Saturday, January 31, 2009

Why Public Spending, Not Tax Cuts, Is Needed for the Stimulus (Pt. 1 of 4)

NEW YORK, New York -- As the stimulus bill makes its way to the Senate this week, Republican politicians and pundits are increasing calls to strip it of spending and add tax cuts.

The New York Times' David Brooks has denounced the "permanent Democratic agenda" of healthcare spending, alternative energy investment and ... Pell Grants, calling instead for cuts to the payroll tax that funds Social Security. Meanwhile, noted prescription drug abuser and all-around lardass Rush Limbaugh (whose power over Republican lawmakers is reportedly growing) wants to use the stimulus as an "experiment" to "prove" how well corporate tax cuts work.

It's not just enough to say, "Are you f&$%ing kidding me, you Oxy-Contin-addicted swine?!" because millions of Americans (and probably no more than a dozen people in any other country) take these things seriously.

In this post we'll sketch out a quick (because it's almost 1 a.m.) defense of public spending as an economic stimulus; and in the following three posts, we'll argue for ways that money could be spent to improve quality of life by showing how urban planning principles are currently changing; how infrastructure spending can take advantage of that; and why putting some of the money toward the arts would be a good idea.

So why do we think public-works spending will be a more effective stimulus than Rush Limbaugh and John Boner's tax cuts?

The quickest explanation is that the reason many consumers seem to be cutting back their spending -- and thereby sending the economy into a tailspin -- is that people are afraid for their income rather than their wealth. This is a point raised in a slightly different context by James Surowiecki in the New Yorker last week; the short of it is that we're buying fewer Wiis, Chevys and expensive meals not because we are flat-out broke (i.e., lacking in wealth) and, if given $20 or $500, we'd be purchasing like a panhandling wino who gets a tenner, but because we're worried about having a solid income in a year's time. Unemployment could hit double digits this quarter, and consumer confidence is in the doldrums. If most of us who aren't dirt-poor get a $500 tax break (an addition to our wealth, not a permanent increase in our income), we'll stash it away for the rainy day we fear is ahead, rather than take our stimulative duties seriously and buy 20 lbs. of steel, put in a few orders for some durable goods, and grab ourselves a 42" TV.

What's needed to rev up consumer confidence is jobs confidence. When employment expands, the broader economy jumps, and we all start breathing a sigh of relief that we will indeed still have an income in half a year -- freeing us to re-max out our credit cards today and kick the economy back into debt-driven gear.

But if we're going to max out our national credit card with China, we need to do more than just create jobs. John Maynard Keynes might have famously said that a government could stimulate an economy by paying people to dig holes and fill them up (see the dudes to the right), but even if that pulls us out of recession a tad faster, a policy of utterly wasteful spending is not worth potentially indebting ourselves for decades to come.

The challenge, then, is to create jobs that do lasting good, something that President Obama and advisers like Rahm Emanuel are certainly aware of. But, as David Leonhardt, David Sanger and ... David Leonhardt have explored in the New York Times, determining how to successfully transform the economy into a 21st-century "star" that can quickly get back on the trail to strong long-term economic growth is no small feat.

As Leonhardt notes, America has fallen far from benchmarks it once set in research and development, transportation efficiencies, education, healthcare and even Internet access. If we are to thrive in the 21st century, we need to get back to work in re-establishing these areas and many others.

The rub, however, is that investing into these areas doesn't necessarily equal the short-term growth that can help snap the recession. Economist and former Federal Reserve member Alice Rivlin has argued to Congress that it should quickly adopt a scaled-down stimulus package intended to defibrillate the economy, then pass the legislation that puts us on firm footing for the longer term. The question becomes: What sort of targeted spending can put us in good stead to grow over the long run while also attack the recession?

Tax cuts, if confined to the poorest Americans, would be fast-acting. But because their return is terrible (30 to 40 cents on the dollar), and because of the need for income stability rather than wealth that we described above, tax cuts may provide a short-term kick but will clearly need to give way to spending to create jobs and pull up the economy.

The greatest need -- and most glaring hole in the bill the House passed -- is infrastructure spending. As Leonhardt notes, the infrastructure spending the House lazily fell back on is unlikely to provide the transportation paradigm shifts needed to improve our decaying 20th-century infrastructure to make it the virtue in the 21st century as it was in the 20th:

In the current system, the federal government sends money to states without any real effort to evaluate whether it will pay for worthy projects. States rarely do serious analyses of their own. They build new roads before fixing old ones. They don’t consider whether those new roads will lead to faster traffic or simply more traffic. They spend millions of dollars on legislators’ pet projects and hulking new sports stadiums. In the world of infrastructure, cost-benefit analysis is still a science of the future.

So what should be done? As Leonhardt advocates, an infrastructure bank could be created (as Obama promised in the campaign) to oversee spending and make less pork-minded decisions than Congress does; new state cost-benefit-analysis offices could be created to make sure money is spent intelligently (which it isn't now); and rather than spending $30 billion to re-tar roads, money could be spent covering the budget shortfalls of 51 transit systems. As it stands, with service cuts and fare increases proposed, people will have a harder time getting to work -- or looking for it, as Leonhardt says. And only by investing in mass transit will we be following our own credos on building a green economy.

While Congress appears stubbornly set on infrastructure projects it calls "shovel-ready" (the meaning of this Orwellian phrase has apparently been set to mean: "tarring of highways and doing other things that the Mafia-affiliated construction companies that donate to my campaign tell me they like"), others are pushing for longer-term transformative projects.

The excitement of charts is ... off the chart! (Charts from the Brookings Institute)

Bloomberg is one of many media outlets pushing for public works, and the American Institute of Architects says infrastructure projects could create 1.6 million jobs. But the most salient voice in the debate may be the Brookings Institute. Noting that the US is the one country in the developed world that has no national infrastructure strategy; accounting for spending of infrastructure funds; or coordination of ports, highways, airports, freight rail, mass transit and passenger rail -- and hammering home how much of a disadvantage that puts us on compared to competitor nations -- the Brookings Institute released a laundry list of recommendations that should be developed immediately to increase efficiencies in the economy. These include smarter strategizing, investments in mass transit, and in particular the admonition that stimulus spending should be concentrated on the 100 largest metropolitan areas that generate 75% of GDP. That sounds good to me. Leave the big-time health and education stuff for later, perhaps, but get a big, targeted infrastructure bill passed ASAP to create jobs and restore income and consumer confidence. Oh, and let's embrace innovative infrastructure thinking (as every other country on Earth has), rather than Don Guido and his $50,000 donation to our campaign war chests.

UPDATE: Ok, it's after 2 a.m. I'm tired. The Walter Duranty Report will get back to you with parts 2 through 4 tomorrow. G'night.

Thursday, January 29, 2009

More Stimulus-ball: Why Doesn't Jeff Immelt Want Uncle Sam to Buy American?

NEW YORK, New York -- The Washington Post reports tonight that many multinational firms angling to get a piece at the infrastructure spending in the stimulus package that is making its way through Congress are lobbying to strike a "Buy American" provision from the bill.

Following precedents from the New Deal and other federal public works programs, the provision would require materials used in infrastructure projects to be produced in the United States. Materials like steel and concrete would be especially large inputs, as would more advanced finished products. The objective, naturally, is to lift domestic output -- steel production is currently wilting at 43% of capacity, while without roughly 90% capacity, steel companies waste huge amounts of money keeping their furnaces and production lines running.

However, multinationals including General Electric, Caterpillar and aerospace companies are protesting that the measure amounts to protectionism and that foreign governments will in response make export of their products more difficult.

At first glance, GE & co. have no right to whine -- if the purpose of the stimulus is to create American jobs, it should actually attempt to do so; and if Washington is going to spend $1 trillion of taxpayer dollars, taxpayers have every right to demand they materially benefit from it. Few would disagree that taxpayers' interests, not those of GE (while also a taxpayer, its tax receipts pale in contrast to 200 million working Americans'), should take precedence.

On the other hand, the massive current-account deficits that have built up in the US (translation: we import way more than we export) will require a huge pick-up in exports down the road. To that end, the United States is right to pursue free-trade agreements with trading partners, and any sniff of American protectionism could well result in much more direct protectionism from other nations itching to bring up their own tariffs or spite American firms.

But if you look a little bit closer, that logic appears less solid.

A spokesman for Caterpillar provided the following rationale to the Post: "Any student of history will tell you that one of the most significant mistakes of the 1930s is when the US embraced protectionism. It had a cascading effect that ground world trade almost to a halt, and turned a one-year recession into the Great Depression."

