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    The dagbuzz for 2/17/09: (Obama's New New Deal?)

    (Video below)

    So Obama is signing the American Recovery and Reinvestment Act of 2009 into law in Denver this afternoon. I've heard several pundits calling the $787 billion stimulus package the beginning of Obama's New Deal. In today's dagbuzz, I discuss why that comparison is foolish, and why we probably couldn't even afford a new New Deal even if we desperately needed one.

    I know Obama isn't done with today's bill. Homeowner and banking rescue plans are in the works and coming soon, but everything I've heard so far suggests that what the administration is trying to accomplish falls far short of the broad scope and scale of FDR's New Deal plan.

    The reason for our somewhat modest response may be partly that as bad as things are today, they're not nearly as bad as they were when FDR took office (total shutdown of banking system, 25% unemployment), or maybe partly because of Obama's more tenuous political situation (FDR got Congress to grant every single one of his 'First 100 Days' requests), but I worry that it's mostly because we couldn't begin to afford such a series of initiatives without totally jeopardizing the country's long-term economic health and standing.

    Image: Obama poised to sign stimulus into law      (AP)

    Obama poised to sign stimulus into law (AP)



    Muerte, I don't get it.  First of all, I think that the reasons for the constant FDR/New Deal comparisons in the mainstream media are obvious.  In a very superficial sense, it seems like an apt comparison.  It also fits right along with ideological desires to either call the New Deal a fantastic success or a dismal failure, depending on your ideological stripe.  Finally, it fits with the MSM desire to not be meaningful or relevant whatsoever.

    In reality, no one can really deal another New Deal.  For instance, you can't create the FDIC again (though you can double-down on its existing imperative).  There are plenty of other examples that you mention that can't simply be re-done or one-upped.  I suppose we could hope for World War III?

    I'm still at a loss as to why you (and others) seem to take this as the moment to fret over our debt situation.  There really isn't anything we can do about it at this point.  It was fine to balloon the debt for tax cuts for the rich, fine for wars of choice, but marginal increases to debt for desperately needed moves on transportation and energy infrastructure, education and health care are cause for major hand-wringing over spending at this point?  How does a nation address the debt-to-GDP ratio when GDP is shrinking?

    The worst possible outcome for our current obligations is that Asia decides we're a bad long-term risk.  Until then, we essentially remain immune to bankruptcy.  China and Japan are far too invested in the success of brand USA to walk away from the table at this point.  That won't necessarily stay the way it is, but do you really see any major, near-term game changers in this scenario?

    The one near-term factor that could seriously change Asia's long-term USA investment strategy is if it looks like our star is destined to fall permanently.  As I understand it, that's really what we're trying to avoid.  If this bill contributes even modestly to avoiding recessive or depressive tendencies in the economy, then it'll be far more successful than most people will be able to comprehend.

    As I said above, I really just don't understand your perspective on this bill.  It should be bigger than a New Deal, but it shouldn't because we perhaps we can't afford it?  Do you just simply not buy into Keynes at all?  That's the only way I can figure that someone could think like this.  If you buy Keynes even a little bit, then you should at least understand that the reason for making moves like those being made in this bill are precisely to address the long-term health of the economy, not to merely smooth over short-term bumpiness with no concern for long-term outcomes.

    Maybe it's just difficult to wrap one's head around numbers this big.  After all, it's very strange to hear it said in one breath that this is the largest single spending bill in US history, but then in the next that it might not be big enough.  You're certainly not alone in making that assessment.

    I'm going to second DF on this one.  It's actually been encouraging to watch your intellectual honesty on this topic as competing information has come to your attention.  There's no shame in switching teams on this.  We'd love to have you on our team.

    Mark Thoma over at Economist's View has a really great article (with some hot Keynsian Macro 101 refreshers! are you turned on yet?) that can clear up a lot of the aspects of debt that concern you.

    • Argument I Our children and grandchildren will be burdened by heavy interest payments, which will necessitate higher taxes.
    • Argument 2 Repaying the enormous debt will ruin the nation.
    • Argument 3 Like any family or any business firm, a nation has a limited capacity to borrow. If it exceeds this limit, it is in danger of being unable to pay its creditors. It may go bankrupt with calamitous consequences for everyone.


    I've come after Deadman on his deficit hangup before, but I'll defend him now because I'm that kind of asshole.

    You and Thoma seem to be arguing, in a more intelligent way than Uber-Genius Dick Cheney, that deficits don't matter. I don't buy that. Debts to foreigners certainly matter. Forget about defaults; the interest payments are dollars leaving the country. Unless the value of our investments rises faster than the interest, we lose. We also give up power. The more leverage Chinese banks have over our economy, the more leverage the Chinese have over our government.

    To a lesser extent, domestics debts matter too. Tax dollars go to the lenders, and there aren't a lot of poor or middle class people buying government bonds. Sure, the government can tax the interest to wealthy lenders right back, but the amount it taxes is politically limited. Thus, tax dollars going to the lenders increases the income gap.

    That said, for every season, turn, turn turn. There is a time to worry about the national debt and a time to worry about avoiding a cataclysmic downward spiral. I believe that arguing that deficits don't matter is unhealthy, but nonetheless, we have to take on debt now, or else deficits will be the least of our problems.

    I believe that arguing that deficits don't matter is unhealthy, but nonetheless, we have to take on debt now, or else deficits will be the least of our problems.

