sábado, 28 de fevereiro de 2009

2/28/09: Weekly Address

I.O.U.S.A.: Byte-Sized - The 30 Minute Version

Time For a New “New Deal”

from The Big Picture by

Marshall Auerback is a Denver, Colorado-based global portfolio strategist for RAB Capital plc and a Fellow with the Economists for Peace and Security (http://www.epsusa.org/). He is a frequent contributor to the blog, Credit Writedowns, and the Japan Policy Research Institute (www.jpri.org) and a new contributor to The Big Picture.


Time For a New “New Deal”

By Marshall Auerback

University of Texas Inequality Project
Lyndon B. Johnson School of Public Affairs
The University of Texas at Austin
Austin, Texas 78712

February 1, 2009


Historical revisionists have done much to dismiss the economic achievements of the New Deal, some even going so far as to suggest that FDR’s fiscal policies worsened the crisis. Such arguments have been made popular during the past 25 years by economists and historians keen to debunk the effectiveness of Keynesian economics in favor of the neo-liberal Washington Consensus. We suggest, on the contrary, that mainstream economics and policy have been unable to come to grips with our current socio-economic problems because of a lack of historical memory.

In particular, the key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. Including such ‘workfare’ recipients as employed presents a radically different picture for the New Deal, showing unemployment dropping by almost two-thirds from a high of 25%. Treating these men and women as unemployed while soldiers in Germany and France were treated as having jobs has made the Roosevelt administration’s economic performance appear uncompetitive, but it is fairer to argue that the people employed in government public works and conservation programs were just as authentically (and much more usefully) employed as draftees in what became garrison states. Meanwhile Roosevelt was rebuilding America at a historic bargain cost.

As President Barack Obama confronts the most serious economic crisis since the Great Depression, it behooves him to embrace the legacy of Franklin Delano Roosevelt and introduce a new “New Deal” as soon as possible.

Author Contact: MAuer1959-at-aol.com

Marshall Auerback is a global portfolio strategist for RAB Capital plc, a London-based fund management group.

As the current financial crisis has unfolded, Franklin Delano Roosevelt has been cited both for his talent at rallying the nation in crisis, and for the economic policies he used to lead the country through the Great Depression. In spite of recent attempts by diehard libertarian economists, particularly those of the Austrian school, to dismiss his achievements, we confess to sharing the enthusiasm recently expressed for the New Deal—as Professor Tom Ferguson characterized it, “that remarkable moment that gives the lie to all of today’s fashionable sneers about the impossibility of effective financial regulation and fiscal policy activism” (Ferguson and Johnson 2008). We feel that the new administration of Barack Obama would do well to embrace FDR’s economic legacy completely and introduce a new “New Deal” as the cornerstone of his economic policy as soon as possible. Is President Obama another Franklin Roosevelt, ready to embark on a radical remaking of the country’s political and social fabric?
We hope so. There is no shortage of projects and activities in which to invest: extended unemployment insurance, state fiscal relief, increased food stamp programs, and large scale infrastructure. No question, there will be more debt, lots and lots of it. But the alternative is far worse: years of double digit unemployment, increased financial fragility, massive bankruptcy and epidemic foreclosures. The question to be posed, surely, is: Ask not what it will cost to fund a new “New Deal”, ask rather what it will cost not to fund it?

President Obama now faces an economy in a severe and prolonged recession. Households will continue to face unaffordable mortgage and other debt, declining value of their homes, risk of debt default or foreclosure, tight access to credit with stringent borrowing conditions, erosion of their retirement savings amid a crashing stock market, lay-offs which may well take the unemployment rate to the double digit levels of the late 1970s – not to mention critical foreign policy challenges. In particular, consumer spending, long the driver of American economic growth, has contracted at rate matched in only one other quarter since records were first kept in 1947.

There appears to be little doubt today that Federal Reserve Chairman Ben Bernanke has internalized the lessons of the Great Depression and taken a large number of measures on the monetary front. In the words of his famous November 2002 speech, “Deflation: Making Sure ‘It’ Doesn’t Happen Here:” “ to prevent significant deflation in the United States and, moreover, that the U.S. central bank, in cooperation with other parts of the government as needed, has sufficient policy instruments to ensure that any deflation that might occur would be both mild and brief”. (Bernanke, 2002) Consequently, focus must now revert to fiscal policy.

Immediate challenges for Obama will include cushioning consumers from the economic slowdown by means of a large fiscal stimulus package and acting on a government guaranteed mortgage modification program. He has also called for grants for state and local governments, infrastructure spending to create jobs, tax cuts for lower income-groups and small businesses and on unemployment insurance, tax credits for firms that create jobs and government aid for the ailing auto industry. Part of his campaign program would allow households to draw up to $10,000 from retirement funds during 2008-09 without any tax penalty. During the campaign Obama also called for a ninety-day moratorium on foreclosures, modification of bankruptcy laws, a $10 billion foreclosure-prevention fund and 10% mortgage tax credit for the middle-class. Equally, he has criticized the manner in which so much taxpayer money has been lavished on major money center banks, which in turn have persisted in paying exorbitant bonuses to their staff despite being recipients of significant taxpayer bailouts. Obama has strongly endorsed greater financial re-regulation, control and reporting, including the creation of a financial market oversight commission to oversee liquidity, capital and disclosure requirements and plans to streamlining regulatory agencies to reduce overlap and assign greater role to the Securities and Exchange Commission (SEC) to prevent market manipulation and to the Federal Reserve to carry out regulation.

One advantage we have over policy makers of the 1930s: the historic experience of the Great Depression itself. The gross policy errors made during that period — such as raising taxes, tightening monetary policy and trade barriers — are less likely today. And the landslide victory of Barack Obama and the corresponding gains of the Democrats in Congress ensure less visceral opposition to a major role for government going forward. Fiscal policy has been virtually absent from the US government’s policy arsenal for almost a generation, in part inhibited by a perception that the state’s major role should be to protect property rights and ensure a very modest supply of public goods. More specifically, according to this view of economics widely known as the “Washington Consensus”, the state should create and sustain (a) efficient, rent-free markets, (b) an efficient, corruption-free public sector able to supervise the delivery of a narrow set of inherently public services, and (c) decentralized arrangements of participatory democracy. It should not, in this view, attempt to influence the rate of unemployment.
The reputation of fiscal activism has also been harmed by a historical revisionism aimed at the heart of FDR’s original New Deal, the essence of which is that he achieved little of lasting economic benefit and that it was only World War II that finally took America out of the Great Depression. This is factually incorrect. There is much evidence to support the contrary position, that the effects of the New Deal were in fact greater than even mainstream historians have been willing to allow. This paper presents some of the relevant evidence.

In 1933, there was great disagreement about how to deal with an economic recession or depression, and Roosevelt’s administration, and he himself, had conflicting impulses. Herbert Hoover, in conjunction with the Federal Reserve and his “liquidationist” Treasury Secretary, Andrew Mellon, had made the worst possible selection of policy options: higher taxes and tariffs and a shrunken money supply. The unemployment rate was 25 per cent, about four times what it is now, and there was no direct relief for the unemployed.

On Inauguration Day, 1933 (then March 4), there were machine-gun nests at the corners of the great government buildings in Washington, for the only time since the Civil War. All banks in 32 states had been closed sine die. Six other states had closed almost all their banks. In the other 10 states and D.C., withdrawals were limited to 5 per cent of deposits, and in Texas to $10 a day. The New York Stock Exchange and Chicago commodity exchanges had also been closed indefinitely. The financial system had effectively collapsed, and was threatening to take the life savings of millions of people and what was left of the world’s financial system with it. Revolution beckoned.

In a fever of activity, Roosevelt guaranteed bank deposits, made the federal government a temporary non-voting preferred shareholder in thousands of suddenly under-capitalized banks – more than half the banks in the country – refinanced millions of residential and farm mortgages, tolerated cartels and collective bargaining to raise prices and wages, increased the money supply, effectively departed the gold standard, repealed Prohibition of alcoholic beverages (wrenching one of America’s largest industries out of the hands of the underworld), and legislated reduced working hours and improved working conditions for the whole work force. In the next two years, in what became known as the Second New Deal, he set up the Securities and Exchange Commission, created the Social Security system, and broadened the powers of the Federal Reserve to equal those of other national central banks. The Hoover agricultural policy had been to dump surpluses abroad, lend foreign governments the money to buy them, and then pursue them aggressively when the debtor countries defaulted. Roosevelt had farmers vote, by category of what they produced, on agreed production cutbacks, assuring sustainable agricultural prices, and compensated farmers for the production they had curtailed.
The key to evaluating Roosevelt’s performance in combating the Depression is the statistical treatment of many millions of unemployed engaged in his massive workfare programs. The government hired about 60 per cent of the unemployed in public works and conservation projects that planted a billion trees, saved the whooping crane, modernized rural America, and built such diverse projects as the Cathedral of Learning in Pittsburgh, the Montana state capitol, much of the Chicago lakefront, New York’s Lincoln Tunnel and Triborough Bridge complex, the Tennessee Valley Authority and the aircraft carriers Enterprise and Yorktown.