They didn't call them "Hoovervilles" and not "New Deal-villes" for nothing

That's all technically true, but that protectionism came in the form of tariffs during the Hoover days, not the New Deal's "Buy American" provision. Stipulating that taxpayer-funded public works programs put taxpayers to work is a fairly routine practice in all local and federal public works projects. The most recent example I visited is the new Capitol Visitors' Center in Washington, D.C. As is standard practice, it used American-made materials. It may have come in in over budget and late, but that was the fault of security concerns, not materials suppliers, and nobody thinks it amounted to protectionism. Similarly, for security but also economic reasons, one of the largest areas of federal spending -- defense -- relies overwhelmingly on domestic production. That seems to sit fine with other countries.

Moreover, GE, Caterpillar and (presumably) Boeing may now be crying about stimulus provisions stipulating US-made products are used in road construction, but a potential reason for that is that they themselves will be at a disadvantage in procuring those contracts. GE and Boeing have spent years trying to move production from the US to China, seeing no reason at the time to invest in their historic home countries. But as the Economist notes, that lack of investment in US production, R&D and other capital projects was a major factor in the global financial collapse:
"After the dotcom bust, American firms turned cautious and investment spending was weak. That ruled out a natural home for foreign capital [in the US]. Faced with strong external demand for AAA-rated assets, the financial system got creative. Marginal home loans were packaged into supposedly safe securities. That supply of credit lifted house prices and spurred a boom in residential construction, which filled the gap in demand left by sluggish business investment."
In other words, if US companies had invested in American cap-ex, China's $2 trillion tidal wave of investment into bonds could've been put to more productive use than puffing up house prices and encouraging subprime mortgages and excessive consumerism. That China dumped money on consumers is as much the fault of US businesses that stopped investing in production as it is of the Chinese central government. And as the dollar remains a primary safehaven currency, capital inflows will only continue. Why allow GE, Boeing & co. to continue slicing investment in the US when inflows are looking for more productive investment than the credit-card debt derivatives they were able to find in the Outsourcing Age?

Perhaps, then, the "Buy American" provision is a cheeky way to show companies that while Washington doesn't demand they base production here to gain access to the domestic market (as China does) or grant WTO-violating subsidies in return for direct investment in facilities (ditto), there actually is a material benefit to investing in US-based facilities and employees in times like this.

In a word, the rush to move production to low-cost labor markets can hardly be said at this point to have been a smashing success in the United States. Any economist can tell you we spend too much and make too little. This crisis, and the stimulus, offer a decisive first step toward changing that.

Stepping back, crises are often the only times a people tends to reflect on the fundamentals of its economy, political system and society. So it is now in an America that had grown haughty and lazy in recent years. Even the Clinton-era lead negotiator who established Permanent Normalized Trade Relations with China now wonders whether that deal has actually helped the United States. At the time, it was thought PNTR would see a dramatic increase in both Chinese imports and US exports. Because of Chinese protectionism, exporter-subsidies, yuan policy and investment to keep the dollar weak, only half of that equation came true.

WWCD: Is Beijing's public spending likely to source from the US with its own workers losing jobs?

Perhaps GE and Boeing should do some reflecting of their own now: Rather than encourage the US government to plunge the polity into long-term debt buying Chinese construction materials and finished goods, is it not worth asking whether China, long hostile to imported goods (and now even more so), will actually grant access to its own public works program? Do not doubt that with Chinese factories closing, unemployment soaring and the yuan getting depreciated, any access GE gets to Chinese spending will be the direct result of agreement to build its goods in Chinese factories. China already doesn't allow US-made goods from DVDs to steel to banks to enter its market; Caterpillar or GE would only be able to tap the Chinese kitty if they do so with Chinese-made goods.

At the end of the day, it is frighteningly possible that Jeff Immelt's lobbying could be as disastrous as PNTR, resulting in a federally funded mass purchase of Chinese steel and electricity network equipment while GE nonetheless is shut out of China's public works program. To quote our Cold Warrior friend John McCain, "That's not change we can believe in."

Wednesday, January 28, 2009

City Governments Want to Cut Out the Middleman for Stimulus Cash

BOULDER, Colorado -- With billions of dollars for infrastructure, medical care and education about to be disbursed to the states as part of the federal stimulus bill, many cities are trying to bypass their respective state houses and receive the federal dollars directly for their favored projects.

Recently officials from three of Connecticut's largest cities - New Haven, Stamford, and Bridgeport - gathered to discuss how to approach the Washington beancounters without having to go begging to Hartford and Gov. Jodi Rell, the New Haven Independent reported.

The cities, along with Hartford and Waterbury, are part of a group known as Connecticut Elected Local Leaders Organized, or CELLO. Connecticut lacks any sort of regional planning or administration for its cities, meaning there is little coordination with suburban communities when it comes to things like infrastructure planning. Instead, plans are imposed on the state level, and impoverished cities are usually given less attention than more affluent suburbs.

The Connecticut cities are not alone in these sentiments. Chicago has already made an appeal to receive stimulus money directly, and many others will likely follow suit. Certainly New York City has an interest in bypassing Albany, since the state government has stymied a number of major projects in recent years, such as the West Side Rail Yards development and the city's congestion pricing scheme. As Itchy mentioned to me earlier today, the city also has a host of so-called "shovel-ready" projects that would benefit from federal dollars (some of them had their ground breaking in the 1970's and are still unfinished):
LIRR extension to Grand Central (tunnels currently being drilled under East River)
New Amtrak/NJ Transit tunnel under Hudson (under construction)
2nd Ave Subway (under construction)
No. 7 Subway Train extension (under construction)
Fulton St. Downtown Transit Hub (foundation built; out of money)
WTC Transit Hub (under construction, financing a mess)
Platforms over Midtown and Brooklyn Railyards (under construction, private financing coming undone)
Major new parks: Brooklyn Bridge Park, Governor's Island Park, Hudson Parks, East River Park (all under construction and stalled)

Ferry service (getting cut)
Subway service (getting cut)
Dedicated bus lanes (pilot programs already exist; money for new buses and lanes falling apart)
But of course, the federal government would rather spend their money on clean coal technology (currently $9 billion of stimulus money is budgeted for just that) than give any money for mass transit projects in a Northeastern liberal city.

This initiative is not without precedent in Connecticut. New Haven's most famous mayor, Richard C. Lee, was a master at directing federal funds to his city. During his 16 years in office from 1954 to 1970, Lee brought in millions of federal dollars for his urban renewal projects. His city planning offices, which were then known as "the Kremlin" due to secretive cabal of bureaucrats who ran them, had a direct pipeline of money from Washington. New Haven was dubbed "the Model City" during these years for its vast urban renewal and slum clearing projects, and it was the pilot site for a number of Lyndon Johnson's Great Society programs. Today, the city is still trying to undue much of the damage done by Lee's slash-and-burn projects which razed historic neighborhoods and replaced them with now-crumbling brutalist edifices (for more on these urban renewal projects, check out the New Haven Oral History Project and listen to interviews with city residents at the time).

The stimulus money would likely be better spent by struggling cities, but it can be squandered just as easily in city hall as in the state house. Having a president who actually understands city politics and the plight of the country's impoverished urban centers will hopefully put these important issues back on the national political agenda.

War Tourism in the Gaza Strip

BOULDER, Colorado -- Did you ever wish that war was a spectator sport? Well, in Israel it can be. Danish television station TV-2 Nyhederne produced this report about spectators of the Israel assault on the Gaza Strip. Most of the segment is indecipherable to me, because it is in Danish, but the interviewees speak in English:

Because Israel is such a small country (it's about the size of New Jersey), it has not been hard to find a front row seat for the country's various wars over the years. However, it still remains rare for civilians to seek out the conflict zone to witness Israel's dazzling military strikes against one of the poorest and most destitute populations on earth. I was under the impression that everyone in Israel was cowering in their basement awaiting the next Hamas rocket to fall on them.

There are always accidental tourists in war zones - Israel's last war, this one in Lebanon, sparked huge evacuations by foreign government of their citizens from the war zone. Itchy and I were even mistaken for Russian refugees from Lebanon while on vacation in the Caucasus that summer (yeah, I didn't know what the hell the guy was talking about, either.)

So-called "war tourism" is a rare phenomenon - few people actually travel to active war zones for leisure, but venturing to more dangerous parts of the globe has gained some popularity. Filmmaker Robert Young Pelton has made a career out of traveling to such places, and he encourages others to do the same with his website, which also features the Dangerpedia, a wiki of adventure (and horror) stories from the world's political black holes. Personally, I would like to take my next vacation to Pakistan's tribal areas to pick up some homemade machine guns.

This sort of tourism could also fall under the classification of "dark tourism," which involves visiting sites of death or tragedy, like battlefields, cemeteries or prisons, but it is usually done after the dust has settled and the unexploded ordnance has mostly been cleared away. Britain's University of Central Lancashire hosts an online forum on the subject, replete with excellent resources for further research. If you would like to experience a war zone from the comfort of your own chair/couch/bed/toilet, you can take a virtual tour with visual artist Emanuel Licha. On his War Tourist website, you can travel the streets of Sarajevo during the siege, the crime-ridden alleys of Mexico City or a Parisian banlieu, or the tourist-filled grounds of contemporary Auschwitz.

