If you make the “foreclosure pipeline” long enough, you can reduce the number of new foreclosures to any level you care to.

Tyler Cowen echoes the point I’ve been making about infrastructure projects in general and the ARRA in particular:

One major problem with ARRA was not the crowding out of financial capital but rather the crowding out of labor. In the first paper there is also a discussion of how the stimulus job numbers were generated, how unreliable they are, and how stimulus recipients sometimes had an incentive to claim job creation where none was present. Many of the created jobs involved hiring people back from retirement. You can tell a story about how hiring the already employed opened up other jobs for the unemployed, but it’s just that — a story. I don’t think it is what happened in most cases, rather firms ended up getting by with fewer workers.

There’s also evidence of government funds chasing after the same set of skilled and already busy firms. For at least a third of the surveyed firms receiving stimulus funds, their experience failed to fit important aspects of the Keynesian model.

The emphasis is mine. Unless something changes in a new infrastructure spending bill it will have little greater impact than the first. Nothing is likely to change.

The Federal Reserve has a dual mandate, to prevent inflation from growing out of control and to reduce unemployment. The Fed is doing a fair job with the first mandate, at least in part by defining the things that are increasing in price out of the definition of the inflation that it’s managing.

Whatever became of the second mandate?

Economist Edward Glaeser critiques the mortgage refinancing plan being bruited about:

A massive refinancing effort is likely to have little impact on the economy or foreclosures or housing prices. What it would do, however, is hurt our government’s already precarious balance sheet by reducing the payments on its vast mortgage portfolio.

Refinancing does little to reduce indebtedness in the near term (although it would reduce the cost of indebtedness in the long term). An effective refinancing plan, however, would constitute a significant subsidy to the top quintile of income earners since they’re they ones who have most of the debt. You pays your money and you takes your choice.

Hat tip: Greg Mankiw.

Perhaps it’s just something in my eye but I see an abnormally large number of what I might call flights of fancy in the opinion pages today. Here’s Tony Blankley:

President Obama’s post-Labor Day “jobs” speech will be his last chance to launch an economic policy with any chance of manifesting its effect – both economic and political – before the November 2012 elections. He has three options. In order of descending likelihood, they are: a timid hodgepodge of previous proposals, a bold left-of-center initiative or a turn to a free-market “nuclear option.”

It’s that nuclear option that is the most fascinating (and most unlikely). He could decide to embrace all the major Republican, Tea Party free-market ideas – marginal business and personal tax-rate cuts (leading to a net tax cut); big discretionary spending cuts to be implemented before the 2012 election; genuine long-term reductions in Medicare, Medicaid and Social Security costs written into law now; major deregulation, including Environmental Protection Agency rules, Dodd-Frank financial burdens and nanny-state consumer regulations; unlimited oil- and gas-drilling and shale-fracking authorization; permanent extension of the George W. Bush tax cuts; repeal of the double tax on American corporations’ foreign profits; limits on unemployment insurance extensions; and withdrawal of his big union initiatives, such as the National Labor Relations Board’s opposition to the Boeing Co. building a factory in South Carolina.

Least likely, indeed! I can’t think of any steps more likely to produce the things that could put -30- to the president’s term of office than that strategy. It would all but certainly produce a primary challenge and, possibly, third party candidacy. It’s a fantasy.

Then from Harold Meyerson:

Apple’s American employees are well paid. Stateside, Apple employs designers of hardware, software and packaging; marketers, managers, supply-chain gurus and financial whizzes — a very talented crew. But not a very large one: In its most recent annual filing with the Securities and Exchange Commission, Apple said it directly employs 47,000 people worldwide — perhaps 30,000 of whom work in the United States. It employs no U.S.-based production workers.

Which is why Jobs’s elevation to our national pantheon is premature.

Bringing some of those production jobs home while holding down the price of his products probably would require devising factories so automated that they wouldn’t employ all that many workers. Then again, Apple is sitting on $76 billion in cash, and Jobs is still Apple’s chairman. Devoting a few billion to reshape and restart American manufacturing, even if it employs fewer people than in Henry Ford’s time and narrows Apple’s profit margins, could work wonders for exports and, just possibly, lead to Jobs’s most amazing invention of all: a newly vibrant American working-class.

