Parts to Wholes: the Socionomic Systems Nexus

Where's the Jobs: Employment vs. Growth

Employment growth hasn't turned around for two reasons. First, and foremost, it lags the general economy, usually by several quarters. Second, because we spent so much on Housing and other mis-allocations of capacity and the new jobs were created there, that the downturn has been worse because jobs are going to be shifted to other sectors. So there is a major cyclical problem combined with a significant structural problem. The third major problem, which explains why wages and benefits have done poorly for three decades, is that the long-term trend has slowed because we haven't invested enough in new capacity; nor have we come up with the new innovations and industries that would grow jobs on a major scale. That's largely because we loaded ourselves up with Debt and stopped Saving.

It takes around 150K jobs/month to breakeven on population growth and productivity. For a healthy recovery we need to get way above breakeven to put people back to work, create new opportunities and and make up for cumulative jobs losses. The last two recoveries have been jobless recoveries and we actually entered this downturn about -2 million jobs in the hole. Now are about -12 million in the hole. To get back to a long-term path of relatively high growth with increasing incomes and better opportunities for us and the next generation we need to fix all that. Which will be painful for quite a while. But the alternative is worse.

Understanding the Economy: Spending Patterns

There's a lot that always goes around talking lost this and simple fixes, most of which is wrong. And it's wrong often starting with the simplest things, which is what is the exact structure of the economy. That is what do we spend our money on and what's the structure of how we run the economy. This chart set is a start on re-grounding you in some of the facts - startled us when we first looked at, and we almost never hear any commentary that reflects the realities of how our economy is put together.

The engine that drives everything else is Consumption, shown in the blue shades. Over this timeframe there haven't been any major structural shifts but going back to the '50s we've bought more services. Now it's by far the largest portion of Consumption. The accelerator that revs up the engine is business spending on equipment plus hiring. Neither of which happen unless there are good growth prospects. The late '80s Tech Bubble was driven by over-investment in Technology. What, literally, kept the wheels on the wagon this decade was the Housing ATM where people borrowed against the value of their Houses to fund consumption of all kinds. Talk about grasshoppers on a debt sugar-high! Another thing to notice is that Federal government spending is NOT the largest portion of total government spending, State and Local is. You really need to notice that non-Defense spending, the tiny little yellow slice, where all those conservative programs were going to create the new Nirvana is pretty darn small to base a trip to Heaven on.

Understanding the Economy: Industry Structure

Another little mis-apprehension you hear about is the death of Manufacturing. Well US Manufacturing still leads the world in total output and in productivity. And, while it remains a major part of the economy, there has been a shift to Services. The really big change though was a technology shift that enormously increased productivity while dropping the demand for labor. We built the economy on blue-collar jobs in Manufacturing that were well-paid enough to get workers into the Middle Class. That began to go away in the '60s. What goes with that by-the-way is that the US has always been the world leader in public education. The British noticed it in the early 1800's and it was the growth of the free public high-school in the early 1900's that created the educted labor force necessary for Industrialization and the growth we enjoyed thru the 1950s and into the early '60s. The lesson here is that we need to not only create new jobs thru another wave of Innovation but we need a whole new labor force up to the challenges of those jobs. And a HS education as it's become won't cut it.

Economic Outlook vs Policy vs Change

Let's try and explain what economic policy has done and is trying to do, and what the consequences are for the future. Particularly if we make the wrong choices. We'll use this set of conceptual charts to try and link several aspects of the economic cycle together with phases of the stimulus and budget programs. The really good news is that we managed to avert GD 2.0 (which is mis-scaled here - properly it'd blow thru the bottom of the chart using a log scale but you really don't want to know, or how close we came either).

We did that with a combination of low interest rates, special purchase programs by the Fed and the bank bailouts. Despite all the pitchfork waving if any two government agencies deserve medals it's the Fed and Treasury. Politics and populists being what they are of course the cry went up and is going up to burn the witches. At least the peasants will feel better until we all starve to death. Now we're "deciding" whether the recovery will be L-shaped (drawn-out, no jobs, no growth) or U-shaped (weak, drawn-out, poor job creation, still loosing ground, low growth around 2.5% and no long-term prosperity).  On the charts we're between the two curves and early; and on the policy chart (the middle one) transitioning from arrest and stimulate to stimulate and grow.

We need more stimulus, which is in the plan and funded, to keep the engine turning over. But what happens then? If the stimulus fades out (think of this like the external starter for an airplane) without the engine catching on its own then we fade out and get a double-dip recession. Only if the engine catches and we get organic growth where businesses start hiring again do we get that U-shaped recovery. This really and truly a policy-driven economy. If/when/we hope that happens we still face those long-term problems we've been neglecting for decades. Assuming we get over the self-sustaining barrier we're still facing a decade of 2.5% growth (which is in fact the official and many other forecasts). If you thought this last decade was miserable, or if your memory extends back to the '70s just wait. It could be even more fund. If and only if we make the deep structural changes do we re-base ourselves and get back on a higher growth path.

Change Is Really Hard: Taking Next Steps

Now you're going to hear at least somebody raise the Deficit and Tax Cut questions, both of which we've discussed in depth before so we won't triple on already long post. Briefly Tax Cuts were part of the package but were, as expected, temporary, largely ineffective and put into savings. They were included as a bi-partisan gesture and also because their low impact was offset by speed while the more difficult programs were ramped up. NB: all of this is collected in the Economy archives. We'll also note that in the readings, among a lot of other stuff backing all of this is up, are some selected materials from Bruce Bartlett, Jack Kemp's economic staffer and one of the principal architects of the legislation of the Reagan Revolution. What's interesting is that the Prophet agrees with this entirely, much to utter chagrin of the current crop of Republicans.

This chart, which we built almost four years ago but is based on things that have known and discussed in policy circles for decades, captures some major policy choices and the steps. When you believe in magic quick fix answers and go for the easy layup you get unintended consequences that come back to haunt you. You have to ask the next question and the next - so what happens then?

In other words what's the initial impact, early reactions, delayed consequences, longer-term impacts and structural changes. We chose quick fixes whose longer-term impacts and structural consequences we're living with now. In other words THEN is NOW, change is hard, as ye sow so shall ye reap and the harvest is in.

