The important thing to recall about Moody's is that there in the background--the man behind the curtain if you will--is Obama administration financial guru Mark Zandi. Here's the story from Blogging Stocks [I would have quoted Moody's more directly but the article is in a gated portion of the site]: The rate at which jobs were cut slowed in August, but the gap to be filled will be with us for a while. With 14.9 million people looking for jobs according to Moody's Economy.com, the unemployment rate won't hit 5% -- considered "normal" -- until 2014. To put this in perspective, we still have one presidential election and two mid-term contests between now and a full employment recovery. What does the Great Zandi think the consequences of this prediction are? Policymakers should thus be quietly preparing another round of fiscal stimulus for early 2010. Effective additional stimulus might include more help to state and local governments, whose budget problems ...

... or, how spending $1.2 Trillion didn't quite have the result that the government was looking for : NEW YORK (June 6) - The Federal Reserve announced a $1.2 trillion plan three months ago designed to push down mortgage rates and breathe life into the housing market. But this and other big government spending programs are turning out to have the opposite effect. Rates for mortgages and U.S. Treasury debt are now marching higher as nervous bond investors fret about a resurgence of inflation. That's the Catch-22 threatening to make an awful housing market potentially worse and keep the economy stuck in a funk . Kick-starting the economy requires higher spending, but rising rates mean fewer Americans will be able to refinance their home loans. And some potential buyers will be shut out of the market by higher monthly payments they won't be able to afford. Which kind of makes you wonder--where'd all the money go, anyway? Since the Federal Reserve is still immune to audit,...

... which explains his bizarre take on getting out of the recession. In a piece actually criticizing President Obama for promising to cut the deficit, Reich gives us his full take on borrowing your way to prosperity: We're in a deepening recession, in case you hadn't noticed. The biggest challenge is to ramp up aggregate demand. Yes, we have to borrow lots from the Chinese and Japanese to do this, and, yes, it's costly in terms of additional interest payments to them. But there's no choice. In fact, if the slump gets worse -- and I have every reason to fear it will because that's the direction we're heading in as fast as you can imagine -- we'll probably have to have a second stimulus. And if the second isn't enough, a third. And so on. FDR's biggest mistake was doing too little until World War II. (No one should interpret this as a recommendation for more military spending -- I'm just saying Obama will probably have to think and do much bigger ...

The first is from Scientific American publisher Jeffrey Sachs [h/t Kids Prefer Cheese ]: "Most important, we should stop panicking. One of the reasons we got into this mess was the Fed’s exaggerated fear in 2002 and 2003 that the U.S. was following Japan into a decade of stagnation caused by deflation (falling prices). To avoid a deflation the Fed created a bubble. Now the bubble has burst, and we’ve ended up with the deflation we feared! Panics end badly, even panics of policy; more moderate policies will be safer in the medium term. There is little reason to fear a decade of stagnation, much less a depression. The U.S. economy is technologically dynamic and highly flexible. The world economy has tremendous growth potential if we don’t end up in financial and trade conflict, and if the central banks ensure adequate liquidity to avoid panicky runs on banks, businesses and sovereign borrowers. We should understand that the Great Depression itself resulted from a horrendous run on ...

The January 2008 CBO white paper Options for Responding to Shortterm Economic Weakness was written by five economists and attempted to examine the effects of different kinds of government stimulus measures (chiefly, tax cuts vs spending in terms of GDP impact). Unlike the current Moody's model being bandied around by stimulus supporters (and most highly touted by Dr. Mark Zandi), the CBO report does not attempt to place a direct dollar multiplier figure on different types of stimulus, instead measuring them in terms of Large, Medium, and Small impact . Nonetheless, the similarity of the categories used with those of the Moody's model allows for a rough comparison. So let's take a look at how different stimulus strategies shake out in the two sets of analyses. The CBO rates the cost-effectiveness of various stimulus strategies thus [in no particular order between the items in each category]: Large impact Lump Sum Tax Rebates Tax Withholding Holiday Extending or Expanding ...

Anonymous (who posts a lot across the blogosphere if you hadn't noticed) raised some really interesting points/criticisms of my geeky post down the page on why pump-priming is not a good metaphor for working with the economy. In a nutshell, the criticism is this: Aren't you just throwing in a lot of jargon to support the classical libertarian idea that the government should do nothing? And is this reasonable while so many people are in trouble and the system is whacked? Good question. Actually, I am not in favor of government inaction, and I am not a blind follower of the tax cuts will do it all if we just wait theory. I think it was a particular form of government inaction, of misregulation rather than de-regulation that got us into this mess, or, I should say, these three messes. Mess one: the massive and growing unemployment and downturn in consumer spending. Mess two: the structural deficiencies of our financial system Mess three: the virtual bankruptcy of government ...

