Parts to Wholes: the Socionomic Systems Nexus

Economic Policy Realities

A Cool Look At Those Trillions And the question is: Will the U.S. economy bounce back after trillions in rescue, recovery and spending? That question led me to sit down with Matt Miller, one of the saner voices amid the cacophony. Miller, who so strongly resembles Tom Hanks that you want to ask him about "Wilson," isn't a shouter. A former Clinton budget aide and author of "The Tyranny of Dead Ideas," he finds the hysteria over Obama's proposed budget misplaced. Upfront, he says that Obama isn't coming completely clean on taxes. Everybody, not just the richest, will have to pay more taxes in Obama's second term (assumptions pending), owing to the strain that retiring baby boomers will put on Social Security and Medicare. Miller figures that Obama is hoping that by then, enough people will be pleased with the government his administration has put in place that they won't mind paying for it. In the meantime, Miller says that the key to assessing whether the budget is terrifying or reasonable under the circumstances is by examining spending, taxes and deficits as a percentage of gross domestic product.  Spending as a share of GDP in 2009 will increase from 21 percent last year to 27.7 percent, which Miller concedes is "scary." But the 10-year spending average under Obama's plan (assuming reasonable recovery) will be about 22 percent of GDP -- the same as under President Ronald Reagan. Tax rates, which will return to Clinton levels in 2011, also shouldn't be alarming, says Miller. "We know from the Clinton boom of the 1990s that marginal tax rates of 39.6 percent put no brakes on entrepreneurship or growth. And the modest limits Obama is proposing on the value of itemized deductions for mortgage interest and charitable donations puts their value exactly where they were under Ronald Reagan, which no one would say was a 'socialist' interlude for the U.S. economy. So everyone jumping up and down about how supposedly 'radical' Obama's plan is should calm down and look at the facts." But, I asked, how about this: If deficits are the problem, why not cut spending and taxes, rather than increase spending and impose higher taxes on higher earners to drive the economy? Because businesses and individuals are pulling back and don't have enough discretionary money to stimulate the economy, says Miller. And thanks to the huge deficits bequeathed by the Bush administration, he says, we have no choice but to run even higher deficits for a few years to get the economy out of the ditch.  Feeding the beast, in other words, is unavoidable. But will it work -- or will we all be speaking French and eating moldy cheese in two years? To the "nobody knows" chorus, add at least one strong dissenting voice. Miller says that though stimulus efforts may or may not work, Obama is doing the right thing with the budget. And no, we won't be socialists when it's all over. There will still be room for a "cowboy economy," he says. I can't say that I suddenly have a yippee-kay-yo in my heart, but Miller's less scary scenarios, based on facts rather than rhetoric, help tamp down the impulse to build a bigger bunker. If Miller wants to be heard in Rantville, however, he may have to start shouting.

• Americans See 18% of Wealth Vanish
• Summers: Recovery Timing Unclear

David Brooks: When Obamatons Respond On Tuesday, I wrote that the Obama budget is a liberal, big government document that should make moderates nervous. The column generated a large positive response from moderate Obama supporters who are anxious about where the administration is headed. It was not so popular inside the White House. Within a day, I had conversations with four senior members of the administration and in the interest of fairness, I thought I’d share their arguments with you today. In the first place, they do not see themselves as a group of liberal crusaders. They see themselves as pragmatists who inherited a government and an economy that have been thrown out of whack. They’re not engaged in an ideological project to overturn the Reagan Revolution, a fight that was over long ago. They’re trying to restore balance: nurture an economy so that productivity gains are shared by the middle class and correct the irresponsible habits that developed during the Bush era. I didn’t finish these conversations feeling chastened exactly. The fact is, after years of economic growth, the White House still projects perpetual deficits of more than $500 billion a year. That’s way too much, especially with the boomers’ retirements looming. Moreover, Congress will likely pass the spending parts of the budget and kill the revenue parts, like the cap-and-trade energy tax and the limits on itemized deductions, thus producing much, much bigger deficits. Plus, I’m still convinced the administration is trying to do too much too fast and that the hasty planning and execution of these complex policies will lead to untold problems down the road. Nonetheless, the White House made a case that was sophisticated and fact-based. These people know how to lead a discussion and set a tone of friendly cooperation. I’m more optimistic that if Senate moderates can get their act together and come up with their own proactive plan, they can help shape a budget that allays their anxieties while meeting the president’s goals.