Partisan Gamesmanship (Update):

A short excerpt pointing to a short daily commentary by a Northern Trust economist has been added to the readings. Frankly we found it stunning because it calls out two very conservative Rep. Congressmen who published a WSJ oped piece repeating the old ideological shibboleths. Not so much technically - though it's good to seem someone of this stature speaking up instead of just ourselves. You have to stop and think about the context. NT manages money for the wealthy, has one of the best and most respected economics groups in the world who's track record is impeccable and such folks never comment on politics. NEVER. To add more fat to the fire we found it thru a bloggining buddy (Prier du Pleiss of Investment Postcards) who runs money in South Africa. The bottomline here is that partisan gamesmanship set us very badly for the crisis, almost collapsed the emergency rescue efforts last Fall thru sheer idiocy, has hampered recovery efforts all along the way and thretens the recovery. And all based on provably wrong ideas, analysis, data and constructs - and we do mean PROVABLY. To throw oxygenated high-octane gas on the fire Stan Collander of Capital Gains and Games takes the same non compos mentas to task for their manipulation of deficit fears, following an earlier piece by Bruce Bartlett (the economic staffer to Jack Kemp who was the principal architect of Reagan's reforms) on Republican deficit hypocrasies. Take it for what it's worth but these people are competent, informed, sophisticated, experienced, non-partisan and scared. Our take is that we're crossing a cusp point where this kind of self-serving politics is dangerous.

 

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Stories From the Front

The Rage of Anxiety On the evening of Oct. 22, Father Edward Hinds, 61, pastor of St. Patrick's Roman Catholic Church in Chatham, was stabbed to death in the rectory. He was found when he failed to show up to celebrate morning Mass at the parish school, which some of our friends' children attend. The level of shock is difficult to express. The police subsequently arrested Jose Feliciano, 64, the janitor at the church, a 17-year employee whose son graduated from the school and whose daughter is enrolled there. In press reports, both the priest and the janitor have been described as quiet, kind, amiable, caring and hardworking. Both were known to chat with neighbors while walking their dogs. An attorney for the Archdiocese of Paterson told reporters that Hinds intended to lay off Feliciano because of financial problems at the parish. Feliciano had reportedly been beset with money and health issues -- "in and out of the hospital," by one account. The janitor had worked a second job in an electronics store, and lost that position earlier this year. In 2004, the Felicianos moved from an apartment adjacent to the church to a home they purchased for $145,000 in a working-class city in Pennsylvania, 45 miles away. A neighbor said both Jose Feliciano and his wife, who also worked two jobs, typically left for work at 5:30 a.m. and returned home at 7:30 or 8:30 in the evening. Obviously there is no excuse for the brutal and horrific attack on Rev. Hines. But I can't help thinking that both the victim and the alleged killer are casualties of a treacherous economy, which continues to batter the ordinary American while the experts proclaim recovery is upon us. A recent study by researchers in California and London found the stress of recessions, particularly of unemployment, markedly increases rates of death from intentional violence. Looking at joblessness in the European Union between 1970 and 2007, researchers found each percent increase in unemployment raised homicide and suicide rates by 0.8 percent, respectively. An increase of 3 percent in unemployment, for example, is associated with a 4.5 percent increase in suicides, said the study, published in the journal Lancet in July.

• Economic Statistics Improve, but Hope Is Elusive
• Study: unemployed feel 'traumatized' by recession
• Jobless, Sleepless, Hopeless
• AP Poll: A year later, worries linger on economy

Quikset: Where We’re At

2009 Deficit Is A Triumph Of Fiscal Policy Despite the headlines and the page-one, right-hand column, above-the-fold stories in the New York Times and Washington Post on Saturday, I’m not at all upset about the 2009 federal budget deficit. You shouldn’t be either.If anything, the fiscal 2009 deficit, which the Treasury officially reported Friday at $1.4 trillion, should have been even higher given the magnitude of the economic turndown at the start of the year. When you consider the close-to-desperate U.S. economic situation that existed — interest rate reductions that were having little impact, greatly reduced business spending, frightened and tightfisted consumers, huge home loan problems, and limited new credit because of the troubles in the financial sector — the federal budget had to play the major role in sparking the recovery that now seems to be well under way. In other words, the 2009 deficit should be recognized for what it really is: a triumph of fiscal policy. It deserves to be applauded rather than condemned. The 2009 budget deficit also wasn’t upsetting to me because it was anything but a surprise. The White House and Congressional Budget Office didn’t sugarcoat the number or use gimmicks to make it look smaller. Instead they both projected back in February that it would reach 13 figures. In fact, for a variety of reasons, the final 2009 deficit was about $400 billion (22 percent) less than the $1.8 trillion projected earlier in the year.
What I am upset about are those who are upset about the 2009 deficit. They fall into two categories. The first are the deficit hawks. These are the people who talked about the 2009 budget deficit as if it were a tool of the devil that had to be avoided because it was going to lead to economic hell and damnation. The second are what can best be called the “hawks-come-lately” — the people and groups who expressed dismay about the 2009 budget results even though federal red ink seldom, if ever, bothered them before. What makes the hawks-come-lately so upsetting is that most of the 2009 deficit is the result of previous spending and taxing policies most of them supported. At the start of the year, the baseline deficit, that is, the deficit that was estimated would occur in 2009 because of the laws already in effect, was $1.2 trillion. The only major legislative change since then was the stimulus. Lower-than-expected revenues because of the economy increased the deficit further. The hawks-come-lately deserve special condemnation for two reasons. Not only have they complained that the stimulus isn’t being spent fast enough, they also didn’t support reducing the deficit years ago when the time was right because the U.S. economy was growing.

