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Was The Lack Of Economic Recovery Inevitable?

John Cole writes:

[T]he reason Democrats are going to lose seats is the simple fact that the economy sucks and really, even if we were to have another stimulus, it looks like it is going to suck for a long time. If unemployment were at 5% and the DOW was humming along and we could still fool ourselves into thinking we had it good because we were using our houses as ATM’s, we wouldn’t be talking about messaging and the Obama economic team. As it is, there is really nothing that government can do to bring that back, and we’re dealing with a day of reckoning that was a long time coming.

(Emphasis supplied.) So "nothing could be done" seems to be the latest defense of Democratic governance the past 2 years. I suppose that's possible, but it is not a winning message. If "everyone" knew "nothing could be done," the Dems should have spent the past 2 years making the GOP block everything, so they could blame this all on the GOP. Things were pretty "post-partisany" for 2009 at least. Some one messed up, either on policy, or politics, or both.

Speaking for me only

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    What staggering stupidity (5.00 / 4) (#1)
    by Dadler on Sun Aug 22, 2010 at 04:32:35 PM EST
    The government would only be powerless -- ONLY -- if money were an actual living organism and not the complete CREATION of government itself.

    The "nothing can be done" notion is just the modern version of "let them eat cake."

    We not only worship money, we insulate from responsibility those who manipulate it for the greatest ill.

    We. Are. Dim.

    I wonder if Cole's post is being misread (5.00 / 1) (#8)
    by Romberry on Sun Aug 22, 2010 at 08:30:33 PM EST
    I don't read Cole as saying that the government can't do anything to stimulate the economy, I read him as saying that the government can't bring back the burst EZ credit/ATM housing bubble. And on that I think he's right.

    Bubbles burst. Only a fool tries to re-inflate them.

    Parent

    I suppose they will disavow (5.00 / 3) (#2)
    by andgarden on Sun Aug 22, 2010 at 05:01:11 PM EST
    Paul Krugman more directly this time, then?

    It's been written (5.00 / 5) (#3)
    by Jackson Hunter on Sun Aug 22, 2010 at 05:11:38 PM EST
    before, Obama cannot fail he can only be failed.  If he had dedicated that year to job creation and economic development that he wasted in bringing us a Health Insurance Reform program that is deeply unpopular, perhaps people would at least feel better about the future and have some hope.  Obama isn't the cause of these problems, but he was hired to help fix them, and he has gone through a series of half-measures that, while helpful, have not been near enough.  Obama did stop the freefall, and he deserves a lot of credit for that, but stopping the fall is not enough, he has to lead us back onto the heights, which hopefully will be far more stable than they were previously.  Which is why we need to implement our ideas, to stabilize the system so that the highs are built on a solid foundation.

    And of course, us icky Liberals and Leftists have to take the most blame because we are so full of unreality that we expect the Party after two wave elections to, you know, actually garner some real results and to help push our society back to the middle/left.  I'm such an awful whiner, that I believe people should not be forced out of their homes and that we should protect the safety net instead of appointing commissions full of people looking to eviscerate it.  Perhaps the Catfood Commission is just a show, but if it is it's a stupid one.  It angers the base and does little to mollify independents, who Obama has already lost with the aforementioned giveaway to the Health Insurance Corporations.  

    Obama and the Dems are in deep poo, and this whistling "Happy Days Are Here Again" past the graveyard is getting a little grating.  We're supposed to be the the reality-based community, not a bunch of drunk Freshmen at a college game.  (I can't wait for College football either BTD.)

    Jackson

    College football rewards -- (none / 0) (#4)
    by Cream City on Sun Aug 22, 2010 at 05:21:18 PM EST
    one way or another -- those who give it their all and go all out for the goal.

    Politics, not so much.  

    Yeh, football will be refreshing.  Even pro ball.  (Btw, go Pack! great fourth quarter last night.)

    Parent

    Totally OT (none / 0) (#5)
    by nycstray on Sun Aug 22, 2010 at 05:47:59 PM EST
    a certain QB is playing tonight against my 'new/old' team the '9ers. Could be festive . . . .

    still in the J.E.T.S fan club . . ..

    Parent

    Yes, by all means (none / 0) (#15)
    by cal1942 on Sun Aug 22, 2010 at 11:48:45 PM EST
    let the college football season begin.

    It will be a relief to be engaged in something that actually brings the exhilaration of hope.

    A 10 win regular season is possible if there are no injuries to key players and the defensive backfield improves and the D Line improves and the O Line can do a better job of run blocking.

