Spaghetti Economics

The Big Point being lost in all the back and forth over the stimulus plan's flaws is this: there is no such thing as a perfect stimulus.

First, we don't really know what will work best, and second, no giant bill like this gets through Congress without massive amounts of unattractive stuff. But with consumer demand collapsing and business retrenching, government is the only entity that can lift demand in ways that avert a self-reinforcing downward spiral.

We need to throw lots of spaghetti against the wall, and fast -- and continue to throw lots of spaghetti against the wall for at least a few years. This is not a case against trying to make the spaghetti tossing as smart as we can -- it's just an acknowledgment that we're unlikely to know what's really best and the most important thing is the volume and speed of the spaghetti we start tossing. And yes, once we get things stabilized, we'll have to come back and figure out a pasta withdrawal diet (i.e. long term budget reform, slowing the growth of health care costs, raising taxes, etc). But that will be a comparatively good problem to have once we're past this mess.

Comments

[ProgressiveVoice]

Thanks much to all the people who say we should not pass a stimulus package and just let the debtors fail. I notice none of them bother to provide their addresses. Put your money where your mouth is and let me know where you live because I will be homeless in two weeks, thanks to the lack of jobs (out of work for over a year) so I need a place to stay. I already have to make do with one meal a day but without a home, I will lose the part time work-from-home job that allows me to eat at all.

[TinaFreeman]

To those who don't see the value in freeing up the credit logjam...

It is not about letting people deep in debt (or companies, for that matter) borrow more money they can't afford.

Credit has gotten so tight that credit-worthy businesses are having a hard time getting working capital lines. This has put many small businesses out of business, and put the crunch on many others, large and small. Jobs are lost.

The spread between US Treasuries and 30-year Prime (not stinky subprime) mortgages is the widest it has been in decades. People who might buy homes where rates should be right now if lending was normal (rates would be in the low 4%'s), aren't seeing those low rates. If they did, it would go a long way to stop the falling real estate market.

On top of the wide spreads between where prime mortgage securities and treasuries are trading, mortgage bankers in the PRIME business are having a horrible time borrowing money to make new mortgages. To make the most of their limited capacity, they do fewer loans at higher fees. Consumers lose.

Because of the crumbling securitization market, auto lenders cannot sell their auto loans. This means less credit for consumers to buy cars. Even people who can legitimately afford a car payment generally can't afford to pay cash. Consumers lose. Automakers lose. Jobs are lost.

Just a few examples..­.

[SeanGardner]

Hi Mr. Miller. I've been a serious fan of your work since 2004. And, I listen to your weekly podcast "Left, Right & Center" with Arianna Huffington, and Tony Blankley. I agree with your spaghetti analogy. That is the best this country will be able to do until this economic mess is stabilized.

I'd like to see your thoughts on this site more often sir. Like President Obama, your are an academic stud. There is a depth and scope to your thinking that is both impressive and refreshing.

I love your previous book "The Two Percent Solution: Fixing America's Problems in Ways Liberals and Conservatives Can Love". Its absolutely earth-shattering! Your chapter on teacher accountability in schools should be required reading for any serious-minded politician interested in reforming public education. Though teachers union may not like your ideas about "merit pay", I think their worth trying.

When the stimulus rhetoric dies down, and Obama turns to education, let's hope he implements some of your approaches. I'll be looking yfor your blog posts, and hopefully, more appearances for you on public affairs programming.

[CaroleKM]

I for one have a bad case of big bill fatigue.

TARP started out as 3 pages and $700B, and ended up at 450 pages and > $800B and fixed nothing it was supposed to fix, despite the jumping up and down that the economy would have been wiped out and we'd all be using feminine hygiene products for currency.

So now it's happening again, and each iteration takes OUT more good stuff, like expanding/funding programs already in existence - education, Head Start, etc and starts putting IN messing with weird policy initiatives that I don't know how well thought-through they really are (Health Care Database, anyone?) Big tax credits to people who buy a house or a car? Why not a washing machine? Or remodeling their existing houses?

Just hiring people to dig holes and fill them up again will stimulate the economy, but I think we can do something useful.

