In which Krugman borrows Martin Wolf's scalpel, possibly via Geithner

[n.b. see update in mid-post. I seem to have misread...]

In October 2010, Financial Times columnist Martin Wolf led off a column with a heroic simile to describe Obama's economic performance:

An ambulance stops by the roadside to help a man suffering from a heart attack. After desperate measures, the patient survives. Brought into hospital, he then makes a protracted and partial recovery. Then, two years later, far from feeling grateful, he sues the paramedics and doctors. If it were not for their interference, he insists, he would be as good as new. As for the heart attack, it was a minor event. He would have been far better off if he had been left alone.

That is the situation in which Dr Barack Obama finds himself...more stimulus was needed. After all, it was quite modest: fiscal stimulus was less than 6 per cent of GDP and so accounts for less than a fifth of the cumulative deficits of 2009, 2010 and 2011, while monetary policy is caught in a liquidity trap.

The truth is not that policy was foolhardy and failed, but that it was too timid and so could not succeed.

Lo, now cometh Paul Krugman to review Tim Geithner's memoir:

Bringing a fire extinguisher to a flood

A few days ago,  a friend sent me a 297-word graduation speech by economics Nobel laureate Thomas Sargent, delivered in 2007, that's been making the rounds. The speech consists of twelve precepts, delivered with economists' economy, that have been hailed as a distillation of "everything you need to know about economics," as Ezra Klein -- too fond of such sweeping overstatement since launching Vox -- put it.

The piece rubbed me the wrong way, not because its precepts are not true, but because their uber-message seems out of step with our slow-growth, post-meltdown, austerity-hog-tied economy. The upshot, as Josh Barro summarizes it this morning, is that there's no free lunch. The two bullet points that bugged me in particular  were these:

4. Everyone responds to incentives, including people you want to help. That
is why social safety nets don't always end up working as intended.

5. There are tradeoffs between equality and efficiency.

To take the second first: sure. But as we've learned in the last few years, there's also tradeoffs between inequality and efficiency. When the top 1% grab 95% of the fruits of growth, they tend to 1) use their outsized capital unproductively, increasing their rents, 2) hollow out their customer base, and 3) extend their control over the political system, eroding checks on their own power and ensuring their further corruption.

Obama girds for nuclear budget war, cont.

So Obama has repackaged and linked two old proposals -- revenue-neutral corporate tax reform and a package of jobs stimulus measures. The tax reform would be revenue neutral over the long term, cutting rates and reducing loopholes, but would yield a one-shot revenue boost as the loopholes are closed, paying for teh short-term jobs measures.

This mini "grand bargain" is part of Obama's announced series of economic speeches and proposals.  The purpose, as I see it, is twofold. First, to shift the national agenda in the upcoming budget battles from deficit reduction to jobs (short-term stimulus and long-term investments). Second, to present Republicans with a series of manifestly reasonable programs and compromises to reject. That way, when they shut down the government or threaten national default because Obama won't agree to obscenely large spending cuts, he can say, "I offered to compromise six ways to Friday, but my opponents won't agree to anything but more spending cuts and more tax cuts." 

A hat-tip to ARRA for the freight rail boom

The Wall Street Journal's Betsy Morris reports on an investment boom in freight rail and freight rail infrastructure that's aiding the nascent comeback of U.S. manufacturing.

Welcome to the revival of the Railroad Age. North America's major freight railroads are in the midst of a building boom unlike anything since the industry's Gilded Age heyday in the 19th century—this year pouring $14 billion into rail yards, refueling stations, additional track. With enhanced speed and efficiency, rail is fast becoming a dominant player in the nation's commercial transport system and a vital cog in its economic recovery.

This time around, though, the expansion isn't so much geographic—it is about a race to make existing rail lines more efficient and able to haul more and different types of freight. Some of the railroads are building massive new terminals that resemble inland ports. They are turning their networks into double-lane steel freeways to capture as much as they can get of U.S. freight demand that is projected to grow by half, to $27.5 billion by 2040, according to the U.S. Department of Transportation. In some cases, rail lines are increasing the heights of mountain tunnels and raising bridges to accommodate stacked containers. All told, 2013 stands to be the industry's third year in a row of record capital spending—more than double the yearly outlays of $5.9 billion a decade ago.