In Defense of Obamanomics The opposition begins, predictably, with taxes, so it is important to understand the major tax changes President Obama is proposing and their underlying rationale. President Bush's tax cuts are scheduled to expire at the end of 2010. At that time, assuming the economy has entered a recovery, President Obama's budget will restore the top two marginal income tax rates to their 1990s levels of 36% and 39.6% for individuals earning more than $200,000 and couples earning more than $250,000. These changes will affect only the top 3% of taxpayers, the group that has enjoyed the largest gains in income and wealth over the last decade. In addition, for these taxpayers the tax rate on capital gains will increase to 20%, the lowest rate in the 1990s and the rate President Bush proposed in 2001, and the tax rate on dividends will increase to 20%, a rate lower than the rate of the 1990s and nearly 40% lower than that proposed by President Bush in 2001. Critics charge that President Obama's tax rates for high-income earners will strangle small business and stifle economic growth. Such claims are misguided or disingenuous. A full 97% of small businesses will see their rates unchanged or enjoy additional tax benefits under the Obama plan. And the strong expansion of the 1900s proves that the tax rates on income, capital gains and dividends in the Obama budget will support rapid economic growth and substantial income gains at the top. Moreover, the higher tax revenues resulting from these rates will reduce the deficit by about $750 billion, bringing it down to an average of 3.9% of GDP over the next 10 years and to 3.1% of GDP by the end of the decade. This compares to an average deficit of 3.6% of GDP between 1982 and 1997, when the Dow Jones Industrial Average increased by 835%. In addition, the president proposes to limit the deductions for dependents, charitable contributions and other expenses to 28%, the top rate for such deductions under Ronald Reagan. Some critics claim this is class warfare. But why should a family in a higher tax bracket get a bigger break on expenses than a middle-class family? And restoring this limit to its Reagan level will raise enough revenue to cover about half of the $634 billion reserve President Obama needs to finance health-care reform with the other half coming from savings in health spending. These savings include competitive bidding in order to reduce Medicare payments to private insurance plans, increasing the Medicaid rebate for brand-name drugs, and strengthening Medicare pay-for-performance incentives for hospitals. The president's budget is progressive and ambitious. It will not, however, explode the size of government as some critics warn. If the economy recovers as projected, over the next decade taxes as a share of GDP at around 19% will be lower than they were during the second half of the 1990s, government spending as a share of GDP at around 22.5% will be about where it was under Reagan, and nondefense discretionary spending at around 3.6% of GDP will fall to its lowest level since that data was first collected in 1962. The real risk lies in the possibility that the economy's recovery starts later and is much weaker than the economic assumptions in the budget. In this case, by no means remote, President Obama will have to adjust his plans while remaining true to his values. In a very few days in office, he has already demonstrated that he has the leadership skills to rise to the challenge.

The Great Depression – Just the Facts, Ma’am Contrary to what you might believe, the Great Depression of the 1930s was not a decade-long era of economic decline. Rather, the Great Depression was made up of two distinct economic slumps – August 1929 through March 1933 and May 1937 through June 1938. As Chart 1 shows, the first recessionary period of the Great Depression was not only longer in duration, but more severe in magnitude. Notice, however, that a quite robust economic recovery/expansion occurred between the two recessions. In the four years ended 1937, real GDP grew at a compound annual rate of 9.4%. Lest you think that all of the increase in real GDP growth in the four years ended 1937 was accounted for by federal government spending, Chart 2 should dissuade you of this notion. In the four years ended 1937, real GDP excluding real federal government expenditures grew at a compound annual rate of growth of 9.0%. In the four years ended 1937, industrial production grew at a compound annual rate of 12.9% (see Chart 3). Although this vigorous real economic recovery did not bring the unemployment rate back down to anywhere near where it was before the 1929 recession commenced, the unemployment rate did fall from a cycle high of 25.6% in May 1933 to a cycle low of 11.0% in July 1937 (see Chart 4). There is much discussion in the media of late that FDR’s “New Deal” policies were detrimental to economic growth during the 1930s. But we need to make a distinction between New Deal policies that dealt with increased federal government spending and those that dealt with the direct interference in markets. Perhaps the New Deal policies that directly interfered with markets were responsible for keeping the unemployment rate from falling as much as it otherwise would have. But as was discussed at the outset of this commentary, real GDP grew at a compound annual rate of growth of 9.4% in the four years ended 1937. Chart 5 shows the behavior of the percentage change in annual average real GDP and the percentage change in annual average real federal government expenditures. Perhaps it is coincidental that real GDP contracted by significantly less in 1933 and grew in 1934 through 1937 as the rate of growth in real federal government expenditures increased significantly in 1933, 1934 and 1936. Perhaps, had it not been for the stepped up increases in real federal government expenditures, the compound annual rate of growth in real GDP in the four years ended 1937 would have been even higher than 9.4%. Perhaps. What does this review of historical facts have to do with the current economic environment? For starters, the policy hurdles that were put in front of an economic recovery in the early 1930s are absent today. It is not my role to endorse government policies. It is my role to forecast the impact of government policies on the economy. I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spending should be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.

