Krugman:

What Martin Wolf Said [--] Obama was too cautious in fearful times.

The bad decisions of January 2009 will cast a shadow on America for years, and quite possibly decades, to come. At this point, what more can those of us who feared this outcome, who tried desperately to get the White House to listen, say?

Indeed, we've said it all before, but it needs to be said again -- "The best hope for a short-term economic plan that can win bipartisan support is a tax cut[.]" Oy. Tax cuts won't get it done. We need to raise aggregate demand and job creation - through government spending. As Krugman also notes - "[P]olicy makers aren’t being let down by standard macro, they’re choosing to ignore it, making up new doctrines on the fly even though the world looks very much the way the textbooks say it should. And somehow, the new doctrines always give a reason not to take action."

Speaking for me only

This opinion is significant in that Laura Tyson is a member of President Obama’s Economic Recovery Advisory Board. Tyson writes:

OUR national debate about fiscal policy has become skewed, with far too much focus on the deficit and far too little on unemployment. There is too much worry about the size of government, and too little appreciation for how stimulus spending has helped stabilize the economy and how more of the right kind of government spending could boost job creation and economic growth. By focusing on the wrong things, we are in serious danger of failing to do the right things to help the economy recover from its worst labor market crisis since the Great Depression.

There is some silliness in Tyson's piece, like this -- "By easing capital market concerns about the government’s future borrowing needs, such a plan would permit larger deficits and slower debt reduction while unemployment is still high." There are no discernible "capital market concerns" about the public debt, as Tyson herself implicitly acknowledges when she states that borrowing costs for the federal government are near all time lows. But for the most part, her message is compelling and necessary. Now if only the President and the rest of his economic team would get on board.

Speaking for me only

Turkana writes:

Businesses aren't creating jobs, and they have no intention of doing so unless they see signs that consumers will again resume spending. Consumers won't be spending as long as they have nothing or too little to spend. It's a feedback loop. There is only one way to break it. It has to be the government. The government has to create jobs. Infrastructure. Clean energy. Mass transit. There are plenty of social goods for government to fund, and there are plenty of people who are willing and able to be trained and employed. It has to happen. And only the government can do it.

This was true in February 2009, July 2009, December 2009, March 2010 and it is true today. The failure of Democrats to make this argument and attempt to shape policy reflecting this reality makes it impossible for Dems to go to the voters and argue (and defend) this policy. Instead, they run a clownish Recovery Summer campaign. This is a political and policy failure. And the political price Dems will pay in November for this failure will be high. The policy result from the political result will make things worse. The real life damage of the Dems' political and policy incompetence will be immense and longlasting.

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Via atrios, the housing market collapses:

Sales of previously owned U.S. homes dropped more steeply than expected in July to their lowest pace in 15 years, an industry group said Tuesday, implying further loss of momentum in the economic recovery. The National Association of Realtors said sales dropped a record 27.2 percent from June to an annual rate of 3.83 million units, the lowest level since May 1995. June's sales pace was revised down to a 5.26 million-unit pace.

FDR created HOLC. The Obama Administration HAMP'd us.

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Reuters:

New U.S. claims for unemployment benefits unexpectedly climbed to a nine-month high last week, yet another setback to the frail economic recovery. Initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 500,000 in the week ended August 14, the highest since mid-November, the Labor Department said on Thursday.

Analysts polled by Reuters had forecast claims slipping to 476,000 from the previously reported 484,000 the prior week, which was revised up to 488,000 in Thursday's report.

How are you liking Recovery Summer?

Speaking for me only

Via Atrios, Yves Smith:

[T]he cost of money is only one factor in a business’s decision to expand, and outside of financial firms, it’s typically a constraint, not a spur. If you run a dry cleaner, are you going to say, “Gee, my borrowing rate went down a point, I think I’ll open that new store”? The fall in the cost of money would change your action only if it was a critical factor, at the margin, and had restricted you. And for the vast majority of enterprises, the decision of whether to grow or not is based first and foremost on their reading of the environment, which includes the strength of the market for their services, the likelihood of competitor response, whether there are steps they can take to alleviate risk, like securing commitments from prospective customers or tying up critical technology or vendors.

Paul O'Neill:[More...]

