April 29, 2009

The GDP drops 6.1 percent.

"Economists had predicted a drop of 4.7 percent, and the steep dip could dampen expectations that the pace of economic declines had begun to ebb. The decline was almost as sharp as in the previous quarter, when the economy shrank at a pace of 6.3 percent, its worst drop in a generation."

But it was stimulated!

104 comments:

Hoosier Daddy said...

But it was stimulated!.

Of course it was. It was 'stimulated' to the tune of $5 trillion in additionoal debt under the Bush administration yet somehow that was bad but tripling it under Obama was supposed to be good.

rhhardin said...

The crisis was to stabilize the financial system, which seems to have worked.

Stimulating the economy is entirely mission creep and not necessarily a good idea.

In any case there was nothing stimulating in the stimulus - it was all Dem programs that never had a chance before owing to their being too stupid to get passed.

Jason (the commenter) said...

This means all the bank stress test results and US budget projections are now useless.

Henry said...

Time to redefine "Shovel-ready"

cryptical said...

Welcome to the Obama Depression.

Next we'll hear about Obamavilles springing up.

John Thacker said...

Technically, the GDP dropped at an annualized rate of 6.1%. It didn't drop a total of 6.1% in the quarter alone. However, if it does continue to drop over 6% annualized the next two quarters, it will have dropped over 6% in a year.

EDH said...

"The GDP drops 6.1 percent...

But it was it stimulated!"

Happens with age.

AJ Lynch said...

This is another thread where we won't hear a peep from DTL, Headhouse or Jeremiad.

LarsPorsena said...

"Welcome to the Obama Depression.

Next we'll hear about Obamavilles springing up."

Apparently you didn't get the word.
The homeless disappeared from the streets the day after Bush left DC.

The Drill SGT said...

two things to note

1. "worst drop in a generation" means of course that the Obama folks are hyperventilatng when they compare the current situation to the great depression. it is not yet worse than the recession Reagan found when he took office

2. the GDP drop does indicate that the Obama folks are smoking dope when they inflate this years growth projection in their budget, where heir game then was to make the deficit shrink.

Sofa King said...

This is another thread where we won't hear a peep from DTL, Headhouse or Jeremiad.

I would think at least one of them would drop by to claim that without the stimulus, it would have dropped by double digits. Conveniently unprovable, but truthy!

Hoosier Daddy said...

This is another thread where we won't hear a peep from DTL, Headhouse or Jeremiad..

Of course you will. Jeremy will of course say that its only been 100 days and Bush gave him this mess and then say duh or ask you to blow him. DTL will somehow bring gay marriage into the discussion and henhouse will sputter something incoherent like ..hoohahaha...GOP brownshirts... messed it up...ya'betcha

In three...two...one....

SteveR said...

By 2012, things will be better and this will be Bush's fault. We've already recovered from the worst economy since the Great Depression.

The politics of low expectations.

Balfegor said...

But it was stimulated!The "stimulus" doesn't really kick in until next year, and there was essentially no stimulus in the first three months. I don't think they've even begun disbursing amounts yet, have they? I thought they were still puzzling over allocation, running up against the deadline.

That said, the decline in GDP is probably just catching up to the declines anticipated by the stock market, no? Stocks are a leading indicator, as I understand it. And the Dow stabilised at the 8,000-9,000 level after the crash in early October. There was a lot of movement in reaction to Obama's election (market crashed, then recovered), and in reaction to the initial announcement of his economic policies (market declined, then recovered). But we're now roughly on the same level as we've been since early October. Somewhat lower, perhaps, and the overall trend looks like a slight decline, but volatility has settled down.

downtownlad said...

Sure you'll hear a peep from me. This was the Bush economy shrinking 6.1% and everyone knows it. After all, Bush was President for 25% of this quarter, and Obama's stimulus plan didn't even kick in until April. The Obama tax cuts hit people's paychecks on April 1st.

The stimulus plan takes place over several years, and you will now see the economy pick up over the next several quarters. It will probably show a loss this quarter, although smaller, and the economy will be growing by year-end.

The Drill SGT said...

Hoosier,

quit picking on HD, he's not in the same class as Jeremy, DTL, or Michael.

downtownlad said...

i will add another thing. Ann looks like an absolute dimwit wingnut with this post.

paul a'barge said...

Someone remind me again, how is that Barak Obama working out for you folks?

Robert Cook said...

"Next we'll hear about Obamavilles springing up".

Don't read the news much? Tent cities have been springing up around the country for months now...the "Bush Boonies" are legacy communities!

That said, I don't think Obama's "stimulus" efforts will help stave off economic collapse, as this administration is merely replicating the policies of the Bush administration. For all his "progressive" rhetoric, Obama is firmly an establishmentarian, a middle of the roader who is as committed to maintaining long-standing corporate- and bank-friendly economic policies as were his predecessors going back decades. For all the hyperventilating about Obama's "socialist" (sic) designs, his problem is that is just Clinton redux, that is, a smoother face of the oligarchy.

William Black said recently on Moyers' program that Obama and Geithner are covering up that the banks are insolvent. As a friend of mine who works for a big firm connected to the industry says, "yes they are."

Hoosier Daddy said...

Hoosier,

quit picking on HD, he's not in the same class as Jeremy, DTL, or Michael.
.

I'll have to beg your pardon and differ with you on that.

downtownlad said...

The last time Ann commented on a GDP report was in April of 2008, when she insisted that we're "just not" in a recession.

http://althouse.blogspot.com/2008/04/its-not-recession.html

Of course we were.