But perhaps the most famous incident of "war tourism" was during the opening battle of the Civil War, when adventurous sightseers from Washington traveled out to nearby Manassas, Virginia to have a picnic and watch the federal troops rout the rebels at the first battle of Bull Run. Of course, the Union forces were driven from the field in what became known as "the great skedaddle," and the picnickers had to retreat in a panic along with the troops.

No such luck with this "little fascist," who continued to sip her latte undistrubed. Of course, if "Joe" the "Plumber" had his way, no one - not tourists, and certainly not journalists - would be allowed anywhere near war zones, just like the good ol' days of the horrific world wars: "I liked back in World War I and World War II, when you’d go to the theater and you’d see your troops on the screen and everyone would be real excited and happy for them."

Thanks to Adam for the link.

Read This Now

NEW YORK, New York -- Thank you, David Leonhardt:

New York Times article on why we can't miss the best opportunity we'll get to invest in 21st-century infrastructure

The stimulus is a huge missed opportunity to get serious about the most important investment America refuses to make: in infrastructure, especially mass transit. Write your Congresspeople and tell them what you want is to be able to take a damn high-speed train to Chicago -- or even just the airport -- and not a tax rebate check you won't spend.

Walter Duranty Report Vindicated on Chimerican Roots of Crisis

NEW YORK, New York -- Blame the corporate jets, the bonuses, the lack of regulation, Phil Gramm or Anderson Cooper's magical hair. All of these things (almost all of these things) have been blamed for the collapse of the global financial sector. And it's all populist cant.

The real, underlying reason:

The Walter Duranty Report said it a month ago.

The Economist says it this week.

China's rigged monetary and trade system, which creates unsustainable surpluses, and the United States' unholy appetite for cheap money were the joint cause of the world's economic ills (and the cause of a chunk of the 5 years of castle-in-the-sky growth that preceded their arrival).

I'll huff and I'll puff and I'll -- holycrap!

As The Economist notes, we may regulate the banking sector and dock John Mack's pay in coming years but there's almost nothing being done to attack the root of the problem. The Economist's prediction for the next potential great bubble: US public deficits funded by (you got it) Chinese purchases of US bonds.

And to think that in WWII Uncle Sam turned to the American people to buy his bonds; we now have neither the money nor the attention span nor the governmental will to make that small sacrifice for fiscal stability.

Tuesday, January 27, 2009

Russkiye innovatsii: Pro-Government Protests

NEW YORK, New York -- Mendeleev. Sakharov. Markov. Russian scientists and engineers have contributed greatly to the advancement of science and technology for centuries. But in recent years, Russia's economy has hinged more on exports of oil and gas, leaving the Kremlin to speak hopefully of "diversification" of the economy through science and high-tech firms.

However, with that diversification usually coming in the form of putting 11 of the proverbial dozen eggs in the nanotechnology basket (perhaps we need an electron microscope to see the logic in that), these programs have had little success to date.

To that end, we're proud to announce a new Russian innovation: Angry protests in favor of government policies. Indeed, with political tensions on the rise in many crisis-stricken Eastern European countries, pro-government protests could become a new Russian export -- voila, diversifikatsia!

The first of these innovative new protests occurred this past weekend, at the ZIL limousine factory in south-central Moscow. Over 1,000 protesters, many of them students, retired factory workers or "activists" in a pro-Kremlin shock group, gathered to show their support for Prime Minister Vladimir Putin and the bankrupt domestic auto industry that he has wisely cast his lot with.

View Larger Map

Demonstrators carried signs reading, "Moscow for Putin!" and "We are for Putin! We are for the auto industry!" according to newspaper Kommersant.

Admittedly, for anyone who has kept vaguely abreast of events in Russia in recent years, none of may seem very innovative. The Kremlin frequently buses tens of thousands of teen and pre-teen droids to Moscow from distant provinces to protest worthy causes like an Estonian city's removal of a statue from a city park; Halloween; and "Putin's plan" (don't even ask).

The new twist here, though, is that the protest was the first realization of a strategy adopted last week by ruling party United Russia and its grand wizard, presidential adviser Vladislav Surkov. The party decided to actively instigate pro-government protests as a way of quelling dissent aroused by the economic collapse, as Kommersant reported then.

Tying back to the ZiL protests even more bizarrely, the United Russia strategy was directly prompted by unrest in the Russian Far East fueled by a decision to dramatically increase tariffs on the Japanese cars whose import and servicing is a significant part of the Far East's economy. When local authorities refused to put down riots in Vladivostok last month, Moscow sent in its own riot police to do so, whose forceful break-up of the protests (see video below) both gained notoriety quickly and yet seemed fairly lame compared to the actions riot police regularly take in Moscow.

Sounds good, right? Well, not so fast. As Kommersant reported, the pro-government protesters at the ZiL factory were heard to grumble about the crappiness of Russian cars, their hearts apparently not in the pro-government rabble-rousing. Meanwhile, a marginal-but-daring opposition group, We, appeared as the deus ex mashina (Russian pun), manually towing a Russian-made Zhiguli car (left), one of the world's most notoriously bad autos. As often happens when self-proclaimed opposition activists come out of hiding, pro-Kremlin goons started a fistfight with them and police quickly appeared and fined the We members 200 rubles (~$6) for illegally using their car.

Ok, on second thought, perhaps this innovation's kinks need to be worked out before it's ready for export. But there's promise in it for you yet, Latvia.

Is Congress Economically Illiterate?

NEW YORK, New York -- I noticed something strange when doing my part to save the global economy from oblivion. Congresspeople, by and large, have not traditionally cared or thought much about the economy.

That statement, of course, begs two questions: 1) What ass goes around with this Jebus complex, and why?; and 2) How could you say something like that about the people who brought us Freedom Fries?

All things in turn.

After growing exasperated as craven Democrats sold out mass transit so that I can put $500 I don't need in the bank, I decided to write my Senators and representative to ask that they not give in to Republican ideological tax-cut demands.

Of course, Senator Tracy Flick doesn't have any functioning web site at the moment, so there was no way to write her. But the stranger thing was that none of the New York Congressional delegation that I looked at had any option available to speak out on the economy. When you write a Congressman, you usually have to fill out your name, address, etc., and then select the topic of your query from a pull-down menu. Time and time again, Congresspeople's pull-down menus included "Immigration," "Defense," and "Education." But nobody had an option for "Economy," and a minority had "Fiscal Policy" or "Taxes" or anything vaguely related to the economy -- even Chuck Schumer, legendarily beholden to Wall Street, doesn't seem to think that much about the economy, judging by the sorts of comments he expects to get from constituents.

Try it yourself here by searching for your Congressperson's contact page.

I guess the point is that Representatives and Senators don't expect to hear from constituents about the economy and may simply not really know or think much about the economy in the broadest terms themselves. Quite possibly that's why the US, unlike other countries, has never engaged in debate about adopting a competitiveness policy or taken measures (like school reform or granting more H1B visas to skilled workers) that would improve our economy. Perhaps it will also mean Congress fails to pass the stimulus bill that prevents 7% employment from reaching 15% (so I say as a strip porno noodie lounge advertises on CNN in prime time -- as sure a sign of recession as they come).

Not the Kool-Aid Man: U.E. Is Pronounced Oo Yea

NEW YORK, New York -- As the Legionnaire has noted, this blog was formed to offer some "straight talk" about Russia. However, we've gone quite astray almost from the very beginning.

First of all, the massive, ridiculous and expected crash of the US economy and global financial system made events in the US arguably more relevant, urgent and interesting than goings-on in Russia.

Secondly, the huge blow-up of the Russian economy means that the people we had for years wanted to "go mav" on as they talked about the glamour and wonders of the "resurgent Russia" -- reporters at leading English-language papers -- stopped talking nonsense and quickly came to realize that the foundations of the Russian economy lay on oil, cell-phone ring tones and (only in very recent times) fickle sales of Heineken, TopShop clothing and black BMWs and Audis for sketchy bureaucrats.

That's, like, so 2006

But it is not without some sense of restoration that we try to regain focus every now and then. Today's Moscow dispatch comes from an article in the English-language Moscow Times.

The paper reports that the recent dramatic fall in the value of the ruble against the dollar and euro has brought a return to prices in a magical, mysterious and purely Russian price measurement called u.e. (pronounced "oo yea"), the acronym for uslovnaya edinitsa (условная единица, у.е.), which in English translates into "conditional unit."