As the examples of infrastructure upgrades in Morris's article suggest, freight infrastructure is financed mostly by private capital.  The 2009 American Recovery and Reinvestment Act's  $8 billion in high speed rail grants, while focused mainly on passenger service, do include projects that improve infrastructure for freight rail, however. Describing rail upgrades in his book on the stimulus, The New New Deal, Michael Grunwald illustrates how passenger and freight rail infrastructure are often intertwined:  

Notes from the bully pulpit: no one hears you when unemployment is at 10%

As Obama gears up for the fiscal cliff end game, David Corn is out with a timely reminder that the deal Obama struck in December 2010, trading extension of the Bush tax cuts for the wealthy for a payroll tax cut, unemployment benefit extension and other stimulus, was far from the cave-in that liberal allies portrayed it as. Rather, it was a successful a bid to win "something bigger and better: more stimulus to aid the ailing economy."

This was actually obvious at the time, for those with eyes to see. According to Mark Zandi, the Democratic proposals that became part of the deal yielded $336 billion worth of stimulus from 2010-2012.  Even Paul Krugman admitted at the time that the provisions Obama fought for were likely to provide significant help to the economy. In concert with the payroll tax cut and and unemployment benefits extension Obama bludgeoned the GOP into accepting in early 2012, those stimulative measures probably secured his reelection.

While debunking the tax-deal-as-cave-in myth, Corn does subscribe to another narrative that does have some truth to it over the long haul but in my view is also exaggerated:  that Obama was ineffective at communicating his policy.  Here's Corn's read:

Maybe I shouldn't do debate assessment

I begin to think I'm not a good reader of debates. While not looking at commentary, I was afraid that Biden would be laughed off the national stage. He shouted nonstop until his voice gave out; he grimaced far too much and failed to look at Ryan when confronting him (though I may have been misled in that by the C-Span split screen; when I switched to PBS he seemed more natural in this regard), he interrupted incessantly, and I thought he was often incoherent on domestic policy (though generally effective on foreign), failing to answer Ryan's allegations systematically and jumbling a bunch of not-fully-articulated assertions together. Ryan, on the other hand, struck me as methodical, systematic, unruffled and precise -- never mind that his characterizations of Obama administration policies -- and Romney's -- were wildly misleading.

In which Timothy Egan completes Tyler Cowen

Methinks that there's a circularity to Tyler Cowen's argument that lack of trust in government would undermine the effectiveness of traditional stimulus measures to boost public employment:

Various policies that are being put on the table, including forms of fiscal and monetary stimulus, try to accelerate this repair process. They would all be likely to underperform, partly because the public, rightly or wrongly, doesn’t see them as ways to rebuild confidence. We have become skeptical of our own macroeconomic authorities and abilities, and that, in turn, makes successful policy harder to pull off. 

For instance, there is a good case to be made for monetary expansion, given the current low rate of inflation and high rate of unemployment. But if fear of inflation puts off the American public, such a policy will again underperform, relative to what we have learned in textbooks. There won’t be a credible commitment to see the monetary stimulus through, as people panic that resulting inflation will be used to redistribute wealth. (Although Sweden and Switzerland have had effective monetary policies recently, both of those countries have especially high rates of trust in government.)

First, lack of trust stems in part from lack of effective government. Timely and sufficient stimulus would (or would have) demonstrably improved the economy and so boosted trust that government can act effectively.

The kernel of truth in blaming Obama

Greg Sargent and Steve Benen share a tic.  Almost daily, both expose the big lies and small lies on which Romney's economic case is founded.  Almost invariably, after highlighting the falsity in the Romney narrative, they warn: it could work.

One underlying assumption, inculcated by the political scientists, is that voters blame the president for the state of the economy because they don't understand how limited the powers of the presidency are, particularly when the out-party is determined to block all action proposed by the president. Hence Benen today:

A fair look at Obama, cont.

Yesterday, I wrote a post speculating about why polls show that Americans broadly approve of Obama's economic policies yet give him poor marks for his handling of the economy. Short answer: he's being punished for not executing, or not fighting hard enough. Today, the New York Times devotes its lead editorial to the same apparent anomaly, and comes to a similar conclusion:

He has wasted far too much time trying to puzzle out how he can shave policies down far enough to get the Republicans to cooperate. The answer has long been clear: He can’t. Since he was elected, the Republicans have openly said they would not work with him, and a year ago, Senator Mitch McConnell, the minority leader, said explicitly that the Republicans’ goal was simply to deny Mr. Obama a second term. The new Times poll showed that Americans do not believe bipartisanship is achievable. Six in 10 Democrats want the president to challenge Republicans more. He should not worry about voters thinking he is being mean. What he should worry about is that he is not showing them that he is fighting all out for their interests.