As I said in that post, Ann should stick to law, not economics. Economics is not her forte.

Der Hahn said...

No surprise. Shrinkage often follows stimulation.

MadisonMan said...

dimwit wingnut

Redundant.

downtownlad said...

The stock market likes the report. And we all know that the Dow is the only indicator that matters. The Weekly Standard told me so.

Ann Althouse said...

I'm deleting the impersonation. It is not appreciated.

Balfegor said...

The stock market likes the report. And we all know that the Dow is the only indicator that matters. The Weekly Standard told me so.

Not the only indicator that matters, but it is a leading indicator (unlike, say unemployment, which trails).

traditionalguy said...

We are in a freefall carefully engineered to panic the citizens into supporting whatever socialistic destruction of American economic strength Obama can permanently enact before the next election.The only wealth to be created will be for the Party Leaders who are dedicated to strip everyone with dollar value holdings until we are serfs in the Colony of North America. Arlen Specter knows what's up.

ObamaNation said...

Please allow a liberal, well-versed in modern economic theory (I just audited "Economics and the White Male Hegemony" last semester) to enlighten you Wingnut troglodytes:

Of course we can't turn around this Bushitler McHalliburton depression in one fiscal quarter. It will take years. It might take Obama's first 3 terms to turn things around.

First, we take control of GM and Chrysler, and hand the reigns over to people who know a little more about running profitable businesses than those white men in their suits -- people like Nancy Pelosi, Barney Frank, and the UAW.

Barney Frank will design a zero-emission car that actually runs on the farts of the driver. This is already in the works, people. Then the UAW will give themselves an average pay of $300 per hour. Do you know how much that will stimulate the economy, Rethuglitards?

But this all takes time. Be patient, and go back to your jobs where you cobble out your little widgets, so that your betters can collect your income and spend it more wisely than you ever could.

Obama 2016!!! Wooo!!!11!!

John said...

The worst recession since the Great Depression. Has Obama increased unemployment benefits? Has Obama loosened welfare restrictions to help people in need? Has Obama created any program at all to help the people effected by the recession? No. He has done none of those things. Instead, he has spent nearly two trillion dollars trying to save Wall Street billionairs from ever facing the reconning they so richly deserve. If you are sick, out of work or otherwise down on your luck, you can go to hell in Obama's America. But if you are Goldman Sachs and you ruined the world economy with shady financial insturments, or a connected government contractor big daddy Obama is there to help.

The first 100 days has proven that liberals truly have no conscience and every word they have ever said about caring about the poor and less fortuneate has all been lies. They don't care about anything beyond stealing money from the rest of us and making sure that whoever is in office, no matter how depraved and incompetant, has a D after their name and is there to pass out the goodies.

It is very depressing to think that the Democratic Party went from the party of Roosevelt and Johnson and the New Deal and the Great society to the party of Geithner and Obama in just 40 short years. Tell me DTL, do you miss your soul?

Balfegor said...

We are in a freefallWe're not in freefall anymore. Freefall was like a week back in October. We're in a period of slow decline. It may turn into freefall again in the future -- certainly we had episodes of false stabilisation and recovery followed by new crashes while Hoover and Roosevelt tinkered with this and that harebrained recovery policy in the Great Depression -- but for the moment, I don't see anything that looks like freefall.

Issob Morocco said...

Bad Bad Downtown Lad and Squire Balfegor. The Stock market is not an indicator like durable goods orders or unemployment reports persay, which are based on estimated or actual numbers. Instead the market is an indicator of where the investors see economies of the world are headed. It is a more qualitative not quantitative indicator.

As such and given the enormous complexity of daily trading (funds expiring, individuals moving their assets based on personal needs, etc.) one cannot look at the market on a daily basis to understand the future, but instead as a rolling quarterly trend. That trend has gone down since Oct. more severely since late January and has now plateaued at 7800 to 8100. Given it was nearly twice that level about 2+ years ago, that is not a good indicator that things are about to bust out in Good Times.

The quantitative indicators are for the most part rear view mirror indicators. The Qualitative ones are the looking out the front window. Right now that view doesn't show a lot of positives.

I will state again that the only way out of a recession is to cut taxes and cut government spending. And not Democratic Party version of spending cuts (decreasing the amount of increase) but actual cuts in government outlays.

The fact the current ruling political class does not realize that means you can expect more qualitative indicator drops in the next 12 months. Those folks with money know how it is grown and right now, not seeing that activity in play, they are hiding their money, in effect, from a marketplace economy that does not know how to use it under current political leaders.

Cheers to the Obama Recession! The Worst since the Carter Recession!

downtownlad said...

How come Republicans never gave a damn about the stock market when it plodded along throughout the entire Bush Presidency? It ended down 25% lower than where he came in.

Oh - I saw tons of posts on wingnut blogs on how the stock market was booming under Bush.

But alas - it never did. The wingnut bloggers just lived in a parallel universe. At no time during Bush's presidency was the stock market ever more than 33% higher than when he took office. And it hit that 33% jump seven years into his Presidency. So a 4% average annual return (barely keeping up with inflation) in the Dow was the best ever during a Bush Presidency, which lasted for about 2 seconds.

downtownlad said...

I will state again that the only way out of a recession is to cut taxes and cut government spending. Care to explain the 1990's then? How did the economy perform after the Clinton tax hikes? We were trying to get out of a recession then too.

And Reagan's recession was worse than any Carter recession.

Pastafarian said...

