DORGAN: Well, this is going to be one of the big issues right at the start of this session, is financial reform. And Wall Street’s right back in the same old swamp, doing the same things. And with respect to the Federal Reserve Board, you know for the first time in history they said to the big investment banks, you can come and get direct lending from the Federal Reserve Board. We’re trying to find out from the Fed, who’d you give the money to, how much money did you give? My point is, what did you do with our money? And the Federal Reserve Board says “none of your business.” Well, I tell you what, it is our business, and I’m not going to let the Bernanke nomination to head the Fed for another term go through until he tells, what did he do with our money, the American people’s money? So we’ve got a lot of things to work on here, and as I’ve said before, if you’re too big to fail, you’re too big, in my judgment. Because that’s no-fault capitalism, and we shouldn’t continue with it.
Disappointing job number this morning. Still, a month is just a month, right? Well, not quite. Here’s the way I think about the economic news: each piece of data tells us something about which model of recovery is right. More specifically, each disappointing piece of data strengthens the case of the pessimists. From the beginning, there have been two schools of thought about the likely path of recovery. One school — strongly represented among Wall Street economists — said that the 2008-2009 recession should be compared with other deep US recessions: 1957 (the “Edsel” recession), 1974-5, 1981-2. These recessions were followed by rapid, V-shaped recoveries. The other school of thought said that this was a postmodern recession, very different in character from those prior deep recessions, and that it was likely to be followed by a prolonged “jobless recovery”. Added to that were worries based on the historical aftermath of financial crises, which tends to be prolonged and ugly.
The debate a year ago over the size of stimulus was in part an implicit debate between these two views; those who argued that the stimulus was much too small did so because they had a pessimistic view about the likely pace of recovery. Sad to say, each successive bad jobs report adds to the evidence that the pessimists were right.
[L]iberal... commentators... conced[ed] that though the New Deal brought the nation many fine reforms, it did not produce recovery from the slump—thus leaving the Right free to define the New Deal as a relic of America’s pre- Reagan dalliance with socialism, best forgotten. Yet the data support neither the Left’s concession nor the Right’s contention. As a result we have little ability to talk meaningfully about the New Deal and its possible lessons for today. We can learn from the Roosevelt admin- istration’s successes and failures; we have just to know what they were.
For some reason I haven’t seen this: a comparison of commercial real estate prices from Moody’s/MIT with housing prices from Standard and Poor’s/Case-Shiller. Here it is. From my perspective, the CRE bubble is highly significant; it gives the lie both to those who blame Fannie/Freddie/Community Reinvestment for the housing bubble, and those who blame predatory lending. This was a broad-based bubble.
We have a “narrow banking” proposal which resurfaces every time we have a crisis. We heard [Bank of England Governor] Mervyn King say it yesterday, “Let’s break up banks into money market funds and finance companies.” We’ve had that option available for so many years, and it hasn’t been implemented. Now if there is value to the way banks are structured today, what we would like to do is reduce the probability of systemic breakdown. The truth is it’s hard to do this without eliminating the discipline. What you really want to do is prevent bank runs when it’s truly a systemic panic, but not when it’s because of the fault of the bank itself. You want a bank to face the full costs of any stupid thing it does on its own. The downside to any proposal which tries to deal with this is that you could get a systemic breakdown when banks also herd together in taking the same kind of risk. They all take on mortgage-backed security risk, for instance, because they now know that you [the federal regulator] will come in and save them. So the current system where there is some element of the Fed coming in when there’s a systemic breakdown is an attempt to get over some of the problems of the bank’s fragile structure itself, but it creates moral hazard, which is why they all herd on the same risk.
The challenge of meeting both demands is epitomized by the contentious U.S-China bilateral relationship. American (and European) policy makers blame China for an undervalued renminbi, which they argue is the root cause of China’s huge trade surplus. Chinese leaders resist the pressure, fearing that appreciation will undercut the competitiveness of Chinese goods in world markets, hurt exports, and damage growth. The Western answer to this concern is that China needs to replace foreign demand with domestic demand as the engine of growth. But if growth depends primarily on the supply of modern manufactured products and other tradables as opposed to services and non-tradables, as I will argue here, the Chinese position has more force than critics give it credit. The conventional fix for China’s current account surplus, consisting of a combination of expenditure expansion and currency appreciation, will shift the structure of the economy away from tradables and towards non- tradables. This may be good for macroeconomic balance in China and elsewhere, but it will almost certainly have adverse effects on China’s growth—perhaps large enough to even endanger the country’s social and political stability...
