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There's no evidence the White House sought to inflate job numbers in the report. But administration officials seized on the 30,000 figure as evidence that the stimulus program was on its way toward fulfilling the president's promise of creating or saving 3.5 million jobs by the end of next year.

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The good news is that the American Recovery and Reinvestment Act, a k a the Obama stimulus plan, is working just about the way textbook macroeconomics said it would. But that’s also the bad news — because the same textbook analysis says that the stimulus was far too small given the scale of our economic problems. Unless something changes drastically, we’re looking at many years of high unemployment.

And the really bad news is that “centrists” in Congress aren’t able or willing to draw the obvious conclusion, which is that we need a lot more federal spending on job creation.

About that good news: not that long ago the U.S. economy was in free fall. Without the recovery act, the free fall would probably have continued, as unemployed workers slashed their spending, cash-strapped state and local governments engaged in mass layoffs, and more.

The stimulus didn’t completely eliminate these effects, but it was enough to break the vicious circle of economic decline. Aid to the unemployed and help for state and local governments were probably the most important factors. If you want to see the recovery act in action, visit a classroom: your local school probably would have had to fire a lot of teachers if the stimulus hadn’t been enacted.

And the free fall has ended. Last week’s G.D.P. report showed the economy growing again, at a better-than-expected annual rate of 3.5 percent. As Mark Zandi of Moody’s Economy.com put it in recent testimony, “The stimulus is doing what it was supposed to do: short-circuit the recession and spur recovery.”

But it’s not doing enough.

Suppose that the economy were to keep growing at 3.5 percent. If that happened, unemployment would eventually start falling — but very, very slowly. The experience of the Clinton era, when the economy grew at an average rate of 3.7 percent for eight years (did you know that?) suggests that at current growth rates we’d be lucky to see the unemployment rate fall by half a percentage point per year, meaning that it would take a decade to return to something like full employment.

Worse yet, it’s far from clear that growth will continue at this rate. The effects of the stimulus will build over time — it’s still likely to create or save a total of around three million jobs — but its peak impact on the growth of G.D.P. (as opposed to its level) is already behind us. Solid growth will continue only if private spending takes up the baton as the effect of the stimulus fades. And so far there’s no sign that this is happening.

So the government needs to do much more. Unfortunately, the political prospects for further action aren’t good.

What I keep hearing from Washington is one of two arguments: either (1) the stimulus has failed, unemployment is still rising, so we shouldn’t do any more, or (2) the stimulus has succeeded, G.D.P. is growing, so we don’t need to do any more. The truth, which is that the stimulus was too little of a good thing — that it helped, but it wasn’t big enough — seems to be too complicated for an era of sound-bite politics.

But can we afford to do more? We can’t afford not to.
http://www.nytimes.com/2009/11/02/opinion/02krugman.html

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Alan Greenspan is surprised ... by human nature.

There was a kind of lion-in-winter quality to the testimony the former Federal Reserve Board chairman delivered to Congress on Thursday. Summoned before the House Oversight and Government Reform Committee, which is investigating the Wall Street meltdown, the onetime oracle of the global financial system told Chairman Henry A. Waxman (D-Beverly Hills):

"I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms."

Greenspan, 82, who relinquished leadership of the Fed just two years ago, said the collapse of the sub-prime mortgage industry -- and the vast, mostly hidden trade in derivative financial instruments it spawned -- exposed a "flaw" in his categorical reliance on free markets.

Over the last two decades, fortunes have been made and lost parsing Greenspan's Delphic declarations, but there's a breathtaking example of ideological blindness embedded in that first sentence. Does Greenspan really believe that banks, brokerages, rating agencies and insurance companies act of their own accord? Even he has to understand that the people who run them decide how they respond, even to market forces.

There are no autonomic reflexes in finance. Did Greenspan really believe that the people in power, presented with a chance to make a killing, would put the interests of their institutions and stockholders ahead of their own?

Put aside for a second the fact that the former Fed chairman spent more than 20 years of his life as a disciple of the novelist-turned-barely-baked-philosopher Ayn Rand, whose concepts of "rational egoism" and "individualism" put the "R" in ruthless and have provided generations of gullible undergraduates an intellectual rationale for their lingering adolescent self-absorption. Has Greenspan lived through the same times the rest of America has recently experienced?

The idea of loyalty -- or of just a sort of reciprocal obligation, for that matter -- simply doesn't operate on Wall Street or much of anywhere in American business any more. The notion that CEOs and other executives would forgo a chance to enrich themselves to keep their institutions solvent or their stockholders' investment whole seems quaint in today's environment. That's true even when the executives' good conduct is supposedly guaranteed by an equity stake, as it is in investment banks.