It also built or renovated 2,500 hospitals, 45,000 schools, 13,000 parks and playgrounds, 7,800 bridges, 700,000 miles of roads, and a thousand airfields. And it employed 50,000 teachers, rebuilt the country’s entire rural school system, and hired 3,000 writers, musicians, sculptors and painters, including Willem de Kooning and Jackson Pollock.

Even pro-Roosevelt historians such as William Leuchtenburg and Doris Kearns Goodwin have meekly accepted that the millions of people in the New Deal workfare programs were unemployed, while comparable millions of Germans and Japanese, and eventually French and British, who were dragooned into the armed forces and defense production industries in the mid-and late 1930s, were considered to be employed.

This made the Roosevelt administration’s economic performance appear uncompetitive, but it is fairer to argue that the people employed in government public works and conservation programs were just as authentically (and much more usefully) employed as draftees in what became garrison states, while Roosevelt was rebuilding America at a historic bargain cost.

If these workfare Americans are considered to be unemployed, the Roosevelt administration reduced unemployment from 25 per cent in 1933 to 9 per cent in 1936, up to 13 per cent in 1938 (due largely to a reversal of the fiscal activism which had characterized FDR’s first term in office), back to less than 10 per cent at the end of 1940, to less than 1 per cent a year later when the U.S. was plunged into the Second World War at the end of 1941. The reasons for the discrepancies in the unemployment data that have historically arisen out of the New Deal are that the current sampling method of estimation for unemployment by the BLS was not developed until 1940, thus unemployment rates prior to this time have to be estimated and this leads to some judgment calls.

The primary judgment call is what do about people on work relief. The official series counts these people as unemployed, with the result that historians of a conservative bent are given ammunition with which to shoot at the entire New Deal. Christopher Wrestley, for example, argued: “By the midpoint of FDR’s second term, the failure of the New Deal policies was evident to all but the truly delusional. The unemployment rate again reached levels associated with the hated Hoover, while the public’s tolerance of the pretentious New Dealers and their endless attempts to control the economy waned.” (Wrestley, 2001).

However, this is an instance of an ideology fundamentally hostile to the role of government in our society using history to discredit activist economic policy. If one uses the unemployment series for the 1930s excluding workfare constituents, the figures appear as follows:

This is from a series constructed by the economist, Stanley Lebergott in 1964.2
Here, the recession of 1937-38 almost completely wipes out any gains of the previous few years. It is almost as if the New Deal didn’t do anything for anyone, much.

Many people looked at these numbers without reading the notes on how they were constructed and concluded just that.

Then in 1976, an economist named Michael R. Darby wrote an article with the delightfully self-explanatory title, “Three-and-a-Half Million U.S. Employees Have Been Mislaid.”3 What Darby did was read the notes. Here is what Lebergott had to say about counting unemployment in the 1930s:
These estimates for the years prior to 1940 are intended to measure the number of persons who are totally unemployed, having no work at all. For the 1930’s this concept, however, does include one large group of persons who had both work and income from work—those on emergency work. In the United States we are concerned with measuring lack of regular work and do not minimize the total by excluding persons with made work or emergency jobs. This contrasts sharply, for example, with the German practice during the 1930’s when persons in the labor-force camps were classed as employed, and Soviet practice which includes employment in labor camps, if it includes it at all, as employment. (Darby, 1976).
We would normally not consider people who painted murals for the WPA to be deemed worse off than those who “worked” in Mauthausen or the Soviet gulag. And yet, until we adjust the “workfare” discrepancy, incredibly we count such individuals as unemployed, even though their position was considerably better than that of someone generating no income, or working in abysmal conditions in a slave labor camp.
A number of points may be made here:

(1) if one is using the data to answer the question, “did the New Deal help people?” then this data absent the workfare numbers set is going to give you the wrong answer, because they imply that workfare people were suffering from unemployment who in real life had a job;

(2) but what if people in emergency work acted like the unemployed—that is, what if they were looking for a “real” job, and

(3) what about the “real” economy—the private industrial economy—how did it do?

Now, as it happens it looks like the answer to (2) is, mainly they did not—people who had an emergency job acted as if they had a job, and did not look for another one. The reason, perhaps, is that they did in fact have a job, and should therefore probably not count as unemployed.4
If one includes the workfare employees, one gets a very different picture of unemployment in the 1930s. Below, a graph showing the same series as the above, then a new series—from Weir’s table D3, which also appears in Historical Statistics of the United States—which counts only people without jobs as unemployed.

Again, this illustrates the severity of the Great Depression, but it also illustrates the crucial role played by the New Deal in mitigating its worst excesses.
Indeed, rather than “distorting” the private market, the improvement in aggregate demand brought about by the provision of workfare programs created positive feedback loops in the private sector. One can illustrate this by isolating the government employees within the data and showing a third line which features the private sector alone:

So again, here, we see significant improvement under the New Deal. In the purely private sector, unemployment rates reached 33 percent in 1932; by 1937 they were less than half of that, not counting those on government payrolls.

If anything, even the relapse of 1938 validates the efficacy of fiscal policy activism. During Roosevelt’s first administration lots of things were tried– and the budget debt continued to “explode” until it got to 5.5% of GNP as employment (and profits) significantly improved over three and a half years — but unemployment rates were still very high.

But by 1936 many economists and financial experts feared the country would go bankrupt if the government kept deficit-spending. And after all, it was argued, the government deficits had “pump-primed” the economy. The private sector could now take off on its own and get back to close to the full employment level of 1928-early 1929.

Consequently, Roosevelt ran (in 1936) on a platform that he would try to reduce significantly, if not completely eliminate, the deficit in the 1937 fiscal budget — and he sent to Congress a budget that did just that. Roosevelt won by a landslide – understandably, as the U.S. was out of depression by 1937. It only reverted when the fiscal activism of the previous 4 years was completely reversed within 9 months, based on balanced budget and a nonsensically tight monetary policy, brought on by the Fed as deflationary pressures abated and moderate inflation began to appear by the middle of that year. FDR had caved in to the conservatives in Congress (and his treasury secretary) and presented a balanced budget, cutting stimulus spending . The Fed also began to tighten at this stage, as inflation had risen to 4%.

The result was that the economy contracted by 6% to 86.1 billion in 1938, and the recovery slipped. After FDR reversed his conservative budget mistake and reverted again to fiscal activism by 1939 (during which the budget deficit rose to 3.1% of GDP), the GDP rose again to $89.1 billion. It rose further $8.5billion to $96.8bn billion in 1940, which is almost where it had been at the start of the Great Depression. Around 1940, Congress and FDR lost any inhibition and ramped up the GDP by spending massively. By 1943, the US was running a budget deficit equivalent to 30.3% of GDP. By 1944, GDP was $210.9 billion, more than double what it was when the Great Depression began in 1929..

There had NEVER before been anything even close to the severe downturns that occurred just prior to the administration of FDR. Not until now. And today’s crisis, unsurprisingly, has come at a time when much of the legislative framework put in place by Roosevelt has been largely eviscerated. FDR’s long-term stabilizers in fact worked very well, but were gutted during an unprecedented period of corporate predation, which found its apotheosis in the recent credit boom and growth of the so-called “shadow banking system.” Before this market fundamentalist philosophy took root during the Reagan era, the financial sector accounted for only 2 per cent of U.S. corporate profits. In recent years, the figure has approached 40 per cent.

It is true that under FDR, we ended up with a national debt exceeded the national income by the end of the war – as the government spent over $200 billion more than it took in taxes during the war years. But of course, the American people “saved” more than 200 billion” during the same period – the national debt was private financial wealth. And the end result was full employment prosperity. A final point, which today’s deficit hawks should bear in mind: if deficits are so economically ruinous, then why run them during wartime, when in theory the optimal functioning of the economy is most crucial?