DTL -- do you suppose that 9-11 occurring about 8 months into Bush's presidency had anything to do with the lackluster performance of the Dow during his first term?

And since when did Democrats consider the DJIA a more important measure of the economy's vigor than, say, unemployment?

Maguro said...

The German government has just revised their 2009 GDP prediction to -6%. Clearly the fault of the wingnuts!

Hoosier Daddy said...

How did the economy perform after the Clinton tax hikes? .

I think it had something to do with that world changing new technology called the Internets and Greenspan ensuring a supply of cheap money.

Oh and spending was kept under control.

The Drill SGT said...

and the dot.com bubble (e.g. the Bush recession) explosion at the end

downtownlad said...

First off, I am not a Democrat. I do think the Dow is a pretty good report card on the economy, although anyone who tries to measure it daily is a moron, i.e. the Weekly Standard.

But it's a good report card over several years.

The Dow was lackluster during both of Bush's terms, not just one. And we were in a war, which is usually good for stocks, don't forget.

The Dow isn't where it is today not because of 9/11. It is where it is because the economy was mismanaged for years under Bush. We went from massive surpluses to trillion dollar deficits (Obama inherited that trillion dollar deficit from Bush), because bubbles were not dealt with, and because the government failed to provide any oversight over the financial industry. And programs such as Social Security were ignored.

I didn't use to favor financial oversight, but obviously I was wrong, and I admit it. As Keynes said "When the facts change, I change my mind. What do you do, sir?"

Unfortunately, Republicans are ignoring the fact that their policies had anything whatsoever to do with the economic collapse, and they are proposing the same idiotic proposals that got us here in the first place.

It is pathetic.

Issob Morocco said...

Bad Bad Downtown Lad. Reagan' recession was Carter's, it started in 1977 and lingered by Porcine flu for nearly 5 years until Reagan's tax cuts took effect.

When Clinton raised taxes we were not in a recession, that had ended in the 3rd quarter of 1992 prior to his election. So your point there is not as strong as the one gracing your noggin. The media just didn't want anyone to know, lest we would have had another 4 years of GHW Bush.

Cheers to the Obama Recession! Worst Since the Carter Recession!

downtownlad said...

The dot com bubble burst a year before Bush even took office. And the economy was growing just fine in December of 2000.

ObamaNation said...

Issob, you poor naive man. Please allow me to explain basic economics to you:

First, we distribute money to people by making home loans easier to get for poor people -- otherwise, greedy white bankers will reduce a tenth of the population to homelessness.

This stimulates the construction industry, since there will be more demand for homes; and then we can increase taxes on those construction companies to pay for the cash we used to make those loans easier to get.

So we take money from the economy (from greedy rich people, who just roll around in that cash on their four-poster featherbeds, and from evil corporations, who squander the money on nonsense like corporate golf outings, corporate jets, and equipment to make their silly little widgets), and then we put that money back into the economy, through programs like the Community Reinvestment Act, ACORN, and our much-neglected and profit-generating infrastructure.

Just think how the economy will hum along when health care is entirely government-funded, and we can make it as efficient as the BMV or Amtrak.

You're welcome, by the way. Rethuglitard.

downtownlad said...

So according to Issob, Reagan's recession which started after Reagan took office was Carter's fault.

And the current recession, which started a full year before Obama took office, is all Obama's fault.

Issob - You're an ideologue. You don't know how to think for yourself. How sad.

Issob Morocco said...

Sad Sad Downtown Lad, the stock market hit new highs in the Bush years. You must be regurgitating media and Democratic Hype on the economy during W's reign. Your take on history is wrong.

Cheers to the Obama Recession!
Worst Since the Carter Recession!

Issob Morocco said...

Sadness from you is a sign you cannot argue your way out of a disagreement with a mute.

Name call if you want, just know you are wrong on your beliefs.

Cheers to the Obama Recession!
Worst since the Carter Recession!

downtownlad said...

Reagan's recession by the way was cuase by Volcker's high interest rates, trying to ring inflation out of the economy. Inflation that started with Nixon by the way.

downtownlad said...

You're an idiot Issob. Really, you are

Issob Morocco said...

Thanks ObamaNation!!!

Very much appreciated!! ;-)

ObamaNation said...

dtl is absolutely correct. This worst economy in the history of humankind was caused by George W. McChimplerburton, and his outrageous deficits and spending.

Clearly, President Obama is now on the right track, with his much more vigorous spending, and fuller, more virile deficits.

Pwned!!! Wingnuts!!!

downtownlad said...

Obama is already cutting the deficits you moron. He's also being responsible by raising taxes, which also helps cuts the deficit.

Americans know this, which is why consumer confidence is now surging.

Republicans are cheering for the economy to fail. How unpatriotic.

Issob Morocco said...

Mad Mad Downtown Lad, so let me get this straight, Nixon started the Vietnam war and invoked Great Society prior to his election, then imposed an oil embargo to start the inflation as an evil plot to undermine the Peanut farming, nuclear engineering Jimmy Carter, so Reagan would end up looking like a great president?

traditionalguy said...

Balfegor... There is a freefall of economic activity among the American population that uses cash. Everybody is holding, unless they can pick up a hard asst at 40% of last year's valuation. The Banks are NOT lending except to people who have large cash reserves. All credit now flows from Dollars given away by the Fed. Every one of those given away dollars dilutes your dollars just as if you owned shares of stock in Microsoft Corp and Bill Gates decides to have Microsoft Corp give away an equal number of shares as all of its issued and outstanding shares to any one who wants them. Your shares are instantly worth half of what they were worth the day before. That action would be called criminal Securities Fraud. But the issuer of the securities you own called Federal Reserve Notes (a/k/a dollars) is immune to its own laws...because there is an eternal Crisis.

