Tuesday, October 5, 2010

The True Cost of the Great Recession

From a post by Ezra Klein on the Washington Post, a graph showing the lost production of the Great Recession. This is GDP (goods & services) that never get produced because a big chunk of the population is force into idleness at no fault of their own but because Wall Street and the big banks decided to play games and create a bubble in real estate and let it blow up:

Click to Enlarge

You can see that the output gap cause by the dot.com bubble bursting 2000 is minor compared to this, the greatest recession since the Great Depression. With something this big, you would think that the government would be pulling out all the stops to deal with the mess and get the economy back on track. But the Republicans refuse to do anything except demand bigger tax cuts for billionaires and the Democrats, and Obama, are terrified of acting as real leaders and making real decisions and demanding that changes be made and sacrifices undertaken to get 14 million unemployed back to work and quit wasting time and resources. Tragically, there is little or not "leadership" in the 21st century "politics" in Washington.

Go read Ezra Klein's post for another graph, some textual material, and links to related material.

If that leaves you hungering for more, then read this post by Ezra Klein on his Washington Post blog. Here's the kicker at the end:
There has never been a better moment for America to rebuild its infrastructure - and reform the way it makes infrastructure decisions going forward. An unlikely and unwelcome array of forces have converged to match our needs and the economy's bargains almost perfectly.

The only question is whether we'll run our government like a business, alert to good opportunities, or whether we'll run it as we have done, squabbling among ourselves while things get worse.

And here is related material from Andrew Samwick from his blog Capital Gains and Games:
The Time for Infrastructure Investment Is ASAP

Writing in The Washington Post, Ezra Klein correctly notes that the case for infrastructure spending during an economic downturn is compelling and that the most recent proposals for infrastructure spending are too small. He writes:
People say that the government should be run more like a business. So imagine you are CEO of the government. Your bridges are crumbling. Your schools are falling apart. Your air traffic control system doesn't even use GPS. The Society of Civil Engineers gave your infrastructure a D grade and estimated that you need to make more than $2 trillion in repairs and upgrades.

Sorry, chief. No one said being CEO was easy.

But there's good news, too. Because of the recession, construction materials are cheap. So, too, is the labor. And your borrowing costs? They've never been lower. That means a dollar of investment today will go much further than it would have five years ago -- or is likely to go five years from now. So what do you do?

If you're thinking like a CEO, the answer is easy: You invest. You get it done. Happily, that's what the administration is proposing to do. But its plan is too modest. The $50 billion bump in infrastructure spending it has proposed is only for surface transportation. The infrastructure bank envisioned in the proposal is also likely to be limited to transportation. And as for our water systems, our schools, our levees? This is not a time for half-measures. It's a rare opportunity to do what we need to do and to save money doing it.
What Ezra does not say explicitly is that the most opportune time to launch this program of infrastructure investment was when the downturn was first upon us. And at that time, the key task for writers in The Washington Post (and other places)was to argue that a serious infrastructure investment program was a better way to deal with downturns than the other proposals in vogue at the time; namely, something "timely, targeted, and temporary."

But late is better than never. As the proverb goes, "The best time to plant a tree is 20 years ago. The second best time is today." What is rare about this opportunity is that, unfortunately, it still exists 32 months after we should have started taking advantage of it.
It is agonizing to watch Washington dither and do little and the wrong thing. Back in early 2008 under the first Bush "stimulus" bill there was discussion of whether infrastructure spending should be done. It was decided that it wouldn't be "timely" so tax cuts were done. If only they had done infrastructure spending! That money would be fully engaged today and right now would have it peak effect on employement. But there was no vision or leadership from Bush. So nothing was done. Obama has continued that hoary old "tradition" by dithering and not making the hard decisions to spend on infrastructure. In another 3 years that will look just as abominable as Bush' dithering. Tragic!

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