Globalization

NDN Applauds Creation of White House Task Force on Middle Class Working Families

Submitted by Simon Rosenberg on 1/30/09

Today, NDN released the following statement:

NDN today applauded the White House for creating the new Task Force on Middle Class Working Families, the need for which was articulated in an op-ed by Vice President Biden. NDN looks forward to working with this team, which will be addressing one of the issues most central to the nation’s economic health.

"For many Americans, the current economic crisis began long before our financial markets weakened and the economy went into recession," said NDN President Simon Rosenberg. "In the years before the recession began, America was in recovery, but the income of a typical family dropped and wages stagnated. Never before had the incomes of Americans not risen during a sustained period of national economic growth. Coming to understand why this unprecedented economic event took place, and crafting a plan to not just create a new era of growth and prosperity, but one that is broad-based, where every day people can once again share in the growth, is one of the most important governing challenges facing America today.

"Making the struggle of every day people the central focus on our national debate has been of NDN's top priorities these last few years," added Rosenberg. "We welcome the Obama Administration's desire to take this issue head on and applaud them for the establishing this new Task Force on the Middle Class and for sending a clear signal of its importance by putting Vice President Biden in charge. We look forward to working with this new task force in these critical months and years ahead."

For more of NDN’s economic work on keeping the focus on every day people, please see:

President Obama Begins to Take On Climate Change

Submitted by Robert J. Shapiro on 1/29/09

Within one week of taking office, President Obama has dispelled any doubts on whether he’s serious about tackling climate change. His stimulus plan will direct greater tax and spending subsidies to climate-friendly technologies and fuels over the next 18 months than the Bush administration did over the last eight years, and the federal government will offer itself as a model by bringing federal facilities up to the “Gold Leeds” energy-efficiency standard. Moreover, his EPA will let states that as yet are politically more climate-sensitive than Washington, including California and a dozen others, set more stringent CO2 emissions standards than the federal versions. And other climate-friendly laws and regulations are on their way, including higher federal fuel-efficiency standards for automobiles and trucks.

Sound as these steps generally are, they leave undone the hard work that climate scientists agree must be done – namely, to put in place a policy to embed the cost of carbon in the price of everything our businesses and households use, especially that electrical power which mostly still depends on the most carbon-intensive fuel we have, coal. And there’s a good reason why President Obama isn’t starting with this step, even though it’s the most important one: Making people pay more for carbon-intensive energy and the products and services produced with it means that, well, people have to pay more – and people don’t like that, especially in very hard economic times. And the inconvenient truth is, those are only the beginning of the costs to contain climate change, since retrofitting our factories, offices, homes and our power systems for less carbon-intensive and energy-intensive technologies and materials will cost everyone, well, a lot more than the stimulus package. To his credit, President Obama corrected one of his rivals for the nomination who tried to claim that we could beat climate change at little cost. And there is some other good news here: The costs to redo our lives around more climate-friendly fuels and technologies can be spread over two generations – and paying those costs will save much of planet for our grandchildren.

The current hard economic times hopefully will focus more of the climate change debate on how to contain those costs, both the direct costs to people and businesses and the indirect ones through the larger effects of these policies on the economy. And if we don’t figure that out, any systemic reform that doesn’t contain those costs may not survive long enough to make a difference. Here is where a real divide opens between the two main options for embedding the price of carbon, a cap-and-trade system and carbon-based taxes. On the direct costs, a tax-based system has the advantage: You can tax energy based on its carbon content, and then turn around and return the revenues to everybody through payroll tax cuts or simple disbursement to every household. Cap and trade could do something of the same thing by auctioning off its permits to generate greenhouse gases and then using those proceeds for tax cuts. But so far, every cap-and-trade plan either gives away its permits (businesses wouldn’t have it any other way) or uses the auction revenues to pay for other climate-friendly initiatives. In either case, cap-and-trade leaves everyone’s incomes lower, a pretty nasty outcome for most of us.

Another inconvenient truth here is that carbon-based taxes also have the advantage on indirect costs. The great asset of cap and trade is that it applies an actual cap to CO2 emissions. But whenever demand for the energy that produces those emissions is greater than had been expected when the cap was set – for example, because the summer is hotter than expected, the winter is colder, or the economy grows faster than anticipated – demand will hit the cap, and prices will spike for both the permits and the energy that underlies them. Adding a new layer of national price volatility in energy prices, on top of what we already have to bear from international forces, would be another nasty outcome.

