes that a dollar of tax cuts is always better than a dollar of public spending. Meanwhile, it’s clear that when it comes to economic stimulus, public spending provides much more bang for the buck than tax cuts — and therefore costs less per job created (see the previous fraudulent argument) — because a large fraction of any tax cut will simply be saved.

This suggests that public spending rather than tax cuts should be the core of any stimulus plan. But rather than accept that implication, conservatives take refuge in a nonsensical argument against public spending in general.

Obama preemptively compromised with the Republicans by providing huge tax cuts as part of the stimulus package. In return, he got nothing. ZERO Republican votes in the House. Let's hope he stops pretending that the Republicans are acting in good faith or have any good ideas at all sooner rather than later. There's no sense in weakening the stimulus, and therefore the economy, to appease a bunch of know-nothing dogmatists with no actual power.

I've leave you with a quote from the genius just voted RNC Chairman:

You and I know that in the history of mankind and womankind, government—federal, state or local—has never created one job. It’s destroyed a lot of them.

Clearly a rational man well-versed in economics and history.