Through the 1990s and especially after the devaluation of the ruble in 1998 following Russia's default on loans from the "Paris Club" of debtor nations coordinated by the International Monetary Fund, items from electronics to apartments to food were sold in u.e. in Russia. This roughly meant dollars. However -- and here's where it gets weird -- u.e. were not a separate currency. They were a way of pricing things in rubles independently of the value of the ruble, as it were. Because of the instability of the ruble, retailers and other vendors would set a dollar price that represented what they paid for goods. One week a dollar may equal 30 rubles and the next it may jump to 35 rubles. But by pricing things in u.e., a vendor was guaranteed more stable revenues vis-a-vis the costs they paid for their goods.

So if I paid 2 u.e. for a meal of borshch and a salami buterbrod, I may pony up 60 rubles or 70 rubles, depending on the week I ate.

Now, if you're thinking, "This sounds totally open to abuse," you're absolutely right -- this is Russia, after all. Restaurants, realtors, auto dealers all reserved the "right" to determine for themselves how many rubles an u.e. was on a given day. If the street rate (the Central Bank rate is always disregarded) is 30 rubles/$1, then one grocer may set it to 35 rubles/$1, while a passport photo salon may have a rate of 38 rubles/$1, giving themselves a nice little extra profit. Even big companies like the state-owned airline, Aeroflot, would constantly rejigger the value of u.e. seemingly to scam people.
Yours for $70 ... or ... thereabouts ...

In recent years, as Russia flooded with petrodollars and the English-language press flooded with poorly reported stories egged on by editors itching to tell of the glamour and new money of Moscow (or Dubai or Shanghai), the u.e. faded away. The ruble strengthened and stabilized, and Russia paid off its Paris Club debts ahead of schedule, amassing nearly $600 billion in foreign reserves by August 2008, third-highest in the world (after China and Japan). From 2002 to 2008, first markets and retailers, then restaurants, and finally landlords did away with u.e.

But with the ruble shedding over 30% of its value against the dollar in the past 6 months, slumping from 23 rubles to the dollar to 33 rubles to the dollar, u.e. are making a comeback.

For months, Russians have frantically bought dollars as the ruble sinks to its lowest values in over a decade, and analysts see further devaluation ahead. As goes without saying, the devaluation is having a huge effect on people's lives: Because the vast majority of Russia's pharmaceuticals are imported (take heed, America), prices for drugs in pharmacies across the country increased 11% in the first three weeks of the year.

And then there's the u.e. For years, the price measurement was considered an unpatriotic embarrassment by Kremlin officials all the way up to (and probably especially by) then-President Vladimir Putin, who in 2006 railed against businesses that used it. But as is often the case, the market roared louder than the president, and a strong ruble muscled out the u.e. where nationalist politicians had previously failed.

Today, Russia's politicians seem almost to be giving up. Russia spent 1/3 of its foreign reserves propping up the ruble at the end of 2008, but has allowed it to slide fairly quickly since last month. After allegedly banning state media from using the word "crisis" in relation to the Russian economy last fall, the word is now ubiquitous, and no longer inevitably preceded by "the American" or followed by "of the West."

From big developers like PIK to landlords, the u.e. has apparently made a comeback after a fairly lengthy absence (contrary to the greenhorn Moscow Times reporter's assertion, the u.e. hasn't been used by most landlords, cell-phone providers or retailers since late 2005 or 2006). Like foreign reserves, Russia has built up plenty of corruption in recent years. With the return of the u.e., that is one thing whose reserves are not likely to be spent if the ruble continues its downward trajectory.

Monday, January 26, 2009

Why We Need a Gas Tax, or Mass-Transit Insane-o Hatred From Congress

NEW YORK, New York -- President Barack Obama today signed orders asking the Environmental Protection Agency to grant California and 13 other states waivers to enact automobile emissions standards tighter than the national standards, drawing plaudits from the Governator and others.

Raining on the progress parade, however, was the noticeably unhappy and reputedly generally backward auto industry.

That much-maligned group of Detroit sneaks, lobbyists, engineers, executives and blue-collar workers may actually be worth listening to, however.

California's emissions standards would force cars sold in the state to cut current emissions levels by roughly 30% by 2016, four years ahead of a similar federal law. Automakers say that the requirement would cause them to build one set of (generally less-profitable and small) cars for California and another set of (generally higher-margin) cars for the rest of the country.

While emissions standards have a noble objective and it would be good for Detroit to produce profitable small cars (i.e., not the Dodge Neon), the Big Three are correct to point out fundamental contradictions in government policy.

The Neon: Not very gangster

On the one hand, Detroit is excoriated for not producing profitable vehicles; on the other, it's scolded for not producing small vehicles. The fact of the matter is that meeting these two demands creates a bind. Big SUVs are very profitable automobiles, and Detroit was actually very, very profitable in the cheap-oil days of the 90s and early 00s. Detroit is only doing the smart thing when it sells people SUVs. So do we want Detroit to be solvent or green? ("Soylent Green" is not the compromise answer.)

The issue is that reducing emissions is best done by giving cars better mileage. To reduce emissions by 1/3, average mileage would have to rise to 36 mpg, from under 30 now. To arrive at that average, an automaker could produce only cars making 36 mpg. Or it could also produce a number of unprofitable, smaller cars that it may fob off on fleet sales (companies, rental agencies, municipalities and others who buy in bulk) while producing a smaller number of what it specializes in -- high-margin, gas-guzzling SUVs.

And if a handful of states demand the 36 mpg standard while others don't, it means you can still produce lots of SUVs because some people can buy them -- but it's a mess to do so. So while you'd be an idiot for not producing profitable SUVs and trucks, you'd be forced to sell them only in certain places. A bit of a mutant case of government regulation.

Here's the bind: We want to be serious about reducing emissions. But we try to do it by saying this to Detroit: "You can legally produce the SUVs that keep your faltering balance sheets afloat, but we'll hate you for it. Get profitable, you lazy bums, but build unprofitable small cars, even though there will still be a market for high-margin SUVs and your competitors will slide into it."

That's a flawed approach. What we need much, much more than a patchwork of different state laws -- or legislators setting an arbitrary emissions standard even on a national level that would encourage a model of selling loss-leading small cars with enough high-profit SUVs and trucks to stay afloat -- is a gasoline tax.

The best way to ensure people and producers behave in an organic, market-based way is to simply make gasoline too expensive to waste. Every other First World country does it; why don't we? Implementing a gas tax, we would evaporate the market for SUVs as happened this summer. This would push the Big Three to make more fuel-efficient cars, without dangling the ever-enchanting prospect of a hugely profitable SUV market in front of their noses. The resulting tax dollars could be used to repair roads, build mass transit that is so sorely lacking, or even be cycled back into Detroit as loans, rather than putting tax dollars on the hook.

And it needn't even erode purchasing power by causing people to spend all their income on gas. As Dr. Evil prototype and all-around kook Charles Krauthammer suggested, Congress could introduce a $1/gallon gas tax and deduct from everyone's taxes the amount that the average American pays in new gas taxes. (Krauthammer's proposal deducted payroll taxes, likely to bankrupt that bane of neocons, Social Security, but if the money came out of income taxes, it would be pretty ideal in theory, if -- absent electronic gas transactions -- a mess come tax-declaration time.)

Sadly, every time a voter brings up the idea of a gas tax, politicians dismiss it as a "political third rail" that voters can't stand. Oddly, though, more and more voters seem to be pushing for it.

Meanwhile, there is huge demand for public transit as people grow more urban and for various reasons less reliant on automobile commuting, but less and less money for public transit, as the LA Times reports today. Meanwhile, Congress keeps letting us down by refusing to invest in mass transit, despite ever-increasing calls to do so (here's today's token plea). When Congress botches its best chance to turn around mass transit by selling it out to unwanted tax cuts in Obama's stimulus package, let's just hope it comes to its senses and secures funding for transit via a much stronger federal gas tax -- and that it finally stops offering Detroit Catch-22s in doing so.

So why aren't the politicians listening?


NEW YORK, New York -- President Obama has gained fame and, to some degree, the presidency thanks to his silver tongue.

But just as Obama is known for his particular eloquence, his chief of staff, Rahm Emanuel, is notorious for his particular ... way of speaking.

The lips of Rahmbonics was quick to note shortly after Obama's election victory that Emanuel's lexicon -- Rahmbonics -- relies to an unusual degree on certian pat phrases. Foremost among them (aside from the four-letter, er, phrases) is "kicking the can down the road." As in, "The American people are ready and willing to start to tackle those problems. You cannot afford now to kick those down the can any longer." Meaning that one has to get down to business.