Paradox Squared Mainstream economists and the mainstream media continue to embrace John Maynard Keynes’ notion of the “paradox of thrift.” While most economists subscribe to the view that the pace of long-run economic growth is a function of productivity and thrift (saving), short-run growth can be retarded by too much thrift. According to this view, if households in the aggregate decide to cut back on their current spending, i.e., save more, aggregate economic demand will be negatively affected. Hence, the paradox of thrift. A little later in this commentary, I will try to dispel the notion that thrift retards growth in aggregate demand in the short run. But before getting into this aspect of economic myth-busting, I want to call your attention to a February 19th WSJ opinion article by a member of the paper’s editorial staff, Daniel Henninger, entitled “Obama’s ‘Hair of the Dog’ Stimulus.” Henninger essentially buys into the paradox-of-thrift argument. He cites the “Making Work Pay” element of the new fiscal stimulus plan as a way of giving a tax rebate to households with a lower probability that the tax reduction will be saved. To buttress his case, Mr. Henninger cites an authority on the subject of women’s marginal propensity to consume/save, Anna Wintour, the editor of Vogue. Ms. Wintour’s sampling, scientific, no doubt, suggests that ladies of leisure will be cutting back on their current spending. (To be complete, perhaps Mr. Henninger should have consulted Playboy’s octogenarian playboy, Hugh Hefner, as to what we men will be doing with our extra eight dollars a paycheck.) Let’s get economically objective. Thrift or saving does not necessarily mute aggregate demand in the short run or the long run. As any economist of the Austrian school will tell you, saving simply implies one economic agent cutting back on its current spending and transferring its spending power to another economic entity. There is, however, a special case in which an increase in thrift will result in a fall in aggregate spending. This is the case of “hoarding” money – currency and bank deposits. Hoarding in this sense is the term classical economists used to describe what hip-hop economists refer to as an increase in the demand for money to hold, or a decrease in the velocity of money. If more and more households wish to curtail their current spending and increase their money balances, this will lead to a decline in aggregate spending in the short run if the supply of money is not increased commensurate with the increased demand for it to hold. So, the paradox of thrift, which mainstream economists and Mr. Henninger so readily embrace, is only paradoxical in the special case in which the public’s demand for money to hold increases. There is one other tangential economic myth that I would like to bust – that the U.S. economy cannot grow rapidly unless there is a high level of consumer spending. Notice that in recent years, the consumption ratio has moved up significantly. Notice also that the real GDP growth rate has moved down significantly. The most rapid real GDP growth we experienced in the 1951 through 2008 period occurred in the 1960s, a period when the consumption ratio was relatively low. My bet is that when we come out of this current deep recession (Q4:2009?), the recovery and expansion will be accompanied by a much lower consumption ratio than we have experienced in recent years and higher export and business capital spending ratios than we have experienced in recent years. But most importantly, I expect that these changing ratios will be accompanied by higher growth in real GDP ex federal government than we have experienced in recent years. Why? Because, as I stated at the outset, the pace of economic growth is a function of productivity and thrift. And no less an authority than the editor of Vogue says that thrift is in vogue again!

China 'worried' about US Treasury holdings China's premier expressed concern Friday about its massive holdings of Treasuries and other U.S. debt, appealing to Washington to safeguard their value, and said Beijing is ready to expand its stimulus if the economy worsens. Premier Wen Jiabao noted that Beijing is the biggest foreign creditor to the United States and called on Washington to see that its response to the global slowdown does not damage the value of Chinese holdings. "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference following the closing of China's annual legislative session. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets." Wen's comments foreshadowed possible appeals to President Barack Obama, who will meet with Chinese President Hu Jintao at a London summit of leaders of the G-20 group of major economies on April 2 to discuss the global financial crisis. Analysts estimate that nearly half of China's $2 trillion in currency reserves are in U.S. Treasuries and notes issued by other government-affiliated agencies. Washington is counting on China to continue buying Treasuries to fund its $787 billion stimulus package. Last month, visiting Secretary of State Hillary Rodham Clinton sought to reassure Beijing that government debt would remain a reliable investment. "They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher," said JP Morgan economist Frank Gong. "Inside China there has been a lot of debate about whether they should continue to buy Treasuries." The comments come as finance ministers and central bankers of the G-20 gather in London this weekend to discuss the crisis and possible remedies. U.S. Treasury Secretary Timothy Geithner is pressing for a new coordinated stimulus but European governments are reluctant to take on more debt before they see how current plans are working. The Europeans want to emphasize the need for greater regulation of markets, including a crackdown on tax havens and increased control over hedge funds. In Beijing, Wen expressed confidence China can emerge from its slump "at an early date," and said the government is ready to expand its 4 trillion yuan ($586 billion) stimulus to boost growth in the world's third-largest economy.

Disruption vs Innovation: Change, Response, Resilience The nature of the singularity - the appearance of continuous disruptions that will prevent a return to some sort of punctuated equilibrium for a long-time. Having spent the last six straight posts diving deeply into the dimensions of the Singularity and documenting it with big inventories of readings we won't review it but you may recall this "kitchen-sink graphic" that was our Mantra Mandela...the mantra being Geo-politics/Economy/Industry/Company of course :). The accompanying graphic tries to represent the scope and scale of these disruptions we've been documenting on a firm, industry, economic and geo-political level as well as relate it to our on-going concern with enterprise and organizational performance. One of the interesting excerpts is a post by Irving Wladawsky-Berger on re-architecting the enterprise from a holistic perspective. Couldn't have put it better ourselves - in fact that's such a central concern of ours it shows up in most posts directly or in-directly and has it's own archive. One of our key findings is that with occasional  exceptions very few concerns are prepared for the changes they're failing to meet now, let alone the singularity. Which, btw, is a matter of leadership among other things....