    Parent

    Here's the way it seems to work (5.00 / 3) (#6)
    by ruffian on Sun Aug 22, 2010 at 06:10:41 PM EST
    in my most cynical moments:
    Given that most pols have no real ideas about what they want to accomplish other than getting/keeping a prestigious job:
    1. They read the polls to see what the public thinks the biggest issues are. in 2009 those were health care and the economy.
    2. They decide they need to 'do something' about those things. Note that they have no personal interest or commitment, just the knowledge that voters want them to 'do something'
    3. They gather the lobbiests and the vote counters to figure out what they can pass that will satisfy the lobbiests.
    4. Now the rhetoric starts. To supply the rhetoric, they may engage real experts that write the speeches that say things like ' the current health care system is unsustainable' and 'the economy is close to a depression'. This rhetoric is true, and most of the people know it is true, because they see it all around them. But the politician himself does not really believe it. He just sees it as part of the sales job.
    5. 'Something' gets passed. Its inadequacies are either invisible or excusable to the politician. After all, he did all the lobbiests and vote counters said he could do.

    The fail point is of course that there is little if any real world expertise or practicality into what gets enacted. And no leadership with a real plan.

    I'm a little disgusted.

    Damn! (5.00 / 2) (#16)
    by lilburro on Mon Aug 23, 2010 at 01:07:44 AM EST
    The Picture of Dorian Gray in all its ugly detail....

    Nonetheless, what else can you conclude from these people?  They work like hell to elect Obama for what?  I don't recall anyone saying in 2008 "no one can fix the economy."  That was not the message - from Obama, or from bloggers.  

    Parent

    The economy is "fixed"... (5.00 / 2) (#17)
    by Romberry on Mon Aug 23, 2010 at 04:45:41 AM EST
    ...for the elite people and entities that count. Corporate profits are close to record levels. Wages for the working class are flat or in decline. The extremely rich are back to raking it in. Wall Street is rolling in dough with record bonuses once again on the way. What is there to complain about, especially with the vast majority of the populace apparently ready to sit there and take what they get or even ready to beg for more of the same because they dream of one day being one of the elite. What could be better? What needs fixing?*

    Like Dean Baker said:

    (T)he politicians work for someone else.  On Election Day, the politicians might need our votes, but they won't get to be serious contenders unless they've gotten the campaign contributions of the big money crew. And the moneyed elite has been using its control of the political process to ensure that an ever larger share of the economy's output is redistributed upward in their direction.

    *I'm not asking what needs fixing from the POV of us lowly proles. I'm asking what needs fixing from the POV of the elite. I think from their POV, things are just fine.


    Parent

    The fix is in all right (none / 0) (#19)
    by ruffian on Mon Aug 23, 2010 at 08:37:17 AM EST
    No doubt about that.

    Parent
    The government should NOT... (5.00 / 5) (#7)
    by Romberry on Sun Aug 22, 2010 at 07:35:34 PM EST
    ...seek to bring back the housing ATM machine (though the misgided efforts to reinflate the burst housing bubble are at some level exactly that) or the EZ credit that made those home purchases/ATM withdrawals possible.

    The issue is that over the last 30-40 years we have seen "new and innovative" financial products (read "E-Z credit") substituted for wages (which have essentially stagnated or declined for the masses.) The substitution of credit was a "solution" to the need to prop up consumption and maintain growth.

    What we need to do is address the vast and growing income inequality which has seen the slice of the pie going to the top 1 percent (or more accurately, the top 0.1 percent) to the point that we are now back to the levels of inequality which preceded the Great Depression. It's the New Gilded Age.

    You can't have broad based prosperity and a solid middle class in an economy where the system is rigged to concentrate the wealth in the hands of the few. The E-Z credit "solution" is self-limiting and lasts only so long as people can shoulder more debt burden. At the point that the burden becomes too much to bear, the "solution" collapses like the house of cards that it is.

    Dean Baker's recent article in the HuffPo (When Wall Street Rules, We Get Wall Street Rules) is aimed in the generally right direction.

    We've had top down class warfare in the United States for more than three decades now. That warfare has been aided and abetted by both major political parties and their worship of "free markets" that are actually rigged, not free. And the changes to the tax code that see regular income taxed at higher rates than cap gains, that allow hedge fund managers to pay cap gains rates on the carry have been part of the problem.

    Bringing a sound economy back is going to require that we re-institute some New Deal style policies.

  • The minimum wage must be restored to a level comparable (in inflated dollars) to what it was in the late 60's to early 1970's.

  • Taxes must become much more progressive, with rates so high as to be nearly punitive on extremely high (7 figure +) incomes.  

  • Some form of import regulation which takes into account the real costs of imports (including the lack of environmental and worker protections in the exporting nations) has to come into effect. You can't ask American workers who work in a nation that has pollution controls, environmental protections and rules/laws on workplace safety to compete against workers in nations where these things (and their associated costs) are not present. That isn't free trade, that's rigged trade.

