Pay a decent wage

Perhaps the so-called "skills gap" would evaporate if we paid workers with desirable skills more than a shift manager at McDonalds.

Eric Isbister, the C.E.O. of GenMet, a metal-fabricating manufacturer outside Milwaukee, told me that he would hire as many skilled workers as show up at his door. Last year, he received 1,051 applications and found only 25 people who were qualified. He hired all of them, but soon had to fire 15. Part of Isbister’s pickiness, he says, comes from an avoidance of workers with experience in a “union-type job.” Isbister, after all, doesn’t abide by strict work rules and $30-an-hour salaries. At GenMet, the starting pay is $10 an hour. Those with an associate degree can make $15, which can rise to $18 an hour after several years of good performance. From what I understand, a new shift manager at a nearby McDonald’s can earn around $14 an hour.

The secret behind this skills gap is that it’s not a skills gap at all. I spoke to several other factory managers who also confessed that they had a hard time recruiting in-demand workers for $10-an-hour jobs. “It’s hard not to break out laughing,” says Mark Price, a labor economist at the Keystone Research Center, referring to manufacturers complaining about the shortage of skilled workers. “If there’s a skill shortage, there has to be rises in wages,” he says. “It’s basic economics.” After all, according to supply and demand, a shortage of workers with valuable skills should push wages up. Yet according to the Bureau of Labor Statistics, the number of skilled jobs has fallen and so have their wages.

In a recent study, the Boston Consulting Group noted that, outside a few small cities that rely on the oil industry, there weren’t many places where manufacturing wages were going up and employers still couldn’t find enough workers. “Trying to hire high-skilled workers at rock-bottom rates,” the Boston Group study asserted, “is not a skills gap.” The study’s conclusion, however, was scarier. Many skilled workers have simply chosen to apply their skills elsewhere rather than work for less, and few young people choose to invest in training for jobs that pay fast-food wages. As a result, the United States may soon have a hard time competing in the global economy. The average age of a highly skilled factory worker in the U.S. is now 56. “That’s average,” says Hal Sirkin, the lead author of the study. “That means there’s a lot who are in their 60s. They’re going to retire soon.” And there are not enough trainees in the pipeline, he said, to replace them.

One result, Sirkin suggests, is that the fake skills gap is threatening to create a real skills gap. Goldenberg, who has taught for more than 20 years, is already seeing it up close. Few of his top students want to work in factories for current wages. 

The 93 percent

It's true that women have lost more jobs then men since, literally, the day Obama took office (the Inauguration ceremonies weren't enough stimulus, I guess).  The trouble for Romney is the reason for that.

Facing a double-digit deficit among female voters, likely Republican presidential nominee Mitt Romney has accused the White House of waging an economic "war on women." Since Obama took office in January 2009, he's charged, an amazing 92 percent of all job losses have been among women. 

He's absolutely right. In the last 26 months, U.S. payrolls have shrunk by 740,000 jobs and of those, 683,000 belonged to women, according to the Bureau of Labor Statistics.

But Romney should be careful with his talking point. All those women who lost work? About two-thirds of them were laid off from government jobs. And a lot of them lived in states governed by Republicans. 

The Romney campaign is counting job losses that occurred literally the day Obama took office, which is a bit like blaming the fire fighter for not traveling back in time to stop the fire. It also ignores the fact that, before women started losing work en masse, millions of men had already been handed pink slips. Between December 2007 and January 2009, about 3.3 million men lost their jobs, versus 1.2 million women. Was President Bush waging a war on Y chromosomes? Hardly. That's just the natural pattern of a recession. Male dominated fields like construction and manufacturing are more sensitive to the ups and downs of the economy, so when times get tough, their jobs tend to disappear faster, and in larger numbers. Women, who are concentrated in fields like healthcare, government, and education, tend to feel the pain less severely. 