Issob Morocco said...

Rad Rad downtown Lad, pray tell what deficit has he reduced? Not the federal budget deficit surely, since it now the largest since, well ever.

downtownlad said...

No Issob. You're not very bright, so I'm not surprised you can't follow my line of thinking.

I'm not an ideologue. I don't blame bad economies only on Republicans, and then give credit for good economies only to Democrats.

Reagan had a very large recession. Deal with it. I also don't blame Reagan for that recession. Volcker caused it. And that recession was actually a good thing, as it ringed inflation out of the economy. Reagan managed the economy very well.

Clinton managed the economy very well also. He raised taxes, which I personally don't like, but it led to surpluses, and a very very healthy economy.

Bush inherited that healthy economy. He inherited a surplus. He completely mismanaged the economy and left us with a trillion dollar deficit and the worst economy since the Depression. Obama is trying to clean up the mess, and thus far, he's handling it quite well. But time will tell if he succeeds.

Economic historians don't think Carter did that bad a job with the economy. He inherited a very difficult economy, and it was actually Carter who appointed Volcker. Carter deserves credit for that.

Nixon was absolutely pathetic with the economy, with wage and price controls, etc. Much of the blame for the inflation of the 1970's lies with him.

Henry said...

After all this tumult and shouting, let me add that this number will be completely revised down the road. Quarterly economic numbers always are.

When Althouse wrote "But it was stimulated!" I first read "stimulated" as "simulated" and I thought, "Are the climate modelers running our economy now? Oy, are we in trouble."

But, in actual fact, the number is a simulation. We know less than we think we know.

John said...

"Care to explain the 1990's then? How did the economy perform after the Clinton tax hikes? We were trying to get out of a recession then too."

The economy didn't do that well until the 1995 tax cuts that the Republican congress forced down clinton's throat. The boom didn't begin until 1996 and 1997. Go back and look at the numbers.

Second, Obama is only reducing the deficit if you believe his blow smoke up your ass economic forcasts. No one, not even Keynes believes you can raise taxes in the middle of a severe recession and meet with anything but disaster.

Clinton raised taxes but he inherited an economy coming out of a mild recession not one going into a severe one. Further, Clinton had to cut taxes before the economy really got going. UE was still above 6% in 1996.

If you are going to argue, at least do it with facts as opposed to made up reality.

Peter V. Bella said...

The biggest obstacle to business, manufacturing, and industry for the past forty years has been the US Government. Now the impediments and obstacles are getting larger.

The best assistance to people is good jobs. You cannot have good jobs if there are few busnesses, maufacturers, or industries.

Our government destroyed the economy. Why should we trust it to fix it?

Henry said...

DTL, I agree with you almost entirely. I differ on evaluating Obama's performance so far, and consider Clinton's performance lucky as much as good. Still, he (along with Gingrich) deserve credit for not making any incredible boneheaded economic mistakes, which is the most you can ask for.

Henry said...

DTL, I should clarify that my agreement is with your 10:16 post.

Peter V. Bella said...

"He's also being responsible by raising taxes, which also helps cuts the deficit."

Now that is hilarious. Raising taxes only makes people seek out ways to legally avoid them. There is only one way to cut the deficit- cut government spending to the bone.

That takes vision, courage, determination, and integrity. Something all politicians lack.

Sofa King said...

Obama is already cutting the deficits you moron.

{citation needed}

Dust Bunny Queen said...

Dow is a pretty good report card on the economy,


The DOW Industrial Average represents 30 stocks and it is NOT a good reflection of the economy.

The DOW Industrial average is NOT a reflection of the market.


Bush inherited that healthy economy. He inherited a surplus.


Sorry, wrong again. PROJECTED surplus based on actuarial figures from past performance. And as we all know... future returns cannot be predicted by past performance.

There was never an actual surplus.

Linkand from the horse's mouth Projected not actual surplus.

Doncha just love the new talking point words.....inherited? We should do a drinking game on how often the talking heads for Obama use the word inherited to try to shift the blame onto Bush for everything that occurs during Obama's term in office.

Dust Bunny Queen said...

Two links in the highlighted area....dunno why they merged into one.

ElcubanitoKC said...

Peter, while I agree that the government shares a large part on the diminishing of the US industrial sector, and most other sectors of the economy through overregulation thus making it unattractive investment-wise; we cannot leave out the responsibility of the rest of the population at large:

*People have grown used to higher salaries, even when they are not justified by the value produced. The labor market is no longer competitive. It's cheaper to produce things in countries where people are still willing to work for less.

*There is an entire generation of executives whose only career objective is to make a ton of money in a short time, and move on to the next company or government job, no matter what their educational background is.

*People keep asking the government to do more. This helps expand the government, and creates jobs which people are all too willing to fill because of the security they represent, mostly for lazy unproductive people.

*There is a lot of NIMBYism. We don't want factories nearby. We don't want car plants nearby. We don't want electric generation plants nearby. And by nearby I mean 20 to 30 miles or more. Which is funny since everyone wants to work close to home.

*People don't go to college for scientific or industrial majors. We prefer English, Psychology, Ethnology, Social Sciences, Photography, Antropology, etc. And the ones that do, expect a lot of money for what they do, and then complain when companies hire people from India to fill the positions.