Carbon-based taxes have their own problems. They don’t involve a set, annual cap on greenhouse gases, so keeping us on a safe emissions path would probably entail adjusting the level of the tax on a pretty regular basis. And the prospect of enacting a large, new tax and then choosing what offsetting taxes to cut could itself easily turn into a nasty piece of political business. It’s no wonder that President Obama isn’t eager to referee this fight. Of course, the public’s faith that of all of our national leaders, he alone is best equipped to drive and guide our responses to daunting challenges is also the main reason he’s the president today.

NDN Economic Backgrounder: Stimulus, the Next Expansion, and Clean Infrastructure

Submitted by Jake Berliner on 1/28/09

With negotiations on President Obama's economic recovery and reinvestment plan underway, we present much of NDN's key work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • 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.
  • 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.
  • Solar Energy: The Case for Action by Michael Moynihan, 8/1/2008 – This major paper on the dynamic solar industry argues that accelerating the deployment of solar energy must become a top economic policy priority of the United States.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.
  • Video: SEIU President Andy Stern speaks to NDN about the New Landscape of Globalization, 6/20/2007

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

Taking A Closer Look at FDR's Legacy

Submitted by Simon Rosenberg on 1/27/09

Steve Lohr has a very worthwhile story in the NYTimes today taking a hard look at the true economic legacy of FDR.  Titled "F.D.R's Example Offers Obama Cautionary Lessons, " it begins:

In 1933, as today, a new president stepped into the White House,
vowing change and decisive action at a time when a banking crisis posed
a grave threat to the nation’s economy.

The economic morass that confronted Franklin D. Roosevelt 76 years ago was undeniably deeper and more ominous than the trouble President Obama
is facing. Yet, according to economists and historians, there are also
some telling similarities and cautionary lessons to be drawn from the
experience of the Roosevelt years in the 1930s.

Roosevelt had his triumphs. He stemmed panic and stabilized the
banking system with a combination of deposit insurance, government
investment in banks, restrictions on banking practices and his
“fireside chat” radio addresses, which repeatedly steadied the national
mood and bought Roosevelt time to make changes.

Still, even after the government assistance, the surviving banks
were shaken and lending remained anemic — much as the nation’s banks
today are reluctant to make loans again, despite receiving more than
$300 billion of taxpayers’ money in Round 1 of the federal banking
bailout.

So, throughout the 1930s, economic recovery remained frustratingly
elusive and arrived only with the buildup for World War II in the 1940s.

The shorthand verdict on Roosevelt, economists and historians say,
is that he was an eloquent and skillful politician, and an innovator in
jobs programs like the Civilian Conservation Corps and in regulatory
steps like the creation of the Securities and Exchange Commission to
police Wall Street. But Roosevelt, they say, while brilliant in many
ways, did not have a sure grasp of how to guide the economy as a whole.

“Roosevelt had some successes, but we hope that Obama is going to do
better,” said Kenneth S. Rogoff, a professor of economics at Harvard. “Otherwise, we’re in trouble.” 

I've been a little suprised that so much of the discussion in recent months on FDR's legacy has focused on his first 100 days, or some of the jobs programs which had marginal impact on the economy at the time.  A truer read of his legacy would show that America remained in an economic slow down until we went to war; that perhaps his most lasting legacy was not domestic but international, in defeating fascism and in fashioning a new liberal international order that has kept the world peaceful and prosperous for 60 years; and that of all of this was done over time, a long time - the FDR-Truman Administrations were in power for 20 years. 

As I wrote in a recent essay, Progress Not Motion, those in power now have to start coming to terms with the most challenging part of the FDR legacy - the unpleasant reality that solving the great challenges in front of us will certainly take more than the 2 years before the next election and the 4 years before the President's reelection.   There is a very real chance that the economy will still be in recession in 2010, and even 2012.  To me what this means is that our leaders need to stop raising expectations that things will get better quickly; to stop suggesting that there is no time to waste; to resist short term fixes that will not hasten the transition of America into the new economy of the 21st century.   As our new President said in his Inaugural speech last week this is a time for us to act responsibly, which means many things but certainly it means that we cannot confuse motion and progress in these vital days ahead.  It is more important at this critical time for our leaders to be right than fast - and to make it clear to the American people that the messes left behind by our recent era of terrible leadership will take many years, a lot of money, a great deal of effort and a lot of patience to fix. 