What Greenspan and the rest of the aiders-and-abettors of Wall Street's greed spree don't want to admit is that there's something wrong in the economy and financial system that new regulations on trading and disclosure won't correct. Long before the financial system melted down, American business' share of the social compact melted completely away. The corrosion didn't begin at the top but at the bottom -- with the renunciation of any corporate loyalty toward working men and women. For nearly as long as Greenspan has hovered in the financial stratosphere, U.S. companies have been encouraged to treat their workers like any other "expense." Wall Street has rewarded -- indeed, lionized -- companies "tough enough" to treat workers like the electric bill. Presto! Layoffs became "cost management."
http://www.latimes.com/news/opinion/la-oe-rutten25-2008oct25,1,6603109.column

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Didn't Obama assure us that, if congress passed his stimulus plan, unemployment would not pass 8.5%?

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New York, NY, November 14, 2008 … Los Angeles Times columnist Tim Rutten was honored today by the Anti-Defamation League (ADL) with its distinguished ADL Hubert H. Humphrey First Amendment Freedoms Prize for his body of "lively, literate and pointed" writing chronicling and commenting on the major social, political and religious issues of the day.

Following in the footsteps of a long line of distinguished media figures and institutions – among them Walter Cronkite, George Will, Jon Meacham and Meet the Press – Mr. Rutten, whose career at the Times spans more than three decades, accepted the award during the League's annual meeting in Los Angeles.

"As a columnist free to advance his personal viewpoint, Tim Rutten uses language that is lively, literate and pointed," said Abraham H. Foxman, ADL National Director.  "His writing reflects a keen interest in domestic and international issues, analyzing the social, political, and even religious forces at play.  His criticism and editorial writing display a concern for our most cherished principles and the mandates of real politik." (full remarks)

The ADL Humphrey Prize recognizes those who have made significant and lasting contributions to the protection and advancement of the First Amendment.

Mr. Rutten, who presently serves as an op-ed columnist and book critic for The Times, has held numerous positions at the paper, including city bureau chief, metro reporter, editorial writer and assistant national editor.  In 1994, he was part of the team coverage reporting on the Northridge earthquake that earned The Times a Pulitzer Prize.  But it is his work as a columnist that has had the most profound impact.

"We give this award in support of a journalist who openly invokes both the blessings of free speech and its responsibilities, said Mr. Foxman, citing Mr. Rutten's column as having a special insight into inconsistency, hypocrisy, irony and history.
http://www.adl.org/PresRele/Mise_00/5393_00.htm

His readers surely know that he is as capable of teasing liberal pieties and facile left-wing slogans as he is of skewering conservative ideology.

As a columnist free to advance his personal viewpoint, Tim uses language that is lively, literate and pointed, but that also builds an informative and well-reasoned argument.

His commentary about Iranian President and Holocaust-denier Mahmoud Ahmadinejad’s embarrassing public relations coup at Columbia University informed his readers of the ivy league university’s own lamentable past history when its then president, Nicholas Murray Butler, was an outspoken admirer of Italian Fascist leader Benito Mussolini and gave quarter to Nazi emissaries during the 1930s.

But Tim went further by remarking on “the almost willful refusal of commentators in the American media to provide their audiences with insight into just how sinister Ahmadinejad really is.”

More recently, after the Iranian president delivered another of his anti-Zionist harangues at the United Nations, remarks that also rehashed classic anti-Semitic conspiracy theories about the power of international Jewish finance, Tim wrote a column warning us that Ahmadinejad’s evil words aren’t just talk.  He called out the General Assembly for applauding his extremist remarks and chided the American media for passing over them in silence.

Tim’s willingness to call into question the fourth estate has not always endeared him to his colleagues, and yet he has insisted on highlighting the lapses of today’s electronic and print journalists.
http://www.adl.org/sp_humphrey_2008.asp

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"You found that your view of the world, your ideology was not right, it was not working?" said Rep. Henry A. Waxman (D-Calif.), the committee chairman.

"Absolutely, precisely," Greenspan said. "You know, that's precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well."

Greenspan alternately defended his legacy and acknowledged mistakes. Waxman asked whether the former chairman was wrong to consistently oppose regulating the multitrillion dollar derivative market that has contributed to the financial crisis.

"Well, partially," said Greenspan, before stressing the difference between credit-default swaps and other types of derivatives.