The auto bailout: How we did it  Among the surprises along the way: We were shocked, even beyond our low expectations, by the poor state of both GM and Chrysler. Looking just at the condition of GM's finances and Chrysler's new-car pipeline, the case for a bailout was weak. But on the other hand, as we surveyed the interconnected web of finance companies, suppliers, and related businesses, the potential impact of the likely alternative -- liquidation -- stunned us. We imagined that the collapse of the automakers could devastate the Midwest beyond imagination. We were determined not to fail. But as we started down the road, we saw mainly obstacles. Moving simultaneously down multiple paths, we began meeting with all the interested parties: labor, lenders, legislators, and suppliers. We naively assumed that stakeholders eager to see a rescue of the two companies would come with a set of "gives"; I was startled that each stakeholder meeting invariably included a set of "asks" from the government. Case in point: parts supplier Delphi, which hoped for government assistance even though nearly 90% of its workforce was outside the U.S. An important part of our job was going to be to convince the stakeholders that the government wasn't going to be everyone's piggy bank. I found it frustrating that so many pundits were suggesting that the government stay on the sidelines and let the two companies fend for themselves. With financial markets still largely frozen and no private capital available, there was no question that both would have slid into bankruptcy, run out of cash, closed their doors, and liquidated. As early as January, I had doubted whether fundamental restructurings could be accomplished outside of bankruptcy. Everyone knew Detroit's reputation for insular, slow-moving cultures. Even by that low standard, I was shocked by the stunningly poor management that we found, particularly at GM, where we encountered, among other things, perhaps the weakest finance operation any of us had ever seen in a major company.The cultural deficiencies were equally stunning. At GM's Renaissance Center headquarters, the top brass were sequestered on the uppermost floor, behind locked and guarded glass doors. Executives housed on that floor had elevator cards that allowed them to descend to their private garage without stopping at any of the intervening floors (no mixing with the drones). In my relatively few interactions with chairman and CEO Rick Wagoner, I found him to be likable, dedicated, and generally knowledgeable. But Rick set a tone of "friendly arrogance" that seemed to permeate the organization. Certainly Rick and his team seemed to believe that virtually all of their problems could be laid at the feet of some combination of the financial crisis, oil prices, the yen-dollar exchange rate, and the UAW. It seemed completely obvious to us that any management team that had burned through $21 billion of cash in a year and another $13 billion in the first quarter of 2009 could not be allowed to continue. Equally important, GM's February viability plan was more "business as usual" and not the aggressive new approach that we felt was essential. Like any patient that undergoes major surgery, a successful recovery is far from assured. For Chrysler, the biggest challenges are its need to regenerate its product line and manage a significantly leveraged balance sheet. In the case of GM, the overarching question is whether, without an infusion of new blood, its management team can implement the massive cultural change that is essential. But by dramatically lowering the break-even point for both companies, we believed we were creating a healthy margin for error.

House Attacks Fed, Treasury Political frustration over the rescue of Wall Street and high unemployment erupted in the House Thursday, with one committee threatening to impose tighter scrutiny on the Federal Reserve and another trading verbal insults with Treasury Secretary Timothy Geithner.The House Financial Services Committee voted, 43-26, to approve a measure sponsored by Texas Republican Ron Paul, vociferously opposed by the Fed, that would direct the congressional Government Accountability Office to expand its audits of the Fed to include decisions about interest rates and lending to individual banks. The Fed says the provision threatens its ability to make monetary policy without political interference.

What Geithner Got Right It’s amazing to go back and read what people were saying about Timothy Geithner in the spring. Many people said he looked terrified as the Treasury secretary, like Bambi in the headlights. The New Republic ran an essay called “The Geithner Disaster.” Portfolio magazine ran a brutal, zeitgeist-capturing profile that concluded by comparing Geithner to Robert Redford’s hollow man character in “The Candidate.”The criticism of his plan to stabilize the financial system came from all directions. House Republicans called it radical. Many liberal economists thought the plan was the product of hapless, zombie thinking and argued that only full bank nationalization would end the crisis. The Wall Street Journal asked 49 economists to grade Geithner. They gave him an F.Well, the evidence of the past eight months suggests that Geithner was mostly right and his critics were mostly wrong. The financial sector is in much better shape than it was then. TARP money is being repaid, and the debate now is what to do with the billions that were never needed. It now seems clear that nationalization would have been an unnecessary mistake — potentially expensive and dangerously disruptive.The course of events has vindicated the administration’s handling of its first big challenge.

Partisan Bickering is not the Solution for Fostering Economic Growth The main theme of the opinion piece by Representatives Hensarling and Ryan from Texas and Wisconsin, respectively, in today’s Wall Street Journal (Jeb Hensarling and Paul Ryan: Why No One Expects a Strong Recovery - WSJ.com) is poor economic policy choices of the current administration. To make their case they focus on the Reagan administration’s successful economic policies. The success/failure of economic policy choices can be measured by various metrics. It is well known that the federal budget deficit as a percentage of GDP during the Reagan years has been the largest in the entire post-war period ending 2008 (see chart 1). Therefore, from a fiscal perspective, the perceived success of economic policies of the 1981-1988 period is not a resounding success. Therefore, economic history paints a very different picture from the opinion piece of representatives Hensarling and Ryan. Should political leaders be engaged in partisan rhetoric or in a serious discussion of how to make policy choices that will foster sustained economic growth?

• Republican Deficit Hypocrisy

Paul Krugman Protests Too Much Me Thinks Two excellent posts from Paul Krugman today and yesterday about why for substantive and technical reasons the federal deficit and debt aren't the threats to the economy some say they are.  I agree; substantively there is little to complain about.  The fiscal policy in place over the past year has been a success by any objective measure. But the next to last word in that last sentence -- "objective" is the key.  No matter how much we might wish it to be otherwise, this is anything but an objective discussion. The federal budget deficit and debt are political rather than technical issues and that means dealing with fact isn't likely to change many minds.

Recovery, Policy, Outlook: Status Review

No Recovery in Sight How do you put together a consumer economy that works when the consumers are out of work? One of the great stories you’ll be hearing over the next couple of years will be about the large number of Americans who were forced out of work in this recession and remained unable to find gainful employment after the recession ended. We’re basically in denial about this. There are now more than five unemployed workers for every job opening in the United States. The ranks of the poor are growing, welfare rolls are rising and young American men on a broad front are falling into an abyss of joblessness. Some months ago, the Obama administration and various mainstream economists forecast a peak unemployment rate of roughly 8 percent this year. It has already reached 9.4 percent, and most analysts now expect it to hit 10 percent or higher. Economists are currently spreading the word that the recession may end sometime this year, but the unemployment rate will continue to climb. That’s not a recovery. That’s mumbo jumbo.

Why this rampant joblessness is not viewed as a crisis and approached with the sense of urgency and commitment that a crisis warrants, is beyond me. The Obama administration has committed a great deal of money to keep the economy from collapsing entirely, but that is not enough to cope with the scope of the jobless crisis. There were roughly seven million people officially counted as unemployed in November 2007, a month before the recession began. Now there are about 14 million. If you add to these unemployed individuals those who are working part time but would like to work full time, and those who want jobs but have become discouraged and stopped looking, you get an underutilization rate that is truly alarming. “By May 2009,” according to the Center for Labor Market Studies at Northeastern University in Boston, “the total number of underutilized workers had increased dramatically from 15.63 million to 29.37 million — a rise of 13.7 million, or 88 percent. Nearly 30 million working-age individuals were underutilized in May 2009, the largest number in our nation’s history. The overall labor underutilization rate in May 2009 had risen to 18.2 percent, its highest value in 26 years.” If it were true that the recession is approaching its end and that these startlingly high numbers were about to begin a steady and substantial decline, there would be much less reason for alarm. But while there is evidence the recession is easing, hardly anyone believes a big-time employment turnaround is in the offing. Three-quarters of the workers let go over the past year were permanently displaced, as opposed to temporarily laid off. They won’t be going back to their jobs when economic conditions improve. And many of those who were permanently displaced were in fields like construction and manufacturing in which the odds of finding work, even after a recovery takes hold, are not good. This is not a recipe for a strong economic recovery once the recession officially ends, or for a healthy society. Young males, especially, are being clobbered at an age when, typically, they would be thinking about getting married, setting up new households and starting families. Moreover, work habits and experience developed in one’s 20s often establish the foundation for decades of employment and earnings. We’ve seen what happens when you rely on debt and inflated assets to keep the economy afloat. The economy can’t be re-established on a sound basis without aggressive efforts to put people back to work in jobs with decent wages.