A Serious Thought or Two on the Inauguration, from Half-Way Around the World

Submitted by Robert J. Shapiro on 1/20/09

Ulan Bator, Mongolia -- I'd rather be spending this week in Washington, celebrating with friends and my country the politically and spiritually invigorating elevation of Barack Obama to our presidency. These feelings lie very close to the heart of patriotism, and they are an exquisite pleasure to feel again without reserve.

Instead, I find myself in one of the coldest places on earth, Mongolia's capital city of Ulan Bator, giving advice on the process of economic and social modernization. On the way, I stopped off in Beijing, where the extravagant new bones of that ancient city, from the Olympic Village to the new Ritz Carlton on Financial Street (no joke), have the signature taint of the very recent time when money was no object, prosperity seemed unending, and architectural glitz was the national emblem of conspicuous consumption. Here in Mongolia, a country perched atop huge mineral deposits, people are adjusting with difficulty to the end of ballooning commodity prices and an accompanying overconfidence that led to tax and regulatory changes for extracting as much as imaginable from the foreign mining companies developing the resources. Now that those prices have sunk, those changes could force the companies to pull up stakes from Mongolia and head for Africa's mineral deposits. So the global crisis leaves Mongolia wrestling with how to give up its most recent hopes for itself and settle for a slower route to modernization that will cost a lot more.

On this wondrous day of the inauguration of a serious, intelligent and deep-valued person -- all things relatively new for us and for the world to be looking to us again -- the question is how rude our own awakening will be. Like the Mongolians with their mineral deposits, President Obama has enormous resources. And much as the Mongolians could squander their assets by holding fast to a narrow-minded view that doesn't take into account new conditions, we could squander our own historic moment of extraordinary unity of purpose and faith in our new leader's capacities.

To avoid this trap, we all have to recognize not only the real nature of our deep and dangerous economic and geopolitical problems, but also the pitfalls in our own system that could divert our new leadership from the tasks history will ultimately remember them for.

President Obama's signature governing act in his first year will almost certainly be the paths he charts for the $350 billion bailout fund and the trillion dollar stimulus. The pitfall for both is politics-as-usual, while the path to meaningful, productive change will rest on transparency, accountability, and innovation. The change we need here is an end to giving the most well-connected financial institutions and interest groups whatever they ask for. The change we need for both the bailout and the stimulus are openness about who gets what and under what conditions; accountability that requires those who receive bounties from the taxpayers to actually use them for those taxpayers' benefit, by extending more credit and advancing a 21st century economy and society; and innovations that can address the underlying forces driving our problems, especially the rising foreclosure rates for the financial crisis and the stagnation of incomes that laid part of the foundation for the current Great Recession.

The other pitfall for our new president and the rest of us to begin to think about is the hangover that will hit us from the extraordinary steps we're being forced to take now. Several years of deficits topping $1 trillion, on top of what looks to be a doubling of our monetary base over just six to eight months, could ultimately produce the greatest underground, domestic inflationary pressures in more than a half-century. Moreover, they are likely to come to the surface a few years from now, just as our boomers' demands on government spending begin to add up exponentially. This could create an acute financing crisis for American government, on top of rising inflation, and the second economic crisis of the Obama presidency. Recalling John Kennedy, what we can do for our country is to be prepared to support serious entitlement reforms that will mean less for all of us and even, yes, new taxes on top of it.

But today, wherever we are, let's celebrate our own good judgment and good fortune in Barack Obama.

