Honest question: (0.00 / 0)

Would the trillions in Fed guarantees matter if the big banks were all nationalized? The government is going to have to lose some money reconstructing the financial industry, and the logic of doing that through nationalization of the banks seems unavoidable (although the government can argue itself into avoiding lots of seemingly obvious things....)

A lot of the TARP funding has probably been made to disappear into the pockets of the rich and well connected. Is the same true of the loans the Fed has made, or are those still balanced with "assets" on the bank books so that nationalization would make them go away?

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by: Cramer @ Wed Jan 21, 2009 at 17:25:35 PM CST

Hey David (4.00 / 2)

On the show, you should bring up the rather disturbing fact that infrastructure spending was trimmed in the stimulus bill to make room for the $400 billion in tax cuts. TPM is profiling the story now. Apparently Congressman Oberstar is fuming that funding for Amtrak and other infrastructure projects was dramatically trimmed for those useless business tax cuts.

Yet whenever politicians discuss the stimulus, they only talk about the infrastructure elements and "green jobs". When will they put the money where their mouth is?

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by: existenz @ Wed Jan 21, 2009 at 17:53:35 PM CST

Looking forward to it (0.00 / 0)

I've always TIVO'd Moyers, and feel it is the first place on TV I look to for insight and perspective. And I think it's important that there's a venue for where that perspective can be given more than a 4 minute slot on the talking head cable shows (or one-third of a slot split into 5-to-20 second bites with multiple guests and a moderator). So I'm glad you're going on David...

Not to go off on a total tangent, but I've been thinking recently that even though there's a lot of pundit-based puffery about transformation and transition, there is something to the balance of influence that might - might - be changing, for real. I'm a biologist, so when I look at history I'm struck by how the back-and-forth struggle for the reigns of government between the kleptocratic business interests and the public interests resembles the struggle in host-parasite evolution... Example: plants evolve a "silencing" mechanism to recognize RNA from viruses to stop infection, the viruses then adapt by evolving ways to suppress the RNA silencing.

Evolution can be defined simply as "change over time"... so when you look at who has the reigns of the government, and how they're steering it (mechanisms like... rewriting campaign finance law, or redistricting) you can see evolution in history. There was the Populist response to the robber-barons' monopolies and corruption, the New Deal reforms regulating the market after the crash of '29, defense and auto industries pushing for expansion against the New Deal, Nader's Raders crusading back against the auto makers and starting the EPA and OSHA, and then the return of the robber barons during the Reagan revolution and afterwards to counter the reforms and regulations of the '60's and '70's - ultimately leading to the repeal of Glass-Stegal.

Adaptation leading to counter-adaptation. Host versus parasite. It's time the pendulum swings the other way. I guess the lesson is the changes to the economy have to be big changes, and it would be worthwhile to try to anticipate what the next wave of kleptocratic influences - whether that's 5 years, 20 years, or more from now- will use as countermeasures to the ones we try deploy in 2009.

(I could probably go on and on about parallels with fitness landscapes and the economy, punctuated equilibria and change elections, signalling feedback loops, competition, etc. etc. but I'd better not since I have to get back to reading a paper for journal club. Plus, I'm trained as a cell biologist, not an evolutionary biologist.)

"I think the economic logic behind dumping a load of toxic waste in the lowest wage country is impeccable and we should face up to that."
-Lawrence Summers

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by: kbuck @ Wed Jan 21, 2009 at 18:17:23 PM CST

Good Book (4.00 / 1)

The Grieder book is especially good given that it is basically the history of Volcker's time as Fed Chairman, and how his actions led to two recessions for the purpose of breaking unions.  That would be the same guy Obama is listening too on economics.  That would be the guy people bring up to console us about the presence of people like Rubin among Obama's economic advisors (as in 'At least they have Volcker there.  He is a sensible guy'.  He is sensible, he is just not, nor has he ever been, on our side.)

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by: PTM @ Wed Jan 21, 2009 at 18:43:08 PM CST

Volcker's "recessions" were deliberately created.. (4.00 / 1)

...to tamp down runaway inflation... and it worked!  Some people forget that we had as much as double digit inflation in the 70's with no growth (i.e. stagflation was a killer)... It was a bold move, and necessary, IMO... retirees and working class were getting killed...  The recessions were temporary and devastating, but the pain was worth it... 13% inflation dropped to 3% inflation which stuck for 25 years...

Inflation by itself is not a bad thing... it is a typical byproduct of economic growth... but if inflation is caused by external factors (in this case, oil), it acts as an economic depressant, and a very bad one...

What does the book say about it?  When I studied economics, this action was hailed as politically courageous and necessary... it really calmed down the crises from the oil embargoes of the 70's... what am I missing?  Jimmy Carter appointed Volcker fully knowing that he was going to implement drastic anti-inflation policies which would create a recession as a side effect.  I know that Carter wasn't the most pro labor president, but he still was a Democrat...

One of the positive effects of his policies was that you could get bank CD's at 15% rates... nowadays you can't get any good, safe investments...  

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

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by: lord_mike @ Wed Jan 21, 2009 at 20:50:42 PM CST

[ Parent ]

Why the quotes? (0.00 / 0)

Those were particularly deep recessions, if a little short, so I am not sure what the "" are supposed to signify.  Grieder has lots of themes in the book (it is a large book) but among the most relevant one's:

1. Grieder highlights how much Volcker and the Fed were working from monetarist assumptions about how the Fed Funds rate should be handled, and that working from these assumptions made the recessions worse.