Rahmbonics is all well and fine, I guess, but it's interesting that it appears to be contagious, even for the country's most esteemed political orator. Obama dropped the phrase a number of times in the run-up to his inauguration:
  • A week and a half ago, the president promised to stop kicking some can that has to do with Social Security (canned prunes, mayhaps?)
  • And almost two weeks ago, Obama said he would no longer kick a certain Hamas-and-Israel can (a can of gefilte fish?). See the third quote from Obama in his interview with Katie Couric
What's arguably even more interesting is that this rather-odd-but-suddenly-hot phrase is also getting picked up by the media and NGO leaders that follow Obama:
  • The Heritage Foundation gets its kicks
  • As do ACLU leaders
And even by political opponents (who are possibly emulating him to capture some of his success):
  • Minnesota Gov. Tim Pawlenty (R) may be kicking for the fences (zing) in 2012
Not always all thumbs

So kick me a river. I just wish, however, that Obama would follow the normally lead-tongued Gordon Brown's lexicon and purge the term "war on terror" as the Brits have but Obama, distressingly, has not. The new US president, to the chagrin of the Walter Duranty Report, used the term "war on a far-reaching network of violence and hatred" (i.e., terror) prominently in his inaugural address.

Where Did Obama's Economic Policies Go?

NEW YORK, New York -- As a candidate and president-elect, Barack Obama's websites ( and then featured a comprehensive economic agenda that included broad, ambitious plans for energy, manufacturing and tax policy.

I give your new economic agenda a thumbs ... down!

Obama's new site, however,, seems to have ditched all those candidate pipe dreams (otherwise known as the reason he was elected) in favor of a much, much thinner agenda: Obama's economic agenda is now confined exclusively to the bullet points of his stimulus plan ("The President's Recovery and Reinvestment Plan"):
  • Doubling the production of alternative energy in the next three years.
  • Modernizing more than 75% of federal buildings and improve the energy efficiency of two million American homes, saving consumers and taxpayers billions on our energy bills.
  • Making the immediate investments necessary to ensure that within five years, all of America’s medical records are computerized.
  • Equipping tens of thousands of schools, community colleges, and public universities with 21st century classrooms, labs, and libraries.
  • Expanding broadband across America, so that a small business in a rural town can connect and compete with their counterparts anywhere in the world.
  • Investing in the science, research, and technology that will lead to new medical breakthroughs, new discoveries, and entire new industries.
Those are all well and good, but what else can we expect Obama to stand for once the stimulus plan passes (or, even moreso, if it doesn't)? The Walter Duranty Report sent in an e-mail to the contact address on, but not surprisingly have not heard anything back.

No other policy areas on the site have been altered from what Obama has proposed all along. While it's good for the president to get the Republitards and "Blue Dog Democrats" (doesn't it feel stupid to say that?) to focus on the stimulus package as proposed and not spout off on what else he'd like to do, it makes me wonder whether the other ambitious items (including creating a Manufacturing Investment Bank and Advanced Technologies Fund to create long-term jobs growth) have been abandoned indefinitely, which would be a very bad thing.

Sunday, January 25, 2009

Seeing Is Believing

NEW YORK, New York -- If you've ever seen Ricky Gervais' "Politics" comedy show, you may remember him yelling "Politics ... is ... everywhere!" at the beginning. And since they screwed things up so royally, business leaders from Rick Wagoner to John Thain now would have to agree.

But for their lackeys, it's data that's everywhere. Thanks to advances in computing and information technology, our society is increasingly data-driven. And for many college graduates in the US and other rich-world countries, a large part of our jobs (still, even post-Sept. 15, 2008) consists of hunting down information, cutting it, and presenting it. The rat race in Java.

"Wearing pin-striped pantsuits as part of the knowledge economy is so sexy."

So it's probably been inevitable for some time that our dependence on data was to be internalized and something creative said or done with it.

Enter visualization. That, as noted in an International Herald Tribune article last month, is the illustration of complicated data, usually using advanced software, so that people can understand it. "Visualization comes in the form of still images, moving ones and three-dimensional models that depict elusive, often abstract phenomena such as the movement of Internet traffic, scientific theories or a city's emotional landscape," in the IHT's words. And with data-driven visualization now one of the fastest-growing areas of design, even rock groups are utilizing visualization programs. The video for Radiohead's song "House of Cards" was created without any cameras, for instance, but using Process, a program that plots information about objects and creates 3-D representations of them.

As we grow more reliant on Internet-oriented technologies and if the "knowledge-based" service economy continues to increase its dominance (though a 19th-century farm probably had a lot of "knowledge" too), we can likely count on progressively advanced visualization software and ever more sophisticated visualization techniques. And as the creators of those techniques will have to push themselves to new limits, their audiences will likely also have to mentally adjust -- just as someone in the 18th century may well have burnt Thom Yorke of Radiohead at the stake after watching his video.

Visualization is likely to grow more ubiquitous because we rely on data to give us objective information about the world -- to bring order on patterns and trends. Yet data itself, a pile of jumbled numbers and decimals, is inherently disordered and difficult for humans to make sense of quickly.

To that end, we employ visualization to dumb down numbers into visual patterns for us. Case in point: This past year as never before, millions of Americans began their day by obsessively checking the interactive map at The pile of numbers the map was based on would have been a mess to read (see the data below the map), but the visualization gave you an immediate sense of who was ahead in which polls.

Of course, beyond election cycles there are myriad places where data can be visualized, as the Boston Globe reported last month. Maybe with Obama's embrace of the Freedom of Information Act and government openness, the awkward bureaucratic sites of today (here's one for the US Bureau of Economic Analysis I have to use a lot -- Uncle Sam collects great data, but the interface is a mess and if you're a light bulb short of a working lamp you often have to call the gov't economists to help you find what you need) will give way to more user (aka voter) friendly visualizations of government data and stats to give us an idea of what's going on with our country.

Ahead in the polls: Visualizing shipping lanes and whale concentrations

Unlike the government (for now), the more innovative newsmedia websites are quickly trying to adapt; New York Magazine recently wrote of the web R&D department the New York Times has created. ["Bloggers" may hail the Huffington Post and other sketchy opinion-based rantfests (like this site) as the future of information, but if the future is to bring with it expensive new Net technologies, then we're better off with the NYT than Arianna Huffington leading the way.]

But the most stunning uses of visualization that make the future extremely exciting for me were, alas, museum pieces. From cartographic representations of money spent on correctional facilities for residents of different New York neighborhoods to horrifyingly intricate 3-D waterfalls of data showing international lines of communication (i.e., phone calls), the Museum of Modern Art's "Design and the Elastic Mind" show last spring demonstrated the power of the eyeball, so to speak. With its many examples of cutting-edge visualization methods, Nicolai Ourousoff, the NYT's art and architecture critic, called the show as "revolutionary" as MoMA's legendary "Machine Art" show of 1934.

Unfortunately, we at the Walter Duranty Report cannot re-create the show for you, and our medium is (as yet) an imperfect one to try to do so. But we can express hope that our new president re-creates "Design and the Elastic Mind" by fully committing to opening up the government online -- one of the most promising avenues to give citizens insight into what the labyrinthine hulk of agencies that runs our country does. Doing so will require that visualization and greatly improved interfaces and search tools are used to give the average high-schooler doing a report or the average "knowledge-services" employee putting together a late-night report on a sector for investors some clue of what's going on with Medicare expenditures or agricultural output. And the BEA can get the first overhaul.

As a co-worker from South America who has also worked in France and Italy once said, "after coming to the US and seeing how much data is available to anybody, I became convinced that the more advanced and democratic a country is, the more data it has." And with each passing day, data ... is ... everywhere.

Friday, January 23, 2009

Russian Helicopter Crash Reveals VIP Hunters Actually Just Poachers

BOULDER, Colorado -- As their economy totters on the brink of collapse, Russia's rich and powerful apparently cannot wait for squirrels and rabbits to run out before they resort to the next vital food source - endangered species.

On January 9, a helicopter carrying eight VIP passengers, including government officials and local businessmen, on a hunting trip to the Altai Mountains of southern Siberia crashed, killing seven passengers and two of the three crewmen. It took two days for rescue workers to locate the crash site and the four survivors in the remote mountains of Russia's Altai Republic. Among the dead was Alexander Kosopkin, the presidential representative to the State Duma.

These Russian high-fliers were up to no good on their hunting trip, however. Amidst the wreckage of the Mil-171 helicopter, several carcasses of Argali bighorn sheep, an animal that is classified as endangered in Russia, were uncovered. Ironically, among the dead in the crash was Viktor Kaymin, the chairman of the department of wildlife protection and management for the Altai Republic. Pictures of the crash showing the dead animals were released to the public (photo courtesy, and the director of the World Wide Fund for Nature (WWF) in Russia has asked local prosecutors to investigate whether these men were engaged in criminal poaching.

The cause of the crash has yet to be determined, but investigators speculate that it may have been the result of pilot error. Russia's less scrupulous tabloids have suggested that the chopper may have been shot down by local hunters seeking revenge for the slaughtered sheep.

