What is there to look forward to on a Tuesday? A fresh, shiny new open thread that’s what. Also, Drinking Liberally on Thursday at the Homegrown Cafe in Newark!
Republican economist Bruce Bartlett has advice for the Republicans, not that they’ll take it. The advice is that the economy needs spending, not cuts:
According to the Council of Economic Advisers, as of August the actual budgetary effect of the February stimulus was to reduce revenues by $62.6 billion and raise spending by $88.8 billion. Of the spending, the vast bulk went to transfers such as extended unemployment benefits and aid to state and local governments, which may have prevented cuts in spending that would otherwise have occurred but probably didn’t do anything to increase spending. Only $16.5 billion in stimulus funds went to investment outlays for things such as public works. This is a trivial amount of money in a $14 trillion economy.
As if we needed further evidence that transfers have virtually no stimulative effect, the Bureau of Labor Statistics just issued a report on the 2008 tax rebate showing that only 30 percent of the money was spent; the rest was saved, thus providing no stimulus to short-run growth. (See also this CBO report and this new working paper from the National Bureau of Economic Research confirming this analysis.) On January 24, 2008, George W. Bush assured the country that a tax rebate was just the right medicine to prevent an economic downturn.
It continues to amaze me that no one on the left or right seems to have noticed that the essential factor causing the economic downturn is a decline in velocity: the number of times that money turns over in the economy, which is measured as the ratio of the money supply to GDP. In 2006 and 2007 this ratio was 1.9. I take that as normal. In 2008, velocity fell to 1.76 and currently is 1.69. (I divided end of year M2 into 4th quarter GDP; the latest figure is 2nd quarter GDP divided by end of June money supply.)
If velocity were 1.9 instead of 1.69, 2nd quarter GDP would have been $1.6 trillion higher. Therefore, no recession. The output gap would have simply disappeared. From this I conclude that a lack of spending in the economy is the central problem and the only policies that will help are those that increase spending – consumer spending, investment spending, net exports or government spending. How tax cuts would have helped – or at least the type of tax cuts advocated by Republicans – is a mystery to me.
Thank you Bruce. It looks like good advice for the Democrats, too. Go read the whole article if you can, it’s that good.
Also worth reading is TPM’s interview with Chuck Schumer about how the opt-out public option compromise came together and the White House role.
This evening I spoke with Sen. Chuck Schumer (D-NY), who was in that infamous Thursday night meeting with President Obama and other Senate leaders–and who has been one of the most persistent advocates of a public option on Capitol Hill. As Schumer explains it, the disagreement between the White House and Senate wasn’t substantive so much as it was tactical: The White House had its doubts that Senate Majority Leader Harry Reid could really get 60 votes for a public option with an opt out for states.
“The President listened very carefully,” Schumer said in an interview moments ago. “He wanted to make sure that the strategy upon which we were embarking had the ability to carry through.”
Schumer has been at the center of the fight over the public option from the earliest days of the health care debate–always there to pull it back from the brink when it at times seemed on the verge of collapse. This situation was no different. After the Thursday meeting, four sources in different Democratic offices told me that the White House had suggested they believed a strategy of pursuing Sen. Olympia Snowe’s preferred compromise–a triggered public option–might be an easier path to 60 votes. In the end, though, Schumer and the rest of leadership seem to have prevailed upon President Obama that they’ve picked the right strategy.
“I think substantively the White House probably preferred a stronger public option than a trigger,” Schumer said. “We talked about this for a while in leadership and the White House wanted to hear our thoughts–and when they heard them they thought that this was the right strategy to get our caucus together.”
Again, this is from the progressive caucus coming together and collectively saying “no” to anything but a public option. There were at least 30 senators who signed a letter saying “no” to no public option.