What It's Going to Take to Stave Off Another Great Depression

[one...two...tree 2,762]

By Dean Baker, The Guardian.

Obama recognizes that the public is way ahead of the pundits in seeing that the federal govt. is the only thing capable of generating a recovery.

The Washington policy debates of the last week would almost make a casual observer believe that the nation's political leadership is in fact nostalgic for the good old days of the Great Depression when the country suffered double-digit unemployment for a decade.

The two big news items last week were a batch of absolutely horrible economic reports and the release of President Barack Obama's budget. The media almost completely ignored the former and focused its attention primarily on the latter. So, let's start with the bad news.

As can be expected, much of the bad news centered on housing. The National Association of Realtors reported that existing home sales fell below 4.5 million for the first time since the mid-90s. They also reported that the median house price dropped another $5,400 in January or 3.1%.

Since July, this series shows a drop in the median home price of 18.9%. Other data also showed house prices in a free fall, most notable the commerce department's series on new home sales, which showed a drop of 10% in the median price between December and January. With vacant housing units at record levels, and many potential home buyers no longer having the equity in their current homes for a down payment, it is difficult to see how this free fall stops any time soon.

Housing isn't the only sector that's plummeting. Investment fell at a 28% rate in the fourth quarter, the sharpest rate of decline in more than 50 years. New orders have fallen more than 5% in each of the last two months.

Along with the collapse of these sectors, the number of new unemployment claims just keeps rising. Last week, it was 667,000 new claims. February may show more than 700,000 jobs lost for the month in the report released on Friday. The unemployment rate is likely to hit 8% for the month, and it could well be over 9% by the summer.

While this bad news was flowing, President Obama released the first budget of his presidency. It is an ambitious document. The proposal calls for directly confronting powerful interest groups in order to eliminate important sources of waste in the budget. For example, the budget eliminates subsidies to private insurers in Medicare and drug companies in Medicaid. The saving will go toward financing healthcare reform.

He also proposes to eliminate the fund managers' tax break that allowed managers of hedge and equity funds (some of the richest people in the country) to pay tax at just a 15% rate. Obama proposes to have these Wall Street tycoons subject to the same tax rates as everyone else.

There are many other areas where the budget turns to long-neglected areas, most importantly a proposal to establish a cap and trade system to provide incentives to reduce greenhouse gas emissions. It is not clear that Obama can accomplish the full agenda laid out in his budget, but there is no doubt that he hopes to accomplish a great deal in his term in office.

Remarkably, much of the discussion of the budget did not focus on Obama's agenda, but rather his deficit targets. In particular, many commentators questioned whether he would reach his deficit target for 2012 because the economy might be weaker than his budget assumes.

The pundits' concern on this point should have caused people to throw their television sets, radios and newspapers out the window. Let's suppose that the pundits are correct and the economy sinks farther and later grows more slowly than the Obama administration assumed in planning its budget.

Would the pundits have Obama therefore cut more spending and raise more taxes? This would be close to crazy. With the economy plummeting, the first priority of the administration and Congress must be to boost the economy.

If the unemployment rate is 12% when Obama's first term ends, he can forget about getting re-elected, even if the budget is balanced. On the other hand, if he has managed to bring the unemployment rate down to a reasonable level, no one other than a few Washington pundits will be bothered by the deficit that might have been necessary to achieve this result.

The electorate is well ahead of the punditry on this issue. The federal government is the only force capable of turning the economy around in the near future and sustaining growth. The public recognizes this fact and will demand good economic policy even as the punditry continue to push policies that would throw the economy into another depression. Even if they have very large megaphones, the punditry are thankfully still a very small minority and unlikely to get their dream.

© 2009 Guardian News and Media Limited

[Hilarious Clinton 452]

Print more money.

[natty bumppo 297]

Repeat of the late 30s early 40s

[Danno 1,228]

Every day I watch our Markets sink lower and lower, on the one hand I laugh that America is getting exactly what it voted for but on the other hand I know people whose retirement is tired to the stock-market and they will never have time to recover.

What is Barry worried about? Important stuff like spending 450 million Dollars on Global warming research and playing tag with Limbaugh.

[lostinblue 1,989]

Save all the money you can . Cash will be king. If you never thought you could buy a 2000 sq ft. house for $20,000 on the court house steps just wait a few years.It will not be the banks looking for their money. Just the county. The high priced teachers still will need to be paid.

[w¡n9Nµ7 §£@¥€r 123]

The high priced teachers still will need to be paid.

High priced? I'm married to one... and I wish she was high priced. She doesn't even make a livable wage for around here.

[I AM NOT THAT GUY 5,715]

Dean Baker

Expertise: Housing, consumer prices, intellectual property, Social Security, Medicare, trade, employment

Biography

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, DC. He is frequently cited in economics reporting in major media outlets, including the New York Times, Washington Post, CNN, CNBC, and National Public Radio. He writes a weekly column for the Guardian Unlimited (UK), and his blog, Beat the Press, features commentary on economic reporting. His analyses have appeared in many major publications, including the Atlantic Monthly, the Washington Post, the London Financial Times, and the New York Daily News. He received his Ph.D in economics from the University of Michigan.