Itchy continues to be obsessed with America's coming day of reckoning with the Chinese, and he's sounding increasingly like George Friedman, author of the 1991 (not 1941) classic, The Coming War with Japan. But in the current scenario, the US is actually much like Japan was in the early 1990's. After seeing a massive real estate bubble collapse, Japan suffered through a decade-long recession. America runs the risk of repeating Japan's mistakes - understimulating the economy with poorly-directed infrastructure projects and failing to adequately deal with all the bad debt that banks hold.

As for myself, I am looking beyond the horizon of the apocalypse, and I am more worried about how we will survive when all of our modern technology is lost in the vortex of deflation, bank nationalizations, and deadly moth swarms (seriously, can't Liberia catch a break?). We will all have to eat endangered species.

Let's Just Hope He's Serious

NEW YORK, New York -- Huzzah! Treasury Secretary-nominee Tim Geithner told a Senate committee today that he believed China was manipulating its currency, and a certain common sense that was hibernating during both the W. Bush and Clinton administrations seems to have opened an eye, however tentatively.

The yuan was estimated at 50% undervalued months ago, and it's depreciated since then. But why, we Americans who dread a debased dollar might ask, would China want to undervalue its currency? Well, it makes its goods artificially competitive, pushing out other producers'. Remember the last time you bought shoes, electronics, bags, pills, furniture, postcards, toothbrushes or for that matter long-lasting foods like garlic that were made/harvested in any place but China? Me neither. And a large part of the massive global imbalance in trade that leaves us unable to buy anything made anywhere but China even when we want to is due to the undervalued yuan/renminbi.

The Walter Duranty Report previously discussed the pivotal role that Beijing's trade and export policies played in bringing about the global downturn ("correction" might be the better term, given the utterly unsustainable course things had taken). And yet out of cowardice, paralysis before its awareness of the problematic dependency the US had developed on Chinese investment in Treasury notes, and a commitment to an ill-understood "free-trade" ideology, the Bush administration refused to call a spade a spade or lift even a finger to address the damage being done to the global economy by China's surpluses and trade policies. Ironically, then, Bush's pusillanimity did nothing but harm free trade -- both by perpetuating patently unfree trade and by doing long-term damage to trade by allowing structural problems to build.

Geithner's remarks will of course draw fire from the likes of Senate Republicans and WSJ editors who egged us into this ultimate Faustian bargain in the first place, and his timing is quite poor -- what the world does not need now is either the US or China to grow protectionist. But calling out China's protectionism is making the world less, not more, safe for protectionism at the end of the day. And the timing will never be good; China acts like a coddled, slightly autistic child that demands special treatment and bursts into a tantrum at the slightest perceived offense. Tim Geithner, here's hoping you're the man who finally says, "The gig's up."

P.S. Fact-checker:
The NY Times article on Geithner's remarks includes this quote: “Things have changed quite a bit since Hank Paulson made an issue of this,” said Edward Yardeni, an independent analyst, referring to Henry M. Paulson Jr., the just-departed Treasury secretary. “The Chinese trade surplus is shrinking dramatically and China’s economy is falling into recession. I think it really wasn’t necessary. It doesn’t accomplish anything.”

Here's the truth behind this claim: China's surplus for December was indeed down 0.3% versus November, when the surplus was a record $40.09 billion. Versus the previous December, the surplus was up nearly 20%, and the total 2008 surplus was up about 15%. Exports are falling no quicker than imports, since the government is reinstating WTO-violating export rebates and subsidies and devaluing the yuan to make imports prohibitively expensive. As for "recession"? After 13% growth in 2007, China's Q408 growth was a "mere" 6.8%. Oh, poo. So yes, Mr. Yardeni, bringing this up (even if 10 years too late) does accomplish something -- and the first results are in: China Central Bank Attacks Paulson’s ‘Gangster Logic.' Well done.

Wednesday, January 21, 2009

No. 1 Obama Disappointment: The Stimulemon

NEW YORK, New York -- So that's it. Barack Obama is president. That's a relief. But as CNN, CBS, MSNBC and whoever else continue to marvel at how cute Obama's daughters are or for the 89th time ask Puff Daddy, Kevin Johnson and Seal how they feel about the fact that a black man is president (they still feel pretty good), somebody has to keep the president on his toes. So, as promised, we'll be doing some dirty dancing at the Stimulemon Ball to cap off the inaugural evening -- expressing why we feel the proposed stimulus package is the greatest Obama disappointment thus far.

First of all, here's my understanding of the plan, with line items expressed in $bn:

$300 - tax breaks
$177 - education spending
$102 - benefits for low-income/unemployed
$90 - infrastructure
$87 - Medicaid assistance for states
$70 - energy/science/broadband

There are three main problems with it: It may be too small; less of it should go toward tax refunds; and more of an emphasis should be put on what will streamline, transform or update the economy and workforce for the future.

1. First, size: I've hardly done my own analysis, but I haven't heard anyone effectively rebut Krugman's critique, so in my mind it stands:

Put more succinctly, as Martin Wolf of the Financial Times noted, if the CBO is estimating output to be 7% less than its potential the next two years, a stimulus of 5% is too small.

(See also the FT's Clive Crook on this.)

2. Tax refunds: $300 million, or 40% of this, is going toward tax refunds.

Over $100 billion was for businesses, which seems absolutely unnecessary. Democratic legislators seem to have realized this as well, since reports now say this part of the tax cut is in jeopardy.

The rest of the tax cut is to be directed at people in the form of $500 checks. People earning up to $200K get these. Here's the rub: These tax cuts are being given with the sole and explicit purpose that people spend them to revive the economy. In reality, very few people will spend these.

I earn substantially less than $200K, and I have no intention of spending the money. I don't think anyone but the poorest among us is going to spend this money. The problem isn't that most people don't have any cash; the problem is that they're afraid they might have less of it in a year. Giving fairly well-off people checks isn't going to stimulate anything; it'll just result in huge fiscal deficits that will take years of tax increases to pay off -- or, if not paid off, much worse consequences. (Again, Crook is smart on this issue.)

I find this part of the plan (also known as the "John Boehner part of the plan") to be the most frightening thing about it. The fiscal deficits we're facing are unprecedented and 40% of what we're now adding to them comes from greasing businesses and people who don't need the money, because John Boehner (pronounced "Boner") thinks it's a good idea? That's a big mistake.

3. Focus on transformative infrastructure that puts this $800bn toward giving us long-term economic competitiveness: Obama and his aides have put a consistent emphasis on "shovel-ready" projects, with the tacit understanding that this means repairing roads and bridges. That's not good enough. There are huge needs for long-term investment in infrastructure to amend the 20th-century infrastructure we have. Car traffic cuts billions from GNP. Port, air and rail delays hurt efficiencies (and GNP) more. Why spend billions to get a few freshly paved roads that, in 20 years, will be as cracked and congested as they are today? In a word, transportation system needs a major rethink, and lots of investment.

The current infrastructure plan seems like it will rely on fixing roads in Iowa that neither transform the economy, create new sources of long-term demand for the private sector to meet, nor streamline our efficiencies as an economy. That sort of transformative infrastructure is needed, as Joe Garreau wrote last year in the Wilson Quarterly, and as cities like New York are strongly urging Congress -- with some success -- to undertake.

Fired up and ready to go: Congress passed this idea for a system of regional high-speed train networks in October 2008

Moreover, despite what Congress takes as conventional wisdom, this can all be done quickly, since many people have spent many years thinking about it (including banker and diplomat Felix Rohatyn).

Let's also take a big step back into the fun land of fiscal deficits. As Martin Wolf has harped on, the country's biggest problems down the road will be the deleveraging and growth in the private-sector "real economy" needed to fix the current-account structural deficit. Deleveraging isn't really the purview of the stimulus, it's more to do with TARP. But creating real growth hinges on finding new sources of demand and new ways to be competitive. New sources of demand come about when you have a transformative public-works package. Putting tar on roads in Alabama does not do that. Investing in public-private high-speed train lines does: It creates demand to employ large numbers of people to build items for which there is a long-term, constant need.

NYC alone has tens of billions in backlogged large-scale mass transit and other projects (and many worthy smaller ones), which are getting dusty as the city's own coffers run dry, deprived of real estate income from bankers buying condos. And the country as a whole should be reconnected by rail to improve regional commerce and make it more attractive for people to travel from, say Cleveland to Kansas City on business (since commercial air service is dying in second-tier cities), or to manufacture and ship things quickly and cheaply to other cities in their own region.

