NDN Blog

From Treasury Sectretary Tim Geithner's remarks yesterday in advance of the G20 Summit in London:

The global recession is deepening. The International Monetary Fund (IMF) has estimated that the global economy is likely to contract by 0.5 percent in 2009. Unemployment is rising and world trade is likely to decline by at least 3 percent and probably more in 2009. Last week's jobs report showed that unemployment in the United States rose to 8.1 percent in February. In the fourth quarter of 2008 we saw the biggest quarterly decline in real U.S. exports since 1971. Our economy needs a revival of global growth to complement the stimulus we are injecting at home. U.S. exports, U.S. jobs and the health of the U.S. economy are inextricably linked to the health and stability of the global economy.

The G-20 countries must take strong macroeconomic and financial sector measures. In the United States, we moved quickly to pass the American Recovery and Reinvestment Act, which lays a foundation for economic recovery through a powerful mix of investments and tax cuts to create jobs and strengthen our long term growth potential. The G-20 countries have also put into place fiscal stimulus. We believe it is important for G-20 nations to commit to substantial and sustained actions for a period that matches the likely duration of the crisis. The IMF has called for countries to put in place fiscal stimulus of 2 percent of aggregate GDP each year for 2009-2010. This is a reasonable benchmark to guide each of our individual efforts. We think the G-20 should ask the IMF to report quarterly on countries' stimulus efforts scaled against the relative shortfall in growth rates.

Forceful financial sector actions are critical to rebuild confidence, restore market functioning, get credit flowing and bring stability to the global financial system. In the United States, we are implementing a series of aggressive initiatives to stabilize and strengthen our financial system to support economic recovery, and we look for complementary actions around the world.

It is important, as well, for each of us to reaffirm commitment to open trade and investment policies, which are essential to global economic growth and prosperity.

As Dr. Robert Shapiro wrote earlier today, only three countries - China, Spain, and the United States - have passed stimulus measures. As Geithner says, global action to stave off economic disaster couldn't be more important right now.

This is not a particularly good idea:

Foreign Workers Banned From Wall Street

Alice Su, an M.B.A. student in Wharton Business School's class of 2009 and a resident of Hong Kong, turned down job offers and interviews because she'd been offered a coveted spot with the technology group at investment bank Merrill Lynch. But because of an amendment added to the stimulus legislation last month by Sens. Charles Grassley, R-Iowa, and Bernard Sanders, I-Vt., Merrill rescinded its employment offer.

The stimulus plan forbids banks that have taken Troubled Asset Relief Program money from hiring foreign workers who require visa sponsorship if they've laid off workers within the last 90 days. "There is no need for companies to hire foreign workers ... when there are plenty of qualified Americans looking for jobs," Grassley said at the time. The legislation amounts to a blanket ban on the hiring of foreign workers.

"I grew up internationally between China, Hong Kong and Belgium and worked in Japan. Nowhere else have I ever experienced this kind of discrimination," Su says.

Bad public diplomacy and bad economics all in one. Really a very impressive accomplishment that is probably even worse than "Buy American."

Update: Tuck Business School's leadership argues that it's a terrible time to reject skilled workers, and that doing so will have a negative effect on the economy and one of the the nation's greatest assets, its university system.

David Brooks today hammers the Republican Party for its wholly inadequate response to the Great Recession and to President Barack Obama's plans for economic recovery:

The Democratic response to the economic crisis has its problems, but let’s face it, the current Republican response is totally misguided. The House minority leader, John Boehner, has called for a federal spending freeze for the rest of the year. In other words, after a decade of profligacy, the Republicans have decided to demand a rigid fiscal straitjacket at the one moment in the past 70 years when it is completely inappropriate.
The G.O.P. leaders have adopted a posture that allows the Democrats to make all the proposals while all the Republicans can say is “no.” They’ve apparently decided that it’s easier to repeat the familiar talking points than actually think through a response to the extraordinary crisis at hand.

If the Republicans wanted to do the country some good, they’d embrace an entirely different approach.
…

If Republicans were to treat this like a genuine emergency, with initiative-grabbing approaches, they may not get their plans enacted, but voters would at least give them another look. Do I expect them to shift course in this manner? Not really.

