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Rethugs block auto rescue - now we descend to Hell's very gate

Incredible. Watching a nation commit suicide. My nation. Our nation.

It now looks like Mitch McConnell and the Republicans in the Senate have decided that a new great depression is a trifling price to pay to get rid of the "barnacles" of organized labor. I am referring, of course, to South Carolina Senator Jim DeMint's comment during his inetrview with NPR yesterday, in which he said the auto makers were in trouble because they have "the barnacles of unionism wrapped around their necks."

As a DailyKos frontpager wrote,

Is this a capital goods depression?

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My intellectual mentor, the late Professor Seymour Melman of Columbia University, was very enamored of a small booklet written in 1935 called “The Chief Cause Of This And Other Depressions.” The author was Leonard P. Ayres, Vice President of the Cleveland Trust Company. This is the gist of what Ayres said, at least the way I interpret it:

A recession, or a long one, would benefit from a short-term stimulus, or if you consider two years to be medium-term, a medium-term stimulus. However, if this is a depression, you have a different animal.

The Melman/Ayres view of depressions is that they are partly or significantly caused by a collapse in the capital goods industries. That is, the machinery and such that is used to make other stuff loses their markets. When these industries start to collapse, the unemployment there causes a greater lack of demand among the consumer goods industries, starting a snowballing effect in the wider economy.

Housing and Recessions, Or, This Time it Isn't Different

In Friday's diary, Housing is Nowhere near Bottom, BUT ... I cited as I have several times previously a paper on housing cycles and recessions that was presented by Prof. Edward Leamer to the Federal Reserve at its Jackson Hole conference in 2007. The paper itself is an excellent, in-depth analysis and I highly recommend your reading it in full if you have an hour or so on your hands due to inclement weather, indolence, intellectual curiosity, or if you just generally have a pathetic life.

Unfortunately, many people are dismissing Leamer because even though the data in his paper led to a spot-on conclusion, namely:

The historical record strongly suggests that in 2003 and 2004 we poured the foundation for a recession in 2007 or 2008 led by a collapse in housing we are currently experiencing....

Is this the Winter of our Discontent?

During the winter of 1978-1979, the suspension of the right to collective bargaining by British labor unions lead to what was called the Winter of Discontent. Gas deliveries ground to a halt leading to shortages, blackouts became common, and in London trash sat uncollected for months. The labor activism of that period ended with the election of Margaret Thatcher, and the hollowing out of trade union power. God forbid that labor, the working class, have even a half of the power granted to capital, the men and women who live by the labor of others. Adam Smith was right:

Paulson wants second $350 billion; Obama may help

The Washington Post reports that:

Treasury Department officials are laying the groundwork for seeking the second half of the $700 billion financial rescue package from Congress ... [but w]ith lawmakers on both sides of the aisle expressing heated opposition to such a request, Treasury officials have come to realize that they need the president-elect's help to obtain the rescue money, the sources said.

The Treasury aired the possibility of seeking the second half of the funds with transition team officials, who said they would attend a meeting with lawmakers and the Bush administration if the department pulled one together.
....

Banks, Cars, Class wars, frustrations, and petty politics

Amazing, simply amazing.  For the past two days I've been watching these hearings on the automakers, and find myself more aghast than anything else.  Actually, it's more than that.  I think I've had this almost sickening feeling, a feeling where anger is meshed in with a humiliation and sadness.  It isn't just the automakers that has been the cause of this, but that they symbolize how far we've fallen.

Friday Movie Night - Iraq For Sale

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It's Friday Night! Party Time!   Time to relax, put your feet up on the couch, lay back, and watch some detailed videos on economic policy!

 

This weeks film is Iraq For Sale The War Profiteers.

While privatization of the military, corruption and no-bid contracts has gone from the headlines, this post, Obama and Defense Spending got me wondering if any of it had been cleaned up?   According to the CBO and the New York Times the price tag has hit $100 billion dollars and just recently the DoD said it's budget is not sustainable.

Econ-Fin News - Dec 5, 2008 – Basic Assumptions and Nationalization

Back in the middle of September, when the Wall Street model of investment banking collapsed into the dustbin of history Stirling Newberry wrote a series of articles laying out the underlying realities of the financial crises, and re-framing the issue as a Constitutional crisis because of the existence of a reactionary faction in American politics that is as yet unwilling to move from the existing means of storing wealth – the development of land, i.e., suburban sprawl – to a new store of wealth that would allow us to begin building a workable future. The Constitutional crisis arises because the present monetary configuration of the United States rests on the valuation of mortgages, the values of which are supposed to keep increasing as more land is developed:

 

Housing is Nowhere Near a Bottom, BUT . . .

My buddy Bonddad occasionally posts items invariably entitled, We're Nowhere near a Bottom in Housing. I agree with that, but there are signs that change is afoot.

As I have previously described, Prof. Edward Leamer has studied all of the post WW2 recessions, and has noted that society needs only so many new houses and vehicles in any given year. Expansions typically end at a point where there has been overproduction of both. The recession ends and the next expansion begins only after that excess has been sopped up by a long and/or deep enough period of underproduction. Needless to say, there was wild overbuilding of houses in the first part of this decade. In fact, the graphs which appear below suggest overbuilding began ever so slightly over 10 years ago.

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