Depression 2.0

How close did we come to falling into a Depression last year?

Pretty damned close, according to Robert Samuelson.

"Depression" is a term of art. It's more than a serious economic downturn. What distinguishes a depression from a harsh recession is paralyzing fear of the unknown -- so great that it causes consumers, businesses and investors to retreat and panic. They hoard cash and desperately curtail spending. They sell stocks and other assets. A devastating loss of confidence inspires behavior that overwhelms the normal self-correcting mechanisms (lower interest rates, inventory resupply, cheap prices) that usually prevent a recession from becoming deep and prolonged: a depression.

Comparing 1929 with 2007-09, Romer finds the initial blow to confidence far greater now than then. True, stock prices fell a third from September to December of 1929; but fewer Americans then owned stocks, and prices had risen early in the year. Moreover, home prices barely dropped. From December 1928 to December 1929, total household wealth declined only 3 percent. By contrast, the loss in household wealth between December 2007 and December 2008 was 17 percent -- more than five times as large. Both stocks and homes, more widely held, suffered larger losses.

Stieglitz and Surowiecki

Professor Stieglitz sounds worried.

It's a man's world

Very strange, but, strangely, it works.

The dismal science

Indeed.

It's the economy, stupid

Today's must read™: David Leonhardt examines the economic policy differences between Clinton and Obama and finds there's more to look at than their respective health care plans.

Perhaps you have heard that Hillary Clinton and Barack Obama have come up with different health care plans. Hers would require every American to own health insurance. His would not.

That difference is the only one between the two candidates on any domestic policy that has received much attention. (Think about it: can you name another?) Outside of health care, the campaigns — and we in the media — have focused on more exalted concepts, like experience, change and judgment.

But there really are some other important differences between the candidates. When you look at their policies as a whole, you see that Mrs. Clinton and Mr. Obama have actually laid out two competing economic philosophies. The fight over health insurance is just one part of their disagreement.

Compared with all the other candidates — Democrat and Republican — Mrs. Clinton and Mr. Obama occupy roughly the same place on the ideological spectrum. They’re both somewhat to the right of John Edwards, who favors a more muscular brand of government intervention to help the middle class. And they are well to the left of every Republican.

But the differences between Mrs. Clinton and Mr. Obama can’t be neatly captured with the standard language of right and left.

The easiest way to describe Senator Clinton’s philosophy is to say that she believes in the promise of narrowly tailored government policies, like focused tax cuts. She has more faith that government can do what it sets out to do, which is a traditionally liberal view. Yet she also subscribes to the conservative idea that people respond rationally to financial incentives.

Senator Obama’s ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program — one less likely to confuse people — is often a smarter program.

Given the odds that the next five weeks will turn one of the two candidates into a presumptive presidential nominee, it’s worth thinking about these ideas while there is still a campaign going on. Mrs. Clinton and Mr. Obama both may be middle-of-the-road Democrats, but they do have different visions of how government should work.

Read, as they say, the whole thang.

Meanwhile, Leonard Lopate interviews Brooke Gladstone of "On the Media" and Paul Waldman of Media Matters for America on how media narratives shape the political fortunes of the candidates. Nothing new, but they're both engaging figures and have the temerity to criticize the "authenticity" of Jack Welch's Irish Catholic boys, Russert and Matthews.

Did you hear a crash?

This cannot be good.

WASHINGTON (AP) -- Construction activity plunged in July by the biggest amount in six months as spending on homes fell for a record 17th straight month.

The Commerce Department reported Tuesday that construction spending dropped 0.4 percent in July, compared with June, the weakest showing since a 0.6 percent fall in January.

It was a bigger drop than economists had been expecting and underscored the continued drag the severe slump in housing is having on building activity.

Helping the little guy to save the fat cats?

Daniel Gross, referring to Bush's speech this morning, said, "Bush seems to have learned 'Trickle Up Economics."

“The recent disturbances in the subprime mortgage industry are modest — they’re modest in relation to the size of our economy,” Mr. Bush said this morning. “But if your family is — if your family’s one of those having trouble making the monthly payments, this problem doesn’t seem modest at all.”

The main objective of the package, one senior official said, is not to affect the stock markets but to help low-income homeowners, many of them concentrated in certain neighborhoods in several distressed areas of the country, such as Ohio and Michigan.

“The primary focus is to help individuals who have an opportunity to stay in their homes to stay in their homes,” this official said. “The subprime mortgage situation is having a crushing effect on a lot of communities right now.”

Administration officials, who asked not to be identified, briefed a handful of news organizations on the proposals on Thursday evening. Despite the assertion that affecting the markets is not the goal, one administration official said concern about Wall Street’s reaction did affect the timing of the briefing. He said there was a fear that if the White House announced in the morning that Mr. Bush would be making an announcement on housing, there could be confusion as buyers and sellers of mortgage securities guessed what the announcement would be.

But secondarily, this official said, helping homeowners keep their homes and refinance or renegotiate the terms of the mortgages could have a stabilizing effect on the financial institutions that have these mortgages in their portfolios, and help them write down the value of the mortgages or sell them off at a loss.

FDR would be proud.