Implementation Challenges

Running On Empty As if the problems in the U.S. and world economies were not enough of a challenge in themselves, the young Obama administration is also being called on to figure out simultaneously how to govern in such an emergency. A big part of the second challenge lies in reconciling the pressure to move rapidly in rolling out its program initiatives with the much slower pace of assembling the leaders it needs to be able to function at all. In its first six weeks in office, the administration has launched hugely expensive and ambitious programs, not only to spur employment and arrest a sickening slide in stocks, mortgages and profits, but to overhaul such complex and vital services as health care, education, and energy production and conservation. It has done this with a mere corporal's guard of key appointees in place. The White House itself is rather fully staffed, but the departments and agencies, where broad policies must be converted into real operations, have numerous openings. Decisions are being made by career bureaucrats, Bush administration carryovers -- or not at all. The dimensions of the governing challenge this administration faces came into focus for me last week when I was invited to a daylong seminar organized by the National Academy of Public Administration, a private nonprofit group that works on projects designed to improve the functioning of the executive branch. The other people at the table were experts in governing -- two former Cabinet members, several more from the sub-Cabinet and a passel of academics with long years of experience in administrations of both parties. I was allowed to sit in, with the understanding that I could write about the discussion but not quote anyone by name. There was no disagreement on one point: What Obama has launched with his address to Congress and his first budget is a change of domestic policy of historic proportions. Views about its potential and pitfalls varied widely, but no one disputed that it could remake the government's relation to American society -- if the plans can be accomplished. But many of these governmental pros clearly are doubtful whether this administration -- or any other -- can make it work. A law professor and former White House aide warned that the American habit of "muddling through" crises could prove fatal this time, given what she sees as the fragility of the economy and social structures in the industrial Midwest, where she works. A far more rational, disciplined approach is needed, she said, but how to achieve that in a government run by politicians? Obama was able to keep earmarks out of the stimulus bill, but Congress loaded hundreds onto the next appropriations measure and the president was forced to acquiesce. Another participant pointed out that "many of the programs getting huge bumps up [in funding] are already on the 'at risk' list compiled by the White House Office of Management and Budget." And repeatedly, people voiced their worries about who was going to manage these startling expenditures. "They ought to be hiring 1,000 new contracting officers," one person said.

More Audacity Needed President Obama faces three overlapping questions: When will middle-of-the-road voters start blaming him for the sick economy? When will he act decisively to deal with the mess that is our banking system? And can he keep managing his political two-step of appealing simultaneously to centrists and progressives? He has to confront all three at once. The economy will remain in crisis until there is a resolution to the problems facing the banks, and if things keep going bad, more and more voters in the middle will start blaming Obama for not fixing them. Meanwhile, the flood of bad news is empowering Obama critics who style themselves as moderates. They will continue saying that the president, in trying to keep his campaign promises on health care and energy, is "overreaching" and not focusing on economic recovery. It's hard for the fair-minded not to have some sympathy for Obama. He has been in office for less than two months, and no president since Franklin D. Roosevelt has inherited such an "unholy mess," as one of Obama's top advisers put it. Moreover, some of the criticisms are nonsense. As for criticisms from the moderates, it's balderdash to call Obama's policies "radical." They seem radical only in comparison with the right-wing approach the government has pursued in recent years. Particularly on health care, it would be irresponsible for Obama not to press the reforms he promised in his campaign. And what could be more "moderate" than the open, pragmatic approach Obama took during his White House health-care summit last week? No, the president is not "overreaching." His agenda is focused on a few big things. Obama's calm and deliberative style is one of his greatest strengths. He doesn't want precipitous action in the midst of an economic collapse to come back to haunt us all. But sometimes excessive caution can be as dangerous as impetuousness. The president has no choice but to be bold. If there is one thing he should fear, it is fear itself.

Summers: 'Excess of fear' must be broken President Barack Obama's top economic adviser said Friday the nation's economic crisis has led to an "excess of fear" among Americans that must be broken to reverse the downturn. "Fear begets fear," and that "is the paradox at the heart of the financial crisis," Lawrence Summers, the president's director of the National Economic Council, told a forum. "It is this transition from an excess of greed to an excess of fear that President Roosevelt had in mind when he famously observed that the only thing we had to fear was fear itself," Summer said. "It is this transition that has happened in the United States today." Summers spoke amid new signs of a deepening recession. The U.S. trade deficit plunged in January to the lowest level in six years as the economic downturn cut America's demand for imported goods, the Commerce Department reported Friday. The economic adviser said it's still too early to gauge the broad impact of the president's recovery program. "But it is modestly encouraging that since it began to take shape, consumer spending in the U.S., which was collapsing during the holiday season, appears, according to a number of indicators, to have stabilized," Summers told the Brookings Institution, a think tank.

The Responsiveness Scorecard So: is the Obama administration's ARRA a 21st century Manhattan Project that will ignite smart growth? Though wonks will discuss its imperfections to death, ARRA's actually not a bad financial stimulus (here's why) . Yet, even a perfect stimulus isn't a solution to the macro crisis. Why not? The real problem isn't stimulus, it's responsiveness. We're trapped in a zombieconomy: one full of brain-dead organizations who are about as intelligently responsive as Homer Simpson. Want better clothes? Don't ask the Gap. Want better software? Don't ask Microsoft. Want better cars? Don't ask Detroit. Want better music? Don't ask record labels. Want better healthcare? Don't ask big pharma. Want to hold on to your money? Don't ask a banker. Welcome to economic Bizarro World. The economy has gone catatonic. Unresponsive corporations are just the tip of the iceberg. Markets can't allocate. Investors won't invest. Banks can't value, or hold onto anything of value. People don't trust, much less consume. What's going on? The real problem isn't how or what we stimulate - but that almost none of our organizations could respond in the first place. Yesterday's institutions have left today's organizations unable to respond to an increasingly turbulent world. What's responsiveness, and what does it have to do with institutions? Here's a recent talk I gave discussing net-generation institutions. Or consider ARRA itself. ARRA is built on 21st century rules. Obama's was the first 21st century political campaign: it played by a radical new set of institutional rules that made it responsive. Likewise, ARRA is the first 21st century stimulus - it's responsive, because it plays by some of those new rules, like participation and accountability, through the awesome recovery.gov. Today's organizations need a responsiveness upgrade.