    I could go on, but I hope you see where I'm headed. Basically, we've been sold a bill of free market goods that looked like lovely chocolates but which in reality was no more than fecal matter wrapped in nice paper.

    A new paradigm...or maybe a return to an old paradigm...is in order.

    Regardless, Cole is right in so far as he says the government can't bring back the housing ATM. Not only can it not, but it must not seek to. To do so or continue to do so is just a waste.

    It's time to stop propping up banks and start propping up people. As Baker said in his HuffPo piece:

    If this disaster was preventable and we know how to get out of it, why didn't our leaders try to stop it before it happened? Why don't they take the steps necessary now to get the economy moving again?

    The answer to both these questions is simple; the politicians work for someone else. On Election Day, the politicians might need our votes, but they won't get to be serious contenders unless they've gotten the campaign contributions of the big money crew. And the moneyed elite has been using its control of the political process to ensure that an ever larger share of the economy's output is redistributed upward in their direction.

    It's time for a change. Real change. Not the illusion of change.

  • Hear hear. (5.00 / 1) (#9)
    by PatHat on Sun Aug 22, 2010 at 08:36:28 PM EST
    and don't forget getting American workers back into the manufacturing game. Being innovative used to be our strong point. I am not sure we really have that in us anymore, but the Govt needs to prime the pump for Green Energy, better transportation and other essentials that we can build and use here. If nothing else, it's a national security issue having to buy all our stuff from China with raw materials from Africa.

    Parent
    Obama and Geithner and Summers (5.00 / 3) (#10)
    by Edger on Sun Aug 22, 2010 at 08:41:55 PM EST
    bailed out their friends on wall street with something in the neighborhood of 18 to 20 trillion dollars, to save them from their self created subprime mortgage mess when mortgage backed securities lost all their value due to CDO selling.

    They could have, if it had occurred to them, paid off every single mortgage in the United States, subprime or not,  for about 12 trillion dollars, which would have saved wall street from their self created mess, by restoring the value behind those securities.

    And it would have been a not half bad stimulus of demand and the consumer driven economy...

    You just don't understand (5.00 / 8) (#11)
    by ruffian on Sun Aug 22, 2010 at 08:57:08 PM EST
    the moral hazards involved in bailing out common people that make mistakes as opposed to bailing out the masters of the universe that prey on them.

    Parent
    Well, I've always been a little clueless (5.00 / 1) (#12)
    by Edger on Sun Aug 22, 2010 at 09:25:20 PM EST
    I never could figure out why people complain about Obama so much. After all, he did promise to be completely transparent. And he lived up to it. ;-)

    Parent
    Not at all! I have had the benefit of (5.00 / 1) (#18)
    by ruffian on Mon Aug 23, 2010 at 08:35:41 AM EST
    proposing just such a plan as you did and have been corrected in the error of my ways.

    Parent
    See Ian Welsh for a less exculpatory view (5.00 / 1) (#22)
    by lambertstrether on Mon Aug 23, 2010 at 01:17:20 PM EST
    Here:
    Obama chose to not just ask for too little money in his stimulus, but spent the money very badly even outside of the hugely useless tax cuts.  The money did not give the economy an obvious medium term direction: either a huge telecom build-out or an energy and conservation build-out, and the huge bailouts for financial firms created a more concentrated financial sector full of zombie banks with no intention to lend money.  The failure to create a workable cram down on housing prices which also rescued underwater home owners has left housing prices underwater and credit markets still sclerotic.  With the House either going Republican in the fall, or if it remains Democratic with the Democratic margin being controlled by hard-core Blue Dogs, even if Obama did buy a clue, there is little chance that a decent restructuring stimulus bill could get through Congress and the actions of regulatory bodies like the FCC, the Justice department, as well as Obama's implicit recognition of the health oligopoly, make it clear that his administration has no intention of challenging, let alone dismantling, the oligopolies which are draining the life blood of the US polity.

    Plus ca change...

    Cole's just an Obama fan. Why quote him?

    Inevitable? (3.50 / 2) (#14)
    by cal1942 on Sun Aug 22, 2010 at 11:23:48 PM EST
    Well, judging by who was nominated and elected I'd say lack of recovery was inevitable.

    Recovery by government action is not only possible but the only way that real recovery can be achieved.

    With this group.  Don't hold your breath.  The only change Obama ever intended to bring about was insuring that the Democratic Party was changed completely into a right of center party.  The transformative change was narrowing our choice to right and farther right.

    I know I sure as hell don't know what to do about that last part.  We're really screwed.

    so what are you going to do ... (none / 0) (#21)
    by nyrias on Mon Aug 23, 2010 at 12:51:58 PM EST
    in Nov? Vote for the republicans? Not vote? Sulk all day?