So what form should a new ‘New Deal’ take today? As any university economics student promptly learns, a dollar’s worth of expenditures on goods and services yields a larger multiplier than tax cuts. This suggests that supporting already planned investment in infrastructure — by states and municipalities that are currently liquidity constrained, and squeezed by declining tax revenues — would be a more effective way of supporting aggregate demand than “trickle down” economics.
But infrastructure is not everything: in fact, the most disabling myth, which has been repeated many times during the debate on the Obama stimulus package, is that the government cannot competently spend large sums of money fast enough, and will end up building bridges to nowhere. “Infrastructure” in particular is being used as a straw man to discourage adequate outlay, particularly by the GOP opposition.
There is, however, ample stimulus that can take effect instantly. The only prerequisite is the necessity that the federal government start writing checks. The Federal government can make sure that state and local governments do not lay off a single worker or cut back a single existing program, thus avoiding big losses to communities and enhancing the capacity of local government to fight recession. Add emergency revenue sharing to states and cities by picking up increased shares of Medicaid, (which has suffered drastic cuts in eligibility and coverage), and enables states to restore Medicaid benefits to more people, thereby furnishing some general household budget relief. Have government temporarily pay most of the cost of COBRA coverage for laid off people who lose their health insurance, and allow people over age 55 to buy into Medicare. Expand Unemployment Insurance to cover part time workers, extend eligibility period, and increase benefit levels. Roll back tuitions at state universities and community colleges, and increase Pell Grants–contingent on universities not increasing costs to students – which enables young people to spend the recession in college rather than clogging unemployment rolls or graduating with huge debt burdens. Similarly, colleges are spared the need to cut programs and lay off people in a recession. Professor James K. Galbraith sets out some useful criteria for good stimulus:
“– open-ended support for the current operations of state and local governments, for the
duration of the crisis, including open-ended support for public capital investment. Basically all
the resources being released from private residential and commercial construction should be
taken up in public building, to the extent physically and organizationally possible.
– comprehensive foreclosure relief, through a moratorium followed by restructuring
except in cases of demonstrable borrower fraud. There is no alternative to establishing a large
retail-level agency to evaluate and restructure mortgages on a case-by-case basis.
– increased Social Security benefits, say by thirty percent, and a cut in the eligibility age
of Medicare to (say) 55 years of age. The first of these measures would work to offset the
cataclysmic drop in equity wealth of the elderly population as a whole, while favoring the
poorer members of that population. The second would permit many older workers to retire,
while freeing firms from the burden of managing employee health plans for older workers.
Since the shift out of private wealth is likely to prove permanent, these increases in public
transfers to the elderly should be permanent as well.
– A payroll tax holiday to restore effectively the purchasing power of working families.
By setting the payroll tax rate at zero (and letting the government write a check to the Social
Security Trust Fund for the uncollected sums), tax relief can be delivered at large scale and with
immediate effect to the working population. Later, if growth resumes rapidly, this measure
could be scaled back.
– an energy program, under a long-term planning framework adequate to meet the
climate crisis, but also sufficient in the near term to reduce demand for oil as the economy
recovers and to quell speculation in the oil markets. This is necessary to prevent inflation of volatile commodity prices once the feedback loops start firing in an upward direction.
– programs, in the spirit of the New Deal, to hire people to do what they do best, including art, letters, drama, dance, music, scientific research, university teaching and the nonprofit sector, including community organization.” (Galbraith 2009)
As for infrastructure itself: virtually everybody agrees that America’s national infrastructure is a mess and a large degree of public works expenditure should be focused on its renewal. On a daily basis, we drive on paved roads over bridges, take a hot shower, turn the lights on and off, and take out the trash. Most of us take these experiences for granted, expecting that our needs will be satisfied in a safe and convenient way. The universal availability of these services differentiates a modern country from a developing nation.
In fact, a public-works strategy for national recovery has had broad ideological respectability from the days of Alexander Hamilton and Abraham Lincoln to those of Franklin D. Roosevelt and John F. Kennedy. If Democrats can brag about the proud heritage of the Works Progress Administration and the Public Works Administration from the era of the Great Depression, there are still a few Republicans who remember the Golden Age of interstate highway construction that commenced in the 1950s with President Dwight D. Eisenhower. Indeed since the national shame of Hurricane Katrina, Americans have become outspokenly nostalgic about competent federal governments and magnificent public investments.
This infrastructure did not come into existence overnight. It took planning, effort, and a great deal of money. When the U.S. was still a colony of Britain, most of the country was untouched wilderness. A few years before the adoption of the Constitution, George Washington had plans to connect the Hudson River to Lake Erie, settle Ohio, and build steamboats. The Erie Canal for example, was not finished until 1825, 26 years after his death. It cost $7 million to build, a fortune at that time, but it cut the cost of shipping items from Buffalo to Manhattan by 90%. It paid for itself in ten years over in tolls collected, not to mention the development and trade it engendered.
Repeatedly through history we see that building infrastructure not only improves the standard of living through greater conveniences, but leads to increased general prosperity. The transcontinental railroad connected the railhead at Omaha, Nebraska to Sacramento, California in 1869. It cut travel time from the east coast to the Pacific from about five months to six days in an instant. Within a decade of completion, $50 million worth of goods had been shipped cross-country. Asian products reached the cities of the Northeast, Western settlers had access to Eastern finished goods, and the vast mineral resources of the heartland were available for exploitation. It was the internet of its day; it allowed ideas to travel quickly from one end of the U.S. to the other.
The transcontinental railroad was echoed later by the Interstate Highway System, which was initiated in 1956 and which is still not complete today. This led to the dominance of the automobile, and the exodus from the inner cities to the suburbs. Jobs and residences shifted outward. Massive economic development sprang up along the highway corridors. Railroads were largely abandoned for the now-cheaper roadways.
Unfortunately, the last few decades have seen very little investment in infrastructure in the U.S. In response, the American Society of Civil Engineers (ASCE) began grading the state of the nation’s infrastructure in 2001 to raise awareness of the silent crisis. They determined that every area from aviation to roads to wastewater needed serious attention. The problems in the electric grid were not addressed, among other areas, leading to the major blackout in 2003. In ASCE’s latest report card issued in 2005, the society determined that the U.S. has made little progress, earning a collective “D.” To repair all the areas of infrastructure to good condition or a grade of “B” would cost $1.6 trillion over 5 years time. While the $1.6 trillion advocated by the ASCE to fix the problems is considerable, Joseph Stiglitz estimates it’s about half what the U.S. will spend on the wars in Iraq and Afghanistan.
Fifty years ago, the U.S. spent a much higher percentage of its budget on infrastructure. Now hundreds of billions of dollars are going to bail out banks, GSEs, insurance companies, and even the carmakers. Most of that deficit spending is unlikely to save jobs or stimulate the economy because it is going to unwind trillions in derivatives or strengthen the balance sheets of frail banks. Obama himself voted in favor of the $700 billion Troubled Asset Relief Program (aka “TARP”) which will enrich bankers but will not repair a single levee or bridge.

That TARP has been even allocated to the Treasury is perverse. Typically Federal Reserve ’spending’ is considered monetary policy, as the Fed routinely buys securities/financial assets (such as the $31bn from Bear Stearns), while Treasury federal spending is ‘fiscal’ insofar as it encompasses things such as paying the soldiers and the postal workers. TARP in most respects is a monetary operation, not fiscal. If policy makers had placed TARP in the custody of the Federal Reserve (where it belonged), it would not have been part of the ‘budget’ and the spending not accounted for as part of the ‘deficit.’ This may well have mooted President Obama’s curious fixation with “entitlement reform.” One is tempted to believe that the reason TARP was allocated by the Bush Administration to the Treasury was to allow it to show up as increased deficit spending and thereby put a cap on ’social programs’ likely to be proposed by an activist Democratic Congress.
Even one accurately distinguishes fiscal and monetary operations, bureaucratic fumbling can prevent effective action. This was exemplified America’s inability to fix the areas devastated by Hurricane Katrina in 2005. In Louisiana, the state government has still delayed disbursing most of the $750 million in house elevation grants. Some families still live in government trailers as they have no money to repair their homes, and areas such as Terrebonne Parish are waiting for the Army Corps of Engineers to rebuild levees. In contrast, 18 months after the massive earthquake in Kobe, the Japanese government spent the equivalent of $113 billion to fix buildings, port facilities and other infrastructure.
Another obstacle to improving America’s infrastructure is the current credit crisis. Municipal bonds have been sold by hedge funds and others seeking liquidity, so yields are up substantially year-over-year. This sharply increases the cost of financing large public work projects. Banks are increasingly unwilling to lend despite the large influx of capital, so world trade in commodities needed to build infrastructure is freezing up. The Baltic Dry Index, a measure of shipping costs, has dropped 95% this year alone as few firms in the maritime sector can find funding. Here again, as Federal government borrowing costs are close to zero, it is logical for the state to interpose itself as a credit intermediary, possibly via Obama’s proposed National Infrastructure Bank.
New infrastructure investment would at least build jobs and wealth, even though it would increase the deficit in the short term. Obama seems quite willing to borrow money and increase government spending, and the alternatives seem much worse than repairing infrastructure. In fact, in the absence of sufficient fiscal activism, President Obama may well find himself renewing another FDR innovation: Works Progress Administration in 2010 to combat an economy sliding back into recession.
Above all else, the main focus must be on fiscal policy. The Obama Administration must also be able to respond robustly to the question “what is it going to cost the U.S. taxpayer?,” a question that reflects an unthinking bias against active government policies to prevent recession and depression. Asking how much an active government policy to prevent a financial market calamity is going to cost the taxpayer can only be based on an economic theory that assumes that the macroeconomic activity in the economy will be unchanged whether or not the government takes any positive action to remove distress in financial markets.
Consider the historic precedents. In the words of Professor Paul Davidson:
Let us look at a historical example where if this type of “what will cost to the tax payer and/or the economy?” question were asked, one of the most desirable government policies would never have been undertaken. At the Bretton Woods conference it was recognized that the European nations would need significant aid to help rebuild their economies after the war. Keynes estimated that the need would be between $12 and $15 billion. U.S. representative Harry Dexter White indicated that Congress could not ask the taxpayers to provide more than $3 billion. Accordingly, the Keynes Plan was defeated at Bretton Woods, and the Dexter White proposals were adopted

Suppose that in 1946 it was recommended that U.S. give a gift of $13 billion dollars over four years to various European countries to help them rebuild their war-ravaged economies (in 1940s current dollars, this sum would be well over $150 billion in 2007 dollars). Obviously if Dexter White was correct, the Congress would never have approved the Marshall Plan. Since the Marshall Plan did not reveal in advance that it would provide foreign governments $13 billion over a period of four years, Congress approved the Marshall Pan. The Marshall Plan gave foreign nations approximately two percent of the United States’ GDP each year for four years. Was the Marshall Plan costly to U.S. taxpayers and the U.S. economy?