Rushbo, the Rips and Partisanship

Minority Leader Limbaugh The 2008 election sent many messages. At the top: Americans wanted to turn the page on the politics of division and partisan pettiness, and they wanted a government -- and country -- that would put the middle class first. Watching the Republicans operate this past month, it would appear that they missed that unmistakable signal. Instead, Rush Limbaugh has become their leader. Limbaugh, of course, told his radio listeners that he's rooting for President Obama to fail -- and hoping the president's ideas for bolstering our economy fail with him. For many Americans, hungry for leadership and cooperation, this sounded like fingernails on a chalkboard. When Limbaugh reiterated the sentiment this weekend, hundreds of Republican conservatives cheered him on. But instead of rebuking the radio personality or charting their own course, Republican leaders in Washington are paralyzed with fear of crossing their leader. Less than 24 hours after committing the unforgivable sin of criticizing Limbaugh, RNC Chairman Michael Steele felt compelled to publicly apologize. He was not the first and will certainly not be the last. Limbaugh's voice could be heard in the words of new Republican quarterback Eric Cantor, who says the GOP's strategy will be to "Just Say No" -- not for substantive or philosophical reasons but to advance Limbaugh's strategy for failure. Independent voters, those who find the ways of Washington particularly toxic, could be forgiven for wondering whether the Republican minority has any clue what is happening in our country. Thus far, Republican leaders have let their strategy be guided by their most conservative base, capturing perhaps a third of the nation's voters. For Republican candidates seeking the support of right-wing activists in Iowa, who will exercise outsize influence in the presidential selection process in four years, that strategy -- while not entirely defensible in the midst of an economic crisis -- is understandable. But any party that hopes to actually govern must appeal to moderates. Today, "moderate" is not an adjective that many would associate with the GOP minority in Congress. And a strategy designed chiefly to satisfy the 33 percent of voters who approved of George Bush's performance last fall -- while turning off first-time and swing voters -- hardly seems like the best way out of the political wilderness.

• Steele trap? GOP fears grow, Follow the Leader

The GOP's Limbaugh Dilemma Rush Limbaugh is right where he wants to be and right where the White House wants him: in the news. But Republicans have more mixed feelings about the controversial talk radio host's recent elevation. Mr. Limbaugh dominated headlines this week, as a drive by the White House and other top Democrats to paint him as the leader of the Republican Party left the GOP flummoxed. Michael Steele, the new chairman of the Republican National Committee, illustrated his party's dilemma, first calling Mr. Limbaugh's style "ugly," then phoning him to apologize. One committee member labeled Mr. Steele's handling of the matter a "Republican Horror Show" and called on him to step down just weeks after taking on the job. Behind the political theater lay a fundamental challenge for a party seeking a way out of the wilderness after last November's drubbing. Republican leaders and activists are grappling with how to joust with a popular new president, particularly after years of being accused of embracing a cutthroat style of politics. Yet some Republicans also sense openings in the early days of the Obama presidency. They argue that Democrats may be overreaching with an ambitious big-government agenda and that voters will turn to Republicans once they absorb the impact of spending bills that greatly expand the deficit without, they contend, doing much to stimulate the economy. "There are clear opportunities for Republicans," says party strategist Dave Winston, who suggests party leaders are starting to find their voice on targeted issues. Republicans are painting newly Democratic Washington as a hotbed of higher taxes and spending. By week's end, Republicans broke through the Limbaugh-dominated political news with their own story line: repeated attacks on "earmarks" in a spending bill passing through Congress. They even forced a delay in a Senate vote until next week.

• GOP Calibrates Role as Opposition

Why Conservative GOP Governors Are Spurning Stimulus Money Few U.S. politicians enjoy fiscal grandstanding more than South Carolina Governor Mark Sanford. Five years ago, the conservative Republican, who was first elected in 2002, brought piglets under each arm to the state legislature to protest pork-barrel spending. In heavily GOP South Carolina, antics like that helped get him re-elected in 2006. So it's hardly surprising that Sanford, now chairman of the Republican Governors Association, is one of the loudest voices in opposition to President Obama's $787 billion federal stimulus package. In fact, for Sanford it wasn't enough to declare this week that he'd reject a quarter of South Carolina's $2.8 billion share of the funds unless he could use it to pare down the state's debt. On Thursday he even felt compelled to liken the stimulus to the hyper-inflationary policies of Zimbabwe's longtime leader, Robert Mugabe. "What you're doing is buying into the notion that if we just print some more money that we don't have and send it to different states, we'll create jobs," Sanford said. "If that's the case, why isn't Zimbabwe a rich place?" Obama's stimulus "logic," Sanford argued, "is being applied there with little effect."