    Parent
    Not voting for GOP or Dems (none / 0) (#23)
    by PatHat on Mon Aug 23, 2010 at 01:52:07 PM EST
    I will vote for someone closest to my views, but not on either major party line.

    Parent
    Ignoring (none / 0) (#24)
    by cal1942 on Mon Aug 23, 2010 at 02:31:35 PM EST
    your tone, I'll give a straight answer.

    Straight Democratic.


    Parent

    Can't speak for cal1942 (none / 0) (#25)
    by sj on Mon Aug 23, 2010 at 02:50:11 PM EST
    But personally, I'll be sulking all day whether I vote or not.

    Parent
    Two doses of contraction never (none / 0) (#13)
    by Militarytracy on Sun Aug 22, 2010 at 10:26:50 PM EST
    needed to happen.  Continuing to prop up the insolvency in the financial industries that are being nurtured by the Fed is sucking all the vitality right out of the economy.  We must suffer the defaults and then rebuild, and then we will have reason to seek to rebuild too.  But it won't happen until everything has crashed and burned because if we meant to do anything meaningful at all we would have real finance reform right now.  What we ended up getting is only making certain that we will brush right up against a second great depression if not fall right into that hole for a second time in recorded history.  This has been policy failures upon policy failures because we actually had laws on the books that would have addressed the insolvency and they decided to roll those laws back in ways that allow financial institutions to be insolvent and in business by draining the Fed.

    Exactly (none / 0) (#26)
    by Slado on Tue Aug 24, 2010 at 10:26:37 AM EST
    The system was working when it crashed in 2008.

    The pyramid scheme of debt was a bubble of epic proportions.   The market rightly and predictably corrected itself.   Problem is our fearless politicians couldn't admit what a collective mess they'd left us.   There was no economic logic to why homes in AZ, FL and CA where rising at 10% per year in some cases.   The premise was false.   Homes are not money makers, historically or realistically, and building an entire economy on a false premise led to a massive debt burden for individuals, companies and the government.

    What was team Washington's bipartisan response?

    Kick the can down the road.   Ignore what got us into the mess, bail out the big banks and homeowners and act surprised when the same massive debt burden appears 2 years later only worse.

    Some on this site would have us believe that if we'd simply borrowed and printed more money (IE More debt) this would all have magically disappeared.   That doesn't pass the smell test IMHO but either way democrats own this economy now and whether you think more or less spending would have fixed it the end result is obvious to everyone.

    If apologists what to say that Obama couldn't have done what was right because of partisan politics and legislative reality thats once thing but he had a plan, he implemented it and the results are what they are.

    The only inevitability IMHO are the results we now find ourselves in because we chose to solve the problem with the same polices that created it.

    Now Obama is saying to give him more time.  2 years isn't enough time.  He will keep slamming his head against the wall and we should expect different results 2 more years from now.

    I won't hold my breath.

    Parent

    when john coles (none / 0) (#20)
    by cpinva on Mon Aug 23, 2010 at 10:46:49 AM EST
    is awarded a nobel prize in economics, i'll start to take his opining on the subject seriously.

    paul krugman (who actually has been awarded a nobel prize in economics) seems to differ with mr. coles, regarding the government's ability to directly affect the economy. it's that old "Keynsian Economics" thing, from the first great depression.

    dr. krugman provided a road map to recovery, which the obama administration has consistently ignored, because it might upset republicans, who wouldn't vote for it anyway. instead, they've chosen to try and placate the "deficit hawk" crowd, concerned about stuff that might happen, in some unknowable future time.

    to his credit, pres. obama was the first to admit he knew little about economics. to his discredit, he's chosen, as advisors, people who seem to know even less about the subject then he does.

    Krugman is wrong (none / 0) (#27)
    by Slado on Tue Aug 24, 2010 at 10:34:45 AM EST
    And this Nobel economist says so.

    I simply can't understand the premise that the biggest stimulus American history didn't work because it wasn't big enough.   How does a debt problem get solved by more debt?   The multiplier effect?  Malarkey.

    This argument defies reality IMHO and it really doesn't matter what I think a majority of the country agrees with me and the days of stimulus are dead for a while.   Thank goodness.

    Parent

    Oh and (none / 0) (#28)
    by Slado on Tue Aug 24, 2010 at 10:50:28 AM EST
    this guy too thinks Krugman is wrong too.

    He has studied the multiplier effect and he says in the best of times (during world war) it's 0.8 and in this case probably less.

    I think the evidence bears that out.  Hard to figure why more money times 0.8 is better then less.  In reality you could say its worse because your decreasing the value of more money.  But lets not get bogged down in details.

    This is not to say other economists (some in Barro's own department) don't agree with Krugman only to dismiss the notion that everything he says must not be questioned.  Hooey.  I have read the opinions of both sets of experts and in my small mind determined that on this one Krugman has got it wrong.

    Parent