So, a "small government conservative" is attacking Obama for state governments...getting smaller. Oh. The. Irony. Mitt.  Even better, most of the job losses were in states governed by Republicans.

Another Excellent Talkingpoint from the Romney campaign.

7 years of lean

Um, oh shit. PIMCO co-founder Bill Gross goes all Biblical on us.

Downgrading development

James Kwak thinks S&P's downgrading of US treasuries from AAA to AA+ is asshatted preposterous and ultimately doesn't mean much of anything.

As I said before, I don’t think that S&P has added anything new to the world’s stock of information. In the short term, the most worrying thing about a downgrade is what I called the “legal-mechanical consequences”: the possibility that investors, who value their own opinions more than S&P’s anyway, might have to dump Treasuries because they are no longer AAA. Apparently, this is not going be a huge problem. Binyamin Appelbaum of the Times says that (a) many of the rules place Treasuries in a different category from other AAA securities to begin with and (b) since the downgrade only affects long-term debt, money-market mutual funds are safe.

Still, I think the whole thing is preposterous. S&P downgrading the United States is like Consumer Reports downgrading Coca-Cola. Consumer Reports is a great institution. For example, if you want to know how reliable a 2007 Ford Explorer is going to be, they have done more research than anyone to figure out the reliability history of every single vehicle. Those ratings are a real public service, since they add information to the world. But when it comes to Coke and Pepsi, everyone has an opinion already, and no one cares which one, according to Consumer Reports, “really” tastes better. When S&P rated some tranche of a CDO AAA back in 2006, it meant that some poor analyst had run some model fed to her by an investment bank and made sure that the rows and columns added up correctly, and the default probability percentage at the end was below some threshold. It might have been crappy information, but it was new information. When S&P rates long-term Treasuries AA+, it means . . . nothing [sic]. And if any serious buy-side investor were tempted to take S&P’s rating into account, she would be deterred by the fact that the analysis that produced the rating included a $2 trillion arithmetic error.

Indeed, that error certainly makes it seem that they came to the conclusion before they bothered with running the numbers. If S&P thought that making this highly political action would re-establish their credibility after having failed to see the inevitable collapse of the housing bubble, I think they are in error there too.

Magic jobs

Bill Gross, the founder of PIMCO, aka, "The bond king," has a message to his investors and to Congress:

"Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea," Gross writes. "While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama's long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans' extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years."

Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, "they will come." It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It's difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate. Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.

Emphasis added.

Unfortunately, as Brian Buetler points out, the GOP is too beholden to ideological purity and Dems are just too, predictably, scared.

His expertise IS the disqualifying factor

Michael Grunwald does a pretty good summary of our Serious Times.

Until yesterday, my favorite symbolic moment of the Obama era was the rejoicing of the right after the President’s hometown failed to land the 2016 Olympics. Because any bad news for Obama is by definition good for America, even if it happens to involve bad news for America. But now I have a new favorite: the defeat of Peter Diamond’s nomination to the Federal Reserve Board after Republicans declared him “unqualified.” What makes this so perfect is not just Diamond’s status a Nobel Laureate economist, but his specific expertise in unemployment and the labor market. Because anyone who understands unemployment and the labor market is by definition unqualified to participate in economic policy.

Brother, can you spare a dime, vol. 645

In an earlier post, I wrote that I wasn't going to excerpt Rick Perlstein's lament for the forgotten Hubert Humphrey, but I can't resist.

Instead Humphrey, who had re-entered the Senate in 1971, spent the rest of the decade doggedly devising legislative solutions to the Great Divergence. His Balanced Growth and Economic Planning Act, introduced in May 1975, when unemployment was at a post-Depression high of 9 percent, proposed a sort of domestic World Bank to route capital to job creators. (It spoke to his conviction, in a knee-jerk, anti-corporate age, that pro-labor and pro-business policies were complementary.)