"He made it worse"...compared to what?

ca·su·ist·ry... n. pl. ca·su·ist·ries

1. Specious or excessively subtle reasoning intended to rationalize or mislead.

Mitt Romney is having a hard time convincing people that he hasn't been relentlessly lying about Obama's economic record since he officially kicked off his campaign. Let me offer my assistance.

In the fundamentally misleading speech with which Romney launched his campaign, he said this about Obama:

When he took office, the economy was in recession. He made it worse. And he made it last longer.

A  video by DemRapidResponse catches Romney saying substantially the same thing repeatedly since then, e.g., in the GOP debate:

What this president has done, is slowed the economy. He didn't create this recession, but he made it worse. And longer.

Challenged yesterday by an NBC reporter who pointed out that the economy is, in fact, growing, Romney said:

 "I didn't say that things are worse. What I said was, that the economy hasn't turned around."

That is really as clever as Clinton's "There is no sexual relationship." It's true, Romney did not say things are worse. He said that Obama made it (the recession) worse, presumably starting on Jan. 19, 2009, and made it "last longer."

Election 2010: How marginal was the messaging?

Today Brendan Nyhan hammers home his signature theme: presidents don't move public opinion by speechifying.  He has been relentless about this for years. Reagan couldn't move the public to support the Contras; Bush couldn't do it for social security privatization; and Obama didn't do it with his Sept. '09 speech promoting health care reform.

A natural corollary is that elections are determined mainly by structural factors: the state of the economy, the number of seats the in-party has to defend, the proportion of those seats that are in the opposing party's traditional territory, etc.. On the eve of the last election, Nyhan had a memorable post cataloging every oft-recited narrative about Obama's imagined failures of messaging or strategy, with links to past posts debunking most of them.

As it turned out, the Republicans out-performed the structural models, the most commonly cited of which, by Douglas Hibbs, forecast a gain of about 45 seats. Why?  Aspects of the current economic woe that the model could not capture?  Extraordinary GOP messaging that maximized the structural advantage? 

On November 11, Nyhan and colleagues Eric McGhee and John Sides published an Election Postmortem reporting some preliminary numbers crunching. No dominant explanation emerged.The Tea Party's impact seems to have been marginal. Money was not decisive. Structural factors explained much, but not the size of the victory margin.

The authors did find one factor, though, that raises more questions than it answers, and that I found astonishing on its face: that most House Democrats paid dearly for every 'yes' vote they cast on major legislation.  The writeup of this finding should be digested in full:

The Conscience of a Cassandra

It's hard not to give considerable weight to Paul Krugman's endlessly repeated warnings -- and complaints once the warnings went unheeded -- that the Feb. 2009 stimulus was too small. In this narrative, the cautious trimming that led Obama to put forward a proposal too weighted to tax cuts and appropriating less than 2/3 the total originally recommended by Christina Romer failed to jump-start true recovery and thus destroyed Obama's political  capital.

Can being right too often be hazardous to your intellectual health? Krugman warned us from Feb 2000 forward about the voodoo math behind the Bush tax cuts; he warned in 2005 about the housing bubble; he warned from February 2009 forward that the proposed stimulus was too small. [Update: He was also right about the the Iraq war and the Euro.] Being right and unheeded creates a Cassandra syndrome: you prophesy, and you feel in your bones that the leadership won't listen. Hence Krugman slips in Glenn Greenwald mode --  concocting a simplified counterfactual in which, under his policies, everything would have been okay, whereas current policy is leading straight to disaster.

Tax cuts in the stimulus were not just a sop to Republicans

I just stumbled on an Obama campaign speech that sheds some light on his claim in the Peter Baker interview that he made more than a third of the Recovery Act tax cuts on the merits, not as a sop to Republicans.

Here's what he told Baker (filtering out an explanation of the structure of the cuts):

The way we structured the Recovery Act was based on conversations with a wide range of economists and a recognition that there wasn’t going to be a single silver bullet to restart the economy; that we were going to have to have a mix of strategies.  So, for example, because each strategy had its strengths and its weaknesses, tax cuts had the advantage of speed. You can get tax cuts out pretty quickly; people have money in their pockets; hopefully they’re spending it....

So what we did was we put together the best possible package, given that we had to do it very quickly, and we presented it to Congress as a package without much thought to the politics of it.