    This is the issue.  It's also why using the deficit argument is appealing on a certain level.  It has a common sense appeal, which Thoma describes.  Of course, Thoma, by way of Dean Baker, also describes the reason that national debt becomes important.  However, this is not the same argument as the one generally being made in opposition to this spending bill.

    Read the article. Interesting.

    The argument against Argument 1 seems easily debunked by the fact that now about half of our debt is owned by foreign governments.

    The argument against Argument 2 is just as silly. The article mentioned GE as a company that never has to pay off its debt - it just rolls it over into new debt. hahahahaha. well, that works until it doesn't. sounds a lot like our pal madoff's strategy. Even if you are able to find new lenders to finance your debt, the payment terms become significantly more onerous, until eventually no one wants your stinky putrid debt no matter how much interest you're willing to offer (I'd love to see what kind of terms GE would get if they had to roll over its debt now).

    The argument against Argument 3 is true on the surface. But all you have to do is subsitute 'may print our way into disastrous inflation and subsequent irrelevancy' instead of 'may go bankrupt' in the last sentence and the argument becomes lock solid logic again.

    I've been reading several sites lately that suggest that it is only a matter of time before we are forced to renegotiate terms on our foreign-owned debt to keep our foreign investors from panicking and fleeing (and that negotiation will likely involve some significant political concessions - Sorry, Taiwan!). I don't know if that is true or not, but I am certainly convinced that while we've seen some big bubbles so far this decade (dot-com, oil, housing) that government debt may be in the midst of the biggest bubble of them all (we're still getting almost 0% interest rates for our debt, for heaven's sake).

    Btw, as everyone on this site worries about our current deflationary crisis, I would at least like to point out that the price of gold has skyrocketed this year and is now nearing all-time highs again. Someone is going to look way, way stupid here in about 12-24 mos: The current gold buyers or the current T-bill buyers. I know which way I'm betting.

    Are you advising gold? Honestly, I'd buy gold. Because I believe that the government will spend us out of deflationary spiral, whatever it takes. If they're successful, the consequence will of course be inflation.

    But if Obama were advised by Deadman and his deficit cutting cronies - then it would definitely be T-bills.

    That gives me a brilliant idea for saving dagblog from the economic grinder: D-bills.

    in terms of not being able to redo a New Deal - I just don't agree with that. Bold, big, ambitious, game-changing plans are everywhere - what about cap-and-trade in alternative energy, or universal health care, or a huge new nationwide public transit project with a goal to increase public transit ridership by 100% in the top 20 metropolitan areas, or some intriguing educational initiative that guarantees high-performing teachers $X salary or limits class size in public schools to X students per teacher.

    All I was saying is that I don't see much in the stimulus package that signified some dramatic new way of doing business. If you're going to spend this kind of money, I'd rather Obama & Co. think as big as possible. Challenge us. Challenge our thinking, our priorities. Don't effin give us the ability to deduct sales tax from new car purchases or a $8000 temporary tax credit for some first-time homebuyers. Obama loved to talk about the need for change, but this is chump change and it's not worth the $787 billion paper it's printed on.

    As to your other point, I understand my focus on the current deficit seems myopic given the country's crumbling financial foundation, and at this point, I kind of agree that it's a lost cause, too late to save ourselves. That really no matter what we do, it's just a matter of time before we default on our obligations, and have to somehow restructure our debt with the Chinese, so we might as well take in all the money we can borrow (and at the microscopic interest rate we're still getting, no less) as long as we can find it (we've had some bubbles so far this decade, but they will all pale in comparison to the bubble we are now experiencing in our government debt market) and spend it to our Keynesian heart's content.

    by the way, I buy into Keynes. But without fiscal discipline during the good times, you get less and less bang for your stimulative buck after each emerging crisis, until eventually all the Keynesian spending in the world won't save you. Madoff was a $50 billion Ponzi scheme. The U.S. economy may end up being a $13 trillion Ponzi scheme when it's all said and done.

    I admit my thoughts on this matter are hypocritical and confused. On the one hand, I bemoan the lack of innovative thinking and bold initiative in the stimulus package, and on the other hand, I worry about whether we can truly even afford this rather modest set of spending plans, let alone something bigger and better and bolder.

    When I say that you can't redo the New Deal, in a sense I mean that the comparison is overwrought to begin with.  If all that's meant by a new New Deal is bold action on energy, transportation and/or health care, then that's a different story.  I don't see that the particular shape of this bill means that those things won't happen.  Further, I'm not sure that moves we would make in those areas are really particularly bold or game-changing.  Universal health care, high speed rail and alternative energy initiatives are really more like keeping up with the Japanese and Germans at this point.

    I agree with you that I'd rather see more of this sort of thing versus the tax cuts that we're seeing in the bill.  However, I'm not sure that this means that we won't see these things coming down the pipe shortly.  There's a lot of politicking going on right now and as such one can never be exactly sure about which strategies may be employed.

    what about cap-and-trade in alternative energy, or universal health care, or a huge new nationwide public transit project with a goal to increase public transit ridership by 100% in the top 20 metropolitan areas, or some intriguing educational initiative


    I absolutely agree with you on this point.  This "stimulus," absent bolder action to come, is no New Deal.  I'd prefer to see a consensus emerge around a kind of New Deal (maybe framed as a public version of Buffett style value investing), along the lines you mention.

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