Instead of offering reasonable policy choices, Republicans argue that we shouldn't do anything other than try to change a couple banking rules to restore lending. This, and many of Brooks' proposals, shows a deep misunderstanding about the causes of the Great Recession. There were fundamental problems in the American economy long before the financial meltdown, including the stagnation of wages and incomes for everyday Americans, despite strong productivity and GDP growth. This wage-productivity gap had never been seen before in American economics, and, unless policymakers move to create a 21st century economy, recovery will not come the way we'd like. This necessitates, unlike Brooks argues, bold action to restructure much of what was not working.

As an example of the backwards response that Republicans are exhibiting on the economy, enjoy U.S. Rep. Jack Kingston of Georgia on Morning Joe:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Honestly, I’m not sure which part of his argument is more ridiculous, that the President can't walk and chew gum at the same time or that E-verify is more important to economic recovery than building a 21st century economy.

With new, frightening unemployment numbers out today, take a look at some of NDN's latest thinking on the economy. What government policies are needed to stabilize the financial sector? Why is the Republican minority so obstructionist? How should everyday Americans deal with their balance sheets?

• GOP Economic Policy as an Exercise in Grief Management: Denial, Anger & Rush Limbaugh by Dr. Robert Shapiro, 3/5/2009 - Shapiro puts on his psychologist hat and argues that the only explanation for the current Republican thinking on the economy is that they are angry and in denial about losing.

• Protect Savings, Prevent Bank Runs Now by Michael Moynihan, 3/3/2009 - Moynihan advocates for fully insuring deposits to prevent panic.

• Spend? Save? The debate continues by Simon Rosenberg, 2/11/2009 - Building on a previous post, Rosenberg follows the growing debate about whether American families should be focusing on saving.

• The Utter Bankruptcy of Today's Republican Party by Simon Rosenberg, 1/28/09 - Rosenberg argues that Republican opposition to the economic recovery package represents the ideological bankruptcy of the party.

• A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.

• Accelerating the Development of a 21st Century Economy: Investing in Clean Infrastructure by Michael Moynihan, 10/18/2008 – NDN Green Project Director Michael Moynihan outlines a strategy for investing in clean infrastructure that will help create long-term prosperity.

• Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.

• Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.

• Making the Struggle of Every Day People the Central Focus of the National Debate by Simon Rosenberg, 8/17/2008 - As the 2008 presidential campaign entered a crucial phase, Rosenberg argued that political leaders must focus on raising the wages and incomes of Americans.

In today's Wall Street Journal, Michael J. Boskin, former Chair of the Council of Economic Advisors for President George H.W. Bush and a Senior Fellow at the aptly named Hoover Institution, lays out a list of conservative talking points against the President’s budget. Dr. Robert Shapiro laid out a pretty compelling analysis of the problems with this type of thinking, but the real issue with the column is that, preceding the talking points, Boskin says this:

Obama's Radicalism Is Killing the Dow

A financial crisis is the worst time to change the foundations of American capitalism.

It's hard not to see the continued sell-off on Wall Street and the growing fear on Main Street as a product, at least in part, of the realization that our new president's policies are designed to radically re-engineer the market-based U.S. economy, not just mitigate the recession and financial crisis.

The column proceeds with the list of conservative complaints about the budget, and provides no substantive reason why President Obama’s allegedly flawed budget blueprint is specifically making the Dow tank.

I have another reason in mind why the Dow might be tanking. Let's try it on for size:

The economy is in the tank.

That's right, the actual state of the economy, including the massive financial and housing crises, is the actual force driving down the stock prices of the large companies that comprise the Dow Jones Industrial Average. It's not that Obama is some sort of radical. (Take a look at David Brooks today, who comes around on the notion that Obama and his people are pragmatists, even if he’s not fully on board with their brand of pragmatism.) Rather, it's that the American economy is in its worst shape since the Great Depression.

The causation (more on causation from Mankiw today) Boskin implies (and he's by no means the only one, the media – especially business media – is obsessed with attributing the ups and downs of the Dow to various policies or how confidently the President is speaking, or how much the budget weighs or quickly it can be deep fried), is largely misplaced, and ultimately dangerous. There are times when markets react to government policy, and that's been happening somewhat lately too, but, right now, the Dow is in the tank because that's where the economy is, and its not getting fixed by today's closing bell.