There is a lot of blame to go around.

ElcubanitoKC said...

Oh, and I forgot:

*People expect to make a lot of money, and also pay low prices for products. Can't have your cake and eat it too.

downtownlad said...

The correlation of the dow to the s&P 500 is very close , despite having only 30 stocks.

http://seekingalpha.com/article/19516-dow-an-excellent-indicator-of-overall-market-health-95-5-correlation-to-s-p500

But fine, if DBQ insists on using a broader index, such as the S&P 500, then Bush is even more of a moron.

Hoosier Daddy said...

Obama is trying to clean up the mess, and thus far, he's handling it quite well./

Nonsense. Its only been 100 days.

John Lynch said...

The more the GDP numbers slump, the better the case for the stimulus and the less the chance for inflation. The danger of a further collapse in demand and prices means that someone needs to start spending money.

I'm not a big fan of a lot of the supposed stimulus programs, but the experience of the 1930s shows that deficit spending is a good idea with GDP numbers like this. If this goes on, we are looking at a Depression. OK, we've tried a lot of monetary policy solutions and we're about out of ideas there. Fiscal stimulus is about all that's left.

A bad idea is the sort of tinkering with GM and other companies, subjecting them to central planning and keeping labor costs high. That leads to unemployment in the long term. Fortunately, the government this time doesn't have as wide-ranging power as FDR's did.

As for inflation and what not, it's hard to see prices rising when the economy is contracting this fast. Maybe down the road, but some inflation is a small price to pay to get out of this, and we can deal with it later.

John said...

John Lynch,

The problem with government stimulus are two fold. First, you can't compare today to 1932. In 1932, the federal government was literally the size of PBS. We didn't have programs like unemployment and social security. In 1933 there was a lot of room to stimulate. Today, the federal govenrment is 1/5th of the entire economy and sends out hundreds of billions of dollars in cash transfers every month. Given that, the marginal effect of stimulus is not going to be the same today as it was in 1933. Second, the stimulus that Obama got is not the kind of short term immediate influx of cash the economy needs. It is more or less a handout to connected Democratic chronies that is not likly to be spent for years to come. In the end you are left with stimulus that isn't going to come in time and even if it did wouldn't make that much marginal difference given the stimulus already occurring through social welfare programs. Even Kaynes in later life admitted that infrastructure programs are not particularly effective Keynesian stimulus.

Lastly, Obama is planning to raise taxes in the middle of a severe recession. He plans to raise not just ordinary sense but impose steep faith based taxes on energy in the name of global warming. Any effect his stimulus is going to have will be swamped by tax increases and cap and trade.

John Lynch said...

All true. But what's the alternative, and what alternative would we have gotten from a McCain administration with this Congress? Likely nothing. Would that be better? I think that's a close call if taxes go up, but they haven't yet.

John said...

My alternative would be to let the banks fail and take the money that was spent on TARP and spend it on income transfers to those effected by the downturn. For the two trillion we have spent on TARP, we could have cushened the impact of the recession and avoided the moral hazard of bailing out failing businesses.

Balfegor said...

All true. But what's the alternative, and what alternative would we have gotten from a McCain administration with this Congress? Likely nothing.

I'm sorry, what? We're talking about McCain. Not Tom Coburn. We'd have got a bloated stimulus, just somewhat less bloated, moderately less porky, and marginally more bipartisan.

McCain would have rolled over for Congress, just as Obama did -- only he wouldn't have gone around with a "kick me" sign on his backside the way Obama did vis-a-vis Pelosi. It would have been more of the same, just marginally less bad.

rhhardin said...

My alternative would be to let the banks fail and take the money that was spent on TARP and spend it on income transfers to those effected by the downturn. For the two trillion we have spent on TARP, we could have cushened the impact of the recession and avoided the moral hazard of bailing out failing businesses.

The money spent on the banks isn't really spent and can be called back out of circulation when the economy picks up, not that it won't take some political courage to do that, which is probably not going to happen.

The problem it avoids is a legal system that would be unable to do anything sensible with the widespread and interlocking bankruptcies for 50 years.

Money spent cushioning impacts on the other hand is really gone and would serve to prolong the recession indefinitely. Nobody inconveniences themselves unless they have to, in looking for a job doing something actually useful.

John said...

"The money spent on the banks isn't really spent and can be called back out of circulation when the economy picks up, not that it won't take some political courage to do that, which is probably not going to happen."

It belongs to the banks not the government. I don't see how the government can call it back into circulation. Yes, you are right, it will go back into circulation once the economy turns back around and we will get a huge case of stagflation.

Further, the money spent cushioning is not gone in the sense that it circulates around the economy. Further, it can be cut back when the economy gets going to avoid inflation.

rhhardin said...

The bank money is just a credit on deposit at the Fed. It was used to shuttle bank assets to the Fed's balance sheet and leave the bank with nice new Treasuries. No real resources were used, and in particular misallocated. In return the banks stay out of the credit mess the legal system would make of bankrupcy.

On the other hand, diverting money to cushioning actually takes up real resouces as it gets spent in return for no output at all, which is the dead loss.

You'd soak the extra money up the same way, by selling debt, when the time comes.

John said...

"The bank money is just a credit on deposit at the Fed. It was used to shuttle bank assets to the Fed's balance sheet and leave the bank with nice new Treasuries. No real resources were used, and in particular misallocated. In return the banks stay out of the credit mess the legal system would make of bankrupcy."