NDN: Economic Recovery Package Signals New Priorities, Development of a 21st Century Economy

Submitted by Jake Berliner on 1/15/09

NDN today released this statement applauding the draft economic recovery and reinvestment package:

NDN: ECONOMIC RECOVERY PROPOSAL SIGNALS CHANGED PRIORITIES, ACCELERATES DEVELOPMENT OF A 21ST CENTURY ECONOMY

"President-elect Obama has made clear that this proposal should not only create more jobs, but do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure," said Dr. Robert Shapiro, the Chair of NDN’s Globalization Initiative. "Investments in this 21st century economic infrastructure, such as increased broadband access, computers in schools, health information technology and provisions to green the federal government, are critical to increasing demand for the important technologies and skills that will in turn expand the nation’s capacity for innovation and economic growth."

NDN President Simon Rosenberg praised both the recovery package and President-elect Obama’s commitment to use TARP funds to help keep people in their homes.

"For years, NDN has argued that the central economic issue of our time has been the stagnating wages and incomes of everyday Americans, which led directly to the overleveraging of Americans' largest assets: their homes," Rosenberg said. "By pledging to use TARP funds to keep people in their homes, using part of the recovery package to stabilize the housing market, which is the root cause of the financial crisis, and targeting investments to create long-term prosperity, President-elect Barack Obama and the Congress have made a crucial commitment to focus America’s economic strategy on the well-being of everyday people."

"The new prominence of critical investments in clean technology and clean infrastructure in this package rightly shows that clean energy is no longer a marginal topic and now sits at the heart of America’s economic strategy," said Michael Moynihan, the Director of NDN’s Green Project, who has long argued for clean infrastructure investment. "The inclusion of $32 billion in clean technology investments at the center of this package is not only vital to addressing our short term crisis but also has the potential to power the next great wave of prosperity."

For more of NDN's work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure, please see NDN's backgrounder on Economic Recovery:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • 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.
  • 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.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

How to Find a “Free” $420 Billion to Stimulate the Economy

Submitted by Robert J. Shapiro on 1/15/09

President-elect Obama says he’ll consider any good idea to address our accelerating economic decline and help stabilize the financial system. In fact, there’s a huge, untapped resource to help do both sitting on the balance sheets of America’s multinational companies: their foreign subsidiaries are holding about $1 trillion in past earnings, because our tax laws defer the U.S. corporate tax until the parent companies bring those earnings back to the United States. If we can get them to do just that, it could finance new jobs and new capital investment, and provide additional liquidity to our strapped financial system. It’s the closest thing to “found money” that Congress and the new Administration will ever find in the current crisis.

And we can make it happen by temporarily cutting the tax rate on earnings brought back here. In fact, we did it once before: in 2004, Congress cut the corporate tax on such “repatriated” earnings for one year from 35 percent to 5.25 percent. Along with a colleague, Aparna Mathur, I’ve looked at new IRS data to see how well the temporary tax cut worked. It increased inflows of foreign-source earnings by some $312 billion, including $252 billion by U.S. manufacturing companies. The 2004 law also told companies how they could use the new funds they brought back; surveys found that that they used $73 billion of those earnings to create or retain jobs, $75 billion for new capital spending, and $39 billion to pay down domestic debt. Without the tax break, companies keep their foreign-source earnings abroad indefinitely, or at least until they can be used to offset domestic losses for tax purposes. That made the 2004 law a free lunch: it produced $34 billion in new federal revenues, including $16 billion in direct corporate tax revenues and $18 billion in personal tax revenues on income the additional jobs and higher wages supported by new funds.

We also have run the numbers to estimate what would happen if the Obama Administration tried this again. We found that it would bring back $420 billion in foreign-source income now held abroad, with $340 billion of that coming into U.S. manufacturing companies. If Congress once again limits how the money can be used, it could mean $97 billion for employment, enough to create or save 2.6 million jobs over two years. It could mean $101 billion for new capital spending, enough to increase the capital stock of U.S. manufacturers by two percent and produce long-term wage gains of 1.3 percent. It also could produce or free up $52 billion for companies to reduce their domestic debt, the equivalent of 21 percent of the bank equity infusions provided by the Treasury TARP program in 2008. Finally, the free lunch: the repatriated funds would produce nearly $45 billion in new federal revenues, split between the corporate taxes on the funds themselves and personal taxes on the additional wage income coming from the job retention or creation and the wage increases linked to the new capital spending.