Conservatives and Their Pity Parties Just as the financial crisis has created toxic assets and "zombie" financial institutions, so has it transformed conservatism into a movement of the living dead. Its partisans cling to a now-toxic portfolio of discredited notions, rhetoric, gestures and strategies. They lumber comically on, their only goal being to obstruct efforts to save the economy from catastrophe. These days the zombie right is rallying around CNBC commentator Rick Santelli, who won fame last month when he railed against a rescue of the economy's "losers." Mr. Santelli claimed he was backed in his outrage by "the silent majority" -- meaning a floor full of traders at the Chicago Board of Trade -- and he called for a "Chicago tea party" to protest the administration's mortgage plan. Next thing you knew, there were "tea parties" all over the land. When I showed up for one last Friday in Washington's Lafayette Park, however, my suspicions were immediately raised. A fellow in an expensive-looking pinstriped suit came hustling into the gathering knot of the discontented, handing out pink pig balloons. But at the annual Conservative Political Action Conference (CPAC), which was going on in the swank Omni Shoreham hotel on that same day, what I found was merely a smoother version of the same grumbling. Capitalist self-pity was much in vogue. Former presidential candidate Mitt Romney, looking tanned and groomed and yet strangely mechanical, joked that he needed to get through his speech "before federal officials come here to arrest me for practicing capitalism." Or is it that the mind of the right is running on some spooky kind of autopilot? "Silent majority," "Mad as hell": These are the sayings of. the 1970s Remembering them brings back all the false populisms to flicker across the screen since then, all the stale illusions that brought us to our present disaster -- all the fake cowboys, the folksy radio talkers, the regular-guy billionaires, the middle American tax rebels, the salt-of-the-earth bankers. There is much to dislike about President Obama's approach to the financial crisis. But opposition, it seems, will have to come from somewhere other than conservatism. The party out of power is also a party out of touch.

David Brooks: Taking a Depression Seriously The Democratic response to the economic crisis has its problems, but let’s face it, the current Republican response is totally misguided. The House minority leader, John Boehner, has called for a federal spending freeze for the rest of the year. In other words, after a decade of profligacy, the Republicans have decided to demand a rigid fiscal straitjacket at the one moment in the past 70 years when it is completely inappropriate. The G.O.P. leaders have adopted a posture that allows the Democrats to make all the proposals while all the Republicans can say is “no.” They’ve apparently decided that it’s easier to repeat the familiar talking points than actually think through a response to the extraordinary crisis at hand. If the Republicans wanted to do the country some good, they’d embrace an entirely different approach. … Republicans could offer the public a realistic appraisal of the health of capitalism. Global capitalism is an innovative force, they could argue, but we have been reminded of its shortcomings. When exogenous forces like the rise of China and a flood of easy money hit the global marketplace, they can throw the entire system of out of whack, leading to a cascade of imbalances: higher debt, a grossly enlarged financial sector and unsustainable bubbles. Fourth, Republicans could get out in front of this crisis for once. That would mean being out front with ideas to support the wealth-creating parts of the economy rather than merely propping up the fading parts. That would mean supporting President Obama’s plan for global stimulus coordination, because right now most of the world is free-riding off our expenditures.

Editorial: A survival plan for global capitalism  J.K. Galbraith wrote that 1929 stood alongside 1066, 1776, 1914, 1945 and 1989 in its importance. The world today was shaped by the efforts of governments to overcome the economic meltdown of the 1930s – and the consequences of their failures. Even if this economic crisis is not as bad as the Great Depression, it will have epoch-moulding consequences. This week the Financial Times starts a series on the Future of Capitalism. Much, however, depends on the success of next month’s meeting of the Group of 20 in London and how successful governments are at ending this worldwide crisis. The intellectual impact of the crisis has already been colossal. The “Greenspanist” doctrine in monetary policy is in retreat. It no longer seems clear that it is easier for central banks to clean up after asset price bubbles burst than to prick them when they are small. Monetary authorities will need to be more concerned both about financial stability and global imbalances which allowed a few countries to build up vast surpluses while a few others ran yawning deficits. Finance has already changed irrevocably. The grand investment banks which once strode alone have either collapsed, or joined the flock of retail banks. Governments are now borrowers, lenders, investors and insurers of last resort for much of the financial system. The future of finance will be determined by their efforts to disentangle themselves from the thickets of guarantees they have been forced to make. The depth of the crisis will determine how easily they manage it. The fiscal cost of this episode is unclear. In some countries, it may be state-busting. Some nations will need to cope with extraordinary fiscal tightenings in the coming years. The domestic impact of government spending – and its geopolitical ramifications – could yet be colossal. Again, much depends on how soon the downturn ends. There is one certainty. While recessions are inevitable, deep depressions or slumps – or whatever you call them – are neither necessary nor welcome. They destroy wealth, sap happiness and crush old certainties. What is more, increasing poverty is a grave threat to world stability and democracy. Revolutions often start as bread riots, and economically-stagnant countries make belligerent neighbours. Growth must be restarted.