Those treasuries are someday going to have to be paid. They are government debt. You can't get around the hard reality that the government can get money three ways; borrowing, taxing, or devaluing the currency. Those treasuries are real liabilities and represent the a drag on the future fiscal health of the country. They were given in return for worthless assets.

There was nothing free about the bank bailout. It was biggest financial theft in history.

Jeremy said...

QUICK!!

Run the counter-suggestion to the stimulus the Republicans have provided.

And leave out tax cuts.

John said...

"The bank money is just a credit on deposit at the Fed. It was used to shuttle bank assets to the Fed's balance sheet and leave the bank with nice new Treasuries. No real resources were used"

that is a mind bogglingly crazy way to look at things. The government paid real money for worthless assets. That money could have been used elsewhere.

John said...

"Run the counter-suggestion to the stimulus the Republicans have provided."


Hopefully nothing. The stimulus has done and will continue to do more harm than good. First do no harm!@!

Jeremy said...

John said..."Hopefully nothing. The stimulus has done and will continue to do more harm than good. First do no harm!@!"

The stimulus was designed to stop the bleeding and it's done a fantastic job.

I notice you didn't provide any counter to the plan.

And what exactly do you think would have happened had Obama not initiated the plan?

John said...

"The stimulus was designed to stop the bleeding and it's done a fantastic job."

What evidence is there of that beyond some wierd faith in Obama? The economy contracted at a 6.1% rate last quarter. I would have done nothing, had no worse of an economy and be trillions of dollars less in debt to show for it.

Obama is stealing from you, your children and grand children and giving it to failed wall street billionaires. I always thought liberals were against that kind of thing. I will ask you the same thing I asked DTL, do you miss your soul now that Obama owns it?

Jeremy said...

John - Please provide your counter to the stimulus.

I understand the "contraction" and it's more than we thought, but unless YOU or the other Obama bashers have some kind of alternative...what is your point?

I've owned and run businesses for years and not once has bitching and whining...without a plan (good or bad)...ever done a thing to change things.

rhhardin said...

that is a mind bogglingly crazy way to look at things. The government paid real money for worthless assets. That money could have been used elsewhere.

The inclination to say ``real money'' is misguided. It's real in the sense it's not counterfeit, but if it's not circulating, it doesn't affect anything economic.

Almost everything in economics works backwards from the way it works for an individual, money first of all.

Money doesn't represent value, in particular. It's a ticket in line to say what the US economy does next, presumably something for you. The Fed creates and destroys these tickets all the time, so as to match the number of tickets to what the US economy is capable of doing at once. It is not creating or destroying wealth or value when it does this! It's just keeping the tickets from bidding against each other for more than the economy can do at once, and keeping parts of the economy from going idle owing to lack of tickets.

To say they're ``real tickets'' doesn't have any point. If they're not being used, it doesn't matter. Today's problem is that people are sitting on their tickets because there's nothing that seems safe to do with them.

rhhardin said...

but unless YOU or the other Obama bashers have some kind of alternative

Sure. Zero the capital gains tax, zero business taxes.

The message that government will stay out of the way that that would send would have instant effects. Obama doesn't want it to go that way, though.

The ditch digger with heavy equipment earns a lot more than the ditch digger with a shovel because of capital; capital is extra money; and capital is on strike because there's no return now for using it on anything.

Der Hahn said...

A good conservative alternative would have simply been to freeze government spending and tax collection at 2008 levels for one year.

In other words, give people some time and something they could count on being stable while they dealt with how the economy impacted them.

You can get a tolerable outcome by simply maintaining the status quo in the face of uncertainty but executing a bad plan guarentees a bad outcome. We're going to see that in spades in the next three years.

Balfegor said...

re: John:

Run the counter-suggestion to the stimulus the Republicans have provided.

And leave out tax cuts
.

I'm sorry, are you trying to argue that tax cuts aren't stimulative?

That said, it's true that Republicans were unable to unify around a single alternative.

The simplest, quickest, and most effective stimulus would have been to slash the payroll tax (FICA taxes). This could have been done on an immediate basis (i.e. unlike the current stimulus which is mostly going to hit in 2010 when the administration claims we will be out of recession => massive inflation). A payroll tax holiday would also have had a broad effect, benefiting the poorest workers most. Would also help employment by reducing the expense associated with each worker and improving margins. And best of all, a payroll tax would be awfully difficult to game -- you don't have to worry about corruption in government contracting and expensive figleaf oversight panels and all that. Nor is the government engaged in the finicky business of picking economic winners and losers based on who they give the money too. Would have been simpler, quicker, and more effective all around.

And some Republicans did propose a payroll tax holiday! But it was a dinky one, too small to be really meaningful. And it was one of probably 50 different mutually incompatible proposals the Republicans put forward.

Balfegor said...

Sorry that reply was meant for Jeremy not John.

Jeremy said...

"I'm sorry, are you trying to argue that tax cuts aren't stimulative?"

No.

I just think there has to be MORE to the equation and I've yet to hear a peep out of the Republicans as to what they would suggest. Sure, they say we should slow spending, but that certainly isn't what we saw over the past eight years so that's rather hard to believe.

Are YOU arguing that tax cuts is all we need?

Bush initiated plenty...and look where that's gotten us.

Reagan initiated plenty, then had to go back and raise taxes 4 times to overcome the revenue shortfall.

Right now, we're ALL buried and something had to be done. Whether it works out in the long run, nobody will know for at least 6 to 24 months.

Jeremy said...