The economy is so depressed now that this policy may not work out precisely the way it did in 2004-2005. This terrible recession shouldn’t affect how much foreign earnings come back under this policy, but it could mean that less of those funds will be used for new capital spending or jobs, at least for another year, and more will go to paying down domestic debt. Even so, the stimulus effects would be substantial, and it would actually reduce the deficit a little – and that should make it a genuine priority for the new Administration.

Monday Buzz: A Party of One, Real Realignment, Keys to Economic Recovery, and More

Submitted by Dan Boscov-Ellen on 1/12/09

NDN had some great mentions in the media this week. Simon was quoted in the cover story of  New York Magazine, "A Party of One," on the unique character of this election and its implications for the future. From the exellent New York Magazine piece by John Heilemann, which echoes many of NDN's most important arguments:

Obama is difficult to pigeonhole not simply because he’s new but because of the newness of the moment that he—and we—inhabit. It’s a moment dominated by an economic crisis that’s shaken bedrock beliefs about the infallibility of free markets. A moment when a revised architecture of power is arising globally, challenging America’s status as an unrivaled superpower. When the networked age has finally arrived, inciting the implosion of the broadcast paradigm that governed politics in the Industrial Age. When the country is being transfigured demographically, hurtling toward becoming a majority-minority nation.

This crescendo of forces produced Obama, made his ascension possible. Now he has a chance to shape the new era, to leave his stamp on it. “This really is the first presidency of the 21st century,” says Simon Rosenberg, head of the Democratic advocacy group NDN. “Those who try to hold on to twentieth-century descriptions of politics are going to be disappointed and frustrated by what’s about to emerge in the new administration, because American politics no longer fits into the old boxes—and neither does Obama. For better or worse, what he is doing is building a new box.”

Simon was also quoted in The Washington Times, and his essay on the need for "Progress, Not Motion" was featured in The Hill.

Rob was quoted in The National Journal, Washington Post Global, and The Street, and received a great shout-out from Overstock.com CEO Patrick Byrne in ECommerce Journal. From the National Journal article:

For Obama, who is in no position to tighten fiscal policy, trade liberalization is today's best analog to Clinton's gamble. "If Obama thinks that Doha could contribute to an economic recovery and expansion that will be in full flight as he's running for re-election, he'll do it," says Robert Shapiro, a Washington-based economic consultant and a veteran of the Clinton administration's Commerce Department. "Just like Bill Clinton raised taxes because he was convinced that would be the effect."

In 2007, Shapiro notes, almost one-third of everything produced in the world was exported across a border, up from less than one-fifth as recently as 1990. America, he adds, is one of the world's two most globalized countries (the other is China). Like it or not, globalization, meaning cross-border commerce, now drives the world's economic growth.

Finally, new NDN fellows Morley Winograd and Mike Hais were featured in the USA Today on the realigning character of this election. From the article, by Chuck Raasch:

And so, a 30-year era is ending, an era in which one political party, the Republicans, saw government as the problem. Whether or not it is smart to run $1.2 trillion deficits and massively expand government's control over private enterprise, the course has been set.

Morley Winograd and Michael D. Hais, co-authors of "Millennial Makeover: MySpace, You Tube, and the Future of American Politics," say the United States is undergoing the sixth major political realignment in its history. The nation is transforming, they say, from the worn-out arguments of an idealistic but fractured baby boom generation to a more civic consciousness exemplified by "millennials" born between 1982 and 2003. Civic generations, Hais and Winograd say, are primarily interested in strengthening government and political institutions.

Times Offers Excellent Analysis of the Emerging Economic Debate

Submitted by Simon Rosenberg on 1/10/09

Edmund Andrews and David Herszenhorn of the New York Times today offer a very good overview of the how the debate over the economy is shaping up.  It begins:

WASHINGTON - The fresh evidence on Friday of the economy's downward spiral focused even more attention on two questions: Is the stimulus package being pushed by President-elect Barack Obama big enough? And will the component parts being assembled by Congress provide the most bang for the buck?

With the Federal Reserve having just about reached the limit of how much it can help the economy with cuts in the interest rate, Washington's ability to end or at least limit the recession depends in large part on the effectiveness of the big package of additional spending and tax cuts that Mr. Obama has made the centerpiece of his agenda.