Stay the Course The debate over economic policy has taken a predictable yet ominous turn: the crisis seems to be easing, and a chorus of critics is already demanding that the Federal Reserve and the Obama administration abandon their rescue efforts. For those who know their history, it’s déjà vu all over again — literally. For this is the third time in history that a major economy has found itself in a liquidity trap, a situation in which interest-rate cuts, the conventional way to perk up the economy, have reached their limit. When this happens, unconventional measures are the only way to fight recession. Yet such unconventional measures make the conventionally minded uncomfortable, and they keep pushing for a return to normalcy. In previous liquidity-trap episodes, policy makers gave in to these pressures far too soon, plunging the economy back into crisis. And if the critics have their way, we’ll do the same thing this time. The first example of policy in a liquidity trap comes from the 1930s. The U.S. economy grew rapidly from 1933 to 1937, helped along by New Deal policies. America, however, remained well short of full employment. Yet policy makers stopped worrying about depression and started worrying about inflation. The Federal Reserve tightened monetary policy, while F.D.R. tried to balance the federal budget. Sure enough, the economy slumped again, and full recovery had to wait for World War II. The second example is Japan in the 1990s. After slumping early in the decade, Japan experienced a partial recovery, with the economy growing almost 3 percent in 1996. Policy makers responded by shifting their focus to the budget deficit, raising taxes and cutting spending. Japan proceeded to slide back into recession. And here we go again.

• Jobless Feel Effects of States' Stimulus Rejection
• Flow of Stimulus Funds Slightly Exceeds Forecast

Calls for More Stimulus Grow in U.S. Vice President Joe Biden said the Obama administration "misread how bad the economy was" and didn't foresee unemployment levels nearing double digits, in comments likely to intensify calls for the administration to do more to counter job losses. Some economists are pressing the White House to enact a second round of stimulus spending or find some other way to avert a prolonged job and wage slump. But the White House is in a tough spot. Officials want to give the $787 billion stimulus package passed in February time to work -- only 10% of the spending is out the door so far -- and there is little appetite in Congress, particularly among Republicans, for spending more money at a time of record deficits. The gloomy job picture threatens any economic recovery. The unemployment rate hit 9.5% last month, figures released last week show, and many now expect it to stay high for a long time, eventually reaching double digits. At the same time, wage growth is slumping. People facing unemployment or wage cuts are less able or willing to spend the money needed to stimulate the economy. Already, job losses are hindering recovery in the housing market as foreclosures among people with good credit who have been laid off compound the problems with risky mortgages that triggered the sector's implosion. "They're in a bind because the recovery package is just starting to generate positive benefits but, to the extent we know something about the future, unemployment is too high and is going to stay high for a long period," said Lawrence Mishel, president of the Economic Policy Institute, a left-leaning Washington think tank. "When we hit 10% unemployment, which we will within months...even those who don't lose a job will be affected by the squeeze on wage growth, furloughs and the cutbacks in [retirement] plans," he said. White House economists are discussing whether a second round of stimulus is needed, but a decision isn't expected until at least the fall. "We remain focused on putting thousands of Americans back to work" through implementation of the February stimulus act, an administration official said Sunday. "Any discussion of a second stimulus is premature at this point." That timetable isn't fast enough for some economists, who say quick action is necessary to avoid a protracted period of joblessness.

Stimulus Said to Be Moving Faster The Obama administration says it has been on a "learning curve" with the economic-stimulus package but has now figured out how to spend some of the available billions more quickly. Many tax cuts, which account for a third of the $787 billion package, have already taken effect. But only $60.4 billion of the remaining $499 billion has been spent. Most of the money was always likely to be spent this summer at the earliest as departments wrestled with the increased workload and new requirements imposed by the bill. The White House isn't changing its goal of spending 70% of the funds by September 2010. But amid worries about steep unemployment, the White House has been pressuring agencies to get some money out the door more quickly. "It was a learning curve and as we learned more we were able to accelerate more," said Ed DeSeve, a senior White House adviser. The Department of Education, for example, scrapped the idea of giving $8.8 billion of general aid to states in two phases and decided to send them all the money after their application was approved. The Department of Labor said it had distributed the bulk of its $38.5 billion in stimulus money within 30 days of the law's enactment, but that "it takes time" for states, in turn, to move the money. The White House told agencies to find ways to cut red tape, both for making large transfer payments to states and running big competitions for grants. Agencies were also instructed to work more closely with states to help them spend the money once they received it. Some agencies have indicated there isn't much more they can do. At the Commerce Department, a senior official said the time frame for a competition to give out about $4.7 billion in grants to build broadband networks had been condensed. But in an effort to make the money widely available, the department is deliberately staggering the pace at which it gives out the grants, giving more groups chances to apply. Another $1 billion of the agency's $7.9 billion will be spent next year for the 2010 Census.

• Obama's Stimulus Money Starts Flowing to Projects as Jobless Await Results

Stimulus: What's been spent, what hasn't The $787.2 billion stimulus plan is a lightning rod for criticism and second guessing, but love it or hate it, the massive program's funds are flowing as planned. According to Obama administration figures that date back to July 31, $240.4 billion, or more than 29%, of stimulus funds are now available for use. That's better than the roughly 25% that the Obama administration estimated for the end of July. Just $120.4 billion, or 15% of the stimulus total, has actually been paid out so far, meeting the administration's expectations that stimulus spending would be about $100 billion per quarter through September 2010. "Available for use" means that federal agencies have set aside fund for approved stimulus projects. "Paid out," in many instances, means that federal agencies have given states or contractors the money for projects. It does not necessarily mean that the money has been spent -- most of those figures are not available. Obama administration officials say the government is on pace, and in some areas ahead of pace, to spend about a quarter of the stimulus funds by the end of 2009 and 70% by the end of 2010. They also stand by their claim that stimulus will have saved or created 750,000 jobs by Sept. 4 -- the 200th day since the bill's passage. In a speech delivered Thursday, leading administration economist Christina Romer estimated that stimulus saved or created 485,000 jobs in the second quarter and added 2.3 percentage points of growth to GDP. Still, there are critics on both sides of the issue: some say the flow of funds is too slow while others say it is too fast. Nevertheless, the current speed is in many instances faster than what the bill ordained."The whole reason why we needed to pass the bill right away was because the economy needed it, but we knew the provisions wouldn't be implemented right away," said Dan Clifton, head of policy research at Strategas Research Partners. "The bill put the bulk of the tax relief up front, with most of the spending in back end." But Romer said that will only help stabilize the economy over the long haul, as she estimated direct investments have a 60% larger effect on the economy than tax cuts. Here's a closer look at how many key stimulus provisions are playing out.

