Hedgehog Paul Krugman’s advice is almost precisely the opposite of Kevin Warsh’s:

We’ve already seen this happen with fiscal policy: fearing opposition in Congress, the Obama administration offered an inadequate plan, only to see the plan weakened further in the Senate. In the end, the small rise in federal spending was effectively offset by cuts at the state and local level, so that there was no real stimulus to the economy.

Now the same thing is happening to monetary policy.

The case for a more expansionary policy by the Fed is overwhelming. Unemployment is disastrously high, while U.S. inflation data over the past few years almost perfectly match the early stages of Japan’s relentless slide into corrosive deflation.

Unfortunately, conventional monetary policy is no longer available: the short-term interest rates the Fed normally targets are already close to zero. So the Fed is shifting from its usual policy of buying only short-term debt, and is now buying long-term debt — a policy generally referred to as “quantitative easing.” (Why? Don’t ask.)

Just as I would be more enthusiastic for Dr. Krugman’s proposal for counter-cyclical Keynesian spending if he were to accompany it with his proposals for pro-cyclical real spending reductions, I would be more enthusiastic about the prospect of a higher inflation target if he could explain how we would cope with a collapse of the dollar should one occur. History suggests that the speed with which ordinary inflation may turn into hyperinflation is alarming, faster by far than the ability of policy makers to act.

Kevin Warsh, member of the Board of Directors of the Federal Reserve, takes to the pages of the Wall Street Journal to report on the FOMC meeting last week. Essentially, the Fed is treading water to give the people’s elected representatives time to change the country’s fiscal, trade, and regulatory policies to ones that are better tailored for fostering economic growth:

The deleveraging by our households and businesses is not a pattern to be arrested, but good prudence to be celebrated. Larger, more liquid corporate balance sheets and higher personal saving rates are the reasonable and right responses to massive government dissaving and unpredictable government policies. The steep correction in housing markets, while painful, lays the foundation for recovery, far better than the countless programs that have sought to subsidize and temporize the inevitable repricing. It is these transitions in our market economy—and the adoption of pro-growth fiscal, regulatory and trade policies—that lay the essential groundwork for greater, more sustainable prosperity.

Monetary policy also has an important role to play. However, the Federal Reserve is not a repair shop for broken fiscal, trade or regulatory policies. Given what ails us, additional monetary policy measures are poor substitutes for more powerful pro-growth policies. The Fed can lose its hard-earned credibility—and monetary policy can lose its considerable sway—if its policies overpromise or under deliver.

To his list I would add immigration policy and aspects of foreign policy. Tempus is fugiting. We are barely keeping our heads above water as it is and the capacity of the economy to grow with all of the drag that’s being placed on it is limited.

We might do well to heed Denis Healey’s First Law of Holes: when you’re in one, stop digging! This hole already goes all the way to China.

I agree completely with President Obama’s emphasis on U. S. exports in his op-ed this morning in the New York Times:

We need to rebuild on a new, stronger foundation for economic growth. And part of that foundation involves doing what Americans have always done best: discovering, creating and building products that are sold all over the world.

We want to be known not just for what we consume, but for what we produce. And the more we export abroad, the more jobs we create in America. In fact, every $1 billion we export supports more than 5,000 jobs at home.

However, I continue to wonder whether President Obama has any feel for numbers. His stated goal is to double U. S. exports by 2015. While exporting more to Indonesia, South Korea, India, and Japan is a step in the right direction, is it possible to double our exports by doing that?

Our annual export trade is about $1.8 trillion. U. S. exports to Japan are about $51.2 billion, $12.9 billion to Indonesia, about $25 billion to South Korea, and about $17.5 billon to India. Doubling our trade to those four countries, an enormous task especially when the reality that Japan, South Korea, and India maintain a policy of holding a trade surplus with the United States is taken into account, would add less than $100 billion to our exports, not quite 10% of the target export figure. If we are to achieve that goal, we’re going to need to start thinking in terms of quadrupling exports to those countries, some of the largest economies in the world.

Conspicuously absent from the op-ed, like the ballerina at the conclusion of The Red Shoes, is China, which imports about $64.5 billion from us annually while exporting $211 billion to us. It is not that we produce nothing more that Chinese people want. China’s system of currency manipulation, subsidies, tariffs, and quotas intentionally keeps our exports to China far too low. If we could double our exports to China, we’d be getting somewhere.

That such a large proportion of our exports consists of arms is alarming but it’s a subject for another post.

Bob Kerrey, Mark Alderman, and Howard Schweitzer make an interesting proposal. President Obama should create the post of federal Chief Operating Officer:

Let the president’s chief of staff manage the White House – an enormous responsibility in itself. We need a chief operating officer to manage everything else.