Der Hahn said..."A good conservative alternative would have simply been to freeze government spending and tax collection at 2008 levels for one year."

That's one possibility but it wouldn't address the banking crisis.

If the biggest banks fail...we all fail.

Jeremy said...

rhhardin said..."Sure. Zero the capital gains tax, zero business taxes."

And you think that would do it, huh?

Reagan dropped taxes like a stone and immediately had to go back in and raise them over and over again because of massive revenue shortfalls.

Lowering income, gains, and other taxes would be nice, but it would be enough.

And how the hell could you possibly initiate "zero business taxes"??

Where would the revenue to sustain the everyday upkeep of the infrastructure, etc. come from?

John said...

"I just think there has to be MORE to the equation "

Why? Where is your evidence that the "more to the equation" has done anything but given money to Dem chonies at expense of debt that will be paid by generations in the future?

For about the fifth time on this thread, let me explain it to you. The alternative is let the economy work through the downturn and come back on its own, like it has during every other down turn in the history of the world. -+

John said...

"And you think that would do it, huh?

Reagan dropped taxes like a stone and immediately had to go back in and raise them over and over again because of massive revenue shortfalls."

That is completely untrue. Revenue during the Reagan administration was higher than the projections under the Carter tax rates. Further, revenue dropped under Reagan in the first two years because the economy went through a hell of a recession, which was the result of finally killing off stagflation. After that, revenue went through the roof, just like it has in every other good economic time.


"And how the hell could you possibly initiate "zero business taxes"??"

Nearly every country in the world has lower corporate income taxes than the US. Thanks to outdated Democratic thinking, we are well behind the rest of the world in this area.

Jeremy said...

Speaking of lowering taxes and one of the primary local "heroes" credited with doing just that:

One year after his massive tax cut, Reagan agreed to a tax increase to reduce the deficit that restored fully one-third of the previous year's reduction.

Faced with looming deficits, Reagan raised taxes again in 1983 with a gasoline tax and once more in 1984, this time by $50 billion over three years, mainly through closing tax loopholes for business.

Despite the fact that such increases were anathema to conservatives--and probably cost Reagan's successor, George H.W. Bush, reelection--Reagan raised taxes a grand total of four times just between 1982-84.

Reagan continued these "modest rollbacks" in his second term. The historic Tax Reform Act of 1986, though it achieved the supply side goal of lowering individual income tax rates, was a startlingly progressive reform.

The plan imposed the largest corporate tax increase in history--an act utterly unimaginable for any conservative to support today.

Just two years after declaring, "there is no justification" for taxing corporate income, Reagan raised corporate taxes by $120 billion over five years and closed corporate tax loopholes worth about $300 billion over that same period.

(Joshua Green's 2003 article from the Washington Monthly)

Jeremy said...

"And how the hell could you possibly initiate "zero business taxes"??"

John: "Nearly every country in the world has lower corporate income taxes than the US."

The key word being: "lower."

Not ZERO.

We also have LOWER income taxes than most other countries.

Jeremy said...

John said..."Why? Where is your evidence that the "more to the equation" has done anything but given money to Dem chonies at expense of debt that will be paid by generations in the future?"

What's with the "Dem chonies (cronies)" comment?

Is that where the surplus went and massive deficit was created over the past eight years...Republican cronies took it?

You act as if the past eight years of massive spending never happened and that Obama created this mess.

It's one thing to speculate about what is going to happen, but to to disregard what has already happened it dishonest and silly.

Jeremy said...

I find it rather hard to take much of what I'm reading here seriously, considering the fact that the Republicans controlled the majority on Congress for 12 of the past 14 years and a Republican held the White House for the last eight.

Are you saying the Democrats somehow bypassed the Republican Congress and the White House and created this situation?

It's disingenuous and nothing more than partisan politics.

Jeremy said...

The instant any information surfaces (Reagan taxes / Republican Congress) that counters the standard drivel...everybody bails out.

Issob Morocco said...

Jeremy, you raise good and salient points about the past Republican congresses, say 1998 until 2006. They did become Democrat-like in their love of spending, which is why they now have a Republican political class that is disengaged from its base supporters.

Part of what you have posted about Reagan is true, he did agree to tax increases, put forth by the Democratic congress in those years you cite, but there is more to the story on them, that would behoove those interested to go and read about. Also, the timing of those taking effect was when the economy was growing, which is not the case now.

More taxes and more spending by gov't in a contracting economy is a disaster awaiting us. Bureaucrats are already seeing lowered tax revenues due that contraction and think they will make it up by raising taxes. Erh, wrong! That is why both cutting taxes and cutting gov't spending needs to occur, to turn the economy around.

As for Obama and the Democrats, they are responsible for the additional trillions he just signed up for on top of the billions that were there ahead of his taking the helm (Democratic congress since 2006). Bush didn't veto when he should have, shame on him. But to knowingly worsen a situation by policies tied more to gaining and keeping political power than to making America right is the truly shameful act of the Democrats.

Can we all say Late 70's Redux?

Jeremy said...

Issob Morocco _ Look, I'm all for lower taxes, but as we both know, the entire infrastructure of American would crumble without the funding necessary.

Reagan tried to beat the taxes down so much he got caught and had to raise them over and over again (and please, it wasn't just the Democrats who voted for them) to offset the massive deficit of revenues coming in.

Right now we're in a situation unlike any other and something had to be donw...and Obama did something.

The Republicans have offered absolutely nothing to counter his plan and that's why they're up the creek.

Not one of them voted for the latest bill.