So what do we do? Well, take that $300M in tax cuts, and slash it. Give people earning $40K and less the $500 checks, because they'll spend them. Don't give them to the rest of us, because we won't. Let's say that's about $140 billion in tax cuts. We take the leftover $160 billion and give it to infrastructure -- transformative infrastructure -- so that what we have looks like this:

$140 - tax breaks
$177 - education spending
$102 - benefits for low-income/unemployed
$87 - Medicaid assistance for states
$70 - energy/science/broadband
$250 - infrastructure
............$50 billion - traditional infrastructure
............$175 billion - new/ "transformative" infrastructure
..................................$100 - mass transit (high-speed intercity rail, light rail, subway, BRT)
..................................$25 - airports (renovations, new airports/runways in places like NYC)
..................................$25 - ports
..................................$20 - sustainable construction (urban infill, brownfields, green buildings
and, most importantly, mass-transit hubs -- high-density mixed-use
development built around transit stations; to be achieved primarily
through tax incentives)
..................................$5 - public art projects (see WPA precedents)
...........$25 - "manufacturing infrastructure" -- in the form of funds for research into advanced
manufacturing processes and greentech research to create the infrastructure for a large new class of jobs; biotech/health, defense and space research could also be eligible for these funds

How do you manage this? Public-private partnerships should be sought out as a way of determining what sort of projects can make money and should be pursued. Additionally, giving infrastructure into private management cuts down on public costs in the years to come.

And a blue-ribbon Infrastructure Reinvestment Bank should oversee funding decisions on what what big-ticket (>$500 million) items get built, not congressmen or state governments. Only that way would Obama cut down earmarks and focus on projects that would benefit the long-term structural competitiveness of the economy.

Other creative ideas abound; clearly, repaving Alabama backroads like Cool Hand Luke is hardly the only way to guarantee that projects with an immediate impact on the economy are chosen. The only benefit of those "shovel-ready" projects is for the congressmen who get donations from construction companies (aka the Mob) that are too thick to think a little bit more creatively.

In short, there is no shortage of ways to spend money that could put people back to work and meet long-needed structural demands of the economy/society. Bush famously didn't invest in this country for eight years. Obama was elected to do that, and now he's bending over backwards to compromise with Boehner and McConnell. And what we seem to be getting is an Obama who doesn't want to be Obama, when he was resoundingly elected to be just that -- himself, and not Bush.

The WSJ/NBC poll shows that Americans by a 2-to-1 margin think the stimulus should have more public spending and less tax refunds than it does -- alas, Mr. Obama is forcing us to take money we don't want because we know we won't spend it and that what we need is structural change to create medium- to long-term jobs growth.

Tuesday, January 20, 2009

Speech! Speech!

NEW YORK, New York -- It's done. The oaths have been given, the Bushes have been choppered off to the brushlands of Texas. (Well, not really.) And Barack Obama gave a fairly lackluster speech.

Why was it so lame? Some reports quoted Obama's press secretary saying the new president wrote the speech last weekend, while others said Obama and his "boy-wonder" speechwriter had collaborated for months. Given the inaugural speech's reliance on fuzzy generalities and flat prose, my money says John Favreau, the wundaboy, wrote it -- and that Obama should look for a new writer, someone more on his own level (assuming his race speech was his own material). I mean, what the hell does it mean to "harness the power of the sun and the wind"? I wanted Obama to yell out, "I am Master of the Waters!" or strike the Hellespont a la Xerxes. As the Legionnaire put it, it sounded like the speech was written by "a twenty-something who was watching Charlton Heston movies." And the rhetoric about how we will "live on," "unbroken" as a people? How our children must inherit freedom? Are we facing a recession or a vodka-soaked debate with Igor Panarin?

This isn't all that's sloppy

And finally, thematically this thing was all over the keister. We had talk about recession, but Obama couldn't focus on that, instead moving to the abstraction of "stormy weather," then insisting the country wouldn't fall off the face of the earth. Mix that in with responsibility -- but don't link them -- and how America is capable of unspecified great projects, which (also without specifics) it's undertaken in the past. It was all over the place, long-winded, meandering and vague. Favreau, you need to get back to work and stop drinking with cardboard cutouts of Hillary.

(After initial breathless praise for the speech by most media other than Slate and TNR, even CNN is now beginning to note that the speech wasn't so hot.)

Inauguration Day Brings Wind of Change

BOULDER, Colorado -- We have recently been criticized for not writing enough about Russia, instead focusing our attention on such trivial matters as the global recession, America's trade deficit, and the dwindling squirrel population. But this is a special day for America, and I don't want to talk about basket case countries where oratory skills are measured by how much you can sound like a KGB thug.

The theme of this year's election - and the new administration - is "change." By coincidence, it so happens that one of the most popular songs in Russia, both today and 20 years ago when it was released, is all about change. So please enjoy this classic song from the German supergroup, The Scorpions:

As Itchy noted, if Barack Obama were Russian, these guys would be headlining his inaugural concert.

Obama's 10 Greatest Transition Disappointments

NEW YORK, New York -- Barack Obama is to be sworn in tomorrow (make that today -- it's early, early in the morning now), and this is a good thing.

I put in a few weekends of hectoring sometimes-hostile Pennsylvanians to do my part to get Obama elected. I am fully, fully convinced that America picked the best of all the candidates running at any point in this election. And I'm cautiously encouraged that something like 75% of Americans now support Obama, a show of moving national unity.

But at the same time, in the past two months the coverage of Obama has been almost worryingly positive. From time to time, it seems almost to justify Fouad Ajami, who wrote days before the election that the messiah-like status Obama can be argued to have taken on was somehow un-American, that it was more evocative of the Middle East he grew up in during the 50s and 60s. That region then dipped from one would-be redeemer Arab nationalist to another, with Egyptians and others taken with the charisma of men like Nasser and duped wild dreams of what they might do for them. The unspoken connection is that the American people should be more self-reliant than to look for deliverance -- economic, social, or otherwise -- from a politician.

Sing, Muse

Mr. Ajami's probably overstating the case a bit -- great hopes do ride on President-elect Obama, arguably too great, but in times of great difficulty, the public has swooned for Roosevelts (T. and F.D.), Washington, Jefferson, Jackson, Lincoln and (here's looking at you, Alex P. Keaton) even Reagan. Nonetheless, I think the Legionnaire and I, though openly supportive of Obama, will gladly take up Mr. Ajami's challenge and do Tocqueville some justice. It's exactly when someone's popularity is at its height that we must be most vigilant (as Alan Greenspan failed so stupendously to realize).

So we'd like to christen the Obama presidency with a list of the Obama Transition's Top 10 Disappointments:

10. Inexperienced military man may head NASA: At a moment when the existence and success of NASA hang in the balance as seldom in the last 45 years: with the emergence of a host of wannabe space powers (China, India, Japan and Europe), with both Russia and China outwitting the US in gaining valuable commercial business (not to mention international goodwill and dependencies) in launching satellites, warnings of a "perishable" American lead in space, and with NASA riven by infighting and soon to be reliant on Russian rockets as it retires the shuttle and dithers about what comes next while the military and intelligence services want a piece of NASA -- at a moment, in short, when NASA can either become a better-funded organization by expanding a mandate to work commercially and internationally or grow more inward and militarily focused -- Obama is reported to have chosen Major General Jonathan Scott Gration, a lifelong military man with no experience at NASA. We don't need military thinking or unfamiliarity with space and rocket science here. Not now. Mr. Obama, America hopes these rumors are unfounded. Pick a capitalist-minded NASA man or scientist.

9. Wall street donor with no car experience may be car czar: Steve Rattner, head of private equity firm Quadrangle and a big-time Democratic donor, is rumored to be tapped to be Obama's "car czar."

Rattner has no experience -- as in ZERO experience -- in the automobile or manufacturing industries. Manufacturing is still about 15% of the US economy, and auto is its crown. And, given the fall of finance and the unsustainable trade deficits facing us, manufacturing and auto-making will only grow in importance, if we're lucky. Now, if you're going to put one person almost singlehandedly in charge of rebuilding the auto industry and the billions in government money that will take (and already has taken), wouldn't it be nice if his experience went beyond buying up movie studios and being part of the leverage orgy that got us into this mess, as Slate asks? Even the normally stoic Bloomberg thinks Rattner would be a disaster. Not to mention that Detroit will be automatically suspicious and resentful of any Wall Streeter who comes in telling them why they don't know their own trade. Obama, you're a masterful politician. Think like one here.

8. Obama nominee for Secretary of Agriculture, Tom Vilsack: This is a place where Obama has failed to bring change to a post that was ripe for it. (It's also one of three traditionally neglected Cabinet posts that should have become as important as they deserve to be but continue to be neglected. See below for the other two.)

Why is the Agriculture Department ripe for change? Well, although many voices from the center, south and west of the United States are always vigilant about any government interference in any aspect of life, many of the residents and businesses of these regions benefit from the most egregious warpings of free trade and government interference that, if it were transposed to television (by better funding, say, a PBS science-focused network to finally offer people smart science programming where the Discovery Channel and Discovery Science have so failed) would create outrage in these very constituencies.

