A test for socialism

Soft left, labor left or social democratic, whichever words you use to describe it, the Obama / Pelosi recipe for fixing our ailing economy is socialist, i.e., "making needed investments in infrastructure, alternative energy, science and other emerging sectors and providing middle-class tax cuts to help make work pay."

I use the word "socialist" not as a pejorative, but accurately. The Obama / Pelosi plan calls for Keynesian redistributive economic policy combined with record setting federal involvement in the economy.

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We Caught the Car, Now What Do We Do With It

Yay we won!

Now we're in the driver's seat and the problems coming down the road are much bigger, scarier and implacable than any we've seen in our lifetimes.

In my experience there's only one way to drive out of a fiasco -- fast and in the right direction.

It's not the time for half-measures and Dean Baker has a great idea, healthcare:

President Obama has the opportunity to establish himself as one of the truly great presidents in his first days in office. He can take advantage of the current economic crisis to announce plans to jump start national health care insurance. Extending health care insurance can be an effective stimulus that will provide an immediate boost to the economy.

More importantly, it will provide the same access to health care that people in other wealthy countries have long taken for granted. For this accomplishment, President Obama will rank alongside Presidents Roosevelt and Lincoln as one of the nation's truly great presidents.

The backdrop is straightforward. Economists from across the political spectrum are now calling for a large stimulus package to limit the economy's decline and the rise in unemployment. The consensus is in the range of 2.0-2.5 percent of GDP, or $300 billion to $400 billion a year.

And if that sounds pie-in-the-sky, check this NYT op-ed from Bob Rubin and Jared Bernstein:

The Bible got this right a long time ago (paraphrasing slightly): there's a time to spend, a time to save; a time to build deficits up and a time to tear them down. Though one of us (Mr. Rubin) is often invoked as an advocate of fiscal discipline, we both agree that there are times for fiscal discipline and times for fiscal largess. With the current financial crisis, our joint view is that for the short term, our economy needs a large fiscal stimulus that generates substantial economic demand.

We also jointly believe that fiscal stimulus must be married to a commitment to re-establishing sound fiscal conditions with a multi-year program that includes room for critical public investment, once the economy is back on a healthy track.

One of us (Mr. Rubin) views long-term fiscal deficits -- in combination with a low national savings rate, large current account deficits and foreign portfolios that are heavily over-weighted in dollar-dominated assets -- as a serious threat to long-term interest rates and our currency and, therefore, to our economic future. The other views these economic relationships as much weaker.

At the same time, we both agree that our economic future also requires public investment in critical areas like education, health care, energy, worker training and much else. In our view, then, the next president needs to proceed on multiple tracks, with both the restoration of a sound fiscal regime and critical public investment.

Can we get out of this crisis? Can we do the things we need to do to help those in need -- especially the state governments that actually do so much of the public service work in this country?

Do I really have to ask the answer to that question, today of all days?

YES WE CAN.

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New York Times Recognizes Urgent Need for Aid to States

The New York Times is getting on board the "help the states" bandwagon.

Wall Street's crisis is walloping state finances across the country. The most urgent problems are in states -- like California -- that rely on short-term financing to help pay their bills until tax revenues start coming in later on in the fiscal year. This is about the safest debt on the market. Still, over the past few weeks, states have been shut out of the credit markets like everybody else.

The credit freeze that followed the events on Wall Street and in Washington over the last few weeks has dramatically effected the states. California may need a $7 billion loan from the Federal Government to cover short term cash needs. And last Friday, the New York Times reported that Massachusetts may be in a similar position:

Treasurer Timothy P. Cahill's requests last week to the Treasury Department and the Federal Reserve Bank of Boston were prompted by the state's inability to borrow from the short-term debt markets, The Boston Globe reported on Saturday. The financial turmoil has caused credit markets to stop lending, or to charge prohibitive rates.

