Oh Yes, Stimulate Me, Please

So, the Senate voted to invoke cloture on the Collins-Nelson Amendment (No. 570 to H.R.1) for the stimulus, by a margin of 61 to 36. Not surprisingly, the only GOP Senators to voted for invoking cloture are Senators Collins, Snowe, and Specter. Having cleared this procedural obstacle, the Senate will vote on the passage of the bill tomorrow, which will most likely have the same margin.

From an aggregative point of view, the House and Senate versions of the bill do not differ by much. According to the CBO, the Senate version will cost about $838.2 billion, while the House version will cost about $820 billion. So if the total amount does not differ, why all the heated rhetoric? The answer is in how the monies are to be distributed:

“As it stands now, the Senate bill focuses more on tax cuts, while the House bill provides more aid to state and local governments. The Senate bill does not include $19 billion for school construction included in the House bill, reduces health insurance subsidies for the unemployed, and scales back Mr. Obama’s proposed middle class tax cut.”

If you really want to do a deep dive on the differences, GovTrack has provided this handy side-by-side comparison of the House and Senate versions of the bill.

The distribution of the monies is important because not all spending produces the same effect. Therefore, it is kind of disappointing to see the changes made in the Senate version, because they do not maximize value of taxpayer money. Take a look at CBO’s own data (pdf) on the multiplier effect of the various policy options in the stimulus:

cbo-multiplier

The data shows that tax cuts, on average, have less of a multiplier effect than transfer to states. Second, the data shows that direct transfer to individuals (of which health insurance subsidy for the unemployed is an example) is also more effective than tax cuts. Finally, even within the broad category of tax cuts, the data shows that tax cuts to lower- and middle-class people have a much bigger bang for the buck. Yet these policy options, which add more value to taxpayer dollars, are being cut back in the Senate version of the bill.

And this raises a question: if the GOP argues that the stimulus is wasteful, why would they propose policy alternatives that would decrease the value of taxpayer money? This makes no sense.

OR, does this make perfect sense, given the institutional structure of the Senate? Basically, anything that can’t get 60 votes in the Senate, on any policy of significance, is essentially dead in the water. So this is why “centrists” (gag) like Collins, Snowe, and Specter have so much power. But the need to sell this package politically trumped the empirical evidence, as it often does. So you could say that three senators basically held the American economy hostage for a weekend.

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Cat Power at the 9:30 Club, 2/8/09

Let me just say this: Cat Power is so sexy (in a boho kind of way) that it’s not even funny. Plus, it definitely helps that she’s got a voice that smolders with soul.

So last night I went to the 9:30 Club to see Cat Power. I have to admit, I had my doubts before the show: after all, Chan Marshall is a woman known for her (sometimes) notorious stage fright and performance breakdowns. But on the other hand: my god, what a voice! But from what I’ve gathered on the Intar-webs, Chan Marshall has cleaned up her act after becoming sober, and now delivers shows that are at least professional.

Well, I’m glad to say that the show last night was a very good one. No, Cat Power does not have “stage presence” as traditionally defined: she doesn’t really banter, doesn’t do outsized, bigger-than-life gestures, or send the audience into a frenzy. In fact, Cat Power spent most of the show singing indirectly at the audience, either at her band or to the side of the stage. Her movement on the stage can aptly be described as a kind of cat-like (pun fully intended) prowling, complete with hand gestures not particuarly aimed at anyone in general. Suffice to say, Cat Power is not a traditional “rock star” showman.

But whatever showmanship she lacked, she made up more than enough for it in sheer ability and skill. I mean, I knew she possessed an incredible voice, but hearing it live, coming from an actual human being, is definitely something else. I experienced a kind of cognitive dissonance: how could a woman of Cat Power’s age sing with a voice that bespeaks of a lifetime worth of living–good and bad? Suffice to say, she had me at the first note.