And whatever happened to raising taxes on the wealthy? That even the wealthy agreed to and voted for BHO at a higher rate?? A small tax increase would fix the deficit and pay for a lot of things we all agree we need, like infrastructure and education.

[Realization]

This is a bad analogy. What we need is a well-thought out combination of short and medium term measures designed to first get things going/prevent further deterioration and then invest for the future - as in green energy, conservation, pubic transit, etc. Tax cuts should be a minor part and we should even consider raising taxes on the rich, who aren't using the money well, and giving it to those who will use it for necessities. No problem with raising part if that is offset with equal or greater cuts for the middle class.

One thing we need to learn from the New Deal is that we have to be willing to experiment. There will be no perfect package. Ideology is out here. It is what works. So, the GOP can't handle it at all since they are tied to religious-like beliefs that just don't work.

[VikingQuest]

"First, we don't really know what will work best, and second, no giant bill like this gets through Congress without massive amounts of unattractive stuff."

First, maybe we should step back and go through it for more than a week before jamming it through.

Second, how sad is it that wasteful sepnding has become expected and normal?

[DannyDanson]

See you miss the point, this is a cylindrical downward spiral of our economy. What are you waiting to see, 1M unemplyment claims in a month, 2 % of small businesses shutter their doors, or 1/2 M more foreclosures. This economy is an aids patient, we know what happens if we do nothing. Forget more tax cuts, the CBO has noted that of all policy measures in this bill tax cuts has the lowest multiplier effect, in short tax cuts are a waste. Economists on both sides of the aisle know the dire situation we are in, and most responsible economists agree that a short Keynesian injection of public works capital will stabilize the downfall in the short term while congress tackles the housing crisis and the credit squeeze at he root of this problem. If we can stabilize the economy in the short term while developing measures to address the housing crisis, and creating a modern regulatory framework to rebuild consumer confidence in markets, we may be able to get through this without more suffering. Republicans are not concerned with wasting tax money, they're concerned with re-elections in 2010 after the American people for the first time in 20 years actually see the positive effects of a active and engaged government. Their ideology is fine for running your home finances, but not for sustaining a leading nation in the global community. The Grand Obstructionist Party is sabotaging gov't to make their case for a small one.

[Ironquill]

The metaphor is right, but I like the original version better, because this is simply a crappy economic and social predicament we are in. I run a small business and my credit line is being minutely "reviewed" by the bank for the first time, even though I have a 10 year relationship with them. Fortunately I have a backup plan, including thumbing my nose at the bank on the way out the door.
But the point is that this economic crisis touches every one but the very wealthy. Recently someone showed me the $30,000 price tag for a decorative item going into a child's room. Obviously some of us are immune to the current economic situation.
If we throw the pasta at the wall, we know the consequences will be unattractive but if we don't, a lot of innocent bystanders will be next on the list.
People with a modest nest egg left after this stock market debacle have the toughest call to make on this stimulus plan. If we don't throw the pasta there is little chance to have a growing economy and a means to recoup capital. If we do throw it, we will be devaluing our currency and our savings.
Makes you want to ask, how did we get into this mess?

[leftLibertarian]

The problem is that most of the spaghetti is being thrown at Wall Street. How about sending me some - say $100,000.0­0 worth - I'm not greedy.

[TonyMAN]

I say throw the Neo-Conservatives under the bus. I would if I were Obama. Hence eight years tooo late
when we could and should of turned this economy around before the wars and corporate corruption. The Global ecomony is hanging less than a thread, Unrest in Europe and the United States is sinking faster than the Titanic by the day and no doubt, we will take the rest of the world with us. You talk about Global unrest, the French & Russian and last but least the American Revolution fought against corporate-greed, deciet, murder and tyranical regimes. We are debating whether we should pull the lever or hold our breath. Bring Bush's Tyranical regime to trial. Bring these corporate thugs before Congress and charge them with underminding our own security at home as well as aboard. The real numbers of the unemployed have not surfaced. Some say 27 million as I write this. President Obama MUST Nationalized all the banks under the US goverment until we straighten this costly embarrassement out. When the market returns to normal give the banks back to the share holders and the new CEO's who will be paid under the $500,000, if we do not move. NOW we are fueling the flames of unrest the likes you and I have never seen before. I ask everyone out there, "how long can we hold on"?. I pray to Heaven, we must move judiciously to save our country.