And more states are sure to follow. According to a report by the Center on Budget and Policy Priorities:

New gaps have opened up in the budgets of at least 15 states plus the District of Columbia just two months after they struggled to close the largest budget shortfalls seen since the recession of 2001. These 15 states include more than half of the 29 states that have already moved to cut spending, use reserves, or raise revenues in order to adopt a balanced budget for the current fiscal year -- which started July 1 in most states. Now, their budgets have fallen out of balance again

The 15 states on this list are pretty diverse too:

The 15 states facing additional shortfalls are Arizona, Connecticut, Florida, Georgia, Hawaii, Illinois, Maryland, Massachusetts, Nevada , New Hampshire, New York, Ohio, South Carolina, Vermont, and Virginia.

So without short term borrowing on the table, these states are going to have to rely on tax revenue to make up the difference, which goes completely against tax revenue trends during economic downturns. According to the NYT Op Ed, the worst economic downturn since the Great Depression is no different:

As the economy tips deeper into recession, state tax revenues are expected to plummet. Gov. David Paterson of New York has already proposed $2 billion in immediate spending cuts. Even states that are less dependent on Wall Street than New York will have to figure out how to raise new money or reduce services, just when the public needs more help. This will intensify the economic downturn.

The prognosis for states is grim if the Federal Government does not step in the same way they did for Bear Stearns, Fannie and Freddie, AIG, et al. And the solution is one I've been calling for since day one:

Washington must step up. To start, the federal government must help states like California and Massachusetts get past their short-term liquidity squeezes. Congress also must prepare a new stimulus bill, with bolstered aid for food stamps and assistance to states and cities so they can continue to provide health care and finance construction and other projects that provide jobs.

But lets be honest, if Speaker Pelosi and Majority Leader Reid don't lead the charge on getting this done, it is going to lay dormant until it is too late. The cynical nihilists on the GOP side of the aisle in the House, coupled with the debacle that was the Wall Street bailout leads me to believe that Congressional Republicans would be more than happy to throw California and Massachusetts under the bus to avoid going back into session. Especially since their electoral votes are not going to be contested.

I hope I am proven wrong, because aid from the Federal Government has worked before:

In 2003, Washington gave states $20 billion in grants and increased Medicaid contributions to help them dig out of the 2001 recession. We hope this time it will act a lot faster.

So do I.

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Unfiltered Thoughts on the Failed Bailout Bill

Yesterday, as I watched the votes against the Emergency Economic Stabilization Act of 2008 rack up on the U.S. House floor, I said to someone that as soon as Wall Street gets word of the bailout bill failing, the stock market is going to drop like a rock.  

And that it did -- more than 700 points at the close of trading Monday evening.

Now I don't know if this $700 billion bailout package is going to work, but at this point, we've got to try something because doing nothing only makes matters worse.

There's a blame being thrown around on why the bill failed.  Republicans are blaming Democrats.  Democrats are blaming Republicans.  But the truth is that both sides of the aisle share some of the blame.

When the President, the Speaker of the House and the leadership of both parties are supportive of any particular piece of legislation, you can usually guarantee and take to the bank the passage of that bill.  That's not what happened yesterday.

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Did Pelosi Get Played?

The No's so far are winning the bailout vote, 226-207. They're keeping the vote open in an effort to twist people's arms. Matt Stoller suggests the House Republicans promised more votes than they actually had. Clearly Republicans want to run against this thing at home, or, perhaps more accurately, they don't want to allow their Democratic challengers to use it against them.

In the meantime, the Dow is down almost 500 points.

Consider this a bailout thread to follow the story as it continues to evolve.

Update [2008-9-29 14:5:4 by Todd Beeton]:94 Democrats voted No. Only 65 or so Republicans voted Yes. A rare show of bi-partisanship in opposition to what John Boehner reportedly called a "crap sandwich."

Update [2008-9-29 14:8:55 by Todd Beeton]:The bill has failed: 227-206 228-205.

Update [2008-9-29 14:10:24 by Todd Beeton]:MSNBC is calling this a failure of Bush and Paulson.

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