Yesterday I commented on a Nate Silver post in which Nate posited productivity losses due to raising the marginal rate on top income earners. Today Paul Krugman explains the issue and answers the questions:

[T]he way I see it, even quite high marginal tax rates on high earners — even rates in, say, the 70 percent range that prevailed pre-Reagan — are unlikely to put us on the wrong side of the Laffer curve by discouraging effort. High earners won’t work much less; they might even work harder, because it takes more effort to make enough to buy that fourth home.

That's the conclusion to the question - in short, Nate Silver is wrong to worry about productivity loss due to raising marginal tax rates. For the full explanation, please read Krugman's post.

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The Fed:

Information received since the Federal Open Market Committee met in June indicates that the pace of recovery in output and employment has slowed in recent months. Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit. Business spending on equipment and software is rising; however, investment in nonresidential structures continues to be weak and employers remain reluctant to add to payrolls. Housing starts remain at a depressed level. Bank lending has continued to contract. Nonetheless, the Committee anticipates a gradual return to higher levels of resource utilization in a context of price stability, although the pace of economic recovery is likely to be more modest in the near term than had been anticipated.

Measures of underlying inflation have trended lower in recent quarters and, with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time.

Snarky title reflects my views only

Nate Silver writes:

Squeezing the super-rich is not a panacea. Although the inequity in the income distribution is pretty stark in America today, there just aren't that many people earning over $1 million, or over $5 million, and you probably can't squeeze them that much further before you start to run into some serious issues with productivity losses [. . .]

(Emphasis supplied.) For those of you who do not know, Silver is a wizard sabremetrician, who made his name as statistical analyst regarding baseball. The Godfather of sabremetricians was Bill James, who developed a concept called win shares - which attempts to describe each players contributions to the total wins of the team.

I was thinking about this when Silver expressed his view of expected productivity losses due to higher tax rates for millionaires. As a general proposition, it is unremarkable to say that higher taxes lead to lower productivity on an individualized basis (how the tax revenues are spent could of course offset that individualized loss - i..e - education, infrastructure, research etc.) But is it specifically true in an meaningful way with regard to increasing the marginal tax rate paid by millionaires? To wit, what is the "win share" produced by millionaires to the gross domestic product and how would that be reduced if their tax rates went up? Let's consider on the flip.

NYTimes:

The United States economy expanded at an annual rate of 2.4 percent in the second quarter, after expanding a revised 3.7 percent in the previous three months, the Commerce Department reported on Friday. [. . .] Growth in consumer spending, which is usually a leading indicator of a recovery in part because it accounts for such a large share of the economy, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter, after an annual increase of 1.9 percent in the previous quarter.

The economy is in serious trouble. Will the Beltway wake up to this fact? The Fed seems to be waking up, but what about the President and the Congress? Can you spell double-dip?

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New York Times:

On Thursday, James Bullard, the president of the Federal Reserve Bank of St. Louis, warned that the Fed’s current policies were putting the American economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

[. . .] Mr. Bullard had been viewed as a centrist and associated with the camp that sees inflation, the Fed’s traditional enemy, as a greater threat than deflation. But with inflation now very low, about half of the Fed’s unofficial target of 2 percent, and with the European debt crisis having roiled the markets, even self-described inflation hawks like Mr. Bullard have gotten worried that growth has slowed so much that the economy is at risk of a dangerous cycle of falling prices and wages.

It may be late, but if the Fed is prepared to understand the dire straits of the economy, that is welcome news. Now, if only the Congress and the President could join the battle to save the economy.

Speaking for me only

In response to today's horrendous employment report, the the White House spin is appalling:

Today’s employment report shows continued signs of gradual labor market recovery. Private nonfarm payroll employment increased by 83,000 in June and the unemployment rate fell two-tenths of a percentage point to 9.5%. June marks the sixth month in a row that private sector employment has increased. These continued signs of healing are important, particularly given the recent volatility in world markets and the mixed behavior of other recent economic indicators. However, much stronger job gains are needed to repair the damage caused by the financial crisis and put the millions of unemployed Americans back to work.

This is sheer nonsense. 652,000 left the work force this month. Only 82,000 private sector jobs added. This is unbelievable nonsense from the White House. And to no avail. No one believes it. The White House's delusions on the jobs issue is a clear and imminent threat to the political prospects of the Democrats, in 2010 and 2012.

Speaking for me only