economy

A year after his first conversation with Big Think, Paul Krugman sat down with us again recently to look at the state of the US economy. Twelve months hence, things have not improved. Krugman described the economic fragility during his first conversation last December as a "near recession," an observation that is now a forgone conclusion. Krugman's sober critique of the market has won him wide respect among economic thinkers, and he was awarded the Nobel Prize for Economics in October for his work dating back to the 90s. A congratulatory White House dinner followed during which Krugman said "everyone was on their best behavior." Krugman is famously critical of the Bush administration's economic policy and deregulation in general. The next administration is reportedly reaching out to Krugman for his macro-economic acumen, and there's even been speculation over Krugman is being tapped for a post under Obama, but, as Krugman put it to us, bureaucracy is not his strong suit. In a recent New York Times column, Krugman instructs Americans that the next bubble--housing, dot com or some other incarnation--is not coming anytime soon, and they should instead prepare for as much as a year of "economic hell." He struck a similar chord when he broke down depression economics in his second interview with us.

London School of Economics urbanologists have put together a short how-to for post-industrial cities to avoid complete obsolescence during the recession. Tracing the recent histories of Bremen, Bilbao, St. Etienne and four other formerly decrepit European burgs, the authors of A Tale of 7 Cities emphasize three fundamental steps cities need to follow to achieve urban renaissance: make high-tech often green investments, recruit workers laid off from failed industries and establish rock-solid mass transit networks. As the recession sinks its teeth into American cities like Toledo, Cincinnati and Buffalo--places that have only recently begun to rediscover their urban cores-- planners may wish to heed European models as blueprints. For specific ideas, reading is available at Germany’s Werkstatt-Stadt project which catalogs 156 of the country’s most innovative antidotes to the exurbs. And for the manpower, Sheffield’s JOBMatch provides the links from the dole to employment–an effort not unlike Van Jones’ Green For All on this side of the pond. When he sat down with Big Think, he expalined how the US could recruit a corps of disadvantaged and underemployed Americans to kickstart the green-collar economy. Here is Mr. Jones rolling up his sleeves.

Ahead of the second Presidential debate tonight, there's food for thought on the New York Times. Three leading economists suggest questions that would best steer debate on the important aspects of the current financial crisis. Joseph Stiglitz, the former Nobel laureate, offers the most left-of-centre frame, while the others take centrist and free-market turns.

The progressive pressure group Campaign for America's Future - the left counterpart of the centrist Democratic Leadership Council - welcomed the House's rejection of the bailout and released three guidelines for further government action. Tony Curzon Price critiques the American Left's remedy for the current financial crisis. For more of Tony's analysis of the meltdown, go here. (editor's note) 

Invest In Main Street: On Main Street, jobs are disappearing, infrastructure is crumbling and local budgets are straining. A $200 billion economic rescue package for Main Street would generate clean American energy, extend unemployment benefits, aid states and localities to avoid debilitating cuts and modernize our crumbling infrastructure. 

More redistributive taxation in the US makes sense, as does generous, Danish-style unemployment insurance tied to re-training. Convincing America of this is a different matter. New Deal-style public works programs do not (yet) make sense. Most of the spare money for US investment is coming from Asia. Does it make sense to spend the savings of India and China on better roads in the US? No! Public works are useful in a depression, but we're not there and may never get to that point. It is not useful to confuse the finance bail-out with every other pet project one might have. 

How did political imperatives swing yesterday's fateful vote? The vast majority of "vulnerable" congressmen - representatives occupying seats truly up for grabs in forthcoming elections - voted against the bailout package. According to the political statistics blog fivethirtyeight.com, 85 percent of vulnerable House Republicans voted for the bailout (only 65 percent of "non-vulnerable" Republicans voted against it). Notably, 72 percent of vulnerable Democrats also voted against the deal (only 38 percent of "non-vulnerable" Dems did the same). It's obvious that the deal's unpopularity weighed heavily for those representatives up against the wall in November. 

But "vulnerable" reps - all 38 of them - don't really deserve the disproportionate attention that fivethirtyeight.com affords them. It was more than delicate political calculus that tipped the scales against the bailout. The fury provoked by Paulson's package scorched many representatives, their offices flooded with phone calls and letters from their irate constituents.

As this illuminating NY Times map of the bailout vote shows, antipathy to the deal cut across traditional regional divisions, tying the blue northeast to the reddest parts of the midwest. In areas geographically and socially distant from Wall Street, like the rust belts of western New York State and Pennsylvania and the depressed sweep of the Appalachians, both Republicans and Democrats chose to vote against the deal. The bailout predictably found its clearest support in New York City - so closely yoked to the financial industry - all of whose representatives (with one exception) voted "yea". 

Amongst the various soundbytes and slogans tossed around during the Republican National Convention, one was repeated more than most. "Country First" emblazoned the podiums, stages and screens of McCain's political spectacle. It was the clearest articulation of the candidate's patriotism, defined negatively against that of his rival; unlike Obama, McCain placed his country ahead of the presidential race.

Such a conceit appeals to the cynic in all of us. McCain claims to place "his country ahead of the presidential race", in effect, to win the presidential race. Only the most blinkered partisan fails to see this. And perhaps McCain himself was inadequately lulled into the suspension of disbelief. His antics ahead of the still uncertain (at the time of writing) first presidential debate not only complicated delicate political negotiations in Washington, but they also betrayed the Republican's fragile confidence in his own campaign.

There may yet be another twist in the "tale" of this election campaign. After Sarah Palin's eruption upon the scene, it seemed that we were set for a contest of personae: the old maverick and his hockey-mom deputy vs. the cerebral orator and the feisty political veteran. Issues would take a back seat to personality. An election that promised much more would be drained to the dregs of its substance.

At least this week, the collapse of Lehman Brothers will push the economy in particular, and "issues" in general, to centre stage, playing squarely into the hands of the Democrats. Obama can argue - as he was quick to do - that eight years of failed Republican administration and oversight precipitated the subprime disaster. Such steelier rhetoric suits the changing tenor of his campaign, which has left the airy promise of "Change We Can Believe In" for the grittier "Change We Need".

McCain continues to insist that the economy remains "fundamentally strong" despite the crisis. For all his argument's intellectual merits, its pleading tone will do little to calm jittery nerves. As David Brooks noted recently, the Republican commitment to "old economics" (and not simply "old politics") remains a major stumbling block between McCain and the White House. Obama's righteous indignation better appeals to public anxiety.

Electoral politics is always a war of managed impressions, but at least the state of the economy is something tangible, something pressing. Palin's entry into the campaign revealed the horrifying, race-tinged hypocrisy that persists in US media and society (if you're raised by your grandparents in Hawaii, you're "exotic"; if you grew up eating mooseburgers in Alaska, you're quintessentially American). The Republicans know that their best chance for victory lies in the emphasis of such empty distractions. Can the Obama campaign capitalise on the media's shifting attention?

To illustrate our earlier post on the gloomy economic future of America's young, below is a graph of their slumping average earnings, from the Economic Policy Institute.