And at a time when other liberals were besotted with affirmative action as a strategy to undo the cruel injustices of American history, Humphrey pointed out that race-based remedies could only prove divisive when good jobs were disappearing for everyone. Liberal policy, he said, must stress “common denominators — mutual needs, mutual wants, common hopes, the same fears.”

In 1976 he joined Representative Augustus Hawkins, a Democrat from the Watts section of Los Angeles, to introduce a bill requiring the government, especially the Federal Reserve, to keep unemployment below 3 percent — and if that failed, to provide emergency government jobs to the unemployed.

It sounds heretical now. But this newspaper endorsed it then, while 70 percent of Americans believed the government should offer jobs to everyone who wanted one. However, Jimmy Carter — a new kind of Democrat answering to a new upper-middle-class, suburban constituency, embarrassed by industrial unions and enamored with the alleged magic of the market — did not.

“Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy,” President Carter said in his 1978 State of the Union address, a generation before Bill Clinton said almost the same thing, cementing the Democrats’ ambivalent retreat from New Deal-based government activism.

I couldn't resist because in the same paper, David Leonhardt writes something important about our own post-Depression high unemployment.

An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.

Are any policy makers paying attention?

Apparently not. House Republicans have decided that lowering corporate tax rates will do the trick, apparently not noticing that corporations are sitting on piles of cash and still aren't hiring. The administration -- whose grip on power will be affected more by unemployment next year than Bin Laden's demise this year -- doesn't seem to have any new ideas to offer. And Bernanke seems chastened by the political criticism he's facing from economic ignoramuses like Rand Paul.

Whiffs of '37

The whole notion that Germany, politically, cannot continue to pour stimulus into the economy because they still remember the way inflation helped caused the rise of the Nazi party is not on its face ludicrous, but that history is largely myth and, today, it also doesn't make much sense. The current German government isn't Weimar. The German state is not saddled with gigantic reparations to France and England. Germany is still not struggling to recover from a war in which over 2 million German soldiers 2.5 million Germans and Austrians were killed.

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.

The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries are now big enough that their growth can lift other countries’ economies.

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once. From 2009 to 2011, the tightening in the United States will equal 4.6 percent of G.D.P., according to the International Monetary Fund. In Britain, even before taking into account the recently announced budget cuts, it was set to equal 2.5 percent. Worldwide, it will equal a little more than 2 percent of total output.

Taking the wrong lessons from bad history and mixing that with bad economic "theory," is not a recipe for a global economic recovery.

After all, it's worked so well in Ireland.

Where are the jobs? Where's the jobs bill?

David Leonhardt explains why debates over a job stimulus bill versus deficit reduction is a false one.

Of course, even if the bill is not very expensive, it is worth passing only if it will make a difference. And economists say it will.

Last year’s big stimulus program certainly did. The Congressional Budget Office estimates that 1.4 million to 3.4 million people now working would be unemployed were it not for the stimulus. Private economists have made similar estimates.

There are two arguments for more stimulus today. The first is that, however hopeful the economic signs, the risk of a double-dip recession remains. Financial crises often bring bumpy recoveries. The recent troubles in Europe surely won’t help.

The second argument is that the economy has a terribly long way to go before it can be considered healthy. Here is a sobering way to think about the situation: If the next four years were to bring job growth as fast as the job growth during the best four years of the 1990s boom — which isn’t likely — the unemployment rate would still be higher in 2014 than when the recession began in late 2007.

Voters may not like deficits, but they really do not like unemployment.

Looking at the problem this way makes the jobs bill seem like less of a tough call. Luckily, the country’s two big economic problems — the budget deficit and the job market — are not on the same timeline. The unemployment rate is near a 27-year high right now. Deficit reduction can wait a bit, given that lenders continue to show confidence in Washington’s ability to repay the debt.

As a result, Congress does not have to choose between the problems. It can pass the jobs bill, putting people back to work, and even pass a separate bill to help struggling states. History has shown that state aid, which prevents layoffs of teachers, emergency medical technicians and other workers, is the single most effective form of stimulus.

Such logic, alas, is in short supply in the Senate these days.

Sophisticated investors

From the "Who could have foreseen" file.

THOSE state-chartered institutions that can buy C.D.O.’s and other riskier investments must set aside reserves of 100 percent of mark-to-market losses in such securities when they decline in value. This is intended to deter credit union executives from venturing down the risk spectrum.

The Florida credit union met that requirement, but clearly the deterrence didn’t work. Eastern Financial’s failure may be an outlier, but it makes for a terrific case study.

Indeed, the inspector general’s analysis is depressingly familiar. Eastern Financial’s management and board “relied too heavily on rating agencies’ grading of C.D.O. investments,” it concluded, and failed to evaluate and understand their complexity.

Almost immediately after the credit union bought the C.D.O.’s, they fell in value. By September 2007, the credit union had recorded $63.4 million in losses on the products, almost two-thirds of the original investment. By the time of its failure, the credit union had charged off all 18 C.D.O. investments, resulting in total losses of nearly $150 million.

Richard Field, managing director of TYI, which develops transparency, trading and risk management information systems, says the Eastern Financial collapse is yet another example of why investors in complex mortgage securities need to be able to consult complete loan-level data on what is in these pools.

“A sizable percentage of the problems in the credit markets and bank solvency are directly related to this lack of information,” Mr. Field said.

But the Eastern Financial insolvency also illustrates why regulators should make Wall Street adhere to concepts of suitability for institutions as well as individuals, Mr. Whalen said.

“The dealers who sold the C.D.O.’s to this credit union should be sanctioned,” he said. “It might even be possible to pursue the dealer who sold the C.D.O.’s under current law. At a minimum, the Securities and Exchange Commission should impose retail investor suitability standards onto banks and public sector agencies to end the predation by large Wall Street derivatives dealers.”

The Great Deleveraging

Let the good times roll. Gretchen Morgensen:

THIS see-no-evil approach to second mortgages is part of an overall denial on the part of policy makers, politicians, bankers and regulators that has prolonged the agony of this crisis. Owning up to reality about what loans are worth is rough medicine to take, but denying that problems exist only puts off the inevitable.

“We are much further along the road to price discovery and full disclosure than Japan was at this same stage of their credit contraction,” Mr. Rosenberg said. “There are still some very significant credit problems in the U.S. and as they pertain to commercial real estate are still extremely problematic. Some banks will likely be whipped very hard.”

The challenge for Mr. Obama is that he has thrown oodles of taxpayer money at these problems and still the unemployment rate stands at 9.7 percent.

“We came off a year when you could not have asked for more government stimulus and we lost five million jobs,” Mr. Rosenberg pointed out. “What do you do for an encore? The deleveraging is ongoing and yet the government stimulus is largely behind us. That is problematic for an economic forecaster.”

The fact is, to save the world from economic collapse we have transferred the liabilities of the private sector to the public. And not every country has the money to service or repay that debt.

“We are in a post-bubble credit collapse and there are going to be periods of calm and stormy weather. Investors will have to navigate through the volatility,” Mr. Rosenberg said. “Unfortunately, I think we are still in the early stages. The next recession will happen more quickly than people think.”

Banks' pinzer tactics

Sounds like bad cop (Constitutional challenge) versus good cop (sweet, sweet lobbying goodness), as the banks try to fight back the populist tide.

A court challenge would open a new front in the banking industry’s assault on additional financial regulation. It might also further splinter the powerful financial lobby. The issue has already pitted smaller banks, which would be exempt from the tax, against their less popular Wall Street peers, and it has even stirred debate within the large banks over whether such an aggressive legal strategy would be politically wise.

Privately, executives at several large banks said they believed a legal battle was doomed to fail in Washington and risked escalating public rage over the bailouts of the banks. These executives say the industry may be better off pushing for a watered-down version of the tax. Most banks are just beginning to consider how, or whether, they would oppose it.

It will get even more complicated when Congress, at the banks' insistence, include GM and Chrysler in the formula.

"Smoot Hawley" redux

Last week, Paul Krugman chided the Chinese for not allowing its currency, the RMB, to rise against the dollar, despite a huge trade surplus. This will end badly, warned Krugman,

James Fallows put this in historical perspective for non-economists.

The heart of Pettis's argument was that China's economy in this past year was like America's in the early 1930s. Each had been the workshop of the world in the preceding decade; each had piled up huge trade surpluses and financial reserves; and -- the underappreciated part -- each suffered big job losses when its foreign customers could no longer buy its excess production. Having had more than "its fair share" of the world's manufacturing jobs in the 1920s, the US had more of them to lose in the 1930s. So too with China as demand fell around the world last year. Relatively more of China's people had depended on foreign customers for their jobs, thus relatively more of them were at risk than in Europe or the US. And indeed, tens of millions of Chinese factory jobs disappeared last year, especially in the southern part of the country.

The crucial part of Pettis' analysis was the next step: whether China would respond to this loss the way the U.S. had in the 1930s. Back then, desperate to protect American factory jobs, the U.S. Congress passed the Smoot-Hawley tariff, with levies on thousands of product categories. In itself, that tariff was not the cause of the world Depression (contrary to the implications of "Smoot Hawley" in the standard political speech or op-ed column). But as other countries retaliated, the cascading failure of demand intensified the hard times worldwide.

To bring this back to Krugman and China: Pettis concluded that the natural result of last year's economic slowdown would be the shrinkage of China's export economy and global trade surplus. Anything else would delay the "rebalancing" of economies that was necessary worldwide. If China tried too hard to prevent this, then that step would be the modern Smoot Hawley equivalent. As I put it in the article:

"The real damage of Smoot-Hawley, [Pettis] says, was less economic than political. Other countries understood that the United States was trying to protect its trade surplus and therefore its workforce. They didn't like it as a political matter, and they struck back.

"If that were to happen again... the real counterpart to Smoot-Hawley would be Chinese protectionism--or rather, any effort by China to defend its huge trade surpluses, as the U.S. once did. China's government is unlikely to rely on outright Smoot-Hawley-style tariffs. Instead it could increase subsidies to exporters; it could try to push the RMB's value back down, after three years of letting the currency rise; it could encourage manufacturers to restrain wages; it could impose indirect barriers to imports, as with its recent pressure on China's airlines to cancel outstanding orders for Boeing and Airbus airplanes. By early this year, China's government was in fact doing every one of these things."

Trade Wars for the Teens?

What's good for JPMorgan is good for America

Brad DeLong,

"I did not run for office to be helping out a bunch of fat cat bankers on Wall Street," President Obama told Steve Kroft of 60 Minutes. In a narrow sense, that may be true. But Obama did run for office in part to keep the unemployment rate from rising to -- and staying above 10 percent. And his pursuit of that end has aligned the president with the fat cats.

[...]

Bur for indirect government policies to boost spending, they must boost asset prices--especially long-term, risky asset prices. And guess who owns the most long-term, risky assets? Guess who benefits most when those long-term, risky asset prices rise?

Yep. It's fat-cat bankers. That's what fat-cat bankers do: they raise money--mostly by borrowing--from people who want to keep their wealth liquid and relatively safe, and they use this money to buy long-term risky assets, relying on their technical skill and judgment to preserve a margin between what they are paid by borrowers and what they must pay, in turn, to their creditors.

In a crisis like the present, if you avoid the nationalization and extravagant deficit-spending route, and you still succeed in avoiding persistent mass unemployment, you will have done so by a process that boosts asset prices and enriches fat-cat bankers.

The fact that the policies you undertake to avoid persistent mass unemployment also help fat-cat bankers doesn't mean that you can¹t implement other policies to place burdens on them. Progressive income and wealth taxes, tight capital and regulatory requirements, impositions of enormous risk on financiers in order to remove the possibility that they will retain their wealth even as their organizations go bankrupt these are all policies that make fat-cat bankers' lives less fat and less feline. And I am strongly in favor of enacting all of these long-term structural reforms.

But there¹s no point in pretending that the policies that avoid persistent mass unemployment are not the same policies that enrich fat-cat bankers. They are. At this moment, what is good for JPMorganChase is good for America -- and vice versa.

In effect, Obama did run for office to help out a bunch of fat-cat bankers on Wall Street. He just may not have realized it at the time.

He can ridicule them, though. Makes 'em mad.

Seasonal adjustment

Floyd Norris points out that the jobs report that caused so much gnashing of teeth last week was actually pretty positive and may be a sign the economy is really turning around.

At least for some people.

In reality, the government report says unemployment rates remained steady at 9.5 percent. And the number of jobs actually rose, by 80,000. And the number of jobs for college educated Americans rose more than in any month in the last six years.

If those were the numbers in the articles, we would hear about the economy stabilizing, and talk about the Obama stimulus plan starting to have the intended effect.

So why is this the first time you’ve seen those better-looking numbers? It is because the government adjusted them before they were released.

The adjustments are for seasonality. For some reason, October is the month with the largest seasonal adjustment down in jobs. So the increase in the unemployment rate does not reflect people actually losing jobs. It reflects the belief that seasonal factors should have added more jobs than they did.

All this may be very reasonable, and there is no way I can think of to test whether the seasonal adjustments are reliable. But I suspect seasonal factors are less important this year, when the economy may be changing directions, than they normally are.

Studying the unadjusted numbers provides some indication that the hiring is starting to improve for better jobs. The number of jobs for college graduates, according to the household survey, rose 755,000 in October, before seasonal adjustments. That is the third-largest increase since the government started counting those figures, in 1992. (It trails increases of 895,000 in February 2002 and 755,000 in October 2003.)

On the other hand, the number of jobs fell for those with less education. If this report does indicate that the job recession is ending, it is an end that is providing immediate benefits for the educated, not for many of the people who most need help.

A drop in which bucket?

I usually respect David Leonhardt's columns, but I wonder why he complains about the administration's plans to give SS recipients an additional $250, but has nothing to say about the home buyer's credit. The former, seems to me, puts a little extra pocket money into seniors' pockets, a group that votes and spends at Wal-Mart. The latter only maintains inflated home prices, the bubble that burst in the first place. A fact, Mr. Baker never tires of pointing out, the media seems to still be blissfully unaware.

Not stimulus

I don't think I was alone in guessing that the White House, like most economists, didn't feel the $700 billion stimulus package was enough, but it was all that was politically feasible. Nor was I alone in guessing that they would find smaller spending and tax credit fixes as they monitored the economy, particularly jobs recovery.

That seems to be happening.

Driving the call for more stimulus efforts is the unemployment rate, which now sits at 9.8%, and is expected to rise into next year, even though the recession may have already officially ended. Republicans, who have long been critical of the $787 billion stimulus that passed in February, are likely to support some, if not most of these new spending programs, in part because they are politically popular. Texas Republican John Cornyn, a vocal opponent of the February stimulus, said recently that he was in favor of some more federal spending efforts. "I think there are things we need to do to help people who need help," he said Oct. 4 on ABC's This Week.

Other Republicans, like economist Kevin Hassett, a former adviser to McCain's presidential campaign, say it might be better to focus on policy fixes that could have long-term impacts, not just short-term impacts. "You can have a stimulus every quarter from now until we go bankrupt," Hassett said. "But would that be good policy?"

I shudder to think where we'd be with a President McCain.

Job creation credits

Frankly, it seems reducing or in some cases eliminating the payroll tax would be better and more progressive, but as Justin Fox notes, the story in the NY Times on the hiring tax credit being considered is very thorough and compelling.

One thing though, if this is something Washington is seriously mulling, then they'd better act fast. Why would a business hire someone now, if they can expect a tax credit if they wait six months to make that hire.

Our financial overlords are teh awesome

How short is your memory? BoA, forced to purchase the fetid piece of sub-prime mortgaged Merrill Lynch, is bringing back that icon of the bull market.

NEW YORK (Reuters) – Bank of America Corp (BAC.N) will spend as much as $20 million in the fourth quarter of 2009 to relaunch Merrill Lynch's name and long-time bull logo.

The former Merrill Lynch and & Co's operations will now be known as Merrill Lynch Wealth Management, and be one of two primary units in Bank of America's Global Wealth and Investment Management division, Sallie Krawcheck, the division's president, told a press conference.

She called the Merrill Lynch operations and the U.S. Trust business, the other main unit, two of the industry's "crown jewels," adding that she feels the industry is beginning to rebound.

"It feels like momentum is turning," she said.

Or it's the worm that's doing that, she's not sure which. And no word on how much tax payer money is funding this buy, either directly or indirectly less directly.

During the credit bust, our leaders embraced the too-big-to-fail policy, reluctantly bailing out large institutions to save the system from collapse, they said. Yet even as the crisis has abated, these policy makers have shown little interest in cutting financial monsters down to size. This is especially disturbing given that some institutions have grown even larger as a result of the mess.

It is perverse, of course, to reward big banks’ mistakes with bailouts financed by beleaguered taxpayers. But the too-big-to-fail doctrine benefits the banks in other ways as well: the implication that an institution will not be allowed to fall gives it significant cost advantages over smaller, perhaps more responsible competitors.

Quantifying these advantages is difficult, though. While bailouts have numbers attached to them, hidden benefits, again subsidized by the taxpayer, are harder to assess. The result is that taxpayers may mistakenly believe that when a bailout recipient repays a loan, subsidies received by the institution have stopped.

Because our government wouldn’t dream of calculating the hidden costs associated with the bailout binge — taxpayers might become even angrier than they already are — it is gratifying that the Center for Economic and Policy Research, a liberal research group in Washington, has taken a stab at the task.

Dean Baker, an economist and co-director of the center, and Travis McArthur, a research intern, analyzed banks’ costs of money to compare the interest rate that smaller banks pay to attract deposits and borrow funds with the rate paid by behemoths perceived as too big to fail.

Using data from the Federal Deposit Insurance Corporation, Mr. Baker’s study found that the spread between the average cost at smaller banks and at larger institutions widened significantly after March 2008, when the United States government brokered the Bear Stearns rescue.

From the beginning of 2000 through the fourth quarter of 2007, the cost of funds for small institutions averaged 0.29 percentage point more than that of banks with $100 billion or more in assets. But from late 2008 through June 2009, when bailouts for large institutions became expected, this spread widened to an average of 0.78 percentage point.

At that level, Mr. Baker calculated, the total taxpayer subsidy for the 18 large bank holding companies was $34.1 billion a year.

I for one am just glad to help out.

Learning to swim only prolongs the drowning

That's what sailors reportedly used to say. I was reminded of that old saw when I read this.

The Census Bureau's annual look at income and health coverage (based on surveys conducted in March) is out today. The rise in the poverty rate and in the percentage of Americans without health insurance got the headlines. But here's a fact that for some reason the Census Bureau didn't emphasize: The median household income in 2008 was $50,303. The median household income in 1999, expressed in 2008 dollars, was $52,748.

You've got to figure 2009 will see another decline in income, in which case Americans will end the decade significantly less well off than when they started it. We're not just treading water. We're going backwards.

In other words, a great many Americans are slowly, painfully, drowning.