Warning, warning, danger, danger: severe geek alert. First, let's take a short piece from one of my favorite philosophers that I love to read (often if only to disagree with his conclusions while admiring his writing), Daniel Dennett. This is an excerpt from Consciousness Explained : My explanation of consciousness is far from complete. One might even say that it was just a beginning, but it is a beginning, because it breaks the spell of the enchanted circle of ideas that made explaining consciousness seem impossible. I haven’t replaced a metaphorical theory, the Cartesian Theater, with a nonmetaphorical ("literal, scientific") theory. All I have done, really, is to replace one family of metaphors and images with another , trading in the Theater, the Witness, the Central Meaner, the Figment, for Software, Virtual Machines, Multiple Drafts, a Pandemonium of Homunculi. It’s just a war of metaphors, you say — but metaphors are not “just” metaphors; metaphors are the tools o...

... is that he has very a tenuous grasp of history. Or, read another way: Paul Krugman does what other policy wonks with an agenda do, which is to cherry-pick data that fits his current mantra rather than examining all the evidence. Here's a perfect example, in a Krugman piece I've already partly engaged: Since all of us in this discussion seem to be big-spending types of guys, a lot of our discussion has been about what comes after-- about when and whether the economy can stand on its own. There are, I think, two historical models for this. On one side, World War II put a definite end to the depression economics of the 30s. On the other, Japanese stimulus efforts helped the economy while they were on, but it's not clear that they ever provided a long-term solution. So here's a question I haven't seen discussed (I'm sure someone has, but I haven't seen it): why did WWII "work", why did it prove the secular stagnationists wrong? I can think of se...

It becomes almost humorous (or would, if billions of dollars and the entire US economy weren't on the line), to watch the posturing the current economic gurus like Larry Summers, Robert Reich, and Paul Krugman as they pimp for the economic stimulus plan. Krugman's most recent NYT editorial is a perfect example. Take his opening premise: As the debate over President Obama’s economic stimulus plan gets under way, one thing is certain: many of the plan’s opponents aren’t arguing in good faith. Conservatives really, really don’t want to see a second New Deal, and they certainly don’t want to see government activism vindicated. So they are reaching for any stick they can find with which to beat proposals for increased government spending. This is cute. Krugman moves the definition of bad faith to be anyone who disagrees with a new New Deal and government activism . As long-time readers of Krugman will know, this is codespeak for labeling opponents of massive government intervent...

The really neat thing about the incoming Obama administration and the bazillion dollars we're going to spend on infrastructural pork and deadbeat banks is that in proposing a program we no longer have to worry about how to pay for it. The liberal mantra used to be how are you going to pay for that tax cut ? The conservative mantra used to we can't afford that program . But thanks to Paul [ There is no God but Keynes, and I am His prophet ] Krugman assuring us that deficits don't matter in digging out from a massive recession, I can propose any damn thing I want and not be criticized for explaining how to pay for it. So here's the issue for Libertarians: how do you help people either get back on their feet or stay on their feet without using the coercive power of the State? Simple. You eliminate taxes. Not cut them. Eliminate them wholesale. Because now that the Treasury admits that it can print as much money as it needs, it no longer needs your tax dollars. How this...

... at least not if government programs work the way they traditionally have. From Coyote : Frequent readers will know that I do not buy into the Keynesian multiplier effect for government spending. But there is an even better reason why the stimulus bill will never work: it is simply impossible to break ground on any new government construction project in less than a year. A year from now, any truly new incremental project in the stimulus bill will still be sitting on some planners desk with unfinished environmental impact assessments, the subject of arguments between multiple government agencies, tied up in court with environmental or NIMBY challenges, snarled in zoning fights, subject to conflicts between state, county, and city governments, or all of the above. Most of the money will have been spent by planners, bureaucrats, and lawyers, with little to show for in actual facilities.... To illustrate, let me tell a story. We operate a marina and campground on a lake in Ventura ...

The devil always resides in the details. Brian Shields at The Mourning Const itution takes a detailed look at Wilmington's requests for $52 million in stimulus money that will ostensibly create 84 new jobs. That's slightly over $619,000 in proposed Federal spending for each new job created, but here's the real problem: Now obviously, the only jobs that are going to be grown here are either long term city government jobs, or one time contractor jobs. Neither situation is a long term private sector solution, which was kinda the point. This is pretty much why the new stimulus package represents new pork from the same old sausage factory on the Potomac. It's obviously laudable to replace sidewalks and water mains and all that, but if the Wilmington average of $619k per job generated (whether it's permanent or temporary) means that we'd have to spend $1,865 Trillion to get to the 3 million new jobs we've been promised. Before you jump me and say, Wait a minut...

... from Coyote : By the way, if you are confused about Keysian stimulus, here it is in a nutshell: The economy is contracting some as people deleverage from over-spending and an asset bubble. I mean, that’s certainly what we are doing in the Coyote den, setting goals for both de-leveraging the business and our household. But folks are worried, because while this has happened many times, one of those times we had a depression. So the government does not want you to deleverage. It wants you to spend and spend. But it knows you won’t, and that it has not yet accumulated enough power to force you to. So it will borrow and spend for you. Government stimulus means that when you are trying to save and reduce debt, government is going to run up debt in your name. By the way, for those wondering how well this works, the last time we tried it was during the aforementioned depression, and the depression lasted another 8-10 years. Here's the same concept, explained by neo-Keynesian gu...