[bdd]

Yeah there is a lot we know if we only look at the FDR era.

[MQ4474]

Good luck selling the treasuries to support all of this spaghetti slinging..­..

[grateful4thedead]

the libs don't see that the demand for treasuries is falling and may fall dramatically, thus pumping up interest so there goes your cheap 30 yr mortgages. by the way, all the big money is betting that the 30 yr yield will go waaaaaaayyy up!

alas, the Fed will end up buying the treasuries, which will further erode the dollar....­.maybe someday we will really see the effect of those overheated printing presses.

[boophus]

I say don't pass it , let the whole thing collapse and then point to the Republicans who felt tax cuts for the richest and the corporations were more important then creating jobs by building infrastructure. Tax cuts are only $ 1.03 of stimulus for every dollar spent. Food stamps is $1.73 & infrastructure is $1.45 +.

Tax cuts don't help anyone who isn't working. Raising taxes on the middle class helps no one. People who can have no consern for the poor , the unemployed and the losers in the recent bank meltdown aren't the moral Christians they claim to be. God does not give special status in heaven to the wealthy, those who step on others to gain that wealth and those who vindictive vipers who can't admit they were wrong. War is a money pit that does not expand economies - it devours them.

I am so fed up with the sanctimonious vipers who are the heart of the republican party. Lest you think I am railing against just strangers , my son is one and I am ashamed of him.

[DannyDanson]

All that means nothing if downward spiral isn't halted, we have tools to deal with inflation, we have none to deal with a depression. People think that the depression talk is fearmongering, due to the growth that our economy has experienced since the early 80"s but they fail to figure in the potential collaspe of the financial sector, which didn't exist before the last depression. These sectors are not safe nor liquid, the figures and numbers that conservatives quote are all out of context, givien the complexity of our current problem given the permeation of greed, irreponsibility and hidden risk still in the financial sector, that 350 Billion we gave the financial industry didn't go to new loans but to their survival, and the market has deteriated since then, and we have no idea of the financial situation now. For those well-to-do naysayers who suggest that we just wait and see, give it a break, just because this crisis is not affecting you personally doesn't give you the moral highground, count your blessing as such.

[userw014]

The spaghetti metaphor is just too much fun to not abuse.

"tender", "al dente","mmmm", "fast cooking", "angel hair pasta", and (my favorite and contribution) the FSM (Flying Spaghetti Monster, not Finite State Machine.)

Clearly, the Republicans don't care to throw spaghetti against the wall. Why? Is it because, once cooked, spaghetti is not stiff and straight? How should this be compared with the Bush Administration's Bungled Bank Bailout? I can easily see that being compared to letting some pots burn on the stove, and then spilling hot liquids all over the place.

Does macaroni have a place here? Rotini? Fettuccini? Lasagna?

Should marinara be considered somehow? Or is that too "red"? What about pesto? Or is that too "green"?

White flour? Whole Wheat? Gluten-Free Rice Pasta?

Contemplating this diversion is so much more enjoyable than fussing about the economy. At least, I can do something about pasta.

[ZimboChick]

lol *jumps up and down*

[KillgoreTrout43]

Dumb analogy.

[mcole]

short n succint...­i like!!

[dobberdoss]

"We need to throw lots of spaghetti against the wall, and fast -- and continue to throw lots of spaghetti against the wall for at least a few years. This is not a case against trying to make the spaghetti tossing as smart as we can -- it's just an acknowledgment that we're unlikely to know what's really best and the most important thing"

Please define "spaghetti? I hope you dont mean more pretend "tender"? The best thing we can do is let those of us in debt (including those greedy banks) fall over. What that does is LEAVE those with real wealth to continue the rebuild, that will be very few of us unfortunately BUT this is what must be done. Propping up our giant world "ponzi" scheme is not going to fix anything is it?, it's just going to delay it a few years(literally) and then make things painfully worse. If you continue on down the road you are heading then i'm afraid your doomed along with those countries that follow you.