Consequences and Re-Thinkings

Are you a critical thinker? Everyone thinks; but we don't always think well. In fact, much of our thinking, left to itself, is sloppy, distorted, partial, uninformed, or prejudiced. Yet the quality of our life and all of the decisions we make depend precisely on the quality of our thought. At present, the act of thinking is virtually ignored. Critical thinking is self-guided, self-disciplined thinking that aims to take the reasoning we all do naturally to a higher level. It is the art of analyzing and evaluating with the goal of improving thought. When making a decision, it is the difference between weighing information to come to a logical conclusion and making snap judgments without understanding the information. Consider some of the great thinkers: H.L. Mencken, Tom Paine, Mark Twain, Abraham Lincoln, Bertrand Russell, and Jane Austen. They became some of the greatest thinkers by not accepting information at face value, but by thinking deeply for themselves, asking questions, and refining their thinking over time. It wasn't easy. Of his own thinking, Charles Darwin said: "I have as much difficulty as ever in expressing myself clearly and concisely; and this difficulty has caused me a very great loss of time, but it has had the compensating advantage of forcing me to think long and intently about every sentence, and thus I have been led to see errors in reasoning and in my own observations or those of others."

• Why the experts missed the crash, Why Pundits Get Things Wrong

A Progressive Moment The American people like President Obama and they trust him more than they do the multitude of plans and bailouts that he has proposed. The gap so far is manageable, but Obama could find his popularity slowly eroding if the hemorrhaging on Wall Street and Main Street doesn't stop. Seven weeks isn't time enough to judge, but that hasn't stopped the right-wing hecklers from hauling out all the standard arguments against big government and tax-and-spend Democrats. Where were they when President George W. Bush was squandering the budget surplus he inherited and buying off the insurance companies with big subsidies to support his Medicare prescription plan? Obama has two agendas—the one he ran on, and the one that's been forced on him. He doesn't want to give up campaign pledges he believes will transform the country in a positive and necessary way. And he has to deal with the financial collapse that he inherited. There are four pieces to the administration's economic recovery plan: the stimulus package, the bank bailouts, the mortgage-recovery package and a new set of financial regulations. So far, Obama is one for four with the stimulus package signed into law—not enough to stem the crisis. There's a lot of guesswork in figuring out what to do, and the public is more willing than the cable-news chatterers to give Obama room to experiment. Reasonable people can disagree about whether Obama should focus on the economy and forget his wish list of investments in health care, energy and education until after the economy is back on a stronger footing. I'm in the camp of do it all while there's political capital to spend. That's the road Obama has taken, capitalizing on not only the traditional honeymoon of a new president but on the seismic transformation in American politics.

• Risks Lurk in Obama's Poll Ratings  Obama has many reasons to feel good about his standing with the public. But he should be concerned about warning signs flashing amid those positive readings

Rebooting Capitalism "We are all socialists now," proclaims Newsweek. We are creating "socialist republics" in the United States, says Mike Huckabee, adding, on reflection, that "Lenin and Stalin would love this stuff." We are witnessing the Obama-era phenomenon of "European socialism transplanted to Washington," says Newt Gingrich. First, as we survey the political landscape, what's striking is the absence of advocates of socialism, at least as the term was understood by those who carried that banner during the capitalist crisis of the 1930s. Then, socialists and communists both spoke of nationalizing all major industries and abolishing private markets and the wage system. Today, it's impossible to find a left-leaning party anywhere that has such demands or entertains such fantasies. (But in the United States, conservatives have never bashed socialism because its specter was actually stalking America. Rather, they've wielded the cudgel against such progressive reforms as free universal education, the minimum wage or tighter financial regulations. If Obama realizes his agenda, what emerges will be a more social, sustainable, competitive capitalism. His more intellectually honest and sentient conservative critics don't accuse him of Leninism but of making our form of capitalism more like Europe's. In fact, over the past quarter-century, Europe's capitalism became less regulated and more like ours, one reason Europe is tanking along with everyone else. Take it from a democratic socialist: Laissez-faire American capitalism is about to be supplanted not by socialism but by a more regulated, viable capitalism. And the reason isn't that the woods are full of secret socialists who are only now outing themselves. Judging by the failures of the great Wall Street investment houses and the worldwide crisis of commercial banks; the collapse of East Asian, German and American exports; the death rattle of the U.S. auto industry; the plunge of stock markets everywhere; the sickening rise in global joblessness; and the growing shakiness of governments in fledgling democracies that opened themselves to the world market -- judging by all these, a more social capitalism is on the horizon because the deregulated capitalism of the past 30 years has blown itself up, taking much of the known world with it. So, for conservatives searching for the culprits behind this transformation of capitalism: Despite our best efforts, it wasn't Bernie and it wasn't me. It was your own damn system.

Generation OMG Today we are in a recession the depth and duration of which are unknown; Friday’s job loss figures were just the latest suggestion that it could well be prolonged and profound rather than shorter and shallower. So what of the youth shaped by what some are already calling the Great Recession? Will a publication looking back from 2030 damn them with such faint praise? Will they marry younger, be satisfied with stable but less exciting jobs? Will their children mock them for reusing tea bags and counting pennies as if this paycheck were the last? At the very least, they will reckon with tremendous instability, just as their Depression forebears did.“The ’30s challenged the whole idea of the American dream, the idea of open economic possibilities,” said Morris Dickstein, an English professor at the Graduate Center of the City University of New York, whose cultural history of the Depression will be published in September. “The version you get of that today is the loss of confidence on the part of both parent and children that life in the next generation will inevitably be better.” How today’s young will be affected 10, 20 or 40 years on will depend on many things — the children of the Depression were shaped as much by the war that followed. The recession generation will include those born into it, at the youngest end, and those emerging out of college and high school into a jobless marketplace, at the oldest. If history is any guide, what will matter most is where they are on the continuum. “There is no simple cause-and-effect relationship in how economic adversity pushed a generation into any one kind of behavior,” said Neil Howe, who with his longtime co-author, William Strauss, is credited with naming today’s 20-somethings the millennials. “The impact depends on the context and the mood of the time and how children understand the spirit of the times.”