Cat Power performed materials mostly from her last two studio release: Jukebox and Dark End of the Street (which came from the same session as Jukebox). Some highlights:

1) “Lord, Help The Poor and Needy:” The album version of this song features a pretty spare arrangement, with only Chan Marshall’s vocals backed up by bass and guitar. Live, Cat Power almost does this one solo, with the guitar and bass turned down fairly low in the mix. At one point, it’s just her vocals, accompanied by claps from the audience. But the next thing I knew, the band comes in full force and just fucking jams. The sudden change in dynamics is jarring, but in a good way, as it reveals the raw power of the blues and gospel music.

2) “Fortunate Son:” An interesting choice to cover Creedence, and the song itself is alll but unrecognizable from the Creedence original. Cat Power’s phrasing is completely different and much flatter, but the band, on the other hand, plays it fast and furious, with a kick-ass organ (synthesized) solo. At the end, Chan Marshall’s vocals are completely buried in the mix amidst the squall of guitar feedback. So yes, her cover conveys the aggressive essence of the original, but in a totally different manner.

Those are the two songs that really stood out in her set, not that the rest of it was bad by any means. Overall, it was a good show, and made me appreciate her band much better, because let’s face it, the studio albums highlight Cat Power’s vocals. After all, why wouldn’t they? It is the money-maker after all. But seeing her as a part of a band gave me a new dimension of appreciation for her music.

Why Cutting Aids to States in the Stimulus is a Terrible, Shitty Idea

So the Bureau of Labor Statistics released its January employment report today, and the news is grim:

“Nonfarm payroll employment fell sharply in January (-598,000) and the unem-
ployment rate rose from 7.2 to 7.6 percent, the Bureau of Labor Statistics of
the U.S. Department of Labor reported today.  Payroll employment has declined
by 3.6 million since the start of the recession in December 2007; about one-
half of this decline occurred in the past 3 months.  In January, job losses
were large and widespread across nearly all major industry sectors.”

What jumps out is the the accelerated pace of job loss in the recent past. More importantly, people should pay attention to the data on persons who are unemployed on a long-term basis, meaning those who are jobless for 27 weeks or more (so in essence, a year of unemployment). Although the increase in the long-term employed is not that high, the total is still pretty fucking high (about 2.65 million). That number WILL (it’s not a question of if but when and by how much) go up if nothing is done to staunch the bleeding.

This is why cutting aids to state in the stimulus is a terrible idea: the states have to shoulder the fiscal burden because they are the ones that have to dole out unemployment benefits, basic healthcare coverage, and other needed services that make up the safety net. Yet the Senate is thinking about cutting $40 billion worth of aids to state in the stimulus bill: this is just not a good idea. And this is already at a time when states are facing huge budget deficits due to revenue loss.

So yeah, cutting aids to states = TEH FAIL

UPDATE: This was hastily written (like everything on this blog) this morning when I first caught the BLS news release. But now even the Wall Street Journal is reporting on the implications:

“A growing number of states are running out of cash to pay unemployment benefits, a sign of how far social-welfare systems are being stretched by the swelling ranks of the jobless in the deteriorating U.S. economy.

Unemployment filings have soared so high in recent months that seven states have already emptied their unemployment-insurance trust funds, which were supposed to see them through recessionary periods. Another 11 states are in jeopardy of depleting reserves by year’s end, according to the National Conference of State Legislatures, which published a January report entitled “The Crisis in State Unemployment Trust Funds.” So far, states have borrowed more than $2.3 billion in emergency funds from the federal government, money they are required to pay back.”

More on the Isakson Amendment to the Senate Stimulus

Last night I wrote a somewhat (cough cough) incendiary post on why Johnny Isakson can’t tell his head from his ass.

Well, looks like I’m not the only one, and these people are experts!

1) Tyler Cowen:

“I’m not sure I understand the proposal, but here is what the NYT says:

The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.