The statistics indicate that, during the Marshall Plan years, for the first time in history the U.S. did not experience a serious economic slowdown immediately after a war. And this despite the fact that federal government expenditures on goods and services declined by approximately 57 percent between 1945 and 1946. Furthermore, four years after World War II, federal government expenditure was still approximately half of what it had been in 1945.

When the U.S. emerged from World War II, the federal debt was more than 100 percent of the GDP. Accordingly, there was great political pressure to reign in federal government spending to make sure that the federal debt did not grow substantially. Clearly, then, it was not “Keynesian” deficit spending that kept the U.S. out of recession in the immediate post-World War II years.
What was the cost of the Marshall Plan to the U.S. economy and the U.S. taxpayer? In 1946, the GDP per capita was 25 percent higher than it had been in the last peace years before the War. GDP per capita continued to grow during the Marshall Plan years. Despite giving away two percent of U.S. GDP, American residents (and taxpayers) experienced a higher standard of living each year. – (Davidson, 2008.)
It is this kind of thinking which should be foremost in the new Administration’s mind. It has become politically fashionable to rant against government spending and demand fiscal responsibility. But right now, concerns about the budget deficit should be put on hold. As our new President with a large Democratic majority in both houses of Congress, Barack Obama will clearly find less of the traditional knee-jerk opposition to spending. But he will face a chorus of conventional voices telling him that he has to be responsible, that the big deficits the government will run next year if it does the right thing are unacceptable. The larger population will also be wary: Americans are always skeptical of ambitious government initiatives. This is a country, historian Louis Hartz once pointed out, founded on Lockean liberalism. But, as Roosevelt discovered when he was elected, a national crisis creates popular willingness to entertain dramatic initiatives. Moreover, Obama will not face the same formidable adversaries that Jimmy Carter and Bill Clinton had to confront. The Republican Party is divided and demoralized after the elections. And, just as the Great Depression took Prohibition and the other great social issues of the 1920s off the popular agenda, this downturn has pushed aside the culture war of the last decades. It simply was not a factor in the presidential election.
If, however, Obama and the Democrats take the advice of official Washington and go slow–adopting incremental reforms, appeasing adversaries — they could end up prolonging the downturn and discrediting themselves. What might have been a hard realignment could become not merely a soft realignment, but perhaps even an abortive one. That’s not the kind of change America needs–or wants. Like FDR, President Obama must ignore that chorus. The responsible thing, right now, is to give the economy the help it needs. Now is not the time to worry about the deficit. It’s time for a new “New Deal”.



1 The more extreme supply-side revisionists now claim that Roosevelt should not have stabilized food prices and financed, through public works projects, flood and drought control and rural electrification, because it would have been better to starve these people off the land and to the cities, where, a generation or more later, they would have had higher standards of living. This is the logic of the so-called Austrian School of Economics, taken to its perverse extreme. Had it been implemented, it this policy would have put Roosevelt in the same general category of agrarian reform as Stalin and Mao.

2 Stanley Lebergott, Manpower in Economic Growth: The American Record since 1800 (New York: McGraw-Hill, 1964), table A-3.

3 Michael R. Darby, “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941,” Journal of Political Economy 84, no. 1 (February 1976): 1-16.
4 Cited in Darby, 3; Lebergott, 184-5.

5 Robert A. Margo, “The Microeconomics of Depression Unemployment,” NBER Working Paper no. 18, December 1990.


Bernanke, Ben “Deflation: Making sure ‘it’ doesn’t happen here” http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021121/default.htm
Speech before the National Economists Club, Washington DC, Nov. 21, 2002

Darby, Michael R., “Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941,” Journal of Political Economy 84, no. 1 (February 1976): 1-16.

Davidson, Paul, “How to Solve the US Housing Problem and Avoid a Recession: A Revived HOLC and RTC” - Schwartz Center for Economic Policy Analysis: Policy Note, January 2008

Ferguson, Thomas and Robert Johnson, “Bridge Loan to Nowhere?”, The Nation, Sept. 24, 2008
Goodwin, Doris Kearns, “No Ordinary Time: Franklin and Eleanor Roosevelt: The Home Front in World War II” (Simon and Schuster, Oct. 1995)

Galbraith, James K., The Predator State, Free Press, 2008.

Galbraith, James K. “A Critique of the Geithner Program”, unpublished, Jan. 28, 2009

Lebergott, Stanley, Manpower in Economic Growth: The American Record since 1800 (New York: McGraw-Hill, 1964), table A-3.

Leuchtenburg, William, “Franklin D Roosevelt and the New Deal”, Harper Perennial, July 1963
Margo, Robert A. “The Microeconomics of Depression Unemployment,” NBER Working Paper no. 18, December 1990.

Wrestley, Christopher, “The Roosevelt Nobody Knows” http://mises.org/article.aspx?Id=813&FS=The+Roosevelt+Nobody+Knows, Oct. 29, 2001


Rick Santelli’s Planted Rant ?

from The Big Picture by

I was interviewed by several journalists last week about Rick Santelli’s Rant — my exact quote was it had a “Faux” feel to it. (I haven’t seen it in print yet)

What was so odd about this was that Santelli is usually on the ball; we usually agree more often than we disagree. He’s been repsosible for some of the best moments on Squawk Box.

But his rant somehow felt wrong. After we’ve pissed through over $7 trillion dollars in Federal bailouts to banks, brokers, automakers, insurers, etc., this was a pittance, the least offensive of all the vast sums of wasted money spent on “losers” to use Santelli’s phrase. It seemed like a whole lot of noise over “just” $75 billion, or 1% of the rest of the total ne’er-do-well bailout monies.

It turns out that there may be more to the story then originally met the eye, according to (yes, really) Playboy magazine.


“How did a minor-league TV figure, whose contract with CNBC is due this summer, get so quickly launched into a nationwide rightwing blog sensation? Why were there so many sites and organizations online and live within minutes or hours after his rant, leading to a nationwide protest just a week after his rant?

What hasn’t been reported until now is evidence linking Santelli’s “tea party” rant with some very familiar names in the Republican rightwing machine, from PR operatives who specialize in imitation-grassroots PR campaigns (called “astroturfing”) to bigwig politicians and notorious billionaire funders. As veteran Russia reporters, both of us spent years watching the Kremlin use fake grassroots movements to influence and control the political landscape. To us, the uncanny speed and direction the movement took and the players involved in promoting it had a strangely forced quality to it. If it seemed scripted, that’s because it was.

What we discovered is that Santelli’s “rant” was not at all spontaneous as his alleged fans claim, but rather it was a carefully-planned trigger for the anti-Obama campaign. In PR terms, his February 19th call for a “Chicago Tea Party” was the launch event of a carefully organized and sophisticated PR campaign, one in which Santelli served as a frontman, using the CNBC airwaves for publicity, for the some of the craziest and sleaziest rightwing oligarch clans this country has ever produced. Namely, the Koch family, the multibilllionaire owners of the largest private corporation in America, and funders of scores of rightwing thinktanks and advocacy groups, from the Cato Institute and Reason Magazine to FreedomWorks. The scion of the Koch family, Fred Koch, was a co-founder of the notorious extremist-rightwing John Birch Society.”

What is Playboy’s evidence of this?

“Within hours of Santelli’s rant, a website called ChicagoTeaParty.com sprang to life. Essentially inactive until that day, it now featured a YouTube video of Santelli’s “tea party” rant and billed itself as the official home of the Chicago Tea Party. The domain was registered in August, 2008 by Zack Christenson, a dweeby Twitter Republican and producer for a popular Chicago rightwing radio host Milt Rosenberg—a familiar name to Obama campaign people. Last August, Rosenberg, who looks like Martin Short’s Irving Cohen character, caused an outcry when he interviewed Stanley Kurtz, the conservative writer who first “exposed” a personal link between Obama and former Weather Undergound leader Bill Ayers. As a result of Rosenberg’s radio interview, the Ayers story was given a major push through the Republican media echo chamber, culminating in Sarah Palin’s accusation that Obama was “palling around with terrorists.” That Rosenberg’s producer owns the “chicagoteaparty.com” site is already weird—but what’s even stranger is that he first bought the domain last August, right around the time of Rosenburg’s launch of the “Obama is a terrorist” campaign. It’s as if they held this “Chicago tea party” campaign in reserve, like a sleeper-site. Which is exactly what it was.

This looks like more than a coincidence. This is now a very serious charge.

I have no insight as to whether this is true or not — but it certainly deserves a serious response from both Santelli and CNBC. If its false, then they should say so, and demand an apology from Playboy.

But if any of it is true, well then, Santelli mauy have to fall on his sword, and CNBC may owe the public an apology.

I am VERY curious if there is any truth to this.


Santelli vs Cramer (January 2008)

Rick Santelli Strikes Again (September 2008)

Backstabber: Is Rick Santelli High On Koch?
Mark Ames and Yasha Levine
Playboy, 02.27.09 1:40 PM CST

From the February 19 edition of CNBC’s Squawk Box:

REBECCA QUICK (co-anchor): We want to get to our task force right now. Rick Santelli and Jason Roney of Sharmac Capital are standing by at the CME Group in Chicago, and Rick, have you been listening to this conversation?

