Too Big To Fail

The numbers are so bad that economists are growing (even) more cynical. Even more amazing, the numbers as so bad that even conservative economists are shedding ideology and adopting reality based policies. But then there are the neo-Hooverites. From Josh:
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There’s an interesting and I think important question here as to whether neo-Hooeverite Republicans are pushing Hooverite policies for strictly economic reasons (creditors can do well in a deflationary economy), moral reasons (need a good hard recession to re-teach the poor moral values) or just because they’re economic illiterates who just don’t feel right echoing the calls of centrist and liberal economists.
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Steve Benen offers a variety of possible explanations. * The Moral Explanation: Ed Kilgore had a terrific item last night explaining conservative support for the benefits of a recession, most notably the idea of wringing "excess demand" out of the economy. The right, in other words, wants to see everyone taught a moral lesson about excesses. As Ed explained, "[J]ust as Republicans like Phil Gramm couldn’t stop themselves from calling economically distressed Americans ‘whiners’ a few months ago, even in today’s crisis there will be a significant group of Republicans betraying an affection for the bracing moral ‘lesson’ being taught to the afflicted." * The Benefactor Explanation: Matt Stoller made a compelling case yesterday that conservatives worry about economic recovery benefitting the "wrong" people, as money moves from "people who are cash poor (the poor, the middle class, entrepreneurs, risk-takers) to people who have cash (the risk-averse rich)." And because "people [who] have money would prefer that they remain on top," these conservatives "oppose attempts to restart spending from a broad base." * The Illiterate Explanation: It’s at least possible that Republicans like Sanford, Boehner, and Thompson oppose economic stimulus because they have no grounding in basic economics. They may, in other words, may be sincere, but hopelessly confused, and they’re not quite sharp enough to know when to stop talking. * The Strategic Explanation: A TPM reader noted that Republicans may oppose sensible economic policies in order to undermine Democrats now that the party is in the majority. "Given the new demographic realities of the country, Obama’s presidency must be a failure if Republicans are to ever emerge from the political wilderness," JF writes. "The more they obstruct, the more Obama and Congessional Democrats will be forced to water down economic policy. And a watered-down policy just won’t cut it at this moment in history. This is sabotage, pure and simple." * The Machurian Explanation: A slightly more callous version of the Strategic Explanation, it’s possible that GOP officials secretly hate the United States and are actively trying to destroy us from within. That last one seems unlikely, but I’m just presenting the possibilities.

This speaks again to the short-sightedness that I like to refer to as managing by spreadsheet (a phrase I coined as a line-level manager as we endeavored to close a plant) If we fail to see how the whole economy is connected and only look at the results within one’s own organization, then we can see how failure can cascade through the whole system.

You can think around the whole problem with a simple exercise. Imagine your employess and your customers are the same people. If you take away the diffusion effects that the size of our economy allows, its a basic truth. If you screw enough of your employess long enough, eventually your customers aren’t going to be able to afford what your selling.

Welcome to 2009!

If BHO is as smart as I think he is he will be dummying up a Kenyan birth certificate soon and letting someone else deal with this clusterbleep.

Heh Heh Heh. I wrote about this weeks ago. Link is here. My self promotion and prescience knows no bounds.

What I have found surprising throughout this economic crisis is how many economists are “surprised” at the speed at which this ball is rolling downhill.
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These folks really need to get out more. The jobless number today was not surprising to those of us in business who are hearing first-hand accounts of slowdowns, layoffs, and business failures, including economic trends and events happening internationally.
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A friend who manages a large (and solvent) real estate investment fund has been predicting exactly this sort of meltdown for almost five years and has been stashing cash for precisely this reason. He and his cohorts are now in a position (cash-rich) to buy up property at cents on the dollar over the next six months to a year.
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He has also been running a number of large construction projects in the oil nations and the slowdown there (recent) has certainly portended a more serious downturn here at home. And never mind that many of us have watched wholesale prices for construction materials and food commodities soar the last two years while the increases were still being moderated at the retail level.
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This has been a disaster waiting to happen. All the signals were there, but you had to have an ear to the ground to put the pieces together.
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Talking with other friends in almost every industry over the past year has shown that many of us are ahead of the “experts” when it comes to calling economic trends. I had to laugh when I heard University of Maryland economist Peter Morici this morning on the radio expressing his astonishment at how fast the economy is sliding into the abyss. Morici is quoted often in the news.
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My question to Morici and other “experts”: Where have you been? Those of us out here fighting like hell for survival have seen these so-called “leading indicators” for months, if not a number oif years?

Too many “experts” think the Dow and the economy are the same thing.

Ditto PNNTO #6
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OT, but wonderful. Nate Silver at the Dole Institute Post Election Conference: Six points of general consensus among the reporters, strategists and analysts that were present at the Dole Institute. My favorite finding:
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4. Sarah Palin is, for the time being, the public face of the Republican Party.
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4a. This is not necessarily a good thing for the Republican Party.