As the frightening impact of the global recession on the less developed world comes into stark relief and the G20 preparing to meet in London early next month, visions for saving the world and restoring global economic order have begun to surface. The New York Times editorial page argues that rich countries are going to need to help poorer ones for their own good:

Helping the developing world is within reach, but it will require capital and concessions from rich countries. The United States and Europe should drop their resistance to a vast new issue of special drawing rights — which like newly printed dollars by the Federal Reserve act as the International Monetary Fund’s own currency.

The United States and Europe also must give more voting power to up-and-coming players. China, in particular, has the financial firepower to become an important contributor to the global effort, yet it will expect more say in the fund’s business.

As the credit crunch spreads, the whole world stands in need of economic stimulus. Poor countries, however, have the resources neither to pay for their own fiscal pump-priming nor to recapitalize foundering banks and reignite the lending to their private sectors. They need outside help. For their own sake, developed countries should provide it. Quickly.

More here.

In in today's Financial Times, Former Australian Prime Minister Paul Keating calls for a permanent, much more empowered G20 and a retooled, representative IMF:

Global financial confidence, once destroyed, requires myr­iad positive events and a heavy convergence of them to counter ambient pessimism and gloom.

The recent series of government packages, notwithstanding their scale and speed, has had little demonstrable effect on the level of confidence or the outlook for ongoing activity. Indeed the number of new and significant packages may begin to peter out out as the public accounts of most countries can no longer cope with the growing burden of insolvency or assume further private sector risk. This context underlines the urgent need for the Group of 20 industrialised and developing nations meeting in London to construct a new paradigm to resuscitate the world financial and economic system.

What is needed is a new global economic and political settlement. The first priority should be to make the G20 a permanent gathering. The leaders should meet at least once a year and, in current circumstances , twice. A permanent G20 structure, representative of the major debtor and creditor countries and the most strategically powerful ones, will sound the death knell of the Group of Seven leading industrialised nations. This is two decades too late, but better late than never.

More here.

Both seem to be on to something. A more representative body for making the global economic rules will ultimately be a good thing, even if letting go to the current order proves difficult. We'll be following this issue closely, both ahead of the London G20 meeting and beyond.

Across the upper five percent of America, there's some sense that this Great Recession, as NDN's Dr. Robert Shapiro labeled it in December, just isn't really that bad. Sure, stocks are taking a hit and the financial sector is hurting, but we've been there before. In the New York Times, David Leonhardt lays out how bad this Great Recession really is, and who it has hurt the most, to this point.

What does the worst recession in a generation look like?

It is both deep and broad. Every state in the country, with the exception of a band stretching from the Dakotas down to Texas, is now shedding jobs at a rapid pace. And even that band has recently begun to suffer, because of the sharp fall in both oil and crop prices.

Unlike the last two recessions — earlier this decade and in the early 1990s — this one is causing much more job loss among the less educated than among college graduates. Those earlier recessions introduced the country to the concept of mass white-collar layoffs. The brunt of the layoffs in this recession is falling on construction workers, hotel workers, retail workers and others without a four-year degree.

The Great Recession of 2008 (and beyond) is hurting men more than women. It is hurting homeowners and investors more than renters or retirees who rely on Social Security checks. It is hurting Latinos more than any other ethnic group.

Leonhardt tells us that could all soon change:

You often hear that recessions exact the biggest price on the most vulnerable workers. And that’s true about this recession, at least for the moment. But it isn't the whole story. Just look at Wall Street, where a generation-long bubble seems to lose a bit more air every day.

In the long run, this Great Recession may end up afflicting the comfortable more than the afflicted.

He points out that the collapse of the financial sector will hurt the wealthy and ultimately lead to a smaller Wall Street. (The same dynamic will ultimately help young families, allowing them to buy into the financial and housing markets at the bottom.) Government policy will reduce inequality. And, most importantly for expanding the economic pie, the nation's unemployed will turn to education, if they can. Community colleges are already feeling budget crunches across the country, especially in the areas where they’re most needed.

There seems to be, amongst conservatives in Congress and the Rick Santellis of the world, a sense that the Great Recession just isn't that bad. They shout "Moral Hazard" as we try and stabilize the housing market, and they cry about deficits that didn't matter to them when the last Administration launch an optional war and ideological tax cuts. But Leonhardt tells us that they're about to start feeling it.