And with the economy facing what now seems sure to be the sharpest downturn since the 1930s, the financial system balky and the government facing towering budget deficits, economists and policy makers acknowledge that there is no playbook.

"We have very few good examples to guide us," said William G. Gale, a senior fellow at the Brookings Institution, the liberal-leaning research organization. "I don't know of any convincing evidence that what has been proposed is going to be enough."

In part because Mr. Obama wants and needs bipartisan support, the package is being shaped by political as well as economic imperatives, complicating the process by putting competing ideological approaches into the mix.

It includes $300 billion in temporary tax cuts for individuals and businesses, in part to attract Republican support. It includes a big expansion of safety-net programs like unemployment insurance, which Democrats say makes both economic and social sense. It includes more money for highways, schools and other public infrastructure; more money for "green" energy projects; and more money to help state governments pay for health care and education.

Republicans, as always, are advocating for more and broader tax cuts. But the evidence is ambiguous about whether tax cuts will really spur economic activity at a time when consumers and businesses alike are frozen in fear and reluctant to let go of their money.

The risk is that Mr. Obama and the Congress will weigh down their effort with measures that cost many billions of dollars but may not have much impact on economic activity.

Tax breaks, for example, usually produce less than $1 of stimulus for every dollar they cost, economists say. Spending on public construction projects, like highways and bridges, produces the most economic activity - but there is a limit to how many projects are "shovel-ready," and even those take time to generate jobs and ripple through the economy.

You can read the rest here.  For more on our take on all this you can find many posts from recent weeks on the blog, and be certain to review this recent compilation of our economic writings over the last few years.  Be sure to review what has become one of our more influential works, A Stimulus for the Long Run.

Politics and the Economic Crisis

Submitted by Robert J. Shapiro on 1/9/09

Barack Obama's historic election as a new, national agent of change will face a daunting test as the economic crisis continues to accelerate, and the political pressures arising from what must now be called “The Great Recession” begin to reshape the response.

The latest evidence is today’s unemployment data: one million jobs lost in two months; the sharpest eight-month rise in the jobless rate since 1945, when tens of millions of soldiers and sailors were demobilized; and losses across every sector and every region. Jobs are in freefall along with the markets, investment, consumer spending and household wealth. And economists are now genuinely frightened by the course the Great Recession is taking, because there’s been nothing like it in anyone’s experience.

That’s why long-time advocates of fiscal probity now call for stimulus topping $1 trillion, and why every spending and tax idea floating around Congress for the last decade is back on the table again. The political pressures and real concerns are so overwhelming that there’s talk of large tax cuts, despite the consensus among economists that when people and businesses are as economically downcast as they are today, tax relief has little stimulus power. That’s not only politics at work; it also reflects a sense of grave foreboding among many of those same economists.

We do need unprecedented stimulus – but all of the stimulus in the world won’t change the course of this crisis until we also address its underlying forces. The wealth of American households and the portfolios of American financial institutions will continue to tank until the housing market stabilizes -- or at least until foreclosure rates return to normal. And the most aggressive, easy policy in our history won’t be enough, and financial institutions won’t begin normal lending again, until they’re more confident that the hundreds of billions of dollars in mortgage-backed securities and other derivatives they still own aren’t headed for the drain as well.

The new Administration can take on these challenges directly, as candidate Obama pledged to do with extraordinary foresight. For example, we can impose a 90-day moratorium on foreclosures and use the time to renegotiate the terms of tens of thousands of distressed mortgages held by Fannie Mae and Freddie Mac. One idea promoted by many economists is to convert those mortgages to 30-year fixed at 5.25 percent, which happens to be long-term mean rate for Fannie and Freddie mortgages. It won’t stop foreclosures, but it should bring down foreclosure rates to near-normal levels, which would do more to stabilize the financial system than the bailouts in the Bush Administration’s own Wall Street version of tsunami stimulus. And some tough love from the new Treasury Secretary could help restart the lending process: having done what we can to stabilize the value of their portfolios, we should consider requiring institutions receiving federal aid to use a real share of that assistance to restart their lending.

We need large-scale stimulus, but it will only work if we first address the underlying problems. Otherwise, 18 months from now, we could be $1 trillion poorer and have little to show for it.

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