SANTELLI: Listening to it? I’ve been just glued to it because Mr. Ross has nailed it. You know, the government is promoting bad behavior. Because we certainly don’t want to put stimulus forth and give people a whopping $8 or $10 in their check and think that they ought to save it, and in terms of modifications — I’ll tell you what, I have an idea.

You know, the new administration’s big on computers and technology. How about this, president and new administration? Why don’t you put up a website to have people vote on the Internet as a referendum to see if we really want to subsidize the losers’ mortgages; or would we like to at least buy cars and buy houses in foreclosure and give them to people that might have a chance to actually prosper down the road, and reward people that could carry the water instead of drink the water?

JOE KERNEN (co-anchor): Hey, Rick, did –

TRADER: That’s a novel idea.

KERNEN: Hey, Rick, did you — oh, boy. They’re like putty — they’re like putty in your hands. Did you hear –

SANTELLI: No they’re not, Joe. They’re not like putty in our hands. This is America. How many of you people want to pay for your neighbor’s mortgage that has an extra bathroom and can’t pay their bills? Raise their hand.

President Obama, are you listening?

TRADER: How about we all stop paying our mortgage? It’s a moral hazard.

KERNEN: This is like mob rule here. I’m getting scared. I’m glad I’m — I’m glad I’m –

CARL QUINTANILLA (co-anchor): Get some bricks and bats –

SANTELLI: Don’t get scared, Joe. They’re already scaring you. You know, Cuba used to have mansions and a relatively decent economy. They moved from the individual to collective. Now, they’re driving ‘54 Chevys, maybe the last great car to come out of Detroit.

KERNEN: They’re driving them on water, too, which is a little strange to watch –

SANTELLI: There you go.

KERNEN: Hey, Rick, how about the notion that — Wilbur pointed out you can go down to 2 percent on the mortgage –

SANTELLI: You could go down to minus-2 percent. They can’t afford the house.

KERNEN: — and still have 40 percent — and still have 40 percent not be able to do it. So why are they in the house? Why are we trying to keep them in the house?

SANTELLI: I know Mr. Summers is a great economist, but boy, I’d love the answer to that one.


KERNEN: Jason –

QUICK: [unintelligible] you get people fired up.

KERNEN: Jason, you wanna –

SANTELLI: We’re thinking of having a Chicago tea party in July. All you capitalists that want to show up to Lake Michigan, I’m gonna start organizing.

QUICK: What are you dumping in — what are you dumping in this time? Housing? Cars?

SANTELLI: We’re going to be dumping in some derivative securities. What do you think about that?

QUINTANILLA: Mayor Daley is marshalling the police right now.

KERNEN: Rabble-rouser.

QUINTANILLA: The National Guard.

KERNEN: Jason, are you nearby? Can you hear the cheering over –

RONEY: I am, but I don’t have the gallery directly behind me, so it’s going to be tough to follow that act for sure.

KERNEN: Yeah, exactly. You agree?

RONEY: I’ll have to run down to the pit. Well, clearly, we’re going to debate the moral issues of what government is and is not doing for some years to come. I mean — it’s apparent, even for traders it’s — the market gaps up and down a significant amount each day just on what one government may or may not do. We’re up 10 points or so on the S&P on the idea that core Europe may have some bank stability plans, so — the traders market, the uncertainty of the market will continue until we get through this process of weekly government plans.

QUINTANILLA: You know, Rick, one of our producers says if Roland Burris steps down, man, Senator Santelli, the junior senator from Illinois. It’s a possibility. I’m just saying –

SANTELLI: Do you think I want to take a shower every hour? The last place I’m ever gonna live or work is D.C.

KERNEN: Have you raised any money for Blago?

SANTELLI: No, but I think that somebody’s gonna have to start raising money for us.

QUICK: Hey, Rick? Can you do that one more time, just get the mob behind you again? I love –

QUINATILLA: Have the camera pull way out.

QUICK: Yeah, pull way out. Everybody listen to Rick Santelli.

KERNEN: You can’t — I don’t think — you can’t just do it at will, can you, Rick? I mean, you have to say something.

QUICK: Yeah, do it at will. Let’s see.

SANTELLI: Listen, all’s I know is, is that there’s only about 5 percent of the floor population here right now, and I talk loud enough they can all hear me. So if you want to ask ‘em anything, let me know. These guys are pretty straightforward, and my guess is, a pretty good statistical cross-section of America, the silent majority.

QUICK: Not-so-silent majority today. So Rick, are they opposed to the housing thing, to the stimulus package, to everything out there?

SANTELLI: You know, they’re pretty much of the notion that you can’t buy your way into prosperity, and if the multiplier that all of these Washington economists are selling us is over 1, then we never have to worry about the economy again. The government should spend a trillion dollars an hour because we’ll get 1.5 trillion back.

QUICK: Wilbur?

WILBUR ROSS (chairman, W.L. Ross & Co.): Rick, I congratulate you on your new incarnation as a revolutionary leader.

SANTELLI: Somebody needs one. I’ll tell you what, if you read our Founding Fathers, people like Benjamin Franklin and Jefferson, what we’re doing in this country now is making them roll over in their graves.

Buffett's Berkshire Hathaway Has Worst Year

In this May 21, 2008 file photo, U.S. billionaire investor Warren Buffett speaks during a news conference in Madrid. Buffett says the economic turmoil that contributed to a 62 percent profit drop last year at the holding company he controls is certain to continue in 2009, but the revered investor remains optimistic. (AP Photo/Paul White, File)
OMAHA, Neb. — Warren Buffett remains optimistic about the prospects for his company and the nation even though Berkshire Hathaway Inc. turned in its worst performance in 2008 and the widely-followed investor says the economy will likely remain a mess beyond this year.

Buffett used his annual letter Saturday to reassure shareholders that the Omaha-based insurance and investment company has the financial strength needed to withstand the current turmoil and improve after the worst showing of Buffett's 44 years as chairman and CEO.

Buffett wrote he's certain "the economy will be in shambles throughout 2009 _ and, for that matter, probably well beyond _ but that conclusion does not tell us whether the stock market will rise or fall."

In between the news of Berkshire's sharply lower profit and a thorough explanation of its largely unrealized $7.5 billion investment and derivative losses, Buffett offered a hopeful view of the nation's future.

He said America has faced bigger economic challenges in the past, including two World Wars and the Great Depression.

"Though the path has not been smooth, our economic system has worked extraordinarily well over time," Buffett wrote. "It has unleashed human potential as no other system has, and it will continue to do so. America's best days lie ahead."

Buffett's letter appeared to mollify the concerns of many who follow the company, but it's not yet clear whether that will help Berkshire's Class A stock extend its rebound from the new five-year low it set last Monday at $73,500. On Friday, it closed up $250 at $78,600.

"If anything, I feel better than I did before I read it," Morningstar analyst Bill Bergman said. Berkshire's results could have easily been worse, he said.

But Buffett estimates Berkshire's book value _ assets minus liabilities _ declined 9.6 percent to $70,530 per share in 2008 _ the biggest drop since he took control of the company in 1965. Berkshire's book value declined only one other time under Buffett, and that was a 6.2 percent drop in 2001 when insurance losses related to the Sept. 11 terrorist attacks hurt results.

Berkshire's Class A shares remain the most expensive U.S. stock, but they fell nearly 32 percent in 2008 and have declined 48 percent since setting a high of $151,650 in December 2007. That high came after an exceptionally profitable quarter that was helped by a $2 billion investment gain.

The S&P 500 fell 37 percent in 2008.

Within Berkshire, Buffett said the company's retail businesses, including furniture and jewelry stores, and those tied to residential construction, such as Shaw carpet and Acme Brick, were hit hard last year. Net income for those businesses slipped 3 percent to $2.28 billion, and Buffett said they will likely continue to perform below their potential in 2009.

But he said Berkshire's utility and insurance businesses, which includes Geico, both delivered outstanding results in 2008 that helped balance out the other businesses.

The Des Moines, Iowa-based utility division, MidAmerican Energy Holdings, contributed $1.7 billion to Berkshire's net income in 2008 thanks to more than $1 billion in proceeds from MidAmerican's failed takeover of Constellation Energy. That's up from the $1.1 billion utility profit that Berkshire recorded in 2007.

The insurance division, which also includes reinsurance giant General Re, contributed $1.8 billion in earnings from underwriting _ a drop of 17 percent from 2007. Buffett praised Geico CEO Tony Nicely's efficiency and his ability to increase Geico's market share to 7.7 percent of the auto insurance market last year.

"As we view Geico's current opportunities, Tony and I feel like two hungry mosquitoes in a nudist camp. Juicy targets are everywhere," Buffett wrote.

Overall, Berkshire's 2008 profit of $4.99 billion, or $3,224 per Class A share, was down 62 percent from $13.21 billion, or $8,548 per share, in 2007.

Berkshire's fourth-quarter numbers were even worse. Buffett's company reported net income of $117 million, or $76 per share, down 96 percent from $2.95 billion, or $1,904 per share, a year earlier.