Three areas of the economy that we allow government to run roughshod over are infrastructure, which is normally publicly owned but might be better served by public-private partnerships; water, which is wastefully used in the West, where rivers and lakes are dying because of a publicly subsized thirst for precious water resources by farms and unsustainable cities (what privately owned water utility would ever give Las Vegas golf courses water?); and agriculture, the biggest source of market-distorting government subsidies in America, and one of the biggest WTO complaints against the US.

Additionally, the Department of Agriculture has for years been little more than a lobby for big industrial farming conglomerates. They're given handouts of cash and allowed to run almost unregulated. While America's farms are one of its largest sources of exports and the most productive food-producing concerns in the world, the big industry farms that dominate sales are incredibly wasteful, feed people unhealthy food, and are actually one of the most socialist industries in the country.

As Nicholas Kristof said last month, when more than one-third of Americans were farmers 100 years ago, the Agriculture Department made sense. Today, when fewer than 2% of Americans farm, it doesn't. What we all do, however, is consume food; and broadening and restoring the Agriculture Department into a Food Department would have been the true "change" play.

An interesting pick -- though no doubt a problematic one given his lack of managing a large organization -- would have been the writer Michael Pollan, who has also spoken of the need to shift the Ag Dept into the Food Dept.

So why doesn't Tom Vilsack appear to be on the cusp of reforming the Agricultural Department in 21st-century America's image?

Well, Vilsack is a major supporter of arguably the dumbest use of farmland ever to be implemented outside the Soviet Union or Maoist China: corn ethanol.

Additionally, Vilsack has proven himself to be a staunch defender of genetically modified food, which, while extremely profitable, cooler heads might argue should be treated skeptically until the jury has definitively spoken in favor of its safety.

Finally, and perhaps the most nakedly disturbingly, Vilsack has directly benefited from the US's agricultural subsidies to the tune of $40K+. Why did this not come up during his hearing, where, as the LA Times reports, he "sailed through" apparently promising ever more ill-conceived subsidies?

7. Obama nominee for Secretary of the Interior, Ken Salazar: OK, this isn't just another department that's traditionally treated as unimportant. It's an unbridled wreck. It's 10,000 times more corrupt than Agriculture. For crying out loud, it's so corrupt that there was barely a stir when it was revealed that Interior officials were taking drugs and sex from the oil companies they allegedly regulate.

It's gotta be hard not to improve this beast, right? I'd say so, but Salazar seems like a pretty crappy pick -- and it's not (just) the annoying cowboy hat. As the Legionnaire is out in Salazar's home state of Colorado, I'll let him speak at greater length if he chooses. But, given the mandate of the Interior Department to protect the United States' flora and fauna -- as it was envisioned by conservationist-extraordinaire Teddy Roosevelt -- it's quite disheartening, for starters, that Salazar threatened in the 1990s to sue the Interior Dept if it put the black-tailed prairie dog on the Endangered Species List.

But much more importantly, as the New York Times reported last month, Salazar appears to be a pushover harlot to mining and fossil fuels interests (just like almost all Interior Secretaries -- why the F&$# can't any president name a competent, serious person to this post who does what the job entails rather than fully undermine it? If nobody else wants it, give it to me).

Salazar has pushed for legislation to make it difficult to sue mining concerns and to allow oil and gas drilling in Colorado. His statements about the misguided notion of "energy independence" absolutely miss the mark as we thought only Sarah Palin could. Salazar thinks it somehow helps the US if we drill more oil, failing to realize that 1) US oil peaked in 1973 and will never again be a majority of the oil we use; 2) oil is fungible, so when the US drills more and uses more, it pushes up prices on the world market, enriching Iran and Venezuela; 3) fossil fuels cause global warming and while we all would like to live in Palm Springs, this is a bad thing.

The answer, of course, is to seek energy independence via alternative fuels. But that's too nuanced, perhaps, for Senator Salazar. Anyway, we'll shut up now and let his colleagues speak for him.

Luke Popovich, spokesman for the National Mining Association, released this statement upon Salazar's nomination: “Nothing in his record suggests he’s an ideologue. Here’s a man who understands the issues, is open-minded and can see at least two sides of an issue.”

Daniel Patterson, a former official in the Interior Dept's Bureau of Land Management and current Colorado legislator: “Salazar has a disturbingly weak conservation record, particularly on energy development, global warming, endangered wildlife and protecting scientific integrity. It’s no surprise oil and gas, mining, agribusiness and other polluting industries that have dominated Interior are supporting rancher Salazar — he’s their friend.”

6. Naming Leon Panetta to head the CIA: This is pretty well-publicized. His lack of experience seems galling for someone at so important an agency. Panetta has his supporters, and he may well turn out to be an inspired pick. But he's on the list (and at #6) because if it doesn't go well, it'll be a disaster. Playing with the CIA is like playing with matches.

5. The fifth columnism of Obama nominee for Secretary of Energy Steven Chu: As chronicled in an earlier Walter Duranty post from January 15. Never good when accomplished scientists start saying they support "clean coal." Or the Tooth Fairy.

4. Obama's choice of mega-pastor Rick Warren to provide his inaugural invocation: Not only is this bloated televangelist a vehement homophobe, but as the also-bloated Christopher Hitchens notes, he's got a touch of the anti-Semite to him as well as the anti-Mormon. And he propagates the black-and-white anti-evolution views that retard the development of science and generate hostility to modernity in America.

Maybe you don't like gays, Jews, Mormons, or nerds. But can you really say that someone who openly disdains all of them should be giving the invocation at the inauguration of the president who seeks to represent the inclusiveness of America and govern for the entire nation?

Let's keep this short. Barack, WTF?

3. Amnesty for Bush: This seems like a simple one. We were lied into a war. There should be a truth panel for this (see Yale Law's Professor Jack Balkin for more). And if crimes are revealed, nobody can ever be above the law, as Paul Krugman argues here and Dalia Lithwick here.

2. Obama nominee for Secretary of Transportation, Ray LaHood: This is indeed the #2 greatest disappointment.

The Transportation Department has traditionally been a back-burner agency (the third one, as mentioned above). Perhaps that's why our country is unparalleled in the developed (and much of the developing) world in its astouding lack of mass-transit options. There is, effectively, no commercial train travel, depriving regional economies (the Northeast, Mid-Atlantic, Florida, Midwest, California, Northwest all could benefit) of a powerful engine of commerce and trade. Subways in big cities are underfunded and disgusting. Almost nowhere can you take good public transit to the airport. Airports and ports are a mess.

Things need to get done, in short. Transformative transportation policies could be a major driver of US business. The kind of US business that isn't selling Chinese crap at Wal-Mart, outsourcing banking jobs to Mumbai, or giving people NINJA mortgages. The kind of business we need if we want to revive the economy in the long-term. Investing in mass transit would improve the economy's efficiencies and logistics to the tune of hundreds of billions of dollars; encourage and grow regionally based economies; and create demand for high-tech, expensive products like trains and light-rail that would be best made in Detroit.

Moreover, moving from highways to transit-based infrastructure would create huge demand for transit-oriented development. Just as the exurbs empty as a result of the financial crisis, gasoline volatility, increasing traffic congestion and aging Boomers looking to scale down their homes as well as younger people wanting to live out the urban "Seinfeld" life, there's a huge opportunity to build new, dense communities around new transit hubs: rail, light-rail, and subway -- a construction trend which could help house prices find a bottom, or at the least create construction jobs. With all these opportunities to make transit transform, and as the guy who'll have a big part in doling out the tens of billions of stimulus bucks marked for infrastructure, the transportation secretary should be an important player.

Enter Ray LaHood, a second-tier House Republican known for being a friend of Obama. Oh, and for being a notorious earmarker, as the Legionnaire recently noted. Indeed, LaHood has taken many contributions from paving companies (aka the mob), exactly the kind of 1950s infrastructure we need to move away from. And, as the Post reports, he's gone hat in hand for federal money to provide hundreds of thousands to a local Illinois cemetery to repave its paths. Hmm. Sounds like we have Jimmy Hoffa for Transportation (and they look slightly alike too).

So is this the guy who's going to be able to direct public and private partnerships toward building a comprehensive national high-speed train network? Dramatically expand light rail and transit-oriented development to reconfigure decades of suburban sprawl across the country? The person who will fix the chronic airport backlogs and plane delays? Fix Mike "Heck of a Job, Brownie" Brown's destruction of FEMA?

I somehow doubt it. (So do The New Republic and the cutting-edge media crew at Worldchanging.) No need to pick a token Republican when there's real work to be done at the Dept of Transportation. Time will tell what LaHood is able to do, but there's real work to be done and this guy is part of the congressional establishment that for years hasn't done a damn thing.

1. The stimulus package is shaping up to be a non-stimulating raft of rebate checks for people who won't spend them: This one deserves its own post (yes, again). We'll save it for Inauguration Day.