While a COO must understand how policy and politics influence decision making in Washington, he should leave the politics to the chief of staff and others in the White House and undertake the hard role of running the business of government. Far from reflecting poorly on this president or his chief of staff, this suggestion is about the efficacy of the office itself. This innovation would modernize the institution of the presidency and enhance the ability of this president and his successors to govern.

They even have somebody in mind for the job:

The choice of the first COO will be critical for the future of the office, much as the selection of the first president shaped that office for our nation. Fortunately, an ideal candidate comes to mind: New York Mayor Mike Bloomberg. He is a man of well-documented business savvy who has also exhibited an ability to apply private-sector know-how to a diverse government enterprise. He has experience with public budgets and managing private-sector payrolls. His political status as an independent makes him uniquely nonpartisan in an age of vicious factions.

Hmm. Keep your friends close and your enemies closer?

It’s an intriguing, practical suggestion which I sincerely doubt that President Obama will listen to.

Many countries in the world have separate heads of state and heads of government, presidents and prime ministers. It’s frequently been said that United States unites both roles in the presidency.

That may have been the way the presidency has evolved but I don’t think it was intended to be that way. I think that we were to be a country in which there was no head of state or, more accurately, in which the people are the head of state. The president is the government’s chief operating officer. Why the job hasn’t appealed to many of those elected to the presidency for the last century or so is probably the question we should be pondering.

Harold Meyerson dredges up a few numbers that should give Democrats hope for future elections. They include the percentage of young voters who voted Democratic, the number of newly elected senators who carried the youth vote, and this number:

Twenty-four – The gap, in percentage points, between the levels of support for Democrats and Republicans among white voters without college degrees who have union members in their household and white voters without college degrees who don’t. In Tuesday’s national exit poll on House voting, working-class whites voted overwhelmingly for Republicans – unless they lived with or were themselves union members, in which case they supported Democrats by a margin of 55 percent to 43 percent. Working-class voters from nonunion households backed Republican candidates 68 percent to 31 percent – a huge difference. It’s not because unionized UPS drivers and nonunion FedEx drivers, say, are two different species of human. It’s because the unions’ political education and mobilization programs are very effective.

Here’s another number he might think about: fifty-two. That’s the percentage of all union members who are public sector workers. And that number is growing fast.

Many of the largest states in the Union are in fiscal trouble because of the compensation that’s being given to public sector employees. That compensation might have been reasonable in a different era in which generous healthcare plans and defined benefit programs were the norm in the private sector but that era has been gone for decades, following in the path of buggy whip manufacturers and elevator operators.

If the Democratic Party’s great hope is to be the unionized public sector employees, how in the world will we ever escape the fiscal trainwreck that’s bearing down on us? Mr. Meyerson should consider two words: remember PATCO.

The Heritage Foundation has engaged in its own hypothetical budget-cutting exercise, more detailed but similar in concept to my “Tyrant for a Day” exercise (hat tip: Glenn Reynolds). Its plan cuts $343 billion from the federal budget.

I agree broadly with their proposed cuts. I’d quibble with some but in general I agree with them. However, don’t be dazzled with the array of budget items they’ve headed towards the block. When considered more closely just eight items comprise fully two-third of the cuts. Here they are along with some comments from me:

As is pointed out at the end of the post, each of these items has its own constituency for which it is is of, literally, vital interest which will make the cuts difficult enough. Two important constituents are Barack Obama and the Democratic Party. Effecting all of Heritage’s cuts will strip President Obama of many of the accomplishments of his administration to date, unlikely to be palatable. But Heritage’s exercise is a fanciful one as mine was.

Conspicuous by their absence from the list are any meaningful cuts to the largest components of the budget: defense, Social Security, and Medicare. I think that all are necessary if real budget discipline is to be achieved and, frankly, defense cuts are politically necessary to accomplish the entitlement cuts. Without cuts in Medicare in particular other cuts will largely be moot since increased spending on healthcare will offset these painful and contentious cuts with alarming rapidity.

It should also be recognized that even if every single one of these cuts, in real life sure to be fought bitterly to the last dollar, were to be magically enacted by a wave of the hand, it would reduce the budget deficit by less than one-third. Not the budget. The deficit. Keep cutting.

If your primary concern is the income inequality between the .1% of income earners and the remaining 99.9% of people, you should be pleased that the situation appears to be rectifying itself:

Wall Street traders, who typically receive the fattest year-end bonuses among bank employees, are poised to suffer the biggest pay cuts as revenue at their divisions dropped an average of 12 percent so far this year.

Goldman Sachs Group Inc., the New York-based bank that makes most of its money from trading and set a Wall Street pay record in 2007, slashed average compensation 26 percent in the first nine months. By contrast, Charlotte, North Carolina-based Bank of America Corp., which employs branch managers and brokers as well as bankers and traders, raised average pay 10 percent.

