Obama Presidency: the Confusing, the Desperate, and the Dead

Update post-speech:
Apparently Obama has upped the ante and the actual bill will be closer to $450B. That still doesn't substantially affect my thoughts below, but just to be accurate....

President Obama, hours from now, will outline his new 'stimulus' plan. The plan, which has already been released as a draft, will amount to a mini-ARRA package (you remember, the first $800B stimulus). The new plan is roughly half payroll tax cuts and unemployment benefits, and half new spending.

This new 'jobs' plan comes mere weeks after Obama, though motivated to do so politically due to the persistence of Republicans, passed a huge 2 Trillion-dollar+ spending cut package just to increase the Federal debt ceiling to account for past spending! So this got me thinking...wait a minute. So we want to decrease spending and then a few weeks later we want to increase spending??? = CONFUSING to the average American

Now, it's difficult to say how much that passed spending cut will amount to year-by-year, but some fellow econ geeks (like these guys) suggest that nearly $200B will be cut by 2013 year-end due to the debt ceiling bill. Meanwhile, Obama is going to propose to increase spending by $300B. You can do the math folks. But, in essence, the $300B, according to some economists (according to Krugman a while back, a $300B stimulus would decrease unemployment by about 1%) the effect on GDP and employment would be negligible. So, you can imagine that a NET $100B will be worthless and a complete waste of time. This is beside the fact that, as I've posted before, spending does not mean employment! Fiscal stimulus on paper is a lot different than fiscal stimulus in practice. Just because the money is spent doesn't mean it will continue to flow through the economy. Our financial system is a bit stronger than 2009, but it's still not up to par. And spending money doesn't happen over night. Often it has to flow through State governments and bureaucracies and then private bureaucracies and pass X number of 'conditions' before the shovel can actually hit the dirt. It's just not an effective economic tool in general.

Obama, as we have all learned, is at his lowest point ever, and what that means is that he is DESPERATE. He will do anything to try to get himself out of this hole that he, with plenty of help from Republicans, has dug himself. He likely, being a good ole' fashion Keynesian, would have preferred a much bigger stimulus, but I'm sure his advisers have suggested that would be political suicide.

All this does not bode well for the man, or his Presidency. Some of this is his own fault: his failure to lead the health debate until it got too far out of hand, his failure to communicate a singular and common message to the people, his lack of prioritization, etc. But much of this too is the fault of our political system in general. Our dichotomy-politics breeds an us versus them environment. It's an environment where some extreme Republicans resort to hate speech and chants of 'socialism', and extreme Democrats resort to similar hate speech (think Andre Carson) and chants of 'idiocy'. It all means that Obama's Presidency is DEAD at this point, and that, barring some real change and hope, our political system itself may not be far behind.

Why We Are Still In Recession

Who cares about double-dip. We never left. Why? because you can't get out of a recession without consumers/labor income growth. While productivity has grown over the last few years, labor's share of national income continues to plummet. This implies that others (capitalists / profit-makers) are 'out of their recession' but consumers and laborers are not.

The BLS has a nice publication here.

Ordinarily a low cyclical labor share isn't necessarily a problem because firms can use profits to invest in new business ventures and eventually lower the unemployment rate and provide more compensation in a recovery. The problem here of course is that firms are too busy paying off past debts from poor decisions made a decade ago, or too skittish to do anything substantial with their profits at the moment. So that, in combination with the low labor share of income is like a double-whammy for consumers and laborers who see the haves continue to have and the have-nots continuing to have nothing.

My Take On the Fed Announcement That Sent Stocks Down

The Dow was up about 200 points before the Fed announcement, and then promptly moved negative. The Fed announced it would hold interest rates (at least to the degree it thinks they can control them) at historic lows through mid-2013. The Fed was hoping this concreteness might reduce some jitters about uncertainty, but here is my take on what Wall Street heard:

"The economy is even crappier than we thought, and crappier than many private economists think. So, we are going to continue to do the same impotent thing we've been doing for the past 3 years in hopes that somehow it will magically improve the next 2."

UPDATE:
I post this in then the Dow bounces back up 200 points.... Maybe it's not just the Fed doesn't know what to do.... ;)

Love this post

If you haven't, please head over and check out Daniel MacDonald's blog.

I particularly am loving this post.

Sad Sad World

It's a sad sad world, in economics circles at least, when one of the so-called leaders in economic education encourages (or at least implies) it's ok to keep your nose buried in your differential equations (and HIS textbooks I'm sure) as opposed to occasionally peeking up at the real world.

I'd just like to say, the whole concept of economic bubbles (one of the major causes of our most recent crisis) was not learned from a textbook Dr. Mankiw.

BTW, the most 'influential' research is the same as saying, most 'popular' which is code for "mainstream of mainstream economics." And as we all know, mainstream economics often ignores reality. How about all the fringe research in behavioral and pluralist economics. Oh that's right, it's been ignored for decades....

Who's Worse: Spending Obsessed Keynesians or Austerity Obsessed Tea Partiers?

I just can't decide which is worse, Kindergarten Keynesians like Paul Krugman - blind to the present disconnect between spending and jobs and to the irrationality of thinking our sin can be our sole savior, or one-minded Tea Partiers - blind to anything other than their own ideology at the expense of economic stability.

On Economic Definitions: Recession

Media's definition: 2 consecutive quarters of negative GDP growth
Economists' definition: Whenever the NBER says so....
And then there's reality: