If the Democrats lose control of Congress in the November elections because Democrats have offered too little vision for how to address federal spending and long-term structural deficits, then that strikes me as a fair and reasonable outcome. The Democrats have not. Even if the election turns on competing visions of the role of government in addressing the needs of citizens — that is, if voters turn out Democrats because they somehow prefer the current healthcare system to that recently enacted, or they decide they’d rather hope for the best and take no action on global climate change — well, I disagree with those positions, but at least that would be a fair outcome of a fair debate.

If the Democrats retain control of Congress in the November elections because of their policies reversed the catastrophic recession conditions the country faced in 2007-08, then that also is fair and reasonable.

But if the Democrats lose control of Congress because voters blame them for the current lethargy in the economy, that is an unfair and unreasonable outcome. Yet that seems to be exactly where the electorate is right now. What exactly are the objectionable economic policy actions of the Democrats, anyway? That they enacted the biggest tax cut in history? That they put forth stimulus funds that created (or “saved”) an estimated 3 million jobs?

The accurate way to look at it is that a huge economic tsunami was coming at us, and Obama hastily built a levee that mitigated the damage. Was it a perfect levee? No. But we must remember that the tsunami was coming either way. If Republicans had controlled Congress in 2009, and had pursued policies akin to what they are campaigning on now, what would have been the result? No levee at all. Job losses, which had been running more than 700,000 per month at the time, would have continued longer and deeper. The economic contraction would have lasted longer and been more severe. Budget deficits, which are driven by the recession, would have been worse. We would have absorbed the full brunt of the tsunami.

So if the Democrats lose over their handling of the economy in the short run, that’s just wrong.


The economy sputters on. Meanwhile, our elected leaders debate what to do about it, in fact, much of the ongoing midterm campaign centers on it.

The Democrats, being in power, have already played their hand. The stimulus package of early 2009 was a grab bag of spending and tax cuts. [Not really the point of this post, but I’m so tired of the counterargument that “the stimulus failed, because they promised that unemployment would peak at 8%.” Any thinking person understands that the meaning of that presentation back in those days was that the stimulus package would lower the peak unemployment rate by about 1.5%. At the time, they estimated it would peak at 9.5% if no action was taken; hence, the stimulus would lower the peak rate to 8%. Instead, the recession proved to be much more severe, and so it peaked at 10%, versus 11.5%. Either way, every economic analysis supports the contention that about 3 million more Americans would be out of work today without it. Every counterargument I have ever seen is ideological, not economic.]

Republicans, being the minority party, have played the role of critic. As far as I can tell, the only policy prescription they have supported is the extension of the Bush tax cuts for the wealthy. There is also a lot of talk about “cutting spending” and “balancing the budget,” but I severely discount that talk. I discount it because: (1) cutting spending will weaken the economy in the short run. Spending discipline is a crucially necessary solution for the long term, but harmful in the short run — why, after all, do people think Congress never cuts spending? Because all the benefits are long term and all the short term impact is negative; and (2) I have watched the Republican party increase federal spending every time they have held power over the past 30 years, so, yeah, I don’t believe it. Anyway, that leaves the Republicans with tax cuts as their sole credible policy option.

Into this policy debate wades the intrepid CBO. They have analyzed 11 separate policy prescriptions. Of the eleven, extending the Bush tax cuts ranks dead last in terms of short term economic benefit. Why is this? Because tax cuts for the wealthy are a supply-side solution. The current weakness in the economy is based on low demand: people just ain’t buyin’ stuff. Tax cuts for the wealthy have little impact on consumption, because they tend to save the additional money, not spend it.

Think about it this way. The Republican argument is that economic growth depends on small business; that is where jobs are created. True enough. But why exactly does a small business owner hire the next employee? Because his tax rate is lower? No. Because he has more customers to serve. Period. I myself started a business in 2003, and now it has about 1000 employees. I can tell you that never once did we set our hiring plans around federal tax policy. “Hey, Bush cut my personal taxes… let’s go hire a few more people.” Nonsense. We hire whenever demand for our services outpaces the capacity of our current team to meet it. So, you fix the economy by creating more customers. Tax cuts for the wealthy fail to do that, so that is why it scores so dismally on the CBO analysis.

Back to the March 2009 stimulus package. Every Republican out there campaigning that the stimulus failed, and arguing instead for tax cutting policies, needs to explain why the $250 billion in tax cuts provided by the government in the stimulus package failed to work, and why more tax cuts would work the next time. Personally, my conviction is deep that the stimulus did exactly what it was supposed to do. Find me the maintstream economist who says otherwise.

Obama has been in office for about  ten months. In terms of important economic issues, let’s assess his results so far.

(1) Monthly federal budget deficits have been decreased by one-fourth. For October 2008, the CBO reported a federal budget deficit of $232 billion. The CBO reports the October 2009 deficit at $175 billion, a reduction of 24.6%.

(2) Equity markets have soared by about 59%. After hitting a low in early March just below 6500, the DJIA has risen past 10,300.

(3) Monthly job losses have declined substantially. All through 2008, the net number of jobs shed by the economy grew each month, reaching its worst point in January, when the economy lost more than 700,000 jobs. From that moment forward, the picture has been improving, with net losses shrinking each month to 190,000 in October. Of course, losses are losses, and so this means that total unemployment has continued to rise. But how can we look at Chart 2 in this link and not conclude that the jobs market has been heading in the right direction since early 2009?

(4) Credit markets have resumed functioning in a more or less normal manner; and

(5) The severe recession ended, at least enough for the economy to grow in the third quarter.


The WSJ is reporting two bits of good news this morning. One, industrial production rose 0.8% in August, following a 1.0% rise in July. Both results exceeded analysts’ expectations. Fed Chairman Bernanke is now making pronouncements that the recession could be over. The second news item was that inflation remains very low. We have seen the stock markets increase by, what, maybe 35% since the bottom was hit earlier this year?

What I don’t get is how this is happening in the face of various government actions that have garnered scathing criticism from some quarters, and deep concern from many other quarters. The view advanced by many is that towering federal deficits, massive government intervention to rescue the financial markets and auto companies, the stimulus package, and worries over the cost of the healthcare reform legislation should be shaking our economy to its core.

 But that just doesn’t seem to be happening. How do we make sense of this? Do we trust the markets to give us an objective assessment of our actions? Were the doomsdayers off base? Did it turn out that the ocean of our economy was big enough to absorb and dilute the economic pollution from these governmental actions? Whatever the explanation, critics of the Administration need to take note of these positive indicators.

The U.S. Postal Service lost $2.8 billion last year. It seems obvious that the escalation of email and overnight delivery will continue to cut into the USPS’s revenue stream. So, here’s one idea I came up with.

Imagine a two-tiered postage system. You could mail a letter for the usual rate — say $0.45. But here’s the catch. That letter may sit at the recipient’s post office, at least for a while.

Now consider a premium postage rate, say, $2.00. If you pay that rate, the letter will be delivered as soon as it arrives, along with any other accumulated regular-rate mail for that address. If no premium-rate mail comes along, any regular-rate mail will be delivered once a week.

This system has two advantages. One, it greatly reduces the number of stops each letter carrier needs to make each day. Instead of stopping at eight houses down the east side of the block, maybe he stops at five. Routes are cleared faster, and fewer letter carriers are needed. Two, it increases revenue by earning a premium on more important mail. And ultimately, the sender controls the delivery priority.

I don’t know, I’m no expert. I’m just here thinking.