With the global financial system unraveling, economists and political leaders are coming to doubt some of Greenspan's most closely held views: that markets can exact self-discipline, that central bankers should generally not try to prick bubbles in the price of houses or tech stocks, that a policymaker's most powerful tool to encourage growth is to stay out of the way.
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Even Greenspan seemed genuinely perplexed yesterday by all that had happened, hard-pressed to explain how formerly fundamental truths about how markets work could have proved so wrong.

Members of Congress who not long ago would seek Greenspan's blessing for their preferred public policies were at turns combative and disdainful. Rep. John Yarmuth (D-Ky.) called him a "Bill Buckner," referring to the Boston Red Sox first baseman who missed an easy ground ball against the Mets in the 1986 World Series, costing the team the game.

The tough talk reflected a widening sense that some of Greenspan's apparent successes in managing the economy from 1987 to 2006 were in fact illusory, that they came at the cost of building the biggest credit bubble in world history.
http://www.washingtonpost.com/wp-dyn/content/article/2008/10/23/AR2008102300193.html  

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Former Federal Reserve Chairman Alan Greenspan says the current financial crisis has uncovered a flaw in how the free market system works and that has shocked him.

Greenspan told the House Oversight Committee on Thursday that his belief that banks would be more prudent in their lending practices because of the need to protect their stockholders had proven to be wrong in the latest crisis.

Greenspan said he had made a "mistake" in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan said that he had found "a flaw in the model that I perceived is the critical functioning structure that defines how the world works."

He bluntly called the current financial crisis is a "once-in-a-century credit tsunami" which will have a severe impact on the U.S. economy, driving unemployment higher.

Asked if the White House agreed with Greenspan, Press Secretary Dana Perino said, "I think that is right." Perino added more grim assessments, saying, "we’re in for a rocky road on the employment front and we expect our GDP number next week not to be a good one. And the next quarter could probably be tough as well.

Greenspan, who headed the U.S. central bank for 18½ years, said that he and others who believed lending institutions would do a good job of protecting their shareholders are in a "state of shocked disbelief."

He said that the current crisis had "turned out to be much broader than anything that I could have imagined.

The committee called Greenspan to testify along with former Treasury Secretary John Snow and Securities and Exchange Commission Chairman Christopher Cox as lawmakers sought to discover if regulatory failings had contributed to the crisis.

House Oversight Committee Chairman Henry Waxman said that he believed that the Federal Reserve, which regulates banks, the SEC and the Treasury had all played a role in contributing to the mistakes.

"The list of mistakes is long and the cost to taxpayers is staggering," Waxman, a Democrat, told the three men. "Our regulators became enablers rather than enforcers. Their trust in the wisdom of the markets was infinite. The mantra became that government regulation is wrong. The market is infallible."

In his testimony, Greenspan blamed the problems on heavy demand for securities backed by subprime mortgages by investors who did not worry that the boom in home prices might come to a crashing halt.

"Given the financial damage to date, I cannot see how we can avoid a significant rise in layoffs and unemployment," Greenspan said. "Fearful American households are attempting to adjust, as best they can, to a rapid contraction in credit availability, threats to retirement funds and increased job insecurity." http://www.cbsnews.com/stories/2008/10/23/national/main4540592.shtml

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Capitalism is often defined as an economic system where private actors are allowed to own and control the use of property in accord with their own interests, and where the invisible hand of the pricing mechanism coordinates supply and demand in markets in a way that is automatically in the best interests of society. Government, in this perspective, is often described as responsible for peace, justice, and tolerable taxes.

This paper defines capitalism as a system of indirect governance for economic relationships, where all markets exist within institutional frameworks that are provided by political authorities, i.e., governments. In this second perspective capitalism is a three level system much like any organized sports. Markets occupy the first level, where the competition takes place; the institutional foundations (e.g., rules, referees, infrastructure) that underpin those markets are the second; and the political authority that administers the system is the third (e.g., the NFL, NBA or FIFA). While markets do indeed coordinate supply and demand with the help of the invisible hand in a short term, quasi-static perspective, government coordinates the modernization of market frameworks in accord with changing circumstances, including changing perceptions of societal costs and benefits. In this broader perspective government has two distinct roles, one to administer the existing institutional frameworks, including the provision of infrastructure and the administration of laws and regulations, and the second to mobilize political power to bring about modernization of those frameworks as circumstances and/or societal priorities change.

For a capitalist system to evolve in an effective developmental sense through time, it must have two hands and not one: an invisible hand that is implicit in the pricing mechanism and a visible hand that is explicitly managed by government through a legislature and a bureaucracy. Inevitably the actions of the visible hand imply a strategy, no matter how implicit, short sighted or incoherent that strategy may be.
http://hbswk.hbs.edu/item/5593.html

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