NOT ONE...and if Obama's plan pans out...you won't see a Republicans in the WHite House for decades.

Issob Morocco said...

Hi Jeremy, I think if we cut the right spending, we can fund those critical infrastructures you are concerned with, like bridges, highways, etc. Look at the millions being spent on John Murtha Airport in Johnstown, PA as a starting point for cutting wasteful spending.

I don't say no taxes, but cut the corporate, capital gains and income tax rates along with spending cuts on the gov't. Tattoo removal as part of the stimulus package, what is up with that? Are you defending that outlay?

As for Reagan, it was not as you state, that he beat taxes down too low, but that he was also increasing defense spending, specifically Pershing 2 missles, Naval Force Structure improvements, SDI and other DOD programs, that are critical and necessary infrastructure needs of a gov't to protect its citzens and country. In order to get something he gave something with a Democratic controlled Congress. Political compromise. And done in an economy that was growing.

I disagree that Republicans offered nothing on the stimulus, they did try to put amendments into play, but were denied by the majority Democrats. That is why none supported it, because Democrats didn't want anything other than their plan. The media is compliant to the Dems so that is why you may not have heard of the amendments and options they did offer, but they are there.

Hence my previous call out that political power is more important to Democrats than doing what is right. They could be called the Expedient Party for how they conduct themselves, especially Pelosi.

Republican Party may be out of power, but the base supporters of them in the past are not walking away from their ideals of smaller, less onerous government, lower taxes and freedom to pursue happiness. The power of the Individual to what they deem best for their needs. Tea parties have come about with that same passion for freedom.

Finally, I will posit that just because Obama did something is not enough, if what he does is the wrong thing. I will say he won't have his plans pan out because they are not meant to create a better society when one can rise up, but instead to push all down to a lower level. That, Jeremy, is Socialism. That will not play and hence his future and the Democrats is limited.

Cheers!

Balfegor said...

Issob Morocco _ Look, I'm all for lower taxes, but as we both know, the entire infrastructure of American would crumble without the funding necessary.

We're borrowing vast amounts of money already. The government's obligations, in the last three months of Bush and the first three months of Obama, have ballooned dramatically in size, and basically all of it is being paid for with debt -- it's certainly not being financed with tax increases. And this is, in fact, the logic of stimulus, whether it's tax cuts or spending: that the government borrows money (or just inflates it or creates it by fiat) to get the economy moving again. That's why the Fed is now engaging in quantitative easing and the government is throwing around dollars like they're going out of style. It's also obvious from Obama's budget that he's completed the transition that was underway with Bush -- he has completely decoupled spending from any link whatsoever with tax revenues.

As far as tax cuts being adequate stimulus, tax cuts aren't sufficient -- the banking sector needs to be cleaned up and reorganised; otherwise we'll just sputter along like Japan did for a decade and a half, with gigantic and ineffectual stimulus expenditures every year and a public debt growing by leaps and bounds. That's not really a spending issue, unless the government cleans up the sector by buying up all the bad assets. That's what we've decided to do, and it seems like bad policy to me, but I don't have a firm enough grasp even on the mechanics of TARP and the other policies Geithner is implementing to criticise effectively.

But tax cuts are probably the best stimulus policy apart from the banking fix. Tax cuts as Bush (and now Obama) have implemented them in 2008 and 2009 are sub-ideal for two reasons -- the first is that the bulk of the "tax cut" is really a rebate, and my understanding is that you get less bang for your buck with a rebate than with a sustained increase in each paycheck -- people don't change their consumption profile as much in response to a one-time payout. And the second is that the normal tax cuts, particularly after the Bush tax cuts (which made our tax system noticeably more progressive), are not going to be sufficiently broadbased to give the entire economy a coordinate jolt. Tax cuts are also usually implemented with lag time, i.e. withholding doesn't get changed immediately. Some of these issues could be worked out with better implementation, but the big distributional effect is best corrected with FICA taxes, which every gainfully employed American is stuck paying, and which every business is stuck paying for. If the government tells businesses to stop collecting FICA for the next 6 months, businesses can just tell payroll to stop collecting FICA, and tell their accounting people to release whatever reserves they keep accumulating to pay their FICA. If the government wants, they can shovel huge amounts of money out the door in a matter of months.

This hasn't been used on this scale before, but as a proof of concept, Singapore does fiddle with its payroll tax rates to smooth recession effects, and it works fairly well for them. Certainly better than infrastructure stimulus worked for Japan.

Jeremy said...

Issob Morocco - If only we had a crystal ball.

Thanks for your time and discourse.

kentuckyliz said...

We were not in recession 4/08. There was still positive GDP growth back then. Good times.

GDP shrinkage - recession - actually started in Q4 2008 - once it was clear that the Big O was going to win. The Galting started and continues today.

Q1 2009 was even worse.

I am busy signing up laid off workers for training programs. All these coal miners are signing up for Electricity, Unicorn Fart option. You know, Utopia runs on Unicorn Farts.

The country's in the very best of hands. The best of hands!!!

AllenS said...

Here comes the month of May, when I and 50 million other recipients of Social Security will receive a check for $250, above and beyond what we now receive. Stimulating? No, it isn't. This is spending that is so out of control, it borders on insanity. Anyone who supports this president and congress in this unbelievable spending is a fool. And a damned fool at that. Maybe next year there will be more stimulation. How about $10,000 next time? Why not. Right, Jeremy?

Alex said...

downtownlad:

No President "manages" the economy. We don't live in the USSR, yet.