Bill Galston says we need to reduce the deficit pretty soon.... "[W]hat congressional experts call “regular order” offers negligible prospects for progress on this front. Many elected officials have concluded that an empowered fiscal commission along the lines of the one proposed by Kent Conrad and Judd Gregg is the only strategy with any hope of succeeding..." If this is our only chance for succeeding, then I’d say we’ve got no chance for success. Getting a sustainable budget will be difficult under any circumstances. Getting one under these circumstances will be impossible: [Galston] "Importantly, the task force would ensure a bipartisan outcome. Broad bipartisan agreement would be required to move anything forward. Fourteen of the 18 Task Force members would have to agree to report the recommendations. And final passage would require supermajorities in both the Senate and House." It’s difficult for me to imagine any bill to curb the long-term deficit in a serious way getting a majority in both the House and the Senate. Getting a majority in the House and a supermajority in the Senate is even harder. Getting a supermajority in the House as well as one in the Senate is nigh-upon impossible.
I think it’s important for deficit hawks to not just rally behind the banner of anyone who jumps up and down and says “I’m a deficit hawk!” I think the statutory commission concept has merit. But to make it work, the commission needs some specific targets (Conrad-Gregg doesn’t say how much deficit reduction the commission is supposed to achieve, or when) and it needs to make it remove veto points not add new supermajorities.
8) BEST NON-ECONOMICS THING I'VE READ TODAY: Andrew Sullivan: Politico Fail
John Harris defends Mike Allen's role as a Cheney spokesman thus: "Trying to get newsworthy people to say interesting things is part of what we do. Also in December we had a long Q and A with the other prominent former vice president Al Gore. That story might also have looked to some like providing an uncritical platform if you viewed it only isolation." But the point is that there was no q and a with Cheney. There was just a printing of his statement, given exclusively to Politico. But Harris's reply requires a follow-up: "trying to get newsworthy people to say interesting things" is his paraphrase of what was going on. So did Allen actually reach out to Cheney and ask him for a comment? Or did Cheney call Allen? I think we need transparency from a news organization, don't you? Did Allen or Cheney initiate the statement's release via Politico?
9) STUPIDEST THING I'VE READ TODAY: David Broder. I won't link. Outsourced to The League of Ordinary Gentlemen: Mark Thompson: The Radical, Certifiably Insane... Middle:
I dare anyone to read today’s David Broder column and tell me that it is in any way, shape, or form less insane than anything that Ron Paul or Dennis Kucinich have ever said. The column starts with this gem: “Was Christmas Day 2009 the same kind of wake-up call for Barack Obama that Sept. 11, 2001, had been for George W. Bush?” This is closely followed by: “Like Bush, [Obama] vowed to see that the consequences also fell on the foreign country that gave birth to the plot — Afghanistan eight years ago, Yemen today....” As a commenter at Balloon Juice pointed out: “It’s great that at this point “making fun of” Broder literally means nothing more or less than just blockquoting his words.” But beyond that, I think it important to note how Broder gets to draw an equivalency between the murder of 3000 and a guy blowing up his junk in order to justify using the latter incident as a basis for war. This is the position of the DC establishment that Broder so often seems to represent. Somehow, this is deemed a “moderate” opinion, while opinions of movement liberals and movement conservatives are dismissed as radical and insane.
Fortunately, now that I have a video iPod I can multitask and watch hearing files from CSPAN and other things while out with America's Silliest Dog in the mornings. Unfortunately, using the iPod this way in the winter before dawn kills my night vision. Fortunately, our standard routes are fairly smooth and usually paved. Unfortunately, I didn't see the skunk this morning until we were twenty feet from it. Fortunately, the skunk was unclear on Karl Schmitt's friend-enemy distinction: it may have thought we were going to feed it, for it looked at us for a good ten seconds before it turned and waddled away. Unfortunately, America's Silliest Dog has no conception of deterrence theory, and wanted to charge the skunk. Fortunately, I was not only holding the leash but had it wrapped twice around my wrist. Unfortunately, America's Silliest Dog is lean and well-muscled and I am not: the muscles connecting my shoulder to my back are now expressing their displeasure with the management.