Follow The Money His caution was a red flag for me because of a different question I have been putting to the random Obama Cabinet secretary or senior official I trip across during this president's baptism by financial fire: Do you sense that the American people are angry about the economic collapse they are enduring, with no end in sight? A two-step answer almost always comes back: No. Concerned, but not angry. Pause. Not yet. Choose your image: a ticking time bomb, a pile of kerosene-drenched kindling, an entire people balancing on a precipice. This is how the American public is being portrayed in some private discussions at the top of this understaffed administration. But those cliches may not do justice to the gathering forces of social explosion as unemployment leaps, the stock market buckles and the greed of investment bankers dominates family dinner discussions. The good news is that the Obama camp thinks it still has time to head off the threat of a significant radicalization of the American body politic. The administration's approach boils down to making the United States a functional social democracy without using that label. You can read the details of stronger safety nets, universal health care, reduced income disparity and, yes, higher taxes in President Obama's budget and stimulus plan. Or if you prefer fluid prose to line items, check out the influential report by Ruy Teixeira, "New Progressive America," recently posted on the Center for American Progress Web site. But a tipping point for American anger is visible on the horizon, and it may arrive long before President Obama's inoculative, transformational agenda is in place. If the public heeds the Watergate-era advice to Woodward and Bernstein -- "Follow the money" -- the answer to the question about AIG that Summers refused to give may soon be in full view, and rising anger and destructive actions may outrace reform built on persuasion. 

Some Things Don’t Change in Grover’s Corners  “WHEREVER you come near the human race, there’s layers and layers of nonsense,” says the Stage Manager in Thornton Wilder’s “Our Town.” Those words were first heard by New York audiences in February 1938, as America continued to reel from hard times. The Times’s front page told of 100,000 auto workers protesting layoffs in Detroit and of a Republican official attacking the New Deal as “fascist.” Though no one was buying cars, F.D.R. had the gall to endorse a mammoth transcontinental highway construction program to put men back to work. You can see why there’s a spike in the “Our Town” market. Once again its astringent distillation of life and death in the fictional early-20th-century town of Grover’s Corners, N.H., is desperately needed to help strip away “layers and layers of nonsense” so Americans can remember who we are — and how lost we got in the boom before our bust. At the director David Cromer’s shattering rendition of the play now running in Greenwich Village, it’s impossible not to be moved by that Act III passage where the Stage Manager comes upon the graves of Civil War veterans in the town cemetery. “New Hampshire boys,” he says, “had a notion that the Union ought to be kept together, though they’d never seen more than 50 miles of it themselves. All they knew was the name, friends — the United States of America. The United States of America. And they went and died about it.” Wilder was not a nostalgic, sentimental or jingoistic writer. Grover’s Corners isn’t populated by saints but by regular people, some frivolous and some ignorant and at least one suicidal. But when the narrator evokes a common national good and purpose — unfurling our country’s full name in the rhetorical manner also favored by our current president — you feel the graveyard’s chill wind. It’s a trace memory of an American faith we soiled and buried with all our own nonsense in the first decade of our new century. Retrieving that faith now requires extraordinary patience and optimism. We’re still working our way through the aftershocks of the orgy of irresponsibility and greed that brought America to this nadir

Stewart hammers Cramer on `The Daily Show'  Jon Stewart hammered Jim Cramer and his network, CNBC, in their anticipated face-off on "The Daily Show," repeatedly chastising the "Mad Money" host for putting entertainment above journalism. "I understand that you want to make finance entertaining, but it's not a ... game," Stewart told Cramer, adding in an expletive during the show's Thursday taping. The episode was scheduled to air at 11 p.m. EDT on Comedy Central. It was perhaps the hardest lashing Stewart has given to a TV commentator since 2004 when he called Tucker Carlson and his then co-host Paul Begala "partisan hacks" on CNN's "Crossfire," the since canceled political commentary program. Stewart said he and Cramer are both snake-oil salesman, only "The Daily Show" is labeled as such. He claimed CNBC shirked its journalistic duty by believing corporate lies, rather than being an investigative "powerful tool of illumination." And he alleged CNBC was ultimately in bed with the businesses it covered — that regular people's stocks and 401Ks were "capitalizing your adventure." Cramer insisted he was devoted to revealing corporate "shenanigans," to which Stewart retorted: "It's easy to get on this after the fact."  At one point, Cramer sounded the reformed sinner, responding to Stewart's plea for more levelheaded, honest commentary: "How about I try that?" said Cramer. "I'll do that."  By the end, the two-segment interview went far beyond its allotted time. Comedy Central said the on-air version would be cut by about eight minutes, though the entire interview would be available unedited on ComedyCentral.com on Friday. Comedy Central John Stewart Show vidclip

• Are Ethic Lapses Responsible For Bad Economy? What role has ethics — or the lack of it — played in the current economic downturn. Sandra Sucher, who teaches ethics at Harvard Business School, talks with Linda Wertheimer about how the school is training students not to repeat the mistakes of others.