• 'I am very grateful for stimulus'
• Economists rate Obama
• Just 12 Percent of Stimulus Money Has Been Spent
• Stimulus Spending Fails to Follow Unemployment, Poverty
• New Feature: Tracking Stimulus Spending—Made Easy!

White House: Glass is half full  Five months into the act, Council of Economic Advisers Chair Christina Romer said the act is "absolutely" working as intended and blasted critics who have taken shots at its effectiveness. "After we administered the medicine, an economy that was in free fall has stabilized substantially, and now looks as though it could begin to recover in the second half of the year," said Romer in remarks prepared for delivery to the Economic Club of Washington. Signed by Obama in February, the act along with actions taken by the Treasury and the Federal Reserve to stabilize financial markets and the housing sector, "is helping to slow the decline and change the trajectory of the economy," Romer said. Romer cited several economic statistics as evidence that the stimulus has been effective, including a slowing of the decline of growth in the second quarter to 1% from 6.4% in the first quarter. Job losses are also improving, though still "horrendous," she said. In the second quarter, the U.S. lost an average of 436,000 jobs a month, compared to an average of 700,000 jobs a month in the first quarter. "This rate of job loss is horrendous," Romer said. "But the change does suggest that we are on the right trajectory." The timing and strength of the changes in growth and employment, said Romer, "is highly suggestive that the stimulus has been important." Some Republicans and local officials around the country have criticized the stimulus package, saying it hasn't given the economy the boost it was intended to and that it isn't flowing quickly enough to cities.On Wednesday, for example, Dallas Mayor Tom Leppert said his city isn't getting the money it was promised. Dallas was promised more than $108 million in stimulus funds, but "we haven't received any dollars, and if you look across the country, that's the same situation," Leppert told council members during a briefing on the stimulus, according to a report in the Dallas Morning News.Romer, meanwhile, said the impact of the stimulus is almost certain to increase in the next several quarters. She said the White House expects the fiscal stimulus to be about $100 billion in each of the next five quarters. And although Romer was upbeat about growth prospects, she cautioned that there would be continued job losses ahead. The July employment report is due out Friday morning, and economists surveyed by MarketWatch are expecting a loss of 275,000 jobs in the month

Maligning the Stimulus Apparently not bothered by facts, some congressional Republicans are already claiming that President Obama's $787 billion stimulus package has failed and are even advocating that some of the remaining scheduled steps in the legislation be canceled. In medicine, that would be malpractice. In politics, it's demagoguery. In reality, we need to stay the course. The simple truth is that even the voracious U.S. government cannot spend $787 billion quickly. Spending from the stimulus legislation is running pretty much in line with what the Congressional Budget Office projected when the bill was passed -- which was 24 percent in fiscal 2009 (which ends Sept. 30) and an additional 50 percent in fiscal 2010, or 74 percent in about 18 months. These are still early days for a bill Congress passed only six months ago, but the stimulus has already had a notable impact. The average estimate of three private forecasting firms is that the stimulus added about 2 1/2 percentage points to the annualized GDP growth rate in the second quarter. (If that sounds too high, remember it means adding only about 0.6 percent to the level of GDP.) The consensus of the three firms is that the impact on third-quarter growth will be a bit larger. As they say on the farm, that ain't hay. But let's put those numbers into perspective. The advance estimate of second-quarter GDP growth came in at negative 1 percent. That's a poor performance; we went downhill rather than uphill. But it marked a huge improvement over the disastrous first quarter (negative 6.4 percent growth) and the two quarters before that. Using the aforementioned estimates, fiscal stimulus accounted for about half of the improvement from the first quarter to the second. We are now in the third quarter, when the importance of the stimulus is likely to be even greater. In fact, its estimated growth impact (about 3 percentage points) actually exceeds the consensus forecast for third-quarter growth -- meaning that, according to current expert opinion, the stimulus will account for more than 100 percent of GDP growth this quarter.

Paper Avalanche Buries Plan to Stem Foreclosures Ms. Montenegro and her colleagues suffer these sorts of excruciating exchanges all day long. It is a potent indication of the difficulties afflicting the $75 billion taxpayer-financed program created by the Obama administration in an effort to avoid foreclosure for as many as four million distressed homeowners. Under the plan, the government offers mortgage companies $1,000 for each loan they agree to modify, then another $1,000 a year for up to three years. Hanging in the balance is more than the fate of individual homeowners. The administration portrays its mortgage program as a crucial piece of its broader effort to restore vigor to the economy. If the effort fails, foreclosures will continue to surge and home prices will probably keep falling, sowing fresh losses in the financial system and threatening to crimp credit anew for businesses and households. Yet in the four months since the Treasury Department announced the program, millions of new homeowners have slipped into delinquency and foreclosure. For now, progress is constrained by the limited capacities of mortgage servicing companies, said Michael S. Barr, the assistant Treasury secretary for financial institutions. He offered the first signs of the administration’s impatience with the institutions that control home loans. “They need to do a much better job on the basic management and operational side of their firms,” Mr. Barr said. “What we’ve been pushing the servicers to do is improve their infrastructure to make sure their call centers are doing a better job. The level of training is not there yet.”