Buffett devoted nearly five pages of his letter to shareholders to explaining the role derivatives played in the company's investment losses last year.

The derivatives Berkshire offers operate similar to insurance policies. Some of them cover whether certain stock market indexes _ the S&P 500, the FTSE 100 in the United Kingdom, the Euro Stoxx 50 in Europe and the Nikkei 225 in Japan _ will be lower 15 or 20 years in the future. Others cover credit losses at groups of 100 companies, and some cover credit risks of individual companies.

Buffett said he initiated all of Berkshire's 251 different derivative contracts because he believes they were mispriced in Berkshire's favor.

Analyst Justin Fuller, who works with Midway Capital Research & Management in Chicago, said he thinks the details Buffett offered about Berkshire's derivatives will help.

Fuller said two key things make Berkshire's derivatives different from the complex financial bets of the same name that other companies have used. Berkshire requires most payment upfront, so there's little risk the other party to the derivative will fail to pay. And Berkshire won't take part in derivatives that require the company to post substantial collateral when the value of the contract falls.

"I think laying those out as plainly and simply as he did with examples should calm investors' fears about derivatives," said Fuller.

Berkshire has received $8.1 billion in payments for derivatives which can be invested until the contracts expire years from now.

But Berkshire has to estimate the value of its derivatives every quarter. Buffett said he supports that mark-to-market accounting, but the Black-Scholes formula used to estimate that value tends to overstate Berkshire's liability on long-term contracts.

"Even so, we will continue to use Black-Scholes when we are estimating our financial-statement liability for long-term equity puts. The formula represents conventional wisdom and any substitute that I might offer would engender extreme skepticism," Buffett wrote.

Buffett said he made at least one major investing mistake last year by buying a large amount of ConocoPhillips stock when oil and gas prices were near their peak.

Berkshire increased its stake in ConocoPhillips from 17.5 million shares in 2007 to 84.9 million shares at the end of 2008. Buffett said he didn't anticipate last year's dramatic fall in energy prices, so his decision cost Berkshire shareholders several billion dollars.

Buffett says he also spent $244 million on stock in two Irish banks that appeared cheap. But since then, he's had to write down the value of those purchases to $27 million.

But Buffett also had several investing successes in 2008.

Berkshire committed $14.5 billion to fixed income investments in Goldman Sachs Group Inc. and General Electric Co. Those investments carry high interest rates and give Berkshire the option to acquire stock in those companies.

To fund those investments, Buffett said he had to sell some of Berkshire's holdings in Johnson & Johnson, Procter & Gamble Co. and ConocoPhillips even though he would have rather kept that stock.

"However, I have pledged _ to you, the rating agencies and myself _ to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow's obligations," Buffett said.

In that regard, Berkshire should be OK because the company finished 2008 with $24.3 billion cash on hand. That's down significantly from the $37.7 billion the company held at the end of 2007, reflecting the investments Buffett made during the year.

Berkshire owns a diverse mix of more than 60 companies, including insurance, furniture, carpet, jewelry, restaurants and utility businesses. And it has major investments in such companies as Wells Fargo & Co. and Coca-Cola Co.

A terceira fase da crise

José Roberto M. de Barros

O mundo está entrando na terceira fase da crise econômica, sem que as primeiras duas etapas tenham sido minimamente encaminhadas. Explico-me: a primeira etapa é a da crise dos bancos, que, como se sabe, mudou de patamar e generalizou-se após a quebra do banco Lehman Brothers.

Hoje, poucos são os países em que o sistema bancário não apresenta problemas: dos relevantes na economia mundial, apenas Japão, China, Canadá, Brasil e, talvez, Índia. Por outro lado, nos Estados Unidos, na Inglaterra, na Islândia, na Rússia e em praticamente todos os países bálticos e da Europa Oriental a crise bancária é generalizada. No remanescente das nações relevantes, os problemas, mesmo não generalizados, são muito relevantes.

Na verdade, ainda hoje aparecem novas dificuldades, como o envolvimento de bancos italianos, austríacos e suecos na debacle da Europa Oriental. Como principal consequência dessa situação, o sistema mundial de crédito permanece desde setembro de 2008 essencialmente paralisado, sem maiores perspectivas de destravar, uma vez que as soluções para a crise ainda hoje são embrionárias, como se vê no caso americano.

A segunda fase da crise é consequência da parada súbita no crédito, que vem afetando pesadamente a atividade econômica.

A demanda de consumo, exportações e investimento caiu em alta velocidade, implicando aparecimento de estoques não planejados, queima de produtos a preços de liquidação e desemprego. Setores que já apresentavam desequilíbrios fundamentais derretem de forma drástica, como são os casos dos setores automotivo e de etanol de milho americanos.

A escassez de crédito derruba inclusive empresas mais sólidas, impondo grandes consolidações em muitas indústrias mundo afora.

O resultado é que o mundo desenvolvido e boa parte do emergente vivem uma recessão cuja profundidade ainda não compreendemos. A última projeção do Fundo Monetário Internacional, de 0,5% de crescimento no PIB mundial, parece a essa altura muito otimista.

Numa situação dessa natureza, países que já apresentavam maus fundamentos e crescimento econômico muito lento ou desequilibrado têm seu futuro posto em dúvida. No mundo rico, Japão e Itália são bons exemplos. Na América Latina, México, Venezuela e Argentina são os casos mais importantes.

A terceira fase da crise decorre da falta de soluções à vista para as finanças e o crescimento. De fato, grande parte dos bancos centrais já reduziu os juros para próximo de zero e iniciou uma forte expansão monetária ("quantitative easing"), elevando a liquidez do sistema, que, entretanto, não vira crédito. Ao mesmo tempo, grandes programas fiscais estão em andamento, projetando robusta expansão da dívida pública.

A estatização de bancos, como no caso inglês, troca o risco do sistema financeiro pelo risco do Tesouro, levando a uma desconfiança em relação à sustentabilidade da moeda e à queda da libra.

As mesmas dúvidas a respeito do futuro rondam o dólar americano, até agora beneficiado pela busca da segurança. A procura de ouro se elevou e movimentos como os da China, negociando investimentos em produtores de minérios e petróleo na Austrália e no Brasil, sugerem alguma troca de reservas monetárias por ativos reais.

Certamente, a última coisa de que precisávamos a esta altura é insegurança quanto ao valor relativo da moeda mais importante do mundo.

A crise externa vai nos impor custos ainda mais altos do que os até agora percebidos. De um lado, as exportações de manufaturados sofrerão muito com a recessão e com o protecionismo de países como a Argentina, a Venezuela, etc. Por outro lado, a paralisia financeira externa vai continuar a congestionar o mercado de crédito em reais. Finalmente, os planos de investimento continuarão a ser adiados em grande proporção.

É com base nesse quadro que a MB Associados estima em 1%, no máximo, o crescimento brasileiro para este ano.

Volta por cima...

Delfim netto

"Levanta, sacode a poeira e dá a volta por cima..." foi mais ou menos esse o tom da exortação do fenômeno Obama aos americanos em seu discurso sobre o estado da União perante o Congresso, membros da Corte Suprema e convidados, na terça-feira do nosso carnaval. Uma fala empolgante de 51 minutos, entrecortada por 52 aplausos (alguns de pé) em que reconheceu de início que a economia está debilitada e a confiança do povo abalada, para em seguida, acentuando cada sílaba, garantir que os Estados Unidos sairão desta mais fortalecidos: "vivemos tempos difíceis e inseguros, mas nesta noite quero que todos os americanos saibam o seguinte: vamos nos reconstruir, vamos nos restabelecer."

Pela primeira vez depois de eleito, o jovem presidente exibiu por inteiro o talento que o elevou a fenômeno político e eleitoral, transmitindo ao mundo a ideia que está apto a liderar o processo capaz de tirar a economia dos Estados Unidos da recessão. Importa muito que sua mensagem obteve repercussão favorável em todo o mundo. Esta crise só começará a ser resolvida com o restabelecimento da confiança nas instituições políticas que têm o poder de reordenar o funcionamento dos mercados financeiros. Em primeiro lugar na matriz dos problemas: o sistema bancário americano.

No Brasil, o principal problema não resolvido desde que a crise se manifestou em setembro foi o da constrição do crédito provocada pelo corte abrupto dos financiamentos externos. O alívio proporcionado pelo Banco Central alcançou as linhas de financiamento do comércio exterior e os empréstimos externos de empresas brasileiras. Mas o crédito interno a produção continuou escasso e ainda a juros crescentes e indecentes durante todo esse período. A queda do juro básico se faz num ritmo lento e o Banco Central não demonstra apetite para enfrentar o exagero dos spreads bancários. Como não se aguarda a solução do imbróglio bancário americano no curto prazo, resta ao Brasil acelerar a mudança em sua política monetária, de forma a trazer as taxas de juros para os níveis do resto do mundo, 3% ao ano em termos reais.