And, even if they aren't big fans of some of the President's plans, let's hope they can work with him to do the one thing we know will grow the economy for everyone in the long term – build a 21st century education system to create the workforce for the next great expansion.

President Obama's Weekly YouTube address today focuses on the budget outline he released earlier this week. In breaking down the various elements of his budget, Obama explains how the specifics correspond to commitment to change he made on the campaign trail.

The most memorable line comes after he discusses the changes from the Washington status quo that his budget represents:

I know these steps won’t sit well with the special interests and lobbyists who are invested in the old way of doing business, and I know they’re gearing up for a fight as we speak.  My message to them is this:

So am I.

Take a look at the whole address:

This very much feels like the President is governing with the large mandate he won on election day, and rightly so. It's amazing to think how much there is to do, after so much of this - energy, infrastructure, healthcare - has gone undone for the last 8 years or longer.

With news today that last year's fourth quarter was even worse than expected, take a look at some of NDN's lastest and important thinking on the economy, from thoughts on the President's budget and housing, and financial stability plans to visions for creating a 21st century economy:

• The Economic Logic in President Obama's Speech to Congress by Dr. Robert Shapiro, 2/27/2009 - Shapiro breaks down President Obama's address to Congress, pointing out that the underlying logic of the President's agenda springs from the fierce new challenges Americans face under globalization to their jobs and incomes.

• Financial Stability: Plan Z by Michael Moynihan 2/23/2009 - Moynihan lays out a plan of last resort for financial stability, noting that it might not be pretty, but it could be necessary. 

• An Economic and Political Primer on the Administration's Plan for the Housing Crisis by Dr. Robert Shapiro, 2/18/2009 - Shapiro notes that the Administration's plan is a tremendous advance over the Bush Administration's, but that it still may not be enough.

• Spend? Save? The debate continues by Simon Rosenberg, 2/11/2009 - Building on a previous post, Rosenberg follows the growing debate about whether American families should be focusing on saving.

• The Utter Bankruptcy of Today's Republican Party by Simon Rosenberg, 1/28/09 - Rosenberg argues that Republican opposition to the economic recovery package represents the ideological bankruptcy of the party.

• A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.

• Accelerating the Development of a 21st Century Economy: Investing in Clean Infrastructure by Michael Moynihan, 10/18/2008 – NDN Green Project Director Michael Moynihan outlines a strategy for investing in clean infrastructure that will help create long-term prosperity.

• Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.

• Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.

• Making the Struggle of Every Day People the Central Focus of the National Debate by Simon Rosenberg, 8/17/2008 - As the 2008 presidential campaign entered a crucial phase, Rosenberg argued that political leaders must focus on raising the wages and incomes of Americans.

• VIDEO: Dr. Robert Shapiro yesterday faced off against former Congressman John Kasich on the President's budget. The outcome was never in doubt.

I’d imagine that everyone has seen Rick Santelli’s absolutely absurd tirade on CNBC yesterday, but in case you haven't:

Santelli's tirade is remarkable for his anger about (amongst many other things) the idea that the Obama mortgage plan throws the concept moral hazard to the wind. According to Santelli's line of argument, people are now going to make irresponsible decisions about their housing and general economic behavior because of this government policy. And he’s getting cheered by a bunch of stock traders behind him.

The irony (as if there's only one) is that much of his cheering section had long ago thrown caution to the wind, as they took tremendous risks, many of which were premised on the notion that, if things got really bad, government salvation was a foregone conclusion. Big banks knew they were too big to fail; the financial world felt invulnerable. And I didn't hear them complaining about moral hazard when now more than a trillion dollars has been thrown at these banks, which makes the Obama housing plan, which will affect 8-10 million Americans and cost $75 billion, look cheap.

In the current economic climate, moral hazard has become a convenient piece of poorly understood economic theology that critics of any given government plan use to oppose it. The economy is in such shape that being overly concerned with this theology is folly. Policymakers need to focus on pragmatic solutions that fix these incredibly serious problems with the economy, including the housing market, in large part because figuring out the incentives that will nudge Americans’ behavior in the proper direction in incredibly complex markets is not going to happen by tonight’s closing bell.

David Brooks writes on this today as well.

Update: Press Secretary Robert Gibbs delivers harsh words for Santelli at today's White House press conference. Then Gibbs offers to buy him a cup of coffee -- decaf.