Like Arnold Kling, I wish to shift the economy out of housing, not into it again. I also believe that the supply of homes is relatively elastic right now.  The tax credit will subsidize the new buyers without propping up the price of homes.  Demand will go up, supply will go up, price will stay more or less on the same trajectory, and banks won’t be any healthier.  The subsidy goes to new home buyers and why should we be helping them above all others?  Aren’t they relatively wealthy on average?  (Not that there’s anything wrong with that.)  Aren’t some of them the dreaded “flippers” and speculators for that matter?  (Can we really enforce the primary residence requirement?)  Do we really want to push people into being less diversified and less geographically mobile in the labor market?  And here’s Alex’s post from earlier today.

There’s a whole other debate you could have on whether we should be encouraging people to buy outputs which are already produced.”

2) Dean Baker:

“Somehow, Isakson has this thing costing just $19 billion. Let’s break the Washington rules and try a little arithmetic. Even with weakness in the housing market, it is still virtually certain that we will sell close to 5 million homes in 2009. The overwhelming majority would qualify for the full credit. So, we get 5 million times $15,000. That sounds a
lot like $75 billion.

And this is before we get to any gaming. It’s hard to see why tens of millions of people wouldn’t figure out a way to buy a house from a friend or relative and get their $15k. If we can get one-third of the country’s homes to change hands (lots of jobs for realtors) that would be good for $375 billion. “

Well, glad to see that I wasn’t insane. I obviously don’t have the technical expertise of these guys, since they are, you know, REAL economists, whereas I’m just a guy who went to a four-year college and took some econ courses (even if Christian Romer, head of the Council of Economic Advisors). But even from a non-technical perspective, one should still be able to see that prima facie, the Isakson amendment doesn’t really do what it says it’s going to do.

Johnny Isakson Needs to Pull His Head out of His Ass

So it looks like the Senate passed Senate Amendment #106 of the the stimulus bill (H.R. 1). The amendment was sponsored by Senator Johnny Isakson (R-GA):

“WASHINGTON —The Senate on Wednesday voted to expand the economic stimulus package with a tax credit for homebuyers of up to $15,000, a provision championed by Republicans as addressing a root cause of the recession.”

Okay, let’s see what is wrong with this approach, or why, as the title of this post states, Johnny Isakson needs to pull his head ouf of his ass.

1) Yes, it is true that our current economic recession started with the collapse of the housing bubble, but its collapse was brought about by the fact that too many home buyers were unable to repay their mortgages, which led to a wave of foreclosures that seriously destabilized home prices. So if the original problem is the massive wave of foreclosures, how is a tax credit going to help remedy that?

Now an argument could be made that a tax credit like this will give incentive for people to purchase homes and clear out existing inventory, thus driving up housing prices and stabilizing the market. But in order for this argument to be valid, one must assume that the tax credit will spur enough home purchases to keep up with foreclosures. But if there is no remedy for home owners on the verge of foreclosure, I don’t see how this balancing act is likely.

If the Senate really wants to address the crisis in the housing market, it should combine this tax credit with relief for home owners on the verge of facing foreclosure by allowing judges to rewrite their mortgages. But this is unlikely because it’s a hard sell politically, as it would be seen as a violation of contract.

2) Even if the tax credit spurs enough home purchases, there is still the matter of obtaining credit for mortgages on these newly-purchased homes. Now in case you forgot, we also have a goddamn credit crisis! The Isakson amendment gives home buyers a tax credit of 10% of the price of the house, with an upper limit of $15,000. So that still leaves a lot of remaining debt that these new buyers must pay off. And since they will have trouble obtaining credit, I don’t see how this tax credit really helps you in the long run.

3) This tax credit does not help the people who are really in need of help. Think about it, people who will most likely buy houses in this environment are those with enough income to a) purchase a house and b) pay back their mortgages on time. This is a demographic that does not really need taxpayer money to weather this storm. If we are going to spend public money on this tax credit (which reportedly costs $18.5 billion), we should be spending it to help those who need it the most.

