Lessons
I hope President-Elect Obama and the congressional leadership are all reading Paul Krugman’s column. What’s more, I also hope the congressional non-leadership pays close attention to his column. It’s those members in the most marginal districts who are most likely to look at plans for an expansive agenda and start getting queasy, but in truth it’s those very same members who aren’t going to win re-election unless dramatic action is taken. The bulk of the most liberal members have safe seats and will be congressmen for life if they want to be. But a lot of the more vulnerable Blue Dog types out there are going to need to choose between their instinct for trimming and the objective demands of their political survival — to say nothing of the country.
Good policy and good politics often don’t align, and they rarely align perfectly, but in this case the overwhelming political and substantive requirement of the new congress is big action to prevent a long and deep recession.
26 Responses to “Lessons”
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November 10th, 2008 at 6:57 am
If Blue Dogs and moderate Republicans need something to oppose Obama on, the safest thing from an economic perspective would be his high-income tax increases. Now personally I think those tax increases are fine from a Keynesian perspective when they are used to fund refundable tax credits to lower-income families–indeed, such Robin Hood tax policies are a straightforward way to increase consumption. But again, if they need to make some gesture of opposition for political reasons, it does the least harm to say OK to the spending, OK to the lower-income tax credits, but balk at the higher-income tax increase.
November 10th, 2008 at 7:51 am
In December 1933,the economist John Maynard Keynes wrote an open letter to President Roosevelt, which began:
“You have made yourself the trustee of those in every country who seek to mend the evils of our condition by reasoned experiment within the framework of the existing social system. If you fail, rational change will be gravely prejudiced throughout the world, leaving orthodoxy and revolution to fight it out.”
(quoted from Donald Markwell,”John Maynard Keynes and International Relations: Economic Paths to War and Peace”, Oxford University Press, 2006, page 176)
Although the circumstances are different, exactly 75 years later President-elect Obama is in something like the same position. People around the world see him as the trustee of their hopes, both for better international relations and for revival of the world economy.
As in FDR’s time, when Depression led remorselessly to war, so today, the two may be more closely connected than we would like to think.
President Obama must ensure that the US provides leadership in dealing with the global economic crisis of our day. This, too, is one of the lessons – probably not widely enough appreciated – of FDR’s time, and of Keynes’s insights (see Markwell’s book quoted above).
November 10th, 2008 at 7:53 am
Of course, it’s also good reason to give pause to such Econ 101 nostrums about not bailing out the autos. How it’s done matters greatly, but while where facing a potentially huge recession may not be the time to experiment with ‘moral hazard’ purity. Another million unemployed in the middle of this mess is something to be avoided, especially while we’re shoveling another 40 billion at AIG.
November 10th, 2008 at 8:01 am
While we are in a frame of mind to address problems, could we please think about doing something, finally, about our antiquated political system? First, we had to groan under the oppressive weight of our fixed terms of presidential office, long past the time when a clear and overwhelming majority of Americans had decided the old president was a failure who lacked the capacity to govern intelligently.
Then we drained our energies on a nearly two year presidential election, an anachronistic throwback ritual of lumbering, Vatican-like deliberation in a high=paced modern world. Now with the global economy in an accelerating meltdown, and the entire world looking to the new US president for leadership and direction, we have to muddle through our absurd two and a half month “transition” period. Why? So the new president can ride his horse from Springfield to Washington? With stops in New York and Philadelphia on the way?
The world moves much more quickly than it did when these institutions were created. Business and financial decisions are transmitted, multiplied and ramified in the blink of an eye by contemporary information technology, and mass consumer responses to economic news occur in the space of a few days, not months. These hidebound traditions have gone from quaint and quirky to utterly crazy and dangerous.
November 10th, 2008 at 8:02 am
The auto companies (especially GM and Chrysler) are money sinks with no upside. Their problems are far more dire than just financial problems. People aren’t buying their cars even if they have the money. It’s GWB’s watch, but something more clever than simply sending cash to the auto industry seems to be needed. Krugman needs a post Nobel burst of inspiration on how to deal with this beast.
November 10th, 2008 at 8:39 am
Those on the right are going to jump on the tax increases by Hoover and FDR that Krugman mentions to bolster their argument that Obama shouldn’t raise income taxes 3% on 5% of the population that makes over $250,000 a year.
What were the specifics of those tax increases, and what is the counterargument to that inevitable attack?
November 10th, 2008 at 9:03 am
Dan K. seems to be asking for a parliamentary system. Under parliamentary systems, governments can be changed in one day, the head of state just dismisses the head of government and picks a new one as needed. This pretty much requires separating the head of state and head of government and making sure that the HOS is a non-partisan position, with limited powers.
However, Latin American countries, which use our system, get around it by playing loose with the consitutional restrictions, you get a much bigger chance of the president resigning before his turn is over. This is less than ideal, since its often due to pressure from the military, but we could go that route and avoid having to change our entire constitution. We can’t do this, however, if “impeachment is off the table” or otherwise viewed in the political culture as being somewhat illigitimate.
At least we could have the new Congress assemble immediately after the election, with the new President sworn in a week or two later, but I think it will be so difficult even to get this constitutional change that we would wind up going the whole hog and revise the whole document.
November 10th, 2008 at 9:09 am
I think that in addition to reading his column Dr. Krugman would be a great addition to the team in some capacity.
November 10th, 2008 at 9:18 am
Rich,
That is a really good question. A correlary to this is that I have observed the polemics have a hard time agreeing on what exactly FDR’s agricultural policy was. Funny stuff, history is.
November 10th, 2008 at 10:02 am
Good post, and thanks for the link, MY.
November 10th, 2008 at 12:21 pm
It looks like the current administration (and possibly some previous)has us in a position where we must all learn to pronounce WPA. Those million+ people out of work need help and quickly. It’s obvious that industries are not going to be nationalized, so maybe this can be a great opportunity to repair our infrastructure. It desperately needs it. God Bless the USA and God Bless President-elect Obama.
November 10th, 2008 at 7:04 pm
Both Hoover and Roosevelt spent too much on public works projects and tried too mightily to “stimulate” the economy by keeping wages up, inflating, and encouraging spending.
IT DIDN’T WORK.
What we need is to let the bad investments liquidate so that they stop draining us. This was what worked to stop a depression in the early 20s, and what would have worked in 1929-1930 if it had been tried, which it hadn’t.
indeed, such Robin Hood tax policies are a straightforward way to increase consumption.
Yes, because Americans obviously cosume far too little.
Just a question about Krugman – he seems to be advocating massive federal spending increases with little or no tax increases to fund them with. DTM appears to accept that as a reasonable compromise to get the GOP on board.
How exactly are we going to get the money to fund huge federal expenditures if we don’t raise taxes? Is anyone else in the world going to loan to us? Or is the idea simply to print the money we need?
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