2. Grieder highlights the human cost of the inflation breaking measures, and, at least as far as I could tell, compares them unfavorably to the actual human costs of 1970's era inflation.  The effect that Volcker's recessions had on unions, and that these were the intended effects is given a lot of pages.

On the whole I think that cure was worse than the disease, at least for most Americans.  Volcker's policies made the gross numbers look better, but the recovery after those recessions was a recovery for the people at the top.  The late 70's was when the median real income began to stagnate.  Grieder's point was the what Volcker did was reshape the economy in a way that benefited the rich, and not working class Americans.

Whether there were good alternatives to Volcker's way of doing things is a tougher thing to show (I think there were), but what isn't hard to show is that starting in the late 1970s America's prosperity began to much more unequally shared and Volcker's policies had a lot to do with that.

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by: PTM @ Wed Jan 21, 2009 at 23:45:40 PM CST

[ Parent ]

Sorry...scare quotes were accidental... (0.00 / 0)

No intent there... the inflation cure was quite brutal, and you're probably right, the cure was not worth it...

The question is, was volcker purposely acting against the interests of working americans, or did he see himself as the doctor who has to administer toxic chemo to a cancer patient to try and cure it... but, the patient developed unexpected permanent side effects.

There are also other factors leading to the wage stagnation of the 80's and beyond, a big one being Reagan's new tax policies that essentially held for 30 years... and new trade policies as well..

The fed has limited tools at its disposal, especially if there is a fiscal policy (i.e. Reagan) that is not acting in concert with monetary policy.  I think he did what he set out to do, curb inflation, and was very successful at that...  I would hope that he expected the manufacturing base to recover as it always did in the past... obviously, it didn't... and with that, the declines in union jobs and the middle class...

REID: Voting against us was never part of our arrangement!
SPECTER: I am altering the deal! Pray I don't alter it any further!
REID: This deal keeps getting worse all the time!

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by: lord_mike @ Thu Jan 22, 2009 at 00:01:14 AM CST

[ Parent ]

Partial Agreement (0.00 / 0)

I think it is right that given Reagan was in power the only way to break inflation was to do what Volcker did.  Even if the only way to do it was to cause a recession, you could have done that by employing fiscal policies that were overall contractionary, but which did not hurt working americans disproportionately.  I imagine tax hikes on the rich, where some, but not all of that money was turned around into programs which offset some of the harm to working class Americans.  Still net contractionary, but might have not been so catastrophic for working americans and small businesses (who also took a big hit in the early 80's).  But Reagan was committed to supply side economics, and so there was no help to be had in that direction.

The question is, was volcker purposely acting against the interests of working americans, or did he see himself as the doctor who has to administer toxic chemo to a cancer patient to try and cure it... but, the patient developed unexpected permanent side effects.

The idea that the effects on the working class were unexpected is a non-starter I think.  If Grieder was right then those effects were part of the point.  Higher unemployment creates downward pressure on wages as well as causing a reduction in consumption, both of which were thought to be necessary to break inflationary expectations.  The thought that Volcker was apparently working with was that unions caused wage inflation, and wage inflation was a large part of the cause of price inflation.  This is certainly something a lot of conservatives think, and if it is correct that Volcker thought it then you present us with a false choice.  Volcker was working against the interests of working americans because he thought that was the way to break inflation (the story is more complex than this, even according to Grieder.  There were competing theories about what would break inflation within the Fed).

Anyway, I think that stagflation and the response to it are things that the center-left should talk about more.  It was, after all, a large part of what destroyed the consensus in Washington that traditional demand side Keynesian manipulation of the economy worked.  The response to it (because Reagan's fiscal policies were just as much a response to it as Volcker's monetary policies were) destroyed an economic relationship which was genuinely beneficial to everyone in the society.  Having a worked out theory about why inflation got as bad as it did and how that can be prevented without doing the kinds of things Volcker and Reagan did seems like something every progressive should have handy.

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by: PTM @ Thu Jan 22, 2009 at 00:21:29 AM CST

[ Parent ]

To be clear (0.00 / 0)

I do not think I am in possession of the kind of knowledge I discuss in the last paragraph.  It is a wish list for me as well.  I realized afterward that it came off quite arrogant.  So I apologize.

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by: PTM @ Thu Jan 22, 2009 at 01:37:22 AM CST

[ Parent ]

General trollery (0.00 / 0)

That book has been out so long I am surprised that David has not already read it. I read it five or so years ago.  

"Here's a song about blind faith. That's always a dangerous thing, whether it's in your girlfriend--or if it's in your government." Bruce Springsteen, quoted in Glory Days (Born in the USA tour??)  

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by: 4jkb4ia @ Thu Jan 22, 2009 at 17:52:32 PM CST

[ Parent ]

I will be slightly off topic again.. (0.00 / 0)

I read a biography of Alan Greenspan which discussed at length how he came be a disciple of Ayn Rand.

Very interesting. They did not get along at first. She considered him an "undertaker". She was obviously nuts.
But he came to adapt "Objectivism" as his religion.

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by: werner @ Thu Jan 22, 2009 at 06:37:34 AM CST