Essa inércia da autoridade monetária na questão do crédito contrasta violentamente com as ações positivas que governo e iniciativa privada estão sendo capazes de realizar no enfrentamento da crise: desde a aceleração das obras de infraestrutura (comprovada pelo forte crescimento da arrecadação tributária no setor da construção civil em janeiro), a resolução de gargalos que garantiram a continuidade dos projetos das hidrelétricas, até o suporte ao setor de habitação que voltou a crescer após o soluço do último trimestre. O sucesso brasileiro, nesse particular momento de crise, logo vai servir de exemplo a muitos países.

Barak Obama, em sua mensagem, me lembrou o verso imortal de Vanzolini: tem tudo a ver com a circunstância dramática que o mundo vive.

Orçamento de Obama mostra políticas ambiciosas

O presidente dos Estados Unidos, Barack Obama, entregou ao Congresso uma proposta de orçamento de US$ 3,6 trilhões em que espera "romper com o passado problemático", com uma mudança rumo a um maior ativismo do governo, elevação de impostos sobre famílias muito ricas e empresas e cortes de gastos.

A proposta de orçamento é uma das receitas políticas mais ambiciosas em muitas décadas, uma reorganização do governo federal para oferecer cuidados com saúde nacionalmente, mudar a política de energia para longe de petróleo e gás, e impulsionar o compromisso federal com a educação.

Para financiar tudo, as famílias que ganham mais de US$ 250 mil e uma variedade de empresas pagariam um preço elevado, mas Obama pediu que os norte-americanos admitam os erros do passado e aceitem sacrifícios profundos. "Haverá escolhas difíceis no caminho", afirmou Obama. O presidente colocou a culpa dos problemas econômicos do país no governo que o precedeu e em uma nação que se perdeu.

Seu plano orçamentário projeta um déficit federal de US$ 1,75 trilhão para 2009, ou 12,3% do Produto Interno Bruto (PIB), um nível não visto desde 1942, quando os EUA entravam na Segunda Guerra Mundial. "Essa crise não é nem o resultado de uma mudança normal no ciclo econômico, nem um acidente da história", afirmou o presidente na mensagem de abertura do documento de 134 páginas.

DESABAFO. "Chegamos a esse ponto como resultado de uma era de profunda irresponsabilidade que engoliu instituições públicas e privadas, desde alguns dos executivos das maiores empresas até posições de poder em Washington."

Até 2013, o déficit poderá cair para US$ 533 bilhões, mas voltará a subir já que os que nasceram no pós-Guerra (fase chamada de baby boom) começarão a pedir benefícios de aposentadoria e saúde. O orçamento separa mais US$ 250 bilhões para completar os esforços do presidente de resgatar os mercados financeiros e estabilizar o setor bancário. Isso viria além dos US$ 700 bilhões já alocados pelo Congresso.

O orçamento deixa claro que esses US$ 250 bilhões seriam usados para ajudar na compra de US$ 750 bilhões em ativos podres que pesam no balanço dos bancos. Obama propõe amplo aumento no financiamento para educação, incluindo indexar o subsídio para ensino superior (programa Pell Grant) à inflação e converter a bolsa de estudos popular para um programa automático de "direito".

Ferrovias para trens de alta velocidade ganhariam uma ajuda de US$ 1 bilhão por ano, como parte de um esforço maior para impulsionar os gastos com infraestrutura, além dos recursos do plano de estímulo de US$ 787 bilhões. O Departamento de Defesa receberia um impulso de US$ 20,4 bilhões em 2010, um aumento de 4% em relação a este ano. Obama pedirá mais US$ 75,5 bilhões para as guerras no Iraque e Afeganistão para o restante de 2009 e outros US$ 130 bilhões para 2010, uma vez que ele pretende retirar a maioria das tropas de combate do Iraque nos próximos 19 meses, mas enviar muitos dos soldados para o Afeganistão.

EMISSÕES DE GASES. Em uma das mais ambiciosas propostas, o presidente pretende reduzir as emissões de gases que causam o efeito estufa, forçando os poluidores a comprar permissões para as emissões, que serão reduzidas gradualmente para 14% abaixo dos níveis de 2005 até 2020 e 83% abaixo dos níveis de 2005 até 2050. A venda de tais permissões, a partir de 2012, irá atingir US$ 646 bilhões até 2019. De tais receitas, US$ 525,7 bilhões serão direcionados para a ampliação da provisão de crédito tributário de US$ 800 para casais que trabalham, chamado Making Work Pay. Outros US$ 120 bilhões irão para tecnologia de energia limpa.

Obama revelou que o fundo de US$ 630 bilhões para o programa de seguro de saúde não será suficiente para garantir acesso de todos os norte-americanos à saúde, mas afirmou que será um início. Para financiar suas propostas, o presidente claramente elegeu os vencedores e os perdedores - com uma afluente lista encabeçada por perdedores.

Em tons populistas que refletem o descontentamento que notadamente evitou durante sua campanha, Obama escreveu que "investimentos prudentes na educação, em energia limpa, na saúde e infraestrutura foram sacrificados em nome de profundos cortes nos impostos para os mais ricos e bem relacionados.

Tendo em vista estas barganhas, Washington ignorou o sacrifício das famílias de classe média, tornando ainda mais difícil a situação para elas. Não há nada de errado em ganhar dinheiro, mas há algo errado quando permitimos que o campo de jogo se amplie em favor de tão poucos". Nesse sentido, o orçamento se autofinancia.

Como previsto, haverá aumento de impostos para pessoas físicas com renda de US$ 200 mil e casais com renda de US$ 250 mil, a partir de 2011, para que se chegue ao total de US$ 656 bilhões nos próximos 10 anos. O aumento no Imposto de Renda irá, sozinho, levantar US$ 339 bilhões. Limites para isenção e deduções de imposto das pessoas físicas renderão outros US$ 180 bilhões.

As taxas para ganhos de capital mais elevados trarão US$ 118 bilhões. Os impostos sobre espólios, que estavam previstos para serem suspensos no ano que vem, serão, ao contrário, preservados para sempre, com os espólios acima de US$ 3,5 milhões - de US$ 7 milhões para casais - taxados em 45%.

As empresas serão atingidas também. O orçamento prevê obtenção de US$ 210 bilhões nos próximos 10 anos ao limitar a capacidade das companhias multinacionais norte-americanas de evitar a taxação de lucros obtidos no exterior. Outros US$ 24 bilhões virão dos fundos de hedge e dos administradores de private equity, cujo lucro será taxado como Imposto de Renda e não como ganho de capital. As companhias de petróleo e gás serão particularmente mais afetadas, com a revogação de vários créditos tributários e deduções. O governo federal assumiria boa parte dos empréstimos estudantis.

SAÚDE E AGRICULTURA. Seguradoras privadas sofrerão reduções nos pagamentos recebidos por meio do programa de saúde Medicare. Agricultores com renda operacional superior a US$ 500 mil teriam seus subsídios interrompidos, e o armazenamento de algodão não seria mais financiado pelo governo federal. "Há momentos em que você consegue arcar com as despesas de redecorar sua casa, e há momentos em que você precisa se concentrar na reconstrução da fundação", avaliou. "Hoje o nosso foco é a fundação."

Para todo 2010, o projeto prevê gastos totais de US$ 3,606 trilhões, contra US$ 3,724 trilhões do exercício anterior. O déficit este ano equivalerá a 12,3% do PIB e, no exercício de 2010, a 8%. O orçamento também prevê uma contração de 1,2%% do PIB este ano e um crescimento de 3,2% em 2010. A Casa Branca, por outro lado, espera três anos de crescimento muito forte: 4% em 2011, 4,6% em 2012 e 4,2% em 2013.

O governo recordou que o comitê de Orçamento do Congresso, em suas projeções de janeiro, não levou em conta o plano de reativação econômica votado em 13 de fevereiro. Este apresentava projeções menos otimistas, com -2,2% em 2009 e +1,5% em 2010. O orçamento também fala de uma taxa de desemprego de 8,1% este ano e de 7,9% em 2010. Em janeiro, a taxa foi de 7,6%, segundo as cifras do departamento do Trabalho.

Segundo a Nielsen Media Research, mais de 52 milhões pessoas assistiram nos Estados Unidos ao discurso de Barack Obama ao Congresso na noite de terça-feira, no qual ele pregou a necessidade de sacrifícios para recuperar a economia americana. A cifra corresponde a 49% daqueles que viam TV no momento da fala. Os espectadores superam os 49,5 milhões que acompanharam a primeira entrevista coletiva de Obama como presidente, no dia 9, e estão bem acima dos 39,8 milhões que assistiram ao primeiro discurso de George W. Bush ao Congresso, em 2001. O número de espectadores pode ser ainda maior, já que a conta não inclui quem viu o discurso pela internet.

PETROLÍFERAS. O governo americano também propôs nesta quinta-feira levantar pelo menos US$ 31,5 bilhões durante os próximos dez anos das companhias de petróleo e gás, um reflexo do cancelamento de benefícios fiscais para a produção doméstica e de novos encargos sobre a produção de petróleo e gás no Golfo do México.

Os planos, que fazem parte da proposta de orçamento para o ano fiscal de 2010, que começa em outubro, retomam esforços antigos dos democratas para transformar o setor de petróleo e gás em fonte de financiamento para outras prioridades. As petroleiras têm tentado manter o tratamento fiscal favorável, que segundo elas conserva empregos nos EUA ao estimular a produção doméstica. O Congresso já reduziu a dedução no ano passado para fazer frente a benefícios fiscais para a energia solar e eólica, mas não chegou a eliminá-la inteiramente.