That’s a fantasy as elaborate as any Harry Potter novel. It is about as likely as it would be for Dick Cheney to become the new Mother Teresa, ministering to the poor and sick. Process design is not the same as product design and Apple’s resurgence over the last fifteen or so years is based on its ability to use its fanbase and the cachet derived from its success in niche markets to propel it into the commodity marketplace with the iPod, then iPhone, and now iPad. That progress is tied indissolubly to Foxconn’s soul-killing Chengdu plant which already has reached the point that it can’t bring in the iPad at its price point and still pay the tiny wages the million workers who toil there receive.

Mr. Jobs has rebuilt Apple with vision and an attention to detail. That vision has nothing whatever to do with employing American workers in manufacturing.

While I’m on the subject of thinking outside the box, I wanted to remark on an op-ed by economist Robert Shiller at The New Republic, “Yes, We Can Do Stimulus Without Adding Debt. Here’s How.” The short version of the proposal is that you raise taxes and use the proceeds realized for fiscal stimulus.

Oddly, the cleverest part of Dr. Shiller’s proposal isn’t outlined adequately in the op-ed: if the amount of economic activity that would be produced by the fiscal stimulus exceeds the amount that would be produced in the absence of the tax, the joint policy would, in fact, be stimulative.

However, that’s also the plan’s greatest weakness. If you tax somebody making $10 million a year an additional $1 million and spend the money paying 30 people with zero incomes $30K each, it might produce some fiscal stimulus. Not necessarily. Remember the old adage about not comparing utility functions. However, if you take money away from somebody making $100,000 a year and give it to somebody else already making $100,000 per year, it’s probably a lot less likely that the net result will be economic stimulus. The details matter.

The residual benefit from the infrastructure spending isn’t a done deal, either. How much is the incremental benefit of re-surfacing State Street for the 40th time? Or building yet another bridge across the Mississippi?

IMO a better case can be made for using the additional tax revenue for a federal jobs program for the hardcore unemployed.

Let’s not lose track of the key point of the proposal, though. It’s not just a choice between one thing that’s useless and another that’s valuable. It’s the relative difference in economic activity between the two that’s the key.

The idea that what we are experiencing is a “balance sheet” recession, analogous to the Japanese recession in which companies undertook too much debt, continues to gain currency. In our instance it is households that have undertaken too much debt.

I’ve seen precious few ideas for dealing with this problem and most of the solutions I’ve seen either deal with problems that don’t have a great deal to do with excessive household debt or are oblique in the extreme. I wanted to float an idea I’ve been toying with for dealing with the problem.

One of the aspects of the huge overhang of household debt that doesn’t receive enough attention is that most of the household debt belongs to the highest quintile of income earners. I’ve published the supporting information on that particular factoid frequently enough and recently enough that I won’t bother going back and dredging it up again. Suffice it to say that if, magically, all of the household debt held by the three lowest income quintile were wiped out it would barely scratch total indebtedness.

I think we can agree that incentives are a non-starter. I can only imagine the outcry if President Obama, for example, were to announce a debt forgiveness program that concentrated on the debt that’s actually out there which belongs to the highest income quintile. Handouts to the rich, forsooth! And, as mentioned above, while debt forgiveness programs for the lower income quintiles might pass political muster they don’t hold enough debt to fix the collective household balance sheet.

The idea that I’ve been toying with has two components: disincentivizing the holding of debt and encouraging the sale of assets bought on time.

What I’m thinking about for the first component is to put a cap on the deductibility of mortgage interest. What I’m thinking about for the second component is debt forgiveness contingent on sale. That is, banks would be required to forgive the difference between principal remaining on a loan and the amount realized on sale. Banks might squeal but in doing this they’d lose little but bad loans and banks are, after all, creatures of the state. It would enable those who are underwater to walk away clean from an underwater loan and the first component, the cap on mortgage interest, would provide the incentive for doing so.

I haven’t worked out all of the details so I’m just floating a trial balloon. What do you think?

Over the weekend there has been an absolute deluge of news coverage of Hurricane, then Tropical Storm, Irene. It has hardly been possible to turn on the radio, television, or read a newspaper (whether on paper or online) without being struck by the sheer volume of coverage. It is local news masquerading as national news. Why?