Time to Click and Drag Car Sales Into the 21st Century I had a dream the other night. Shopping for a new car, I logged on to a manufacturer's Web site. I found the model I wanted and clicked on my options. Days later, a deliveryman showed up with the car and the relevant paperwork. But then I woke up, back in the real world, where the only way to get a new car is to go to a dealer and haggle with a salesman who keeps ducking out to "check with the manager." In the real world, my dream -- ordering straight from the factory -- is illegal. State laws forbid anyone but a licensed local dealer to sell new cars. I had this dream because Congress is considering the Automobile Dealer Economic Rights Restoration Act. It would reinstate hundreds of dealers terminated by General Motors and Chrysler under the terms of their federally financed bankruptcies. The Obama administration demanded the cuts because the companies have no chance of being competitive otherwise. Toyota's far less numerous dealers sell more cars than do the Detroit Big Three's dealers. But, just as union rules limit GM and Chrysler's control of production, state-protected dealer prerogatives limit the companies' control of distribution. Only bankruptcy law enabled the firms to trump these state laws. Independent analysts agree with the administration. And without the bailouts, there would be zero GM and Chrysler dealers, not just fewer. But many dealers are angry anyway…

Europe Turns to Job-Saving Measures Rising European unemployment has business and government looking to offset the pain, and some of the solutions belie the region’s reputation for inflexibility. A report released Monday by the European Union found that some 1.9 million jobs were lost in the first quarter, the worst drop since figures were first collected starting in 1995. The unemployment rate was 8.6 percent in April, up from 6.8 percent a year earlier. But analysts and labor experts say the figures would have been even starker without some of the job-saving measures used to combat the worst recession in decades. “Collectively, workers and employers are finding some other solutions” to job cuts, said Andrew Watts, a senior researcher at the European Trade Union Institute, a body based in Brussels financed by unions to research labor issues. Many countries have short-time compensation programs, tailored for the manufacturing sector, under which employers can apply for temporary assistance to lift the wages of workers working reduced hours.

History, Issues and Cases

Blue-collar America Today GM’s bankruptcy is a symbol of the travails of those same workers. Few working men can support their families without their wives working. Even fewer can expect to retire after just 30 years on the job. Detroit has seen its population collapse from 1.85m in 1950 to 917,000 today. That number will surely shrink further as GM implements its plans to close down another half-a-dozen factories and sack another 20,000 workers. A city that was once a symbol of working-class home-ownership is already full of boarded-up houses and abandoned lots. The current recession is hitting blue-collar Americans much harder than the masters of the universe on Wall Street who have grabbed so many of the headlines. Almost 6m jobs have been lost since the recession began in late 2007. About 70% of those job losses are accounted for by blue-collar Americans, and most of them are men. The unemployment rate in construction, for example, is around 19%. This comes on the heels of 30 dismal years. Blue-collar wages have been almost stagnant since the days of Jimmy Carter; and for men they have declined. Julia Isaacs of the Brookings Institution calculates that, between 1974 and 2004, median wages for men in their 30s, adjusted for inflation, fell by 12% from $40,000 to $35,000, at a time when median female wages were rising. It is hard to relate this story without feeling sympathy for blue-collar America, and hard not to hope that Mr Obama will do something to improve the lot of those voters with whom he found it so tricky to communicate during the election. He certainly claims that reducing income inequalities and filling the gaps in America’s health-care system are at the heart of his domestic agenda, though these will be of more benefit to poor people than to blue-collar ones. But it is worth keeping two things in mind. The first is that the foundations of blue-collar America have all crumbled. Global competition, first from Japan and now from almost everywhere, has transformed manufacturing. Even shop-floor workers are expected to work with their brains as well as their hands, as flexible production replaces mass production. And a growing number of women expect to work. In fact, the golden age of blue-collar man was the product of a peculiar set of circumstances, when Europe and Japan were on their backs, mass-production ruled in the factories and a small number of companies could dominate the American economy. The second is that those blue-collar workers bear much of the responsibility for their own fate. This is particularly true in the car industry, which tended to set the pattern for much of the rest of the American economy. Trade unions frequently hampered their industries with rules that blocked more flexible and productivity-boosting manufacturing techniques (the United Auto Workers’ book of work rules ran to 5,000 pages). They also imposed unsustainable costs on their industries. In 1970 400,000 car workers—one in every 200 workers in America—went on strike for two months in order to wring job-destroying concessions out of GM.

• A hobbled march forward 
• The Jobs Aren't Coming Back Anytime Soon
• Economic Recovery: Will Corporate Profits Recoup? 

America’s Sea of Red Ink Was Years in the Making There are two basic truths about the enormous deficits that the federal government will run in the coming years. The first is that President Obama’s agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying. The second is that Mr. Obama does not have a realistic plan for eliminating the deficit, despite what his advisers have suggested. The New York Times analyzed Congressional Budget Office reports going back almost a decade, with the aim of understanding how the federal government came to be far deeper in debt than it has been since the years just after World War II. This debt will constrain the country’s choices for years and could end up doing serious economic damage if foreign lenders become unwilling to finance it. Mr. Obama — responding to recent signs of skittishness among those lenders — met with 40 members of Congress at the White House on Tuesday and called for the re-enactment of pay-as-you-go rules, requiring Congress to pay for any new programs it passes. The story of today’s deficits starts in January 2001, as President Bill Clinton was leaving office. The Congressional Budget Office estimated then that the government would run an average annual surplus of more than $800 billion a year from 2009 to 2012. Today, the government is expected to run a $1.2 trillion annual deficit in those years. You can think of that roughly $2 trillion swing as coming from four broad categories: the business cycle, President George W. Bush’s policies, policies from the Bush years that are scheduled to expire but that Mr. Obama has chosen to extend, and new policies proposed by Mr. Obama.  The first category — the business cycle — accounts for 37 percent of the $2 trillion swing. About 33 percent of the swing stems from new legislation signed by Mr. Bush. That legislation, like his tax cuts and the Medicare prescription drug benefit, not only continue to cost the government but have also increased interest payments on the national debt. Mr. Obama’s main contribution to the deficit is his extension of several Bush policies, like the Iraq war and tax cuts for households making less than $250,000. Such policies — together with the Wall Street bailout, which was signed by Mr. Bush and supported by Mr. Obama — account for 20 percent of the swing. About 7 percent comes from the stimulus bill that Mr. Obama signed in February. And only 3 percent comes from Mr. Obama’s agenda on health care, education, energy and other areas. If the analysis is extended further into the future, well beyond 2012, the Obama agenda accounts for only a slightly higher share of the projected deficits.