"Com a América no meio de uma recessão econômica, agora não é o momento de criar novos impostos para o setor de petróleo e gás", disse o presidente do Instituto Americano de Petróleo, Jack Girard, em comunicado. "Novos impostos podem significar menos empregos nos EUA e menos receita num tempo em que precisamos desesperadamente de ambos". O governo de Obama também propôs um novo imposto sobre a produção de petróleo e gás no Golfo do México, afirmando que ele irá levantar cerca de US$ 5 bilhões nos próximos dez anos.

Cooperação macroeconômica mundial

Jeffrey D. Sachs
O mundo ainda não alcançou a coordenação de política macroeconômica que será necessária para restaurar o crescimento econômico após o Grande Crash de 2008. Em grande parte do mundo, os consumidores estão agora reduzindo seus gastos em resposta a uma queda em sua riqueza e ao medo do desemprego. A avassaladora força por trás do atual colapso do mercado de trabalho, da produção e do fluxo comercial é ainda mais importante do que o pânico financeiro que veio na esteira do colapso do Lehman Brothers em setembro de 2008.

Não há, evidentemente, retorno possível à situação que precedeu o Grande Crash. A bolha financeira mundial não pode, e não deveria, ser recriada. Mas se o mundo cooperar efetivamente, o declínio na demanda dos consumidores poderá ser contrabalançado por um valioso incremento nos gastos com investimentos para enfrentar as mais críticas necessidades no planeta: energia sustentável, água potável e saneamento básico, redução da poluição, melhorias na saúde pública e maior produção de alimentos para os pobres.

Os EUA, a Europa e a Ásia registraram, todos, um colapso da riqueza devido à queda nas bolsas de valores e nos preços das moradias. Não há ainda uma medida confiável da redução da riqueza e de sua distribuição em todo o mundo, mas o encolhimento foi, em relação a seu pico, provavelmente em torno de US$ 15 trilhões nos EUA e talvez US$ 10 trilhões tanto na Europa como na Ásia. Um encolhimento combinado em torno de US$ 25 trilhões na riqueza equivaleria a aproximadamente 60% da renda mundial em um ano. O declínio na riqueza americana como percentual da economia dos EUA é ainda maior, em torno de 100% da renda anual, e possivelmente 70% da renda anual na Europa e na Ásia.

A premissa usual é de que o consumo domiciliar cai aproximadamente US$ 0,05 para cada declínio de US$ 1 na riqueza domiciliar. Isso implicaria um choque negativo direto nos gastos domiciliares em torno de 5% da renda nacional nos EUA, e de aproximadamente 3,5% na Europa e na Ásia.

A dimensão desse desaquecimento econômico é tão grande que o desemprego crescerá substancialmente em todas as principais regiões da economia mundial, possivelmente atingindo 9% a 10% nos EUA. Os domicílios gradualmente pouparão o suficiente para recompor sua riqueza, e o consumo das famílias será também pouco a pouco restaurado. Entretanto, isso acontecerá lentamente demais para impedir rápido aumento do desemprego e enorme queda na produção em relação a seu potencial.

O mundo, portanto, precisa estimular outros tipos de gastos. Uma maneira vigorosa de estimular a economia mundial e contribuir para atender necessidades futuras é incrementar os gastos em infraestrutura, principalmente voltados para transportes (rodovias, portos, ferrovias e transporte de massas), energia sustentável (eólica, solar, geotérmica, captura e sequestro de carbono e redes de transmissão de eletricidade a distância), controle de poluição, e água e saneamento básico.

Existem fortes justificativas para cooperação mundial visando ampliar esses investimentos públicos nas economias em desenvolvimento, e especialmente nas regiões mais pobres do mundo. Essas regiões, como a África subsaariana e a Ásia Central, estão sofrendo duramente com a crise mundial, devido à queda nos rendimentos das exportações, nas remessas de dinheiro para familiares em países de origem e nos afluxos de capital.

As regiões pobres também estão sofrendo com as mudanças climáticas - como secas mais frequentes -, causadas por emissões de gases que provocam o efeito estufa pelos países ricos. Ao mesmo tempo, os países pobres têm enormes necessidades de infraestrutura, especialmente rodovias, ferrovias, energia renovável, água e saneamento básico, e de melhorias na atual disponibilização de serviços vitais para salvar vidas, entre eles sistemas de saúde e apoio à produção de alimentos.

O G-20, que compreende as maiores economias do mundo, é um ambiente natural para uma coordenação mundial de políticas. O próximo encontro do G-20 em Londres no início de abril é uma oportunidade crucial para ação oportuna. As principais economias - especialmente dos EUA, da União Europeia (UE) e japonesa - deveriam estabelecer novos programas para financiar investimentos em infraestrutura em países de baixa renda. Os novos empréstimos deveriam ser de ao menos US$ 100 bilhões por ano direcionados para os países em desenvolvimento.

Os novos financiamentos deveriam incluir empréstimos diretos das agências em países ricos que disponibilizam créditos a exportações para permitir que países pobres tomem empréstimos de longo prazo (por exemplo, 40 anos) para construir estradas, redes de eletricidade, geração de energia renovável, portos, redes de fibras ópticas, e sistemas de água e saneamento básico. O G-20 deveria também ampliar a capacidade de financiamento do Banco Mundial, do Banco Africano de Desenvolvimento (BAD) e de outras instituições financeiras internacionais.

O Japão, com um superávit de poupança, moeda forte, enormes reservas em moeda estrangeira e fábricas sem pedidos do mercado doméstico, deveria assumir a liderança na disponibilização desses recursos focados em infraestrutura. Além disso, o Japão pode aquecer substancialmente sua própria economia e as dos países mais pobres direcionando sua própria produção industrial para as necessidades de infraestrutura no mundo em desenvolvimento.

Cooperação pode transformar o abrupto e assustador declínio nos gastos de consumo mundial numa oportunidade também mundial para investir mais no bem-estar futuro do mundo. Ao redirecionar recursos do consumo de países ricos, canalizando-os para as necessidades de investimento dos países em desenvolvimento, o mundo pode alcançar uma "tripla" vitória. Investimentos mais elevados e gastos sociais em países pobres estimularão toda a economia mundial, estimularão o desenvolvimento econômico e promoverão sustentabilidade ambiental por meio de investimentos em energia renovável, uso eficiente da água e de agricultura sustentável.

Jeffrey D. Sachs é professor de Economia e diretor do Instituto Terra, da Universidade da Columbia. Ele é também conselheiro especial ao Secretário Geral da ONU para os Objetivos de Desenvolvimento do Milênio. © Project Syndicate/Europe´s World, 2009. www.project-syndicate.org

Obama reverte as políticas de Bush

Alan Beattie, Financial Times, de Washington
A Casa Branca propôs elevar as alíquotas tributárias incidentes sobre os americanos mais ricos, explicando o aumento como diretamente vinculado a maiores gastos com o sistema público de saúde.

Foram elevadas diversas alíquotas de imposto de renda sobre pessoas que ganham altos salários e foi diminuída a possibilidade de esses contribuintes deduzirem despesas como pagamentos de juros hipotecários. No total, disse o governo, os aumentos de carga tributária sobre os ricos -prometidos durante a campanha de Barack Obama na disputa pela Casa Branca - deverão captar US$ 637 bilhões no curso de dez anos.

As iniciativas revertem muitas das mudanças implementadas pelo governo de George W. Bush.

Para solteiros que ganham mais de US$ 200 mil e para casados que ganham mais de US$ 250 mil, o orçamento busca restaurar as alíquotas máximas para os patamares de 36% e 39,6%, dos 33% e 35% instituídos por Bush. O Birô de Administração e Orçamento americano disse que apenas essa mudança deverá resultar na captação de US$ 339 bilhões em dez anos.

Mark Iwry, pesquisador no Brookings Institution e ex-assessor tributário do Departamento do Tesouro no governo de Bill Clinton, elogiou as mudanças propostas no Orçamento. "Isso reverterá algumas das importantes mudanças em cortes tributários que o governo Bush instituiu, beneficiando os ricos, e as apresenta de forma honesta e transparente", disse ele.

O Orçamento também se propõe a elevar dos atuais 15% para 20% os impostos sobre ganhos de capital e sobre dividendos das pessoas físicas com maiores salários e reduz a possibilidade de domicílios ricos deduzirem despesas como suas contribuições para instituições de caridade.

Uma parte das reformas tributárias do governo Bush foi mantida: trata-se da mudança no sentido de tributar dividendos pagos por empresas como ganhos de capital, e não como renda. Mas o "carried interest" - uma forma de remuneração recebida por muitos gestores de fundos de hedge - agora deverão ser tributados como renda, e não como ganhos de capital, o que, segundo a Casa Branca, deverá resultar na arrecadação de US$ 24 bilhões no curso de dez anos.

O Orçamento também cumpriu outra das promessas da campanha de Obama, de aumentar os impostos sobre a lucratividade das companhias americanas no exterior e tornar mais rigorosa a aplicação da atual legislação tributária sobre as empresas.

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