I don’t mean by that to diminish or minimize in any way the loss of life or the damage to property that took place but it needs to be placed in some perspective. This spring more than 500 people were killed in the floods of the Mississippi and in tornados. The damage is estimated in the billions, possibly the tens of billions. In July Chicago experienced a summer storm that had more rain and higher winds than Irene when it struck New York. So far in 2011 we’ve had a blizzard, flooding, heat, and a summer storm of historic proportions, each of which has produced fatalities. While these events were reported in the national news it was more as footnotes to the news. Not the incessant, obsessive coverage that Irene has received.

It’s not an isolated instance. I was blessed (if that’s the right word for it) to grow up in one of the few parts of the country that routinely experienced blizzards, thunderstorms, hail, tornados, hurricanes, floods, and earthquakes. Fortunately, they didn’t generally all happen at the same time. Several times a year we’d experience earthquakes that made the chandeliers rock and every couple of years we’d have an earthquake of roughly the size that shook DC not long ago. It really was not much to take note of and we didn’t expect it to make national headlines.

Why? I think there are two likely explanations. First, August is routinely a period of slow news. Second, the solipsistic national news media are overwhelmingly concentrated in New York, Los Angeles, and Washington, DC, and reporters who live in these places project their own vital interest in what happens to them on the rest of the country. The rest of us really aren’t that interested.

Well, so what? I think there is a legitimate reason that reporters need to show more restraint in trying to make us all as vitally interested in their local news as they are. Over the last couple of decades the national news media have experienced decreasing significance, going from among the most respected institutions in the country to least respected and losing the trust of the American people.

Some attribute it to print journalists in particular championing their own political agenda as the news but I think there’s a more basic reason. What they’re reporting just doesn’t have as much resonance with the American people as it should and an obsessive attention to their own local news contributes to that sense of disengagement. Couple that with the vague (or even explicit) disdain that those of us in the Midwest and the Mountain West perceive from the national news media and it contributes to that sense of distrust.

I struggled with the title of this post, toying with “National News Media Paralyzed by Summer Storm” but I finally decided to stick with Mama Rose’s wisecrack from the musical Gypsy. New York is not the center of the world. It is the center of New York.

In what I think may be the post of the year Mickey Kaus lists, bullet item by bullet item, what President Obama could have done differently in the first three years of his presidency. Here they are:

1. Not subcontracted out the details of the 2009 stimulus to interest-group-addled Congressional Democrats.
2. Sold his health care reform as a valuable benefit for voters that would give them security (they’d be covered) and freedom (they could leave their jobs without losing insurance) rather than as an eat-your-peas plan that would not only “bend the cost curve” by denying treatments but somehow actually reduce the deficit–a sales pitch that assured Obamacare would be unpopular and vulnerable long after Dems rammed it through Congress.
3. Made the UAW take a pay cut.
4. Pivoted! In 2010, after the health care bill passed, Obama was going to “pivot” to jobs but wasn’t able to do that when … yeah, I don’t remember what prevented him from doing it either.
5. Not pursued a zombie agenda of “card check” and “comprehensive immigration reform”–two misguided pieces of legislation that Obama must have known had no chance of passage but that he had to pretend to care about to keep key Democratic constituencies on board.
6. Dispelled legitimate fears of “corporatism“–that is, fears that he was creating a more Putin-style economy in which big businesses depend on the government for favors (and are granted semi-permanent status if they go along with the program).
7. Stolen some populist Tea Party thunder by going vigorously after Wall Street.
8. Not appointed pro-union innovators to NLRB who try to hamstring our biggest remaining industrial exporter by preventing it from opening a non-union factory in South Carolina–and then not had his spokesman say there’s nothing the president can do about it because, hey, the NLRB is “independent.”
9. Faced with Republican demands for leaner government, embraced them!
10. Defend the core of Medicare, a popular universal program that works and (according to Orszag) is cutting costs, rather than proposing to shrink Medicare by raising the eligibility age from 65 to 67.

Read the whole thing. I don’t agree that everything in Mickey’s entire list should have been done but I think he’s got the general idea. Other things he could have done:

• Adopt a more conciliatory tone towards Republicans early in his administration (“elections have consequences”). He didn’t meet with key Republican leaders for months after he took office.
• Tone down the anti-business rhetoric.
• Post-poned the foreign policy outreach until later in his presidency (like most presidents).

Just to name three.