While some compensation consultants say traders’ pay will rebound as soon as revenue recovers, new regulation and capital requirements may lead to sustained reductions in the multimillion-dollar awards that sparked popular outrage and spurred investigations by politicians and regulators after the 2008 financial crisis, analysts say.

“The industry will be significantly less profitable going forward, also significantly less risky,” said Douglas J. Elliott, an economics fellow at the Washington-based Brookings Institution and a former JPMorgan Chase & Co. banker. “The lower profitability means there will be less net revenue to distribute between the shareholders and the employees. I do think there will be a squeeze on compensation over time.”

There’s a table at the link showing total earnings, number of employees, compensation, and compensation per employee. When you exclude the minimum wage and other modestly paid clerks and other workers at the large commercial banks, compensation is clearly still pretty high.

Note that as incomes decline at the big banks incomes at the top law firms are likely to decline right along with them.

I must interject that I’m wholly with Joseph Stiglitz on this:

Legal penalties for financial fraud in the U.S. have become “just a cost of doing business,” Stiglitz said. “It’s like a parking fine. Sometimes you make a decision to park knowing that you might get a fine because going around the corner to the parking lot takes you too much time.”

“We fine them, and what is the big lesson?” said Stiglitz. “Behave badly, and the government might take 5% or 10% of what you got in your ill-gotten gains, but you’re still sitting home pretty with your several hundred million dollars that you have left over after paying fines that look very large by ordinary standards, but look small compared to the amount that you’ve been able to cash in.”

Taken together, Stigliz said, this system of widespread fraud, lax regulation and non-deterrent enforcement, created a system of skewed incentives that rewarded criminality, gambling and other bad behavior, and left American workers, investors and homeowners holding the bill.

When the take is in the billions or even in the trillions, penalties in the millions are chicken feed.

If, on the other hand, like me you’re equally concerned about the income inequality between 4.9% of income earners just below that topmost .1%, whose earnings are roughly equal to those of the top .1%, and the rest of us, you’ll still be worried. Far, far too many of those, hundreds of thousands and millions, are rent-seekers of various different stripes. When income becomes less a matter of effort, talent, and creativity and more a factor of getting the rules made in your favor is it any wonder that the economy isn’t performing as well as it should?

In his column this morning George Will compiles a list of those the administration has blamed for the trials that face us:

Today’s president from Illinois, a chronic campaigner and incontinent complainer who is uninhibited by considerations of presidential dignity, has blamed his difficulties on:

George W. Bush, Rush Limbaugh, Fox News, the Supreme Court, a Cincinnati congressman (John Boehner), Karl Rove, Americans for Prosperity and other “groups with harmless-sounding names” (Hillary Clinton’s “vast right-wing conspiracy” redux), “shadowy third-party groups” (they are as shadowy as steam calliopes), the U.S. Chamber of Commerce and, finally, the American people. They have deeply disappointed him by being impervious to “facts and science and argument.”

He then lurches uncontrollably into what I think is the real unifying message behind the midterm elections if there is one:

Recently, Newsweek’s Jonathan Alter decided, as the president has decided, that what liberals need is not better ideas but better marketing of the ones they have: “It’s a sign of how poorly liberals market themselves and their ideas that the word ‘liberal’ is still in disrepute despite the election of the most genuinely liberal president that the political culture of this country will probably allow.”

“Despite”? In 2008, Democrats ran as Not George Bush. In 2010, they ran as Democrats. Hence, inescapably, as liberals, or at least as obedient to liberal leaders. Hence Democrats’ difficulties.

In 2008 Democrats ran as not only Not George Bush but as Not Republicans. In 2010 Republicans ran as Not Democrats. We have had two consecutive elections with a unifying theme: we want something else!

The perverse result of the elections is that each side of the aisle will be more ideologically aligned than it was before the election. Moderate Democrats lost their re-election bids to be replaced by more conservative Republicans. Progressive Democrats won their re-election bids. The net effective is that the Democratic Congressional delegation leans farther to the left, the Republican farther to the right, and moderates are becoming increasingly scarce.

That doesn’t sound particularly promising for a meeting of minds between partisans in the Congress, nor does it sound like Americans are going to get the change they long for. However, they are likely to get the change they voted for and get it good and hard.

I strongly suspect that we’re going to be hearing a lot about political realignment in the coming days and I further suspect that most of what we’ll hear will be claptrap.

From now on realignment is likely to be an ongoing process. The political parties are now fully obsolete, a sort of Weekend at Bernie’s proposition, being propped up because our political institutions support them, and something approximating a network model is taking hold. Think social media rather than smoke-filled rooms.