Dean has written several books, his latest being Plunder and Blunder: The Rise and Fall of the Bubble Economy (PoliPoint Press, 2009), which chronicles the growth and collapse of the stock and housing bubbles and explains how policy blunders and greed led to the catastrophic - but completely predictable - market meltdowns. This year he also wrote a chapter ("From Financial Crisis to Opportunity") in Thinking Big: Progressive Ideas for a New Era (Progressive Ideas Network, 2009). His previous books include The United States Since 1980 (Cambridge University Press, 2007); The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer (Center for Economic and Policy Research, 2006), and Social Security: The Phony Crisis (with Mark Weisbrot, University of Chicago Press, 1999). His book Getting Prices Right: The Debate Over the Consumer Price Index (editor, M.E. Sharpe, 1997) was a winner of a Choice Book Award as one of the outstanding academic books of the year.

Among his numerous articles are "The Benefits of a Financial Transactions Tax," Tax Notes 121, no. 4, 2008; "Are Protective Labor Market Institutions at the Root of Unemployment? A Critical Review of the Evidence," (with David R. Howell, Andrew Glyn, and John Schmitt), Capitalism and Society 2, no. 1, 2007; "Asset Returns and Economic Growth," (with Brad DeLong and Paul Krugman), Brookings Papers on Economic Activity, 2005; "Financing Drug Research: What Are the Issues," Center for Economic and Policy Research, 2004; "Medicare Choice Plus: The Solution to the Long-Term Deficit Problem," Center for Economic and Policy Research, 2004; The Benefits of Full Employment (with Jared Bernstein), Economic Policy Institute, 2004; "Professional Protectionists: The Gains From Free Trade in Highly Paid Professional Services," Center for Economic and Policy Research, 2003; and "The Run-Up in Home Prices: Is It Real or Is It Another Bubble," Center for Economic and Policy Research, 2002.

Dean previously worked as a senior economist at the Economic Policy Institute and an assistant professor at Bucknell University. He has also worked as a consultant for the World Bank, the Joint Economic Committee of the U.S. Congress, and the OECD's Trade Union Advisory Council. He was the author of the weekly online commentary on economic reporting, the Economic Reporting Review (ERR), from 1996 - 2006.

http://www.cepr.net/index.php/dean-baker/

Edited March 6, 2009 by Mister_Bill

[Jasman0717 9]

Print more money.

Works for me

[Hilarious Clinton 452]

Save all the money gold you can . Cash will be king. If you never thought you could buy a 2000 sq ft. house for $20,000 on the court house steps just wait a few years.It will not be the banks looking for their money. Just the county. The high priced teachers still will need to be paid.

fixored...... with all the inflation gold will be king

[spookyturtle 9,466]

It's unbelievable what a disaster the Bush Administration created. They have almost destroyed America from within.

[Dan J 277]

Every day I watch our Markets sink lower and lower, on the one hand I laugh that America is getting exactly what it voted for but on the other hand I know people whose retirement is tired to the stock-market and they will never have time to recover.

What is Barry worried about? Important stuff like spending 450 million Dollars on Global warming research and playing tag with Limbaugh.

http://blog.indecisionforever.com/2009/03/...k-ticker-visor/

[Jasman0717 9]

Save all the money you can . Cash will be king. If you never thought you could buy a 2000 sq ft. house for $20,000 on the court house steps just wait a few years.It will not be the banks looking for their money. Just the county. The high priced teachers still will need to be paid.

And store lots of food and guns in your mountain get-away

[Danno 1,228]

It's unbelievable what a disaster the Bush Administration created. They have almost destroyed America from within.

I ask sincerely, what exactly was it that Bush DID to destroy America from within?

I assume you are focusing on the econom/ finance aspects.

[Shad and Dani 3]

Every day I watch our Markets sink lower and lower, on the one hand I laugh that America is getting exactly what it voted for but on the other hand I know people whose retirement is tired to the stock-market and they will never have time to recover.

What is Barry worried about? Important stuff like spending 450 million Dollars on Global warming research and playing tag with Limbaugh.

The NORTH got exactly what they voted for! McCain won the south! With the exception of Florida that has a large black and hispanic population, and my own state, of which I am ashamed.

Anyone still have thier Confederate money?

Edited March 6, 2009 by Shad and Dani

[I AM NOT THAT GUY 5,715]

The NORTH got exactly what they voted for! McCain won the south! With the exception of Florida that has a large black and hispanic population, and my own state, of which I am ashamed.

Anyone still have thier Confederate money?

Everybody knows, only stupid hicks and cows live in those red states, and they are too uneducated to know any better.