• How $Trillion Were Created
• Economix: How We Crunched the Deficit Numbers

The Great Unwinding Here’s one way to look at the politics of our era: We’ve moved from The Age of Leverage to The Great Unwinding. For about a generation, the U.S. surfed on a growing wave of debt. The ratio of debt-to-personal-disposable income was 55 percent in 1960. Since then, it has more than doubled, reaching 133 percent in 2007. Total credit market debt — throwing in corporate, financial and other borrowing — has risen apace, surging from 143 percent of G.D.P. in 1951 to 350 percent of G.D.P. last year. Charts that mark these trends are truly horrifying. There is a steady level of debt through most of the 20th century, until the mid-1980s. Then there is a steep accelerating rise to today’s epic levels. The economic challenges will be hard. Reuven Glick and Kevin J. Lansing of the San Francisco Fed estimate that Americans will have to increase their household savings rate from 4 percent to 10 percent by 2018 to restore balance. That, they write, will produce “a near-term drag on overall economic activity.” Meanwhile, capital and labor will have to flow from sectors that depend on discretionary consumption to sectors based on research and investment. But it’s the political challenges that will be most hellacious. Basically, everything that a politician might do to make voters happier in the near term will have horrible long-term consequences. Stimulate the economy too much now and you wind up with ruinous inflation down the road. Preserve failing companies and you wind up with Japanese stagnation. Cushion the decline in living standards with easy money now and you just move from a housing bubble to a commodities bubble. The members of the political class face a set of monumental tasks. First, they have to persuade a country to postpone gratification for the sake of rebuilding the country. This country hasn’t accepted sacrifice in 50 years. Second, political leaders will have to raise taxes and cut spending to get the federal fiscal house in order, and they will have to do it at a time when voters are already scaling back their lifestyles. Congressional leaders have been fixated on short-term conventional priorities throughout this entire episode. There is no evidence that the power brokers understand the fundamental transition ahead. They are practicing the same self-indulgence that got us into this mess.

Paul Krugman's fear for lost decade Will Hutton: You are warning that what happened to Japan could happen to the whole world. Japan's GDP at the end of this year will be no higher than it was in 1992 - 17 lost years. You are saying that this is an ongoing risk, certainly for the North Atlantic economy - maybe the world economy. Paul Krugman: Yes. It's not that the risk of the Japan syndrome has receded very much. The risk of a full, all-out Great Depression - utter collapse of everything - has receded a lot in the past few months. But this first year of crisis has been far worse than anything that happened in Japan during the last decade, so in some sense we already have much worse than anything the Japanese went through. The risk for long stagnation is really high…. The size of the shock to our systems is going to be much bigger than what happened to Japan in the 1990s. They never had a freefall in their economy - a period when GDP declined by 3%, 4%. It is by no means clear that the underlying differences in the structure of the situation are significant. What we do know is that the zero bound is real. We know that there are situations in which ordinary monetary policy loses all traction. And we know that we're in one now. WH: So your point is that the crisis in Japan was about excess debt, excess leverage and lack of demand - reinforced by the fallout from the asset bubble collapsing. They didn't have credit contraction on anything like our scale, but even so, zero interest rates were just unable to turn the economy around. WH: I think we know more than that. The links between bank capital, loan losses, credit availability and economic activity and asset prices have never been clearer. That was why there was a threat of Depression. PK: Clearly, re-establishing stability in the financial markets is a necessary condition for recovery. But we're not sure it's sufficient. WH: That's very scary. PK: Well, that is part of the reason why I am so depressed. WH: In one of your lecture charts you seemed to be suggesting that we're 12 months into what you think could be a 36-month period of downturn, albeit at a slower rate. PK: Easily. WH: It's quite shocking that you think it will be that severe. PK: If we measure the 2001 US recession by when the labour market finally started to turn around, it was a 30-month recession. It was really 30 months in before you started to see the unemployment rate come down.

Partisan Economics in Action When I asked Dale Jorgenson, the eminent expert on productivity (and a Republican), what had been the positive aspects of President George W. Bush’s economic policy, Mr. Jorgenson said, “I don’t see any redeeming features, unfortunately.” After Republicans opposed the stimulus package this year, The Financial Times, not exactly a liberal organ, called the party’s ideology harebrained. When Olympia Snowe was recently explaining why she might be the only Republican senator to vote for health reform, she suggested it was because her party had moved so far to the right. But perhaps the most persistent — and thought-provoking — conservative critic of the party has been Bruce Bartlett. Above all, however, he thinks that the Republican Party no longer has a credible economic policy. It continues to advocate tax cuts even though the recent Bush tax cuts led to only mediocre economic growth and huge deficits. (Numbers from the Congressional Budget Office show that Mr. Bush’s policies are responsible for far more of the projected deficits than Mr. Obama’s.) On the spending side, Republican leaders criticize Mr. Obama, yet offer no serious spending cuts of their own. Indeed, when the White House has proposed cuts — to parts of Medicare, to an outdated fighter jet program and to subsidies for banks and agribusiness — most Republicans have opposed them.  How, Mr. Bartlett asks, is this conservative? How is it in keeping with a party that once prided itself on fiscal responsibility — the party of President Dwight Eisenhower (who refused to cut taxes because the budget wasn’t balanced) or of the first President Bush (whose tax increase helped create the 1990s surpluses)? “So much of what passes for conservatism today is just pure partisan opposition,” Mr. Bartlett says. “It’s not conservative at all.”

ARRA Assessment and Outlook

Geithner Sees 'Long Way to Go'  A year after the peak of the financial crisis, the U.S. economy is no longer on the brink of disaster, Treasury Secretary Timothy Geithner said Thursday, but it still has a "long way to go" to recover. Mr. Geithner, testifying before an oversight panel reviewing the government's financial-rescue efforts, sought to encourage optimism about the state of the economy while reinforcing the need for policymakers to continue their clean-up efforts. The latter will be necessary if the Obama administration is to be successful in its ambitious proposal to overhaul regulation of financial markets. "The classic errors of economic policy during crises are to act late with insufficient force and then put the brakes on too early. We are not going to repeat those mistakes," Mr. Geithner said in testimony before the Congressional Oversight Panel. One year removed from chaos in the financial markets, Mr. Geithner said he sees significant signs for optimism: banks have raised billions of dollars in capital and are repaying government aid; credit is more available; and the consensus among private forecasters is that the economy may be growing. "We are now in a position to evolve our strategy as we move from crisis response to recovery, from rescuing the economy to repairing and rebuilding the foundation for future growth," Mr. Geithner said. Still, he also suggested much pain still remains to be felt. Mr. Geithner said the U.S. financial system still faces "substantial" headwinds, not the least because the Treasury expects foreclosures to continue at an aggressive pace for some time.