On the bright side, all this should give us a good reason to demand Sean Hannity’s head, on the grounds that he’s a damn fool and everything he says hurts America.
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http://www.youtube.com/watch?v=NmcupSmgraw
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(I promise it’s not a rickroll, it’s when Hannity blew up at Robert Kuttner.)

PD: Isn’t that why H. Ford paid his workers comparatively well? So they could afford the products he sold?

wvng – I found out over Thanksgiving that my sister thinks that Palin is an okay person, and that she is actually pretty smart, and that she was just unprepared for the Couric interview.
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I have been drinking heavily to avoid confronting the awful reality of this.

Cliff . . .”the awful reality of this.” Yes, it is so very difficult to answer what newspapers you read. “All of them” just naturally comes to mind. But, to repeat the good news finding from Dole Inst:
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4. Sarah Palin is, for the time being, the public face of the Republican Party.
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4a. This is not necessarily a good thing for the Republican Party.
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But sorry about your sister. Perhaps an Obama re-education camp would help.

In the perfect world it would be nice for compaines to not think so much about their bottom lines. But try actually enforcing that.

You have my sympathies as well Cliff. I know several people who still think Palin is just wonderful. I remain beyond amazed.

Bernstein has the right concept but the wrong idea. Companies need to engage in business practices that foster sustainability. The efficient utilization of labor is part of that process. The equitable distribution of wealth within the company structure is also part of that process. I get concerned when I hear folks espouse policies which may be socialistic as applied. That is part of how GM got to where it is today. The company accepted an agreement which did not permit the freedom to shift labor resources as required by the needs of the business. We would be in far better shape if GM had already downsized and those good people who were unfortunate enough to have to move on in some cases had developed other skills and were in productive sectors of the economy. There is a synergistic pathway that both business and workers can compete successfully. If not, it is the death of capitalism and the free market.

@queen: I think the point is if you do value the bottom line, you have to consider the bigger picture. To wit: the entire cycle, meaning not just your customers, but your employees as well. It’s unimaginative, short-sighted companies that contract their operations during a downturn. They’re essentially contributing to the downturn, making it worse for all of us.
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Yeah, my brother – an otherwise intelligent guy – is one of those Palin supporters. Don’t get me started…

Cliff, if it helps at all, my papa is buying into the Obama wasn’t born here silliness. At least he says he is, possibly to annoy his liberal children. 90 years old & he still likes to jerk our chains.

Cliff, it’s time you disown your sister. It’s easier than you think, I’ve disowned mine. I found out that my dad wasn’t even aware of the Palin-dumb-as-rocks stories out there, but he’s old and gets a pass. I don’t think any politician is going to have to worry about answering what newspapers they read in the future though.
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It’s interesting to hear ‘reguler folk’ and ‘real Americans’ blythely willing to let the American auto industry go under and extol the virtues of foreign car makers. They’ll be pissed when we start outsourcing our country and western singers though. Here’s hoping the aliens are coming to save us on 12/21/12 cuz I don’t think we can.
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Barack Obama = Diocletian

Eliot Spitzer, re-born as a columnist for Slate, writes an interesting article calling the financial institutions too big not to fail:
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“(O)ur dependence on entities of this size ensured that we would fall prey to a “too big to fail” argument in favor of bailouts.
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Two responses are possible: One is to accept the need for gigantic financial institutions and the impossibility of failure—and hence the reality of explicit government guarantees, such as Fannie and Freddie now have—but then to regulate the entities so heavily that they essentially become extensions of the government. To do so could risk the nimbleness we want from economic actors.
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The better policy is to return to an era of vibrant competition among multiple, smaller entities—none so essential to the entire structure that it is indispensable.
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The concentration of power—political as well as economic—that resided in these few institutions has made it impossible so far for this crisis to be used as an evolutionary step in confronting the true economic issues before us.”
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(Oh yeah… my father too believes that Obama is a foreign-born terrorist, a socialist and a Muslim… and that poor Sarah Palin was treated unfairly by the press.)

Nice to see they finally hired a token liberal as an adviser to the VP.

“Too many “experts” think the Dow and the economy are the same thing.”
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PNNTO:
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YAAAAAHHHHH! With a vengeance…
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I think that the economy is in uncharted territory. I don’t think even the experts really know what the future will bring.
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I don’t see anything really encouraging, given that Obama hasn’t committed to anything like sharply higher taxes, which seems to me to be the only way that even has a chance of being the solution to the “hopeful strategy” put forward.
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Just wait until those chickens come home to roost…

53_3: “I don’t see anything really encouraging, given that Obama hasn’t committed to anything like sharply higher taxes, which seems to me to be the only way that even has a chance of being the solution to the “hopeful strategy” put forward.”
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I’m no economist, but the shrill one tells me (I was actually listening to him as I read your post) that FDR made the mistake of listening to the balanced budget crowd in 1937 and tried to balance the budget by sharply raising taxes – which led to a second deep recession. The Obama crowd will be able to enact, and clearly intend to enact, much of their “hopeful agenda” as part of the stimulus – and the amazing thing is that it makes great good sense to do so.
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Here’s the shrill one:

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As for uncharted territory, yep. Plenty scary.