4) This tax credit is not likely going to help the construction industry retain or generate new jobs. Why? Because the problem, once again, is with the massive number of foreclosures. There is a lot of inventory right now in the housing market, but the key here is that it is EXISTING inventory, which means houses that were already built, not new houses that need building, which means keeping people in the construction industry employed. New jobs in the construction industry will only be generated once existing inventory is bought up and there is still demand for more, but this is not likely to happen in this economic environment.

5) So let’s see here: the problem started because people were encouraged, through policy, to purchase homes that they are not likely to be able to keep. So in order to solve the problem, the policy response is to…encourage more of the same? Someone explain to me how this makes any sense?

In other words, Johnny Isakson doesn’t know his head from his ass.

But here is something ironic: when the stimulus passed the House, Senate GOP complained that the cost was too much and vowed to cut the cost down. Guess what? The Senate version of the stimulus now costs more than $900 billion, compared to the $820 billion of the House version.

Another Head (or four) Rolls on Taxes

Well, what do you know, a day after the NYT publishes an editorial calling on Daschle to withdraw his nomination as head of HHS, he did just that.

So this makes the fourth (fourth?!) instance of Obama vetting team’s not doing a thorough job: Geithner, Richardson, Killefer, and now Daschel. What’s next? A nominee with close ties to the industry that he’s designed to oversee? Oh wait a minute

Whatever happened to the vaunted Obama vetting team? Clearly, no one’s perfect.

But what is at stake here, fundamentally speaking? In my opinion, what is at stake is the institutional structure of DC. Specifically, the institutional structure of the city makes the phenomenon of the revolving door an attractive and rational choice for people.

It is very hard for a political actor in DC to stay completely pure and free of industry association. Political fortunes being what they are, many Congressional staff will find themselves working in Congress cyclically. Yes, there are rules (probably not strict enough) on the revolving door, but if you work long enough in DC, you will be associated with industry some way or another. After all, an industry job allows a staffer to leverage his/her institutional/policy knowledge and his/her personal connections.

Things might be slightly more stable in the executive branch, considering that most mid-level civil servants are not political appointees. But let’s face it, the private sector pays better, and it is rational for people to choose jobs that pay them more for their skills and knowledge.

How do you deal with this problem? You can try (unrealistically in my opinion), like Obama did, to free yourself completely of lobbying influence. And we all know how that one turned out. You can also issue waivers by appealing to people’s experiences and qualifications, but such a move undermines your credibility.

OR, we can simply pay people better who work in government, which is COMPLETELY unthinkinable, a total anathesma in our country, given our history of distrust in government and the bureaucracy. But is this idea really THAT bad? I mean, if government wants to retain institutional knowledge and policy expertise, then it should expect to fork over the cash. Yes, public service can be a powerful motivation for certain people, but depending on that somewhat dubious moral psychology is not good policy in my opinion. You want to give people incentive to serve the public, and surely the public can get its ROI when institutional knowledge and policy expertise are retained for the service of the public, not the interest of private sector lobbies.

Growth Through Increase in Real Purchasing Power!

I know, doesn’t have quite the same ring to it as “Change We Can Believe In” or “Yes We Can!”

But nevertheless, economic growth through increase in real purchasing power is a seriously policy alternative that ought to be seriously considered. As this post by John Quiggin shows, economic growth in the last 20 years or so have come about as a result of increased leveraging of capital, not real purchasing power:

“Overall, the main factors sustaining growth in living standards for American households outside the top 20 per cent have been an increase in the labour force participation of women and a decline in household savings. Over the period since 1999, consumption financed by borrowing against home equity has been the main factor offsetting stagnant or declining median household incomes.”

 But of course, when asset values go down, like they did during the housing crisis, the growth becomes unsustainable, and the bubble burst, and now we are living through the consequences.