Economists See Road to Recovery  Economists in the latest Wall Street Journal forecasting survey mostly give the government solid marks for its handling of the financial crisis, saying the economy should begin adding jobs over the next 12 months. But they expect the unemployment rate won't peak until next year, indicating the pain for average Americans is hardly over. "We are in a technical recovery, but risks remain abundant," said Diane Swonk of Mesirow Financial. "It will still take some luck and skill to get Main Street to feel some of the relief Wall Street has felt." A year after Lehman Brothers Inc.'s collapse, economists graded the collective response from both the Bush and Obama administrations and the Federal Reserve with a median score of 80 out of 100. Two-thirds of respondents even expect the Treasury to eventually make a profit from its investments under the Troubled Asset Relief Program, which provided capital to banks, auto makers and American International Group to steady those firms during the crisis. Even though the recession may have ended, on average the economists expect the jobless rate, at 9.7% in August, to peak at 10.2% before slowly declining next year. While the economists forecast that the economy will add jobs over the next 12 months, the net increase is seen at a modest 200,000 over that period and the unemployment rate still is expected to be at 9.3% in December 2010. When asked about the biggest risk to the economy right now, 10 of the economists highlighted the weak jobs market. Ten economists were worried about the damaged financial system, and nine pointed to the fragile consumer sector. Seven economists said commercial real-estate woes were the biggest risk; none chose residential housing.

The ARRA's Progress Yesterday, the Council of Economic Advisers released the first of its mandated reports on the impact of the ARRA on economic activity. Based upon a variety of approaches (VAR, multiplier based), it concludes:

"...our multiplier analysis and estimates from a wide range of private and public sector forecasters confirm the estimates from the statistical projection analysis. There is broad agreement that the ARRA has added between 2 and 3 percentage points to baseline real GDP growth in the second quarter of 2009 and around 3 percentage points in the third quarter.

There is also broad agreement that it has likely added between 600,000 and 1.1 million to employment (again, relative to what would have happened without stimulus) as of the third quarter."

The CEA actually conducted a series of analyses. In conclusion, it appears to me that we have several pieces of information, from a variety of sources, that suggest a positive impact on 2009Q2 q/q growth stemming from the ARRA. In addition, if one were to do a meta-analysis of estimated impacts, it would seem to me likely that the mean impact would be in range estimated by CEA.

THE ECONOMIC IMPACT OF THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

As of the end of August, $151.4 billion of the original $787 billion has been outlaid or has gone to American taxpayers and businesses in the form of tax reductions. An additional $128.2 billion has been obligated, which means that the money is available to recipients once they make expenditures. The areas where stimulus has been largest in the first six months are individual tax cuts, state fiscal relief, and aid to those most directly hurt by the recession. That recovery funds have gone out rapidly certainly increases the probability that the Act has been effective in its first six months. Following implementation of the ARRA, the trajectory of the economy changed materially toward moderating output decline and job loss. The decomposition of the GDP and employment change by components or sector suggests that the ARRA has played a key role in this change of trajectory.

Estimates of the impact of the ARRA made by comparing actual economic performance to the predictions of a plausible, statistical baseline suggest that the Recovery Act added roughly 2.3 percentage points to real GDP growth in the second quarter and is likely to add even more to growth in the third quarter. This analysis indicates that the ARRA and other policy actions caused employment in August to be slightly more than 1 million jobs higher than it otherwise would have been. We estimate that the Act has had particularly strong effects in manufacturing, construction, retail trade, and temporary employment services. The employment effects are distributed across states, with larger effects in states more severely impacted by the recession.

State fiscal relief was one of the ways in which the Recovery Act was able to provide support for the economy most quickly, and it played a critical role in helping states facing large budget shortfalls because of the recession. Our analysis indicates that state fiscal relief increased employment at the state level relative to what would have happened without stimulus. Thus, this analysis both provides evidence of how one particular type of fiscal stimulus impacts the economy and corroborates the more fundamental finding that fiscal stimulus in general is an effective countercyclical tool.

Schools Are Where Stimulus Saved Jobs, New Data Show The best symbol of the $787 billion federal stimulus program turns out not to be a construction worker in a hard hat, but rather a classroom teacher saved from a layoff. On Friday, the Obama administration released the most detailed information yet on the jobs created by the stimulus. Of the 640,239 jobs recipients claimed to have created or saved so far, officials said, more than half — 325,000 — were in education. Most were teachers’ jobs that states said were saved when stimulus money averted a need for layoffs. Although the stimulus was initially sold in large part as a public works program, only about 80,000 of the jobs that were claimed Friday were in construction. Of course, counting jobs that were saved can be a squishier proposition than counting jobs that were created. Teachers have been laid off in some areas — and budget officials say that there would have been more layoffs without the stimulus money — but it is difficult to say with certainty how many teachers would have been laid off without that money. Indiana, for example, reported saving or creating 13,232 education jobs with its stimulus money, but Cris Johnston, the director of the government efficiency division of the state budget office, said that it was difficult to say whether the state would have actually lost those jobs without the money.

Stimulus Fueled Much of Expansion The U.S. economy would have turned in a far worse performance in the third quarter without help from the federal government. Now the question is whether growth can continue without that support. Congress and the White House aren't yet ready to put that issue to the test. On Thursday, the Obama administration endorsed lawmakers' efforts to extend tax credits for home buyers for another five months and to make them available to more people. Even so, for the recovery to continue, "within two years at most, the private economy will have to wean itself off public stimulants and find its own internal sources of energy," said William Galston, a senior fellow at the Brookings Institution and former adviser to President Bill Clinton. More than one percentage point of GDP growth in the third quarter came from car sales, driven in a large part by the temporary "cash for clunkers" program. After surging in July and August, retail car sales dropped 10.4% in September, suggesting the auto sector won't provide such a big boost again any time soon. Spending in the third quarter was also propped up by home building, which rose for the first time since 2005, by a whopping 23.4%, and contributed a half-percentage point to GDP growth. But much of the housing revival reflects government efforts to push down mortgage rates, prevent or at least slow foreclosures, and reward home buyers with tax credits. Goldman Sachs estimates that those efforts have pulled the national average home price 5% higher than it otherwise would be.

Stimulating thoughts, 3rd quarter edition The good news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should. The bad news from the new GDP report is that the fiscal stimulus seems to be working just about the way a sensible Keynesian approach says it should. OK, now for the bad news. What we’d really like to see isn’t just successful job creation; we’d like to see “pump-priming” or “jump-starting” — that is, we’d like to see stimulus jolting the economy into self-sustaining growth. It’s important to understand that this isn’t required to make stimulus worthwhile — it’s neither a prediction of the standard models nor a part of the basic welfare argument for stimulus. But it would be nice if it happened.And more to the point, if there isn’t a whole lotta jump-starting going on, the original judgment I and others reached — that the stimulus is way too small — stands. The key point from this table is that while most of the stimulus has yet to be spent, the rate of spending as a percentage of GDP is already fairly high (take that, Richard Posner), close to the maximum it will reach over the whole course of the plan. That means that we’ve already seen much if not most of the impact of the